As filed with the Securities and Exchange Commission on September 19, 1996
Registration Statement Nos. 2-89725
811-3981
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 21 [x]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 22 [x]
(Check appropriate box or boxes)
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PRUDENTIAL WORLD FUND, INC.
(Formerly, Prudential Global Fund, Inc.)
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, Including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service of Process)
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Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate
box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
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Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has previously registered an Indefinite number of shares of its Common Stock par
value $.01 per share. The Registrant will file a notice under such Rule for its
fiscal year ending October 31, 1996 within 60 days of such date.
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<PAGE>
<TABLE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<CAPTION>
N-1A ITEM NO. LOCATION
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PART A
<S> <C>
Item 1. Cover Page ................................. Cover Page
Item 2. Synopsis ................................... Series Expenses;
Series Highlights
Item 3. Condensed Financial Information ............ Series Expenses; Financial
Highlights;
How the Series Calculates
Performance
Item 4. General Description of Registrant .......... Cover Page; Series Highlights;
How the Series Invests;
General Information
Item 5. Management of Fund ......................... Financial Highlights; How the
Series is Managed
Item 5A. Managements' Discussion of Fund Performance. Not Applicable
Item 6. Capital Stock and Other Securities ......... Taxes, Dividends and
Distributions; General
Information
Item 7. Purchase of Securities Being Offered ....... Shareholder Guide; How the Series
Values Its Shares
Item 8. Redemption or Repurchase ................... Shareholder Guide; How the Series
Values Its Shares
Item 9. Pending Legal Proceedings .................. Not Applicable
PART B
Item 10. Cover Page ................................. Cover Page
Item 11. Table of Contents .......................... Table of Contents
Item 12. General Information and History ............ Not Applicable
Item 13. Investment Objectives and Policies ......... Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund ..................... Directors and Officers; Manager;
Distributor
Item 15. Control Persons and Principal
Holders of Securities ...................... Not Applicable
Item 16. Investment Advisory and Other Services ..... Manager; Distributor; Custodian, Transfer
and Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other Practices ... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities ......... Not Applicable
Item 19. Purchase, Redemption and Pricing ........... Purchase and Redemption of Series
of Securities Being Offered Shares; Shareholder Investment
Account; Net Asset Value
Item 20. Tax Status ................................. Taxes
Item 21. Underwriters ............................... Distributor
Item 22. Calculation of Performance Data ............ Performance Information
Item 23. Financial Statements ....................... Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Post-Effective
Amendment to the Registration Statement.
</TABLE>
<PAGE>
EXPLANATORY NOTE
This post-effective amendment no. 21 (the "Amendment") to the Registrant's
registration statement on Form N-1A (File Nos. 2-89725, 811-3981) is being filed
with respect to the creation of the Registrant's International Stock Series (the
"International Stock Series"), a new series of shares of the Registrant. This
Amendment does not relate to the Registrant's existing series which, prior to
the creation of the International Stock Series, is the sole series of the
Registrant. As a result, this Amendment does not affect Registrant's currently
effective Prospectus and Statement of Additional Information, which are hereby
incorporated by reference as most recently filed pursuant to Rule 497 under the
Securities Act of 1933, as amended.
In connection with the creation of the International Stock Series, the
existing portfolio of assets of the Registrant was renamed the "Global Series"
and the name of the Registrant was changed to the "Prudential World Fund, Inc."
i
<PAGE>
Prudential World Fund, Inc.
(International Stock Series)
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Prospectus dated September 18, 1996
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The International Stock Series (the Series) is a series of Prudential World
Fund, Inc. (the Fund), an open-end, diversified management investment company.
Its investment objective is to achieve long-term growth of capital through
investment in equity securities of foreign issuers. Income is a secondary
objective. The Series seeks to achieve its objective primarily through
investment in a diversified portfolio of securities which will consist of equity
securities of foreign issuers. The Series will, under normal circumstances,
invest at least 65% of the value of its total assets in common stocks and
preferred stocks of issuers located in at least three foreign countries. The
Series may invest up to 35% of its total assets in (i) other equity-related
securities of foreign issuers; (ii) common stocks, preferred stocks, and other
equity-related securities of U.S. issuers; (iii) investment grade debt
securities of domestic and foreign corporations, governments, governmental
entities, and supranational entities; and (iv) high-quality domestic money
market instruments and short-term fixed income securities. The Series also may
engage in derivative transactions, such as those involving stock options,
options on debt securities, options on stock indices, and foreign currency
futures contracts and options thereon so as to hedge its portfolio and to
attempt to enhance return. There can be no assurance that the Series' investment
objective will be achieved. See "How the Series Invests--Investment Objective
and Policies." The Series' address is One Seaport Plaza, New York, New York
10292, and its telephone number is (800) 225-1852.
The Series is not intended to constitute a complete investment program. The
Series intends to pay, at least annually, dividends consisting of substantially
all of its net investment income and net short-term and long-term capital gains,
if any. Because of its objective and policies, including its international
orientation, the Series may be considered of a speculative nature and subject to
greater investment risks than are assumed by certain other investment companies
which invest solely in domestic securities. See "How the Series Invests--Risks
and Special Considerations."
This Prospectus sets forth concisely the information about the Series that a
prospective investor should know before investing. Additional information about
the Series has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated September 18, 1996, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Series, at the
address or telephone number noted above.
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Investors are advised to read this Prospectus and retain it for future
reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SERIES HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
What is Prudential World Fund, Inc.?
Prudential World Fund, Inc. is a mutual fund whose shares are offered in
two series, each of which operates as a separate fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company. Only shares of the International Stock Series are
offered through this Prospectus.
What is the Series' Investment Objective?
The Series' investment objective is to achieve long-term growth of capital
through investment in equity securities of foreign issuers. Income is a
secondary objective. The Series seeks to achieve its objective primarily through
investment in a diversified portfolio of equity securities of foreign issuers.
There can be no assurance that the Series' objective will be achieved. See "How
the Series Invests--Investment Objective and Policies" at page 5.
Risk Factors and Special Characteristics
While the Series is not required to maintain any particular geographic or
currency mix of its investments, under normal circumstances the Series intends
to invest at least 65% of its total assets in common stocks and preferred stocks
of issuers located in at least three foreign countries. The Series may invest up
to 35% of its total assets in (i) other equity-related securities of foreign
issuers; (ii) common stocks, preferred stocks, and other equity-related
securities of U.S. issuers; (iii) investment grade debt securities of domestic
and foreign corporations, governments, governmental entities, and supranational
entities; and (iv) high-quality domestic money market instruments and short-term
fixed income securities. See "How the Series Invests--Investment Objective and
Policies" at page 5. Investing in securities of foreign companies and countries
involves certain considerations and risks not typically associated with
investing in U.S. Government Securities and those of domestic companies. See
"How the Series Invests--Risks and Special Considerations" at page 12. The
Series may also engage in hedging and return enhancement strategies, including
derivatives, the purchase and sale of put and call options, foreign currency
forward contracts, options and futures transactions and related short-term
trading. See "How the Series Invests--Hedging and Return Enhancement Strategies"
at page 7.
Who Manages the Series?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Series and is compensated for its services at an annual rate of 1% of the
Series' average daily net assets. As of July 31, 1996, PMF served as manager or
administrator to 64 investment companies, including 39 mutual funds, with
aggregate assets of approximately $52 billion. The Mercator Asset Management,
L.P. (Mercator or the Subadviser) furnishes investment advisory services in
connection with the management of the Series under a Subadvisory Agreement with
PMF. See "How the Series is Managed--Manager" at page 13. The management fee is
higher than that paid by most other investment companies.
Who Distributes the Series' Shares?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Series' Class A, Class B, Class C and Class Z shares and is
paid an annual distribution and service fee which is currently being charged at
the rate of .30 of 1% of the average daily net assets of the Class A shares, and
at the annual rate of up to 1% of the average daily net assets of each of the
Class B and Class C shares. Prudential Securities incurs the expense of
distributing the Series' Class Z shares under a Distribution Agreement with the
Fund, none of which is reimbursed or paid for by the Series. See "How the Series
is Managed--Distributor" at page 14.
2
<PAGE>
What is the Minimum Investment?
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. There is no minimum initial investment
requirement for investors who qualify to purchase Class Z shares. The minimum
subsequent investment is $100 for all classes, except for Class Z shares for
which there is no such minimum. There is no minimum investment requirement for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors and for purchases made in connection with the "Best Minds"
program sponsored by the Distributor. For purchases made through the Automatic
Savings Accumulation Plan the minimum initial and subsequent investment is $50.
See "Shareholder Guide--How to Buy Shares of the Series" at page 20 and
"Shareholder Guide--Shareholder Services" at page 29.
How Do I Purchase Shares?
You may purchase shares of the Series through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent) at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at net asset value without any sales charge. See "How
the Series Values Its Shares" at page 16 and "Shareholder Guide--How to Buy
Shares of the Series" at page 20.
What Are My Purchase Alternatives?
The Series offers four classes of shares:
o Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
o Class B Shares: Sold without an initial sales charge but are subject to
a contingent deferred sales charge or CDSC (declining
from 5% to zero of the lower of the amount invested or
the redemption proceeds) which will be imposed on
certain redemptions made within six years of purchase.
Although Class B shares are subject to higher ongoing
distribution-related expenses than Class A shares,
Class B shares will automatically convert to Class A
shares (which are subject to lower ongoing
distribution-related expenses) approximately seven
years after purchase.
o Class C Shares: Sold without an initial sales charge and, for one year
after purchase, are subject to a 1% CDSC on
redemptions. Like Class B shares, Class C shares are
subject to higher ongoing distribution-related expenses
than Class A shares but do not convert to another
class.
o Class Z Shares: Sold without either an initial or contingent deferred
sales charge to a limited group of investors. Class Z
shares are not subject to any ongoing service or
distribution-related expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 21.
How Do I Sell My Shares?
You may redeem shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 24.
How are Dividends and Distributions Paid?
The Series expects to pay dividends of net investment income and make
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the
Series at NAV without a sales charge unless you request that they be paid to you
in cash. See "Taxes, Dividends and Distributions" at page 17.
3
<PAGE>
<TABLE>
SERIES EXPENSES
<CAPTION>
Shareholder Transactions Expenses+ Class A Shares Class B Shares Class C Shares Class Z Shares
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............ 5% None None None
Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends ................ None None None None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds,
whichever is lower) ............................ None 5% during the first year, 1% on redemptions None
decreasing by 1% annually made within one
to 1% in the fifth and sixth year of purchase
years and 0% the seventh
year*
Redemption Fees ................................ None None None None
Exchange Fees .................................. None None None None
<CAPTION>
Annual Series Operating Expenses
(as a percentage of average net assets) Class A Shares Class B Shares Class C Shares Class Z Shares
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Management Fees ................................ 1.00% 1.00% 1.00% 1.00%
12b-1 Fees ..................................... .25%@ 1.00% 1.00% None
Other Expenses ................................. .48% .48% .48% .48%
---- ---- ---- ----
Total Series Operating Expenses ................ 1.73% 2.48% 2.48% 1.48%
==== ==== ==== ====
<CAPTION>
1 3
Example Year Years
---- -----
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
Class A ............................................................................. $67 $102
Class B ............................................................................. $75 $107
Class C ............................................................................. $35 $ 77
Class Z ............................................................................. $15 $ 47
You would pay the following expenses on the same investment, assuming no redemption:
Class A ............................................................................. $67 $102
Class B ............................................................................. $25 $ 77
Class C ............................................................................. $25 $ 77
Class Z ............................................................................. $15 $ 47
</TABLE>
The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. The purpose
of this table is to assist investors in understanding the various costs and
expenses that an investor in the Series will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Series is Managed". "Other Expenses" includes operating expenses of
the Series, for the fiscal year ending October 31, 1996, such as Directors' and
professional fees, registration fees, reports to shareholders, transfer agency
and custodian fees and franchise taxes.
- ----------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion
Feature--Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Series may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
the Series rather than on a per shareholder basis. Therefore long-term
shareholders of the Series may pay more in total sales charges than the
economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Series is Managed--Distributor."
@ Although the Class A Distribution and Service Plan provides the Series may
pay a distribution fee of up to .30 of 1% per annum of the average daily
net assets of the Class A Shares, the Distributor has agreed to limit its
distribution fees with respect to Class A shares of the Series to no more
than .25 of 1% of the average daily net assets of the Class A shares for
the fiscal year ending October 31, 1996. Total operating expenses of the
Class A shares without such limitation would be 1.78%.
4
<PAGE>
HOW THE SERIES INVESTS
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Series is to achieve long-term growth of
capital through investment in equity securities of foreign companies. Income is
a secondary objective. There can be no assurance that the Series will achieve
its investment objective. See "Investment Objective and Policies" in the
Statement of Additional Information.
The Series' investment objective is a fundamental policy and, therefore,
may not be changed without the approval of the holders of a majority of the
Series' outstanding voting securities as defined in the Investment Company Act
of 1940 (the Investment Company Act). The investment policies and practices of
the Series, however, are not fundamental. Series' policies that are not
fundamental may be modified by the Board of Directors.
The Series will, under normal circumstances, invest at least 65% of the
value of its total assets in common stocks and preferred stocks of issuers
located in at least three foreign countries. The Series will invest primarily in
seasoned companies (i.e., companies with an established operating record of 3
years or greater) that are incorporated, organized, or that do business
primarily outside the United States. The Series will invest in securities of
such foreign issuers through direct market purchases on foreign stock exchanges
and established over-the-counter markets as well as through the purchase of
American Depository Receipts (ADRs), European Depository Receipts (EDRs) or
other similar securities.
The Series intends to broadly diversify its holdings among issuers located
in developed and developing countries having national financial markets.
Mercator, the Subadviser for the Series, believes that broad diversification
provides a prudent means of reducing volatility while permitting the Series to
take advantage of the potentially different movements of major equity markets.
While the Series may invest anywhere outside the United States, it expects that
most of its investments will be made in securities of issuers located in
developed countries in North America, Western Europe, and the Pacific Basin. In
allocating the Series' investments among different countries and geographic
regions, Mercator will consider such factors as relative economic growth,
expected levels of inflation, government policies affecting business conditions,
and market trends throughout the world. In selecting companies within those
countries and geographic regions, Mercator seeks to identify those companies
that are best positioned and managed to benefit from the factors listed above.
Investing in securities of foreign issuers generally involves greater risks
than investing in the securities of domestic companies. These risks are often
heightened for investments in emerging or developing countries.
The Series does not currently expect to invest 25% or more of its net
assets in any one country. For temporary defensive purposes, the Series may
invest up to 100% of its assets in common stocks, preferred stocks and other
equity-related securities of U.S. issuers. In addition, the Fund reserves the
right as a defensive measure to hold temporarily other types of securities
without limit, including high quality commercial paper, bankers' acceptances,
non-convertible debt securities (corporate and government) or government and
high quality money market securities of United States and non-United States
issuers, or cash (foreign currencies or United States dollars), in such
proportions as, in the opinion of the Subadviser, prevailing market, economic or
political conditions warrant. The Fund may also temporarily hold cash and invest
in high quality foreign or domestic money market instruments pending investment
of proceeds from new sales of Fund shares or to meet ordinary daily cash needs.
See "Other Investments and Policies" below.
The Series may invest up to 35% of the value of its total assets in: (i)
other equity-related securities of foreign issuers; (ii) common stocks,
preferred stocks and other equity-related securities of U.S. issuers; (iii)
investment grade debt securities of domestic and foreign corporations,
governments, governmental entities, and supranational entities (such as the
Asian Development Bank, the European Coal and Steel Community, the European
Economic Community, and the International Bank for Reconstruction and
Development (the "World Bank")); and (iv) high-grade foreign or domestic money
market instruments and short-term fixed income securities. The Series' use of
money market instruments and short-term fixed income securities generally will
reflect the Subadviser's overall measure of optimism
5
<PAGE>
relating to the global equity markets, and the Series will use such securities
to reduce downside volatility during uncertain or declining market conditions.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for hedging or return enhancement purposes, the Series may: (i)
enter into repurchase agreements, when-issued, delayed-delivery and forward
commitment transactions; (ii) lend its portfolio securities; and (iii) purchase
and sell put and call options on any securities in which it may invest and
options on any securities index based on securities in which the Series may
invest. In order to attempt to reduce risks associated with currency
fluctuations, the Series may (i) purchase and sell currency spot contracts; (ii)
purchase and sell currency futures contracts and currency forward contracts; and
(iii) purchase and sell put and call options on currencies and on foreign
currency futures contracts. See "Hedging and Return Enhancement Strategies."
The Series may hold a portion of its assets in money market instruments in
amounts designed to pay expenses, to meet anticipated redemptions, pending
investments or to margin its purchases and sales of futures contracts in
accordance with its objective and policies. These instruments may be purchased
on a forward commitment, when-issued or delayed-delivery basis. In addition, the
Series may for temporary defensive purposes invest, without limitation, in
high-quality money market instruments.
Equity-Related Securities. The Series may invest in equity-related
securities. Equity-related securities are common stock, preferred stock, rights,
warrants and debt securities or preferred stock which are convertible or
exchangeable for common stock or preferred stock.
With respect to equity securities, the Series may purchase ADRs. ADRs are
U.S. dollar-denominated certificates issued by a United States bank or trust
company and represent the right to receive securities of a foreign issuer
deposited in a domestic bank or foreign branch of a United States bank and
traded on a United States exchange or in an over-the-counter market. Generally,
ADRs are in registered form. There are no fees imposed on the purchase or sale
of ADRs when purchased from the issuing bank or trust company in the initial
underwriting, although the issuing bank or trust company may impose charges for
the collection of dividends and the conversion of ADRs into the underlying
securities. Investment in ADRs has certain advantages over direct investment in
the underlying foreign securities since: (i) ADRs are U.S. dollar-denominated
investments that are registered domestically, easily transferable, and for which
market quotations are readily available; and (ii) issuers whose securities are
represented by ADRs are usually subject to auditing, accounting, and financial
reporting standards comparable to those of domestic issuers.
Fixed Income Securities. Fixed income securities include, but are not
limited to, various debt obligations including corporate and foreign debt. Fixed
income securities are considered high-quality if they are rated at least AA/Aa
by S&P or by Moody's or an equivalent rating by any nationally recognized
statistical rating association (NRSRO) or, if unrated, are determined to be of
comparable investment quality by the Subadviser. High-quality fixed income
securities are considered to have a very strong capacity to pay principal and
interest. Fixed income securities are considered medium quality if they are
rated, for example, at least BBB/Baa by S&P or by Moody's or an equivalent
rating by any NRSRO or, if not rated, are determined to be of comparable
investment quality by the Subadviser. Medium quality fixed income securities are
regarded as having an adequate capacity to pay principal and interest.
Securities rated in the lowest category of investment grade debt have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds.
Investment grade fixed income securities are securities rated BBB or better
by S&P or Baa or better by Moody's (or an equivalent rating by any NRSRO) or, if
not rated, are deemed by the Subadviser to be of comparable investment quality.
The Series may purchase non-investment grade fixed income securities and
retain investment grade fixed income securities that have been downgraded to
non-investment grade provided that no more than 5% of the Series' net assets is
invested in non-investment grade fixed income securities. Non-investment grade
securities are rated lower than BBB/Baa (or an equivalent rating by any NRSRO)
or, if not rated, are deemed by the Subadviser to be of comparable investment
quality and are commonly referred to as high risk or high yield securities, i.e.
"junk" bonds. High yield securities are generally riskier than higher quality
securities and are subject to more credit risk, including risk of default, and
are more volatile than higher quality securities. In addition, such securities
may have less liquidity and experience more price fluctuation than higher
quality securities. See the discussion of corporate bond ratings in "Description
of S&P, Moodys and Duff & Phelps Ratings" in the Appendix to the Statement of
Additional Information.
The maturity of fixed income securities may be considered long (ten plus
years), intermediate (three to ten years) or short term (three years or less).
In general, the principal values of longer-term securities fluctuate more widely
in response to changes in interest rates than
6
<PAGE>
those of shorter-term securities, providing greater opportunity for capital gain
or risk of capital loss. A decline in interest rates usually produces an
increase in the value of debt securities, while an increase in interest rates
generally reduces their value.
U.S. Government Securities. The Series may invest in fixed income
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Obligations of the U.S. Government consist of various types
of marketable securities issued by the U.S. Treasury, i.e., bills, notes and
bonds, and are direct obligations of the U.S. Government. Obligations of
agencies and instrumentalities of the U.S. Government are not direct obligations
of the U.S. Government and are either: (i) guaranteed by the U.S. Treasury
(e.g., Government National Mortgage Association ("GNMA") mortgage-backed
securities); (ii) supported by the issuing agency's or instrumentality's right
to borrow from the U.S. Treasury at the discretion of the U.S. Treasury (e.g.,
Federal National Mortgage Association ("FNMA") Discount Notes); or (iii)
supported by only the issuing agency's or instrumentality's credit (e.g., each
of the Federal Home Loan Banks).
HEDGING AND RETURN ENHANCEMENT STRATEGIES
The Series may also engage in various portfolio strategies, including
derivatives, to reduce certain risks of its investments and to attempt to
enhance return. These strategies include the purchase and sale of put and call
options on any security in which the Series may invest and options on any
securities index based on securities in which the Series may invest, In order to
reduce the risks associated with currency fluctuations, the series may (i)
purchase and sell currency spot contracts, (ii) purchase and sell currency
futures contracts and currency forward contracts, and (iii) purchase and sell
put and call options on currencies and on foreign currency contracts. The
Subadviser will use such techniques as market conditions warrant. The Series'
ability to use these strategies may be limited by market conditions, regulatory
limits and tax considerations and there can be no assurance that any of these
strategies will succeed. See "Investment Objective and Policies" in the
Statement of Additional Information. New financial products and risk management
techniques continue to be developed and the Series may use these new investments
and techniques to the extent consistent with its investment objective and
policies.
Options Transactions
Options on Securities and Securities Indices. The Series may purchase and
sell put and call options on any securities in which it may invest or options on
any securities index based on securities in which the Series may invest. The
Series is also authorized to enter into closing purchase and sale transactions
in order to realize gains or minimize losses on options sold or purchased by the
Series.
A call option on equity securities gives the purchaser, in exchange for a
premium paid, the right for a specified period of time to purchase the
securities subject to the option at a specified price (the "exercise price" or
"strike price"). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver, depending upon the terms of
the option contract, the underlying securities to the purchaser upon receipt of
the exercise price. When the Series writes a call option, the Series gives up
the potential for gain on the underlying securities in excess of the exercise
price of the option during the period that the option is open.
A put option on equity securities gives the purchaser, in return for a
premium, the right, for a specified period of time, to sell the securities
subject to the option to the writer of the put at the specified exercise price.
The writer of the put option, in return for the premium, has the obligation,
upon exercise of the option, to acquire the securities underlying the option at
the exercise price. The Series as the writer of a put option might, therefore,
be obligated to purchase underlying securities for more than their current
market price.
The Series would normally purchase call options to attempt to hedge against
an increase in the market value of the type of securities in which the Series
may invest. The purchase of a call option would entitle the Series, in return
for the premium paid, to purchase specified securities at a specified price,
upon exercise of the option, during the option period. The Series would
ordinarily realize a gain if, during the options period, the value of such
securities exceeds the sum of the exercise price, the premium paid and
transaction costs; otherwise, the Series would realize a loss on the purchase of
the call option. The Series may also write a put option, which can serve as a
limited long hedge because increases in value of the hedged investment would be
offset to the extent of the premium received for writing the option. However, if
the security depreciates to a price lower than the exercise price of the put
option, it can be expected that the option will be exercised and the Series will
be obligated to buy the security at more than its market value.
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The Series would normally purchase put options to hedge against a decline
in the market value of securities in its portfolio ("protective puts"). The
purchase of a put option would entitle the Series, in exchange for the premium
paid, to sell specified securities at a specified price, upon exercise of the
option, during the option period. Gains and losses on the purchase of protective
puts would tend to be offset by countervailing changes in the value of
underlying Series' securities. The Series would ordinarily realize a gain if,
during the option period, the value of the underlying securities decreases below
the exercise price sufficiently to cover the premium and transaction costs;
otherwise, the Series would realize a loss on the purchase of the put option.
The Series may also write a call option, which can serve as a limited short
hedge because decreases in value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Series will be obligated
to sell the security at less than its market value.
Options on securities indices are similar to options on equity securities
except that, rather than the right to take or make delivery of the securities at
a specified price, an option on a securities index gives the holder the right,
in return for a premium paid, to receive, upon exercise of the option, an amount
of cash if the closing level of the securities index upon which the option is
based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The writer of an index option, in return
for the premium, is obligated to pay the amount of cash due upon exercise of the
option.
The Series may purchase and sell put and call options on securities indices
for hedging against a decline in the value of the securities owned by the Series
or against an increase in the market value of the type of securities in which
the Series may invest. Securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Options on securities indices are
similar to options on securities, except that the exercise of securities index
options requires cash payments and does not involve the actual purchase or sale
of securities. Purchasing or selling securities index options is subject to the
risk that the value of its portfolio securities may not change as much as or
more than the index because the Series' investments generally will not match the
composition of the index. See "Investment Objective and Policies--Options on
Securities and Securities Indicies" in the Statement of Additional Information.
Over-the-Counter Options. The Series may also purchase and write (i.e.,
sell) put and call options on equity and debt securities and on stock indices in
the over-the-counter market (OTC options). Unlike exchange-traded options, OTC
options are contracts between the Series and its counterparty without the
interposition of any clearing organization. Thus, the value of an OTC option is
particularly dependent on the financial viability of the OTC counterparty. The
Series' ability to purchase and write OTC options may be limited by market
conditions, regulatory limits and tax considerations. There are certain risks
associated with investments in OTC options. See "Investment Objective and
Policies--Special Risks of Purchasing OTC Options" in the Statement of
Additional Information.
Risks of Hedging and Return Enhancement Strategies
Participation in the options or futures markets involves investment risks
and transaction costs to which the Series would not be subject absent the use of
these strategies. If the Subadviser's prediction of movements in the direction
of the securities markets is inaccurate, the adverse consequences to the Series
may leave the Series in a worse position than if such strategies were not used.
Risks inherent in the use of options futures include (1) dependence on the
investment adviser's ability to predict correctly movements in the direction of
specific securities being hedged or the movement in stock indices; (2) imperfect
correlation between the price of options and futures and options thereon and
movements in the prices of the securities being hedged; (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid secondary market for
any particular instrument at any time; (5) the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences; and (6) the
possible inability of the Series to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need for
the Series to sell a portfolio security at a disadvantageous time, due to the
need for the Series to maintain "cover" or to segregate securities in connection
with hedging transactions. See "Investment Objective and Policies" and "Taxes"
in the Statement of Additional Information.
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Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (typically large
commercial banks) and their customers. A forward contract generally has no
deposit requirements, and no commissions are charged for such trades. See
"Investment Objective and Policies--Forward Foreign Currency Exchange Contracts"
in the Statement of Additional Information.
When the Series invests in foreign securities, the Series may enter into
forward contracts in several circumstances to protect the value of its
portfolio. The Series may not use forward contracts to generate income, although
the use of such contracts may incidentally generate income. There is no
limitation on the value of forward contracts into which the Series may enter.
However, the Series' dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Series generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Series' expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency. The Series will not speculate in forward contracts. The
Series may not position hedge with respect to a particular currency for an
amount greater than the aggregate market value (determined at the time of making
any sale of a forward contract) of securities held in its portfolio denominated
or quoted in, or currently convertible into, such currency.
When the Series enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when the Series anticipates the
receipt in a foreign currency of dividends or interest payments on a security
which it holds, the Series may desire to "lock in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest payment, as
the case may be. By entering into a forward contract for a fixed amount of
dollars for the purchase or sale of the amount of foreign currency involved in
the underlying transaction, the Series will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the date
on which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.
Additionally, when the Subadviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, the
Series may enter into a forward contract, for a fixed amount of dollars, to sell
the amount of foreign currency approximating the value of some or all of the
portfolio securities of the Series denominated in such foreign currency.
Requirements under the Internal Revenue Code for qualification as a regulated
investment company may limit the Series' ability to engage in transactions in
forward contracts. See "Taxes" in the Statement of Additional Information.
Futures Contracts On Foreign Currencies and Options On Futures Contracts
The Series may buy and sell futures contracts on foreign currencies and
groups of foreign currencies (futures contracts) such as the European Currency
Unit and related options thereon to protect against the effect of adverse
changes on foreign currencies. The Series will engage in transactions in only
those futures contracts and options thereon that are traded on a commodities
exchange or a board of trade. A "sale" of a futures contract means the
assumption of a contractual obligation to deliver the specified amount of
foreign currency at a specified price in a specified future month. A "purchase"
of a futures contract means the assumption of a contractual obligation to
acquire the currency called for by the contract at a specified price in a
specified future month. At the time a futures contract is purchased or sold, the
Series must allocate cash or securities as a deposit payment (initial margin).
Thereafter, the futures contract is valued daily and the payment of "variation
margin" may be required, resulting in the Series' providing or receiving cash
that reflects any decline or increase in the contract's value, a process known
as "marking to market".
The Series intends to engage in futures contracts on foreign currencies and
options on these futures transactions as a hedge against changes in the value of
the currencies to which the Series is subject or to which the Series expects to
be subject in connection with future purchases, in accordance with the rules and
regulations of the Commodity Futures Trading Commission (the CFTC). The Series
also intends to engage in such transactions when they are economically
appropriate for the reduction of risks inherent in the ongoing management of the
Series.
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Options On Foreign Currencies
The Series may purchase and write put and call options on foreign
currencies traded on securities exchanges or boards of trade (foreign and
domestic) for hedging purposes in a manner similar to that in which forward
foreign currency exchange contracts and futures contracts on foreign currencies
will be employed. Options on foreign currencies are similar to options on stock,
except that the Series has the right to take or make delivery of a specified
amount of foreign currency, rather than stock.
The Series may purchase and write options to hedge the Series' portfolio
securities denominated in foreign currencies. If there is a decline in the
dollar value of a foreign currency in which the Series' portfolio securities are
denominated, the dollar value of such securities will decline even though the
foreign currency value remains the same. See "Risks and Special Considerations"
below. To hedge against the decline of the foreign currency, the Series may
purchase put options on such foreign currency. If the value of the foreign
currency declines, the gain realized on the put option would offset, in whole or
in part, the adverse effect such decline would have on the value of the
portfolio securities. Alternatively, the Series may write a call option on the
foreign currency. If the value of the foreign currency declines, the option
would not be exercised and the decline in the value of the portfolio securities
denominated in such foreign currency would be offset in part by the premium the
Series received for the option.
If, on the other hand, the Subadviser anticipates purchasing a foreign
security and also anticipates a rise in the value of such foreign currency
(thereby increasing the cost of such security), the Series may purchase call
options on the foreign currency. The purchase of such options could offset, at
least partially, the effects of the adverse movements of the exchange rates.
Alternatively, the Series could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire unexercised.
Risks of Investing In Foreign Currency, Forward Contracts,
Options and Futures
The Series' successful use of forward foreign currency exchange contracts,
options on foreign currencies, futures contracts on foreign currencies and
options on such contracts depends upon the Subadviser's ability to predict the
direction of the market and political conditions, which requires different
skills and techniques than predicting changes in the securities markets
generally. For instance, if the value of the securities being hedged moves in a
favorable direction, the advantage to the Series would be wholly or partially
offset by a loss in the forward contracts or futures contracts. Further, if the
value of the securities being hedged does not change, the Series' net income
would be less than if the Series had not hedged since there are transactional
costs associated with the use of these investment practices.
These practices are subject to various additional risks. The correlation
between movements in the price of options and futures contracts and the price of
the currencies being hedged is imperfect. The use of these instruments will
hedge only the currency risks associated with investments in foreign securities,
not market risks. In addition, if the Series purchases these instruments to
hedge against currency advances before it invests in securities denominated in
such currency and the currency market declines, the Series might incur a loss on
the futures contract. The Series' ability to establish and maintain positions
will depend on market liquidity. The ability of the Series to close out a
futures position or an option depends upon a liquid secondary market. There is
no assurance that liquid secondary markets will exist for any particular futures
contract or option at any particular time. See "Risks of Transactions in Stock
Options" and "Risks of Transactions in Futures Contracts" under "Investment
Objective and Policies" in the Statement of Additional Information.
OTHER INVESTMENT PRACTICES
Repurchase Agreements
The Series may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Series at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Series' money is
invested in the security. The Series' repurchase agreements will at all times be
fully collateralized in an amount at least equal to the resale price. The
instruments held as collateral are valued daily, and if the value of the
instruments
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declines, the Series will require additional collateral. In the event of
bankruptcy or default of certain sellers of repurchase agreements, the Series
could experience costs and delays in liquidating the underlying security held as
collateral and might incur a loss if such collateral declines in value during
this period. The Series may participate in a joint repurchase account managed by
Prudential Mutual Fund Management, Inc.
Forward Rolls, Dollar Rolls and Reverse Repurchase Agreements
The Series may commit up to 20% of the value of its net assets to
investment techniques such as dollar rolls, forward rolls and reverse repurchase
agreements. A forward roll is a transaction in which the Series sells a security
to a financial institution, such as a bank or broker-dealer, and simultaneously
agrees to repurchase the same or similar security from the institution at a
later date at an agreed-upon price. With respect to mortgage-related securities,
such transactions are often called "dollar rolls." In dollar roll transactions,
the mortgage-related securities that are repurchased will bear the same coupon
rate as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories than those sold. During the roll
period, the Series forgoes principal and interest paid on the securities and is
compensated by the difference between the current sales price and the forward
price for the future purchase as well as by interest earned on the cash proceeds
of the initial sale. A "covered roll" is a specific type of dollar roll for
which there is an offsetting cash position or a cash equivalent security
position which matures on or before the forward settlement date of the dollar
roll transaction.
Reverse repurchase agreements involve sales by the Series of portfolio
securities to a financial institution concurrently with an agreement by the
Series to repurchase the same securities at a later date at a fixed price.
During the reverse repurchase agreement period, the Series continues to receive
principal and interest payments on these securities.
Reverse repurchase agreements, forward rolls and dollar rolls involve the
risk that the market value of the securities purchased by the Series with the
proceeds of the initial sale may decline below the price of the securities the
Series has sold but is obligated to repurchase under the agreement. In the event
the buyer of securities under a reverse repurchase agreement, forward roll or
dollar roll files for bankruptcy or becomes insolvent, the Series' use of the
proceeds of the agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Series' obligations to
repurchase the securities. The staff of the SEC has taken the position that
reverse repurchase agreements, forward rolls and dollar rolls are to be treated
as borrowings for purposes of the percentage limitations discussed in the
section entitled "Borrowings" below. The Series expects that under normal
conditions most of the borrowings of the Series will consist of such investment
techniques rather than bank borrowings. See "Investment Objective and
Policies--Borrowings" in the Statement of Additional Information.
When-Issued and Delayed-Delivery Securities
The Series may purchase securities on a when-issued or delayed-delivery
basis. When-issued and delayed-delivery securities involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date or
increases in value and there is a failure to deliver the security.
Liquidity Puts
The Series may purchase instruments together with the right to resell the
instruments at an agreed-upon price or yield, within a specified period prior to
the maturity date of the instruments. This instrument is commonly known as a
"liquidity put" or a "tender option bond".
Illiquid Securities
The Series may hold up to 15% if its net assets in illiquid securities.
Illiquid securities include 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 in
securities markets either within or outside of the United States. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended (the Securities Act), and privately placed commercial paper
that have a readily available market are not considered illiquid for purposes of
this limitation. The Series intends to comply with any applicable state blue
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sky laws restricting the Series' investments in illiquid securities. See
"Investment Restrictions" in the Statement of Additional Information. The
Series' investment in Rule 144A securities could have the effect of increasing
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing Rule 144A securities. The Series' Subadvisers
will monitor the liquidity of such restricted securities under the supervision
of the Manager and the Board of Directors. Repurchase agreements subject to
demand are deemed to have a maturity equal to the applicable notice period.
The staff of the SEC has taken the position, which will be followed by the
Series, that purchased OTC options and the assets used as "cover" for written
OTC options are illiquid securities unless the Series and the counterparty have
provided for the Series, at the Series' election, to unwind the over-the-counter
option. The exercise of such an option ordinarily would involve the payment by
the Series of an amount designed to reflect the counterparty's economic loss
from an early termination, but does allow the Series to treat the assets used as
"cover" as "liquid". The Series will also treat non-U.S. Government IOs and POs
as illiquid so long as the staff of the SEC maintains its position that such
securities are illiquid.
Securities Lending
The Series may lend its portfolio securities to brokers or dealers, banks,
or other recognized institutional borrowers of securities, provided that the
borrower at all times maintains collateral in an amount equal to at least 100%
of the market value of the securities loaned. During the time the Series'
securities are on loan, the borrower will pay the Series an amount equivalent to
any dividend or interest paid on such securities and the Series may invest any
cash collateral it receives and earn additional income, or it may receive an
agreed-upon amount of interest income from the borrower. In these transactions,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. The
Series may lend up to 30% of the value of its total assets. The Fund may pay
reasonable administration and custodial fees in connection with a loan.
Borrowings
The Series may borrow from banks or through forward rolls, dollar rolls, or
reverse repurchase agreements an amount equal to no more than 20% of the value
of its total assets to take advantage of investment opportunities, for
temporary, extraordinary, or emergency purposes or for the clearance of
transactions and may pledge up to 20% of the value of its total assets to secure
such borrowings.
RISKS AND SPECIAL CONSIDERATIONS
Investing in securities of foreign companies and countries involves certain
risks and considerations which are not typically associated with investing in
U.S. Government securities and those of domestic companies. Foreign companies
are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to U.S. companies.
There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than exists in the United
States. Dividends paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on such investments as
compared to dividends and interest paid to the Series by the U.S. Government or
by domestic companies. In addition, there may be the possibility of
expropriations, confiscatory taxation, political, economic or social instability
or diplomatic developments which could affect assets of the Series held in
foreign countries.
There may be less publicly available information about foreign companies
and governments compared to reports and ratings published about U.S. companies.
Foreign securities markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Brokerage commissions and
other transaction costs on foreign securities exchanges are generally higher
than in the United States.
Shareholders should be aware that investing in the equity and fixed-income
markets of developing countries involves exposure to economies that are
generally less diverse and mature, and to political systems which can be
expected to have less stability than those of developed countries. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries. The risks associated with
investments in foreign securities, described above, may be greater with respect
to investments in developing countries.
The operating expense ratio of the Series can be expected to be higher than
that of an investment company investing exclusively in domestic securities since
the expenses of the Series, such as custodial costs, valuation costs and
communication costs, as well as the
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rate of the management fee (1% of the Series' average daily net assets), though
similar to such expenses of other international funds, are higher than those
costs incurred by other investment companies.
INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Such fundamental policies
cannot be changed without the approval of the holders of a majority of the
Series' outstanding voting securities. See "Investment Restrictions" in the
Statement of Additional Information.
HOW THE SERIES IS MANAGED
The Fund has a Board of Directors which, in addition to overseeing the
actions of the Series' Manager, Subadviser and Distributor, as set forth below,
decides upon matters of general policy. The Series' Manager conducts and
supervises the daily business operations of the Series. The Series' Subadviser
furnishes daily investment advisory services.
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, is the Manager of the Series and is compensated
for its services at an annual rate of 1% of the Series' average daily net
assets. It was incorporated in May 1987 under the laws of the State of Delaware.
See "Manager" in the Statement of Additional Information.
As of July 31, 1996, PMF served as the manager of 38 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator of 26 closed-end investment companies, with aggregate assets of
approximately $52 billion.
PMF is a wholly-owned subsidiary of The Prudential Insurance Company of
America (Prudential), a major diversified insurance and financial services
company.
Under the Management Agreement with the Fund, PMF manages the investment
operations of the Fund and also administers the corporate affairs. See "Manager"
in the Statement of Additional Information.
SUBADVISER
Pursuant to a Subadvisory Agreement with PMF, Mercator Asset Management,
L.P. (Mercator or the Subadvisor) furnishes investment advisory services in
connection with the management of the Series and is compensated by PMF for its
services at an annual rate of .75 of 1% of the Series' average daily net assets
up to and including $50 million and .60 of 1% of the Series' average daily net
assets in excess of $50 million and up to and including $300 million and .45 of
1% of the Series' average daily net assets in excess of $300 million.
Under the Subadvisory Agreement, Mercator, subject to the supervision of
PMF, is responsible for managing the assets of the Series in accordance with its
investment objective, investment program and policies. Mercator determines what
securities and other instruments are purchased and sold for the Series and is
responsible for obtaining and evaluating financial data relevant to the Series.
Peter F. Spano is responsible for the day-to-day management of the
portfolio of the Series. Mr. Spano has managed the portfolio of the Series since
its inception in November 1992 and has been employed as a portfolio manager with
Mercator since its founding in 1984.
Mercator is a registered investment adviser and a Delaware limited
partnership with $1.8 billion in assets under management as of December 31,
1995. Mercator's general partners are four Florida corporations: JZT Corp., PXS
Corp., KXB Corp. and MXW Corp. Mercator's limited partner is The Prudential
Asset Management Company, Inc., a wholly-owned indirect subsidiary of
Prudential. John G. Thompson, Peter F. Spano, Kenneth B. Brown, and Michael A.
Williams are the sole shareholders of JZT Corp., PXS Corp., KXB Corp.
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and MXW Corp., respectively. The address of each of the general partners is 2400
East Commercial Blvd., Suite 810, Fort Lauderdale, Florida 33308. Mercator
serves as adviser to various institutional investors and mutual funds.
Pursuant to a subadvisory agreement with PMF, The Prudential Investment
Corporation (PIC) provides investment advisory services to the Series with
respect to (i) the management of short-term assets, including cash, money market
instruments and repurchase agreements and (ii) the lending of portfolio
securities in connection with the management of the International Stock Series.
For these services, PMF will reimburse PIC for reasonable costs and expenses
incurred by PIC determined in a manner acceptable to PMF. PIC is an indirect,
wholly-owned subsidiary of Prudential.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, is a corporation organized under the
laws of the State of Delaware and serves as the distributor of the Class A,
Class B, Class C and Class Z shares of the Series. It is an indirect,
wholly-owned subsidiary of Prudential.
Under separate Distribution and Service Plans (the Class A Plan, the Class
B Plan and the Class C Plan, collectively, the Plans) adopted by the Series
under Rule 12b-1 under the Investment Company Act and separate distribution
agreements (the Distribution Agreements), Prudential Securities (also the
Distributor) incurs the expenses of distributing the Series' Class A, Class B
and Class C shares. (Prudential Securities also incurs the expenses of
distributing the Series' Class Z shares under the Distribution Agreement, none
of which is reimbursed or paid for by the Series.)These expenses include
commissions and account servicing fees paid to, or on account of, financial
advisers of Prudential Securities and representatives of Pruco Securities
Corporation (Prusec), an affiliated broker-dealer, commissions and account
servicing fees paid to, or on account of, other broker-dealers or financial
institutions (other than national banks) which have entered into agreements with
the Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of
Prudential Securities and Prusec associated with the sale of Series shares,
including lease, utility, communications and sales promotion expenses. The State
of Texas requires that shares of the Series may be sold in that state only by
dealers or other financial institutions which are registered there as
broker-dealers.
Under the Plans, the Series is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Series will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
Under the Class A Plan, the Series may pay Prudential Securities for its
distribution-related activities with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net assets of the Class A shares. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of up to .25 of 1%) may not exceed .30 of 1% of
the average daily net assets of the Class A shares.
Under the Class B Plan, the Series pays Prudential Securities for its
distribution-related activities with respect to Class B shares at an annual rate
of 1% of average daily net assets of the Class B shares. Under the Class C Plan,
the Series pays Prudential Securities for its distribution-related activities
with respect to the Class C shares at an annual rate of 1% of average daily net
assets of Class C shares. The Class B and Class C Plans provide for the payment
to Prudential Securities of (i) an asset-based sales charge of .75 of 1% of the
average daily net assets of the Class B and Class C shares, respectively, and
(ii) a service fee of .25 of 1% of the average daily net assets of the Class B
and Class C shares, respectively. The service fee is used to pay for personal
service and/or the maintenance of shareholders accounts. Prudential Securities
also receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."
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Distribution expenses attributable to the sale of Class A, Class B or Class
C shares of the Series will be allocated to each class based upon the ratio of
sales of each class to the sales of all shares of the Series other than expenses
allocable to a particular class. The distribution fee and sales charge of one
class will not be used to subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Series, including a
majority of the Directors who are not "interested persons" of the Series (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors
or of a majority of the outstanding shares of the applicable class of the
Series. The Series will not be obligated to pay distribution and service fees
incurred under any Plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Series under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to dealers (including Prudential
Securities) and other persons which distribute shares of the Series. Such
payment may be calculated by reference to the net asset value of shares sold by
such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor" in
the Statement of Additional Information.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the allegations
asserted against it, PSI consented to the entry of an SEC Administrative Order
which stated that PSI's conduct violated the federal securities laws, directed
PSI to cease and desist from violating the federal securities laws, pay civil
penalties, and adopt certain remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Series is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Series' assets which are held by State Street Bank & Trust Company, an
independent custodian, are separate and distinct from PSI.
FEE WAIVERS AND SUBSIDY
PMF may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Series. Fee waivers
and expense subsidies will increase the Series' total return.
15
<PAGE>
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant
for the Series provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage" in
the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Series' portfolio securities
and cash and, in that capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Series. Its mailing address is
P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc., (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Series. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE SERIES VALUES ITS SHARES
The Series' net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets, and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The Board of Directors of the Fund has
fixed the specific time of day for the computation of the Series' net asset
value to be as of 4:15 P.M., New York time.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Funds' Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
The Series will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Series or days on which changes in
the value of the Series' portfolio securities do not materially affect the NAV.
The New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. See "Net Asset Value" in the Statement of
Additional Information.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A and Class Z shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. It is
expected, however, that the NAV of each class will tend to converge immediately
after the recording of dividends, if any, which will differ by approximately the
amount of the distribution-related expense accrual differential among the
classes.
HOW THE SERIES CALCULATES PERFORMANCE
From time to time the Series may advertise its total return (including
"average annual" total return and "aggregate" total return) and yield in
advertisements or sales literature. Total return and yield are calculated
separately for Class A, Class B, Class C and Class Z shares. These figures are
based on historical earnings and are not intended to indicate future
performance. The "total return" shows how much an investment in the Series would
have increased (decreased) over a specified period of time (i.e., one, five or
ten years or since inception of the Series) assuming that all distributions and
dividends by the Series were reinvested on the reinvestment dates during the
period and less all recurring fees. The "aggregate" total
16
<PAGE>
return reflects actual performance over a stated period of time. "Average
annual" total return is a hypothetical rate of return that, if achieved
annually, would have produced the same aggregate total return if performance had
been constant over the entire period. "Average annual" total return smoothes out
variations in performance and takes into account any applicable initial or
contingent deferred sales charges. Neither "average annual" total return nor
"aggregate" total return takes into account any federal or state income taxes
which may be payable upon redemption. The "yield" refers to the income generated
by an investment in the Series over a one-month or 30-day period. This income is
then "annualized"; that is, the amount of income generated by the investment
during that 30-day period is assumed to be generated each 30-day period for
twelve periods and is shown as a percentage of the investment. The income earned
on the investment is also assumed to be reinvested at the end of the sixth
30-day period. The Series may also include comparative performance information
in advertising or marketing the Series' shares. Such performance information may
include data from Lipper Analytical Services, Inc., Morningstar Publications,
Inc., other industry publications, business periodicals, and market indices. See
"Performance Information" in the Statement of Additional Information. Further
performance information is contained in the Series' annual and semi-annual
reports to shareholders, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
Taxation of the Series
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code. Accordingly, the
Series will not be subject to federal income taxes on its net investment income
and capital gains, if any, that it distributes to its shareholders. See "Taxes"
in the Statement of Additional Information.
The Series may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). In general, PFICs are foreign corporations that own mostly
passive assets or that derive 75% or more of their income from passive sources.
For tax purposes, the Series' investments in PFICs may subject the Series to
federal income taxes and a charge in the nature of interest with respect to
certain gains and income realized by the Series. Under proposed Treasury
regulations, the Series would be able to avoid such taxes and interest by
electing to "mark-to-market" its investments in PFICs i.e., treat them as sold
for fair market value at the end of the year.
Under the Internal Revenue Code, special rules apply to the treatment of
certain options, futures and forward contracts (Section 1256 contracts). At the
end of each year, such investments held by the Series will be required to be
"marked to market" for federal income tax purposes; that is, treated as having
been sold at market value. Sixty percent of any gain or loss recognized on these
"deemed sales" and on actual dispositions will be treated as long-term capital
gain or loss, and the remainder will be treated as short-term capital gain or
loss. See "Taxes" in the Statement of Additional Information.
Taxation of Shareholders
Any dividends out of net taxable investment income, together with
distributions of net short-term capital gains (i.e., the excess of net
short-term capital gains over net long-term capital losses) distributed to
shareholders, will be taxable as ordinary income to the shareholder whether or
not reinvested. Any net long-term capital gains (i.e., the excess of net
long-term capital gains over net short-term capital losses) distributed to
shareholders will be taxable as such to the shareholders, whether or not
reinvested and regardless of the length of time a shareholder has owned his or
her shares. The maximum long-term capital gains rate for individuals is 28%. The
maximum long-term capital gains rate for corporate shareholders is currently the
same as the maximum tax rate for ordinary income.
Dividends paid by the Series will be eligible for the 70%
dividends-received deduction for corporate shareholders to the extent that the
Series' income is derived from certain dividends received from domestic
corporations. Capital gains distributions are not eligible for the 70%
dividends-received deduction. Under tax proposals included in the budget plan
released by the Clinton Administration on December 7, 1995, the
dividends-received deduction allowed to corporate shareholders would be reduced
from 70% to 50% of eligible
17
<PAGE>
dividends and would be subject to additional limitations. It is currently
uncertain whether, when or in what form these proposals or other changes to the
dividends-received deduction will be enacted into law.
Distributions by the Series to a shareholder that is a qualified retirement
plan would generally not be taxable to participants in the plan. Distributions
from a qualified retirement plan (or non-qualified arrangement) to a participant
or beneficiary are subject to special rules. Because the effect of these rules
varies greatly with individual situations, potential investors are urged to
consult with their own tax advisers.
The Fund has obtained opinions of counsel to the effect that neither (i)
the conversion of Class B shares into Class A shares nor (ii) the exchange of
Class B or Class C shares for Class A or Class Z shares or the exchange of Class
A shares for Class Z shares constitutes a taxable event for federal income tax
purposes. However, such opinions are not binding on the Internal Revenue
Service.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes" in the
Statement of Additional Information.
Withholding Taxes
Under U.S. Treasury Regulations, the Series is required to withhold and
remit to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. Dividends of net
investment income and net short-term capital gains to a foreign shareholder will
generally be subject to U.S. withholding tax at the rate of 30% (or lower treaty
rate).
Investment income received by the Series from sources within foreign
countries may be subject to foreign income taxes withheld at source. If the
Series should have more than 50% of the value of its assets invested in
securities of foreign corporations at the close of its taxable year, which is
the Series' present intention, the Series may elect to permit its shareholders
to take, either as a credit or as a deduction, their proportionate share of the
foreign income taxes paid, subject to generally applicable limitations.
Dividends and Distributions
The Series expects to distribute annually to its shareholders all of its
net investment income and any net capital gains. Dividends paid by the Series
with respect to each class of shares, to the extent any dividends are paid, will
be calculated in the same manner, at the same time, on the same day and will be
in the same amount except that each class will bear its own distribution
charges, generally resulting in lower dividends for Class B and Class C shares.
Distribution of net capital gains, if any, will be paid in the same amount for
each class of shares. See "How the Series Values its Shares."
Dividends and distributions will be paid in additional Series shares based
on the NAV of each class on the record date, or such other date as the Board of
Directors may determine, unless the shareholder elects in writing not less than
five business days prior to the record date to receive such dividend and
distributions in cash. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Series will notify each shareholder after
the close of the Series' taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. If you
hold shares through Prudential Securities, you should contact your financial
adviser to elect to receive dividends and distributions in cash.
When the Series goes "ex-dividend," the NAV of each class is reduced by the
amount of the dividend or distribution allocable to each class. If you buy
shares just prior to the ex-dividend date (which generally occurs four business
days prior to the record date), the price you pay will include the dividend or
distribution and a portion of your investment will be returned to you as a
taxable distribution. You should, therefore, consider the timing of dividends
and distributions when making your purchases.
18
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Prudential World Fund, Inc. (the "Fund") was incorporated in Maryland
on February 28, 1984. The Fund is authorized to issue 1 billion shares of common
stock, $.01 par value per share, which are currently divided into two portfolios
or series, the International Stock Series and the Global Series, each of which
consists of 500 million authorized shares. The shares of each series are divided
into four classes, designated Class A, Class B, Class C and Class Z common
stock, each consisting of 125 million authorized shares. Only shares of the
International Stock Series are offered hereby. Each class of common stock
represents an interest in the same assets of the Series and is identical in all
respects except that (i) each class is subject to different sales charges and
distribution and/or service fees (except for Class Z shares, which are not
subject to any sales charge or distribution and/or service fee), which may
affect performance, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangements and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (iii) each
class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to be
a limited group of investors. For more information about shares of the Series
contact your Prudential Securities financial adviser or Prusec representative or
telephone the Fund at (800) 225-1852. Participants in programs sponsored by
Prudential Retirement Services should contact their client representative for
more information about Class Z shares. In accordance with the Fund's Articles of
Incorporation, the Board of Directors may authorize the creation of additional
series and classes within such series, with such preferences, privileges,
limitations and voting and dividend rights as the Board of Directors may
determine.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Series, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Series under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class (with the
exception of Class Z shares which are not subject to any distribution or service
fees) bears the expenses related to the distribution of its shares. Except for
the conversion feature applicable to the Class B shares, there are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of the Series is entitled to its portion
of all of the Series' assets after all debt and expenses of the Series have been
paid. Since Class B and Class C shares generally bear higher distribution
expenses than Class A shares, the liquidation proceeds to shareholders of those
classes are likely to be lower than to Class A shareholders and to Class Z
shareholders whose shares are not subject to any distribution and/or service
fees. The Series' shares do not have cumulative voting rights for the election
of Directors.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold annual meetings
of shareholders unless, for example, the election of Directors is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon a vote of 10% of the
Fund's outstanding shares for the purpose of voting on the removal of one or
more Directors or to transact any other business.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.
19
<PAGE>
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE SERIES
You may purchase shares of the Series through Prudential Securities, Prusec
or directly from the Fund through its Transfer Agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), Attention: Investment Services,
P.O. Box 15020, New Brunswick, New Jersey 08906-5020. The offering price per
share is the NAV next determined following receipt of an order by the Transfer
Agent or Prudential Securities plus a sales charge which, at your option, may be
imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at net asset value without any sales charge. See
"Alternative Purchase Plan" below. See also "How the Fund Values its Shares."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates.
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares except that the minimum initial investment
for Class C shares may be waived from time to time. There is no minimum initial
investment requirement for investors who qualify to purchase Class Z shares. The
minimum subsequent investment is $100 for all classes, except for Class Z shares
for which there is no such minimum. All minimum investment requirements are
waived for certain retirement and employee savings plans or custodial accounts
for the benefit of minors and for purchases made in connection with the "Best
Minds" program sponsored by the Distributor. For purchases through the Automatic
Savings Accumulation Plan, the minimum initial and subsequent investment is $50.
See "Shareholder Services."
The Series reserves the right to reject any purchase order (including an
exchange into the Series) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the Series.
The Distributor reserves the right to cancel any purchase order for which
payment has not been received by the third business day following the
investment.
Transactions in Series' shares may be subject to postage and handling
charges imposed by your dealer.
Purchase By Wire. For an initial purchase of shares of the Series by wire,
you must first telephone PMFS at (800) 225-1852 (toll-free) to receive an
account number. The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you to
your bank to transfer funds by wire to State Street Bank and Trust Company
(State Street), Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Prudential World Fund, Inc. (International Stock Series),
specifying on the wire the account number assigned by PMFS and your name and
identifying the sales charge alternative (Class A, Class B, Class C or Class Z
shares).
If you arrange for receipt by State Street of federal funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Series as of that day. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential World Fund, Inc.,
Class A, Class B, Class C or Class Z shares and your name and individual account
number. It is not necessary to call PMFS to make subsequent purchase orders
utilizing federal funds. The minimum amount which may be invested by wire is
$1,000.
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<PAGE>
ALTERNATIVE PURCHASE PLAN
The Series offers four classes of shares (Class A, Class B, Class C and
Class Z shares) which allow you to choose the most beneficial sales charge
structure for your individual circumstances given the amount of the purchase,
the length of time you expect to hold the shares and other relevant
circumstances (Alternative Purchase Plan).
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
------------------------------------- ------------------------ --------------------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of 5% of .30 of 1% (Currently Initial sales charge waived or reduced
the public offering price being charged at a rate for certain purchases
of .25 of 1%)
Class B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
Class C Maximum CDSC of 1% of the lesser 1% Shares do not convert to another class
of the amount invested or the
redemption proceeds on redemptions
made within one year of purchase
Class Z None None Sold to a limited group of investors
</TABLE>
Each class represents an interest in the same assets of the Fund and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or service fees (except for Class Z shares,
which are not subject to any sales charge or distribution and/or service fee),
which may affect performance, (ii) each class has exclusive voting rights on any
matter submitted to shareholders that relates solely to its arrangements and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interest of any other class, (iii) each
class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to a
limited group of investors. See "How to Exchange Your Shares" below. The income
attributable to each class and the dividends payable on the shares of each class
will be reduced by the amount of the distribution fee (if any) of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Series
will receive different compensation for selling Class A, Class B, Class C and
Class Z shares and will generally receive more compensation initially for
selling Class A and Class B shares than for selling Class C or Class Z shares.
In selecting a purchase alternative, you should consider, among other
things, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) that Class B shares automatically convert
to Class A shares approximately seven years after purchase (see "Conversion
Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Series:
If you intend to hold your investment in the Series for less than 7 years
and do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales charge of 5% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6 year period, you
should consider purchasing Class C shares over either Class A or Class B shares.
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<PAGE>
If you intend to hold your investment for 7 years or more and do not
qualify for a reduced sales charge on Class A shares, since Class B shares
convert to Class A shares approximately 7 years after purchase and because all
of your money would be invested initially in the case of Class B shares, you
should consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B and Class C shares for the higher
cumulative annual distribution-related fee on those shares to exceed the initial
sales charge plus cumulative annual distribution-related fee on Class A shares.
This does not take into account the time value of money, which further reduces
the impact of the higher Class B or Class C distribution-related fee on the
investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions when the CDSC is applicable.
All purchases of $1 million or more, either as part of a single investment
or under Rights of Accumulation or Letters of Intent, must be for Class A
shares. See "Reduction and Waiver of Initial Sales Charges" below. All purchases
of $10 million or more and purchases by certain benefit plans and other eligible
investors as described below, must be for Class Z shares. See "Class Z Shares"
below.
Class A Shares
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested) as
shown in the following table:
Sales Charge As Sales Charge As Dealer Concession
Percentage of Percentage of Net as Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- ------------------- --------------- ----------------- -----------------
$0 to $24,999 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
The Distributor may reallow the entire initial sales charge to dealers.
Selling dealers may be deemed to be underwriters, as that term is defined in the
Securities Act.
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisers and other persons which distribute shares a
finders' fee based on a percentage of the net asset value of shares sold by such
persons.
Reduction and Waiver of Initial Sales Charges. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Series and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Series
Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares" in the
Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of
an initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code of 1986, as
amended (the Code) and deferred compensation and annuity plans under Sections
457 and 403(b)(7) of the Code (Benefit Plans), provided that the plan has
existing
22
<PAGE>
assets of at least $1 million invested in shares of Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the exchange
privilege) or 1,250 eligible employees or participants. In the case of Benefit
Plans whose accounts are held directly with the Transfer Agent or Prudential
Securities and for which the Transfer Agent or Prudential Securities does
individual account record keeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by PSI or its subsidiaries (PSI or Subsidiary Prototype Benefit
Plans), Class A shares may be purchased at NAV by participants who are repaying
loans made from such plans to the participant.
PruArray and SmartPath Plans. Class A shares may be purchased at NAV by
certain retirement and deferred compensation plans, qualified or non-qualified
under the Code, including pension, profit-sharing, stock-bonus or other employee
benefit plans under Section 401 of the Code and deferred compensation and
annuity plans under Sections 457 and 403(b)(7) of the Code that participate in
Prudential's PruArray and SmartPath Programs benefit plan record keeping
services (hereafter referred to as a PruArray or SmartPath Plan); provided (i)
that the plan has at least $1 million in existing assets or 250 eligible
employees or participants and (ii) that Prudential Mutual Funds constitute at
least one-half of the plan's investment options. The term "existing assets" for
this purpose includes stock issued by a PruArray or SmartPath Plan sponsor and
shares of non-money market Prudential Mutual Funds and shares of certain
unaffiliated non-money market mutual funds that participate in the PruArray or
SmartPath Program (Participating Funds). "Existing assets" also include shares
of money market funds acquired by exchange from a Participating Fund.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray or SmartPath Plan qualifies to purchase Class A shares at NAV, all
subsequent purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers and current and former Directors/Trustees of the Prudential Mutual
Funds (including the Fund), (b) employees of Prudential Securities and PMF and
their subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent, (c)
employees and special agents of Prudential and its subsidiaries and all persons
who have retired directly from active service with Prudential or one of its
subsidiaries, (d) registered representatives and employees of dealers who have
entered into a selected dealer agreement with Prudential Securities provided
that purchases at NAV are permitted by such person's employer and (e) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities, or within one year in the case of Benefit Plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end fund
sponsored by the financial adviser's previous employer (other than a money
market or other no-load fund which imposes a distribution or service fee of .25
of 1% or less) and (iii) the financial adviser served as the client's broker on
the previous purchases.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Series Shares--Reduction and Waiver of Initial Sales
Charges--Class A Shares" in the Statement of Additional Information.
Class B and Class C Shares
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class B
and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges." The Distributor will pay sales
commissions of up to 4% of the purchase price of Class B shares to dealers,
financial advisers and other persons who sell Class B shares at the time of sale
from its own resources. This facilitates the ability of the Fund to sell the
Class B shares without an initial sales charge being deducted at the time of
purchase. The Distributor anticipates that it will recoup its advancement of
sales commissions from the combination of the CDSC and the distribution fee. See
"Distributor." In connection with the sale of Class C shares, the Distributor
will pay dealers, financial advisers and other persons which distribute Class C
shares a sales commission of up to 1% of the purchase price at the time of the
sale.
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Class Z Shares
Class Z shares of the Fund are available for purchase by the following
categories of investors: (i) pension profit sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code, deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the Internal
Revenue Code, and non-qualified plans for which the Fund is an available option
(collectively, Benefit Plans), provided such Benefit Plans (in combination with
other plans sponsored by the same employer or group of related employers) have
at least $50 million in defined contribution assets; (ii) participants in any
fee-based program sponsored by Prudential Securities or its affiliates which
includes mutual funds as investment options and for which the Fund is an
available option; and (iii) investors who are, or have executed a letter of
intent to become, shareholders of any series of The Prudential Institutional
Fund (Institutional Fund) at on or before one or more series of Institutional
Fund reorganize or who on that date have investments in certain products for
which Institutional Fund provides exchangeability. After a Benefit Plan
qualifies to purchase Class Z shares, all subsequent purchases will be for Class
Z shares.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other persons
which distribute shares a finders' fee based on a percentage of the net asset
value of shares sold by such persons.
HOW TO SELL YOUR SHARES
You can redeem shares of the Series at any time for cash at the NAV next
determined after the redemption request is received in proper form by the
Transfer Agent or Prudential Securities. See "How The Series Values Its Shares."
In certain cases, however, redemption proceeds will be reduced by the amount of
any applicable contingent deferred sales charge, as described below. See
"Contingent Deferred Sales Charges" below.
If you hold shares of the Series through Prudential Securities, you must
redeem your shares by contacting your Prudential Securities financial adviser.
If you hold shares in non-certificate form, a written request for redemption
signed by you exactly as the account is registered is required. If you hold
certificates, the certificates, signed in the name(s) shown on the face of the
certificates, must be received by the Transfer Agent in order for the redemption
request to be processed. If redemption is requested by a corporation,
partnership, trust or fiduciary, written evidence of authority acceptable to the
Transfer Agent must be submitted before such request will be accepted. All
correspondence and documents concerning redemptions should be sent to the Series
in care of its Transfer Agent, Prudential Mutual Fund Services, Inc., Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Prudential Preferred Financial Services offices.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent of the certificate and/or written
request except as indicated below. If you hold shares through Prudential
Securities, payment for shares presented for redemption will be credited to your
Prudential Securities account, unless you indicate otherwise. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Series of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Series fairly
to determine the value of its net assets, or (d) during any other period when
the SEC, by order, so permits; provided that applicable rules and regulations of
the SEC shall govern as to whether the conditions prescribed in (b), (c) or (d)
exist.
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Payment for redemption of recently purchased shares will be delayed until
the Series or its Transfer Agent has been advised that the purchase check has
been honored, up to 10 calendar days from the time of receipt of the purchase
check by the Transfer Agent. Such delay may be avoided by purchasing shares by
wire or by certified or official bank check.
Redemption In Kind. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Series to
make payment wholly or partly in cash, the Series may pay the redemption price
in whole or in part by a distribution in kind of securities from the investment
portfolio of the Series, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. See "How The Series Values Its Shares." If
your shares are redeemed in kind, you would incur transaction costs in
converting the assets into cash. The Series, however, has elected to be governed
by Rule 18f-1 under the Investment Company Act, under which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Series during any 90-day period for any one
shareholder.
Involuntary Redemption. In order to reduce expenses of the Series, the
Board of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Series will
give such shareholders 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No contingent deferred
sales charge will be imposed on any such involuntary redemption.
90-Day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Series at the net asset
value next determined after the order is received, which must be within 90 days
after the date of the redemption. Any contingent deferred sales charge or CDSC
paid in connection with such redemption will be credited (in shares) to your
account. (If less than a full repurchase is made, the credit will be on a pro
rata basis.) You must notify the Series' Transfer Agent, either directly or
through Prudential Securities, at the time the repurchase privilege is exercised
to adjust your account for the CDSC you previously paid. Thereafter, any
redemptions will be subject to the CDSC applicable at the time of the
redemption. See "Contingent Deferred Sales Charge" below. Exercise of the
repurchase privilege will generally not affect federal tax treatment of any gain
realized upon redemption. However, if the redemption was made within a 30 day
period of the repurchase and if the redemption resulted in a loss, some or all
of the loss, depending on the amount reinvested, may not be allowed for federal
income tax purposes.
Contingent Deferred Sales Charges
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid to
you. The CDSC will be imposed on any redemption by you which reduces the current
value of your Class B or Class C shares to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and one year, in the case of Class C shares. A CDSC will
be applied on the lesser of the original purchase price or the current value of
the shares being redeemed. Increases in the value of your shares or shares
acquired through reinvestment of dividends or distributions are not subject to a
CDSC. The amount of any contingent deferred sales charge will be paid to and
retained by the Distributor. See "How the Series is Managed--Distributor" above
and "Waiver of the Contingent Deferred Sales Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of your shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The CDSC will be calculated from the first day of the month after
the initial purchase, excluding the time shares were held in a money market
fund. See "How to Exchange Your Shares."
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The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
Contingent Deferred Sales
Charge as a Percentage of
Year Since Purchase Dollars Invested or
Payment Made Redemption Proceeds
------------------- --------------------------
First .............................. 5.0%
Second ............................. 4.0%
Third .............................. 3.0%
Fourth ............................. 2.0%
Fifth .............................. 1.0%
Sixth .............................. 1.0%
Seventh ............................ None
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value above the total
amount of payments for the purchase of Series shares made during the preceding
six years (five years for Class B shares purchased prior to January 22, 1990);
then of amounts representing the cost of shares held beyond the applicable CDSC
period, and finally; of amounts representing the cost of shares held for the
longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
Waiver of the Contingent Deferred Sales Charges--Class B Shares. The CDSC
will be waived in the case of a redemption following the death or disability of
a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), or a trust, at the time of death or initial
determination of disability, provided that the shares were purchased prior to
death or disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a
tax-deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59 1/2; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service (i.e.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
redemptions otherwise qualify for a waiver as described above.
In the case of Direct Account and PSI or Subsidiary Prototype Benefit
Plans, the CDSC will also be waived on the redemptions which represent
borrowings from such plans. Shares purchased with amounts used to repay a loan
from such plans on which a CDSC was not previously deducted will thereafter be
subject to a CDSC without regard to the time such amounts were previously
invested. In the case of a 401(k) plan, the CDSC will also be waived upon the
redemption of shares purchased with amounts used to repay loans made from the
account to the participant and from which a CDSC was previously deducted.
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In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Series.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to waiver
of the CDSC and provide the Transfer Agent with such supporting documentation as
it may deem appropriate. The waiver will be granted subject to confirmation of
your entitlement. See "Purchase and Redemption of Series Shares--Waiver of the
Contingent Deferred Sales Charge--Class B Shares" in the Statement of Additional
Information.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
Since the Series tracks amounts paid rather than the number of shares
bought on each purchase of Class B shares, the number of Class B shares eligible
to convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (47.62%) multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus, although
the aggregate dollar value will be the same, you may receive fewer Class A
shares than Class B shares converted. See "How the Series Values its Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase of
such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code and
(ii) that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If the conversions are suspended,
Class B shares of the Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
As a shareholder of the Series you have an exchange privilege with certain
other Prudential Mutual Funds, including one or more specified money market
funds, subject to the minimum investment requirement of such
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funds. Class A, Class B, Class C and Class Z shares may be exchanged for Class
A, Class B, Class C and Class Z shares, respectively, of another fund on the
basis of the relative NAV. No sales charge will be imposed at the time of the
exchange. Any applicable CDSC payable upon the redemption of shares exchanged
will be calculated from the first day of the month after the initial purchase,
excluding the time shares were held in a money market fund. Class B and Class C
shares may not be exchanged into money market funds other than Prudential
Special Money Market Fund. For purposes of calculating the seven-year holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded. See
"Conversion Feature--Class B Shares" above. An exchange will be treated as a
redemption and purchase for tax purposes. See "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information.
In order to exchange shares by telephone, you must authorize the telephone
exchange privilege on your initial application form or by written notice to the
Transfer Agent and hold shares in non-certificate form. Thereafter, you may call
the Series at 1 (800) 225-1852 to execute a telephone exchange of shares on
weekdays, except holidays, between the hours of 8:00 a.m. and 6:00 p.m., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. Neither the Fund, the Series or their agents will be liable for
any loss, liability or cost which results from acting upon instructions
reasonably believed to be genuine under the foregoing procedures. (The Series or
its agents could be subject to liability if they fail to employ reasonable
procedures.) All exchanges will be made on the basis of the relative NAV of the
two funds next determined after the request is received in good order. The
Exchange Privilege is available only in states where the exchange may legally be
made.
If you hold shares through Prudential Securities or through a dealer which
has entered into a selected dealer agreement with the Series' Distributor, you
must exchange your shares by contacting your financial adviser.
If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates, must be returned in order for the shares to be
exchanged. See "How to Sell Your Shares" above.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange
of shares may be difficult to implement and shareholders should make exchanges
by mail by writing to Prudential Mutual Fund Services, Inc., at the address
noted above.
Special Exchange Privilege. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan -- Class A Shares -- Reduction and Waiver of Initial Sales
Charges" above) and to shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in such a shareholder's account will be automatically
exchanged for Class A shares for shareholders who qualify to purchase Class A
shares at NAV on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C shares
and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities or Prusec that
they are eligible for this special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value. Similarly, participants in PSI's 401(k) Plan, an employee benefit
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<PAGE>
plan sponsored by Prudential Securities Incorporated (the PSI 401(k) Plan), for
which the Fund's Class Z shares are an available option and who wish to transfer
their Class Z shares out of the PSI 401(k) Plan following separation of service
(i.e., voluntary or involuntary termination of employment or retirement) will
have their Class Z shares exchanged for Class A shares at net asset value.
The Fund reserves the right to reject any exchange order including
exchanges (and market timing transactions) which are of a size and/or frequency
engaged in by one or more accounts acting in concert or otherwise, that have or
may have an adverse effect on the ability of the Subadviser to manage the
portfolio. The determination that such exchanges or activity may have an adverse
effect and the determination to reject any exchange order shall be in the
discretion of the Manager and the Subadviser.
The Exchange Privilege is not a right and may be suspended, terminated or
modified at any time.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Series, you
can take advantage of the following additional services and privileges:
Automatic Reinvestment of Dividends and/or Distributions Without Sales
Charge. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Series at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.
Automatic Savings Accumulation Plan (ASAP). Under ASAP you may make regular
purchases of the Series' shares in amounts as little as $50 via an automatic
debit to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
Best Minds Program. The Distributor sponsors the Best Minds program
pursuant to which the total dollar amount of a client's investment in the
program will be allocated equally among shares of the Series and other
Prudential Mutual Funds. For more information about this program, you should
contact your Prudential Securities financial adviser or Prusec representative.
Tax Deferred Retirement Plans. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Code are available
through the Distributor. These plans are for use by both self-employed
individuals and corporate employers. These plans permit either self-direction of
accounts by participants, or a pooled account arrangement. Information regarding
the establishment of these plans, the administration, custodial fees and other
details is available from Prudential Securities or the Transfer Agent. If you
are considering adopting such a plan, you should consult with your own legal or
tax adviser with respect to the establishment and maintenance of such a plan.
Systematic Withdrawal Plan. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges." See also "Shareholder Investment
Account--Systematic Withdrawal Plan" in the Statement of Additional Information.
Reports to Shareholders. The Series will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses the Series will provide one annual report and semi-annual shareholder
report and annual prospectus per household. You may request additional copies
of such reports by calling (800) 225-1852 or by writing to the Series at One
Seaport Plaza, New York, NY 10292. In addition, monthly unaudited financial
data is available upon request from the Series.
Shareholder Inquiries. Inquiries should be addressed to the Series at One
Seaport Plaza, New York, New York 10292, or by telephone, at 1-800-225-1852 or,
from outside the U.S.A., at 1-908-417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
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THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fund at 1
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
Taxable Bond Funds
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global Funds
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Government Plus Fund, Inc.
The Global Total Health Fund, Inc.
Equity Funds
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Distressed Securities Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Small Companies Fund Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
o Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations, other than those
contained in this Prospectus, in connection with the offer contained herein,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund or the Distributor. This
Prospectus does not constitute an offer by the Fund or by the Distributor to
sell or a solicitation of any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer in such jurisdiction.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
SERIES HIGHLIGHTS ................................................... 2
Risk Factors and Special Characteristics ........................... 2
SERIES EXPENSES ..................................................... 4
HOW THE SERIES INVESTS .............................................. 5
Investment Objective and Policies .................................. 5
Hedging and Return Enhancement Strategies .......................... 7
Other Investment Practices ......................................... 10
Risks and Special Considerations ................................... 12
Investment Restrictions ............................................ 13
HOW THE SERIES IS MANAGED ........................................... 13
Manager ............................................................ 13
Subadviser ......................................................... 13
Distributor ........................................................ 14
Fee Waivers and Subsidy ............................................ 15
Portfolio Transactions ............................................. 16
Custodian and Transfer and Dividend Disbursing
Agent ............................................................. 16
HOW THE SERIES VALUES ITS SHARES .................................... 16
HOW THE SERIES CALCULATES
PERFORMANCE ........................................................ 16
TAXES, DIVIDENDS AND DISTRIBUTIONS .................................. 17
GENERAL INFORMATION ................................................. 19
Description of Common Stock ........................................ 19
Additional Information ............................................. 19
SHAREHOLDER GUIDE ................................................... 20
How to Buy Shares of the Series .................................... 20
Alternative Purchase Plan .......................................... 21
How to Sell Your Shares ............................................ 24
Conversion Feature--Class B Shares ................................. 26
How to Exchange Your Shares ........................................ 27
Shareholder Services ............................................... 29
THE PRUDENTIAL MUTUAL FUND FAMILY ................................... A-1
- -------------------------------------------------------------------------------
MF115A-1
CUSIP NOS.:
Class A: 743969503
Class B: 743969602
Class C: 743969701
Class Z: 743969800
Prudential
World
Fund, Inc.
(International Stock Series)
Prudential Mutual Funds
BUILDING YOUR FUTURE [LOGO]
ON OUR STRENGTH(SM)
PROSPECTUS
September 18, 1996
<PAGE>
PRUDENTIAL WORLD FUND, INC.
(International Stock Series)
Statement of Additional Information
September 18, 1996
The International Stock Series (the Series) is a series of Prudential World
Fund, Inc. (the Fund), an open-end, diversified management investment company
presently consisting of two series. Its investment objective is to achieve
long-term growth of capital through investment in equity securities of foreign
issuers. Income is a secondary objective. The Series will seek to achieve its
objective primarily through investment in a diversified portfolio of securities
which will consist of equity securities of foreign issuers. The Series will,
under normal circumstances, invest at least 65% of the value of its total assets
in common stocks and preferred stocks of issuers located in at least three
foreign countries. The Series may invest up to 35% of its total assets in (i)
other equity-related securities of foreign issuers; (ii) common stocks,
preferred stocks, and other equity-related securities of U.S. issuers; (iii)
investment grade debt securities of domestic and foreign corporations,
governments, governmental entities, and supranational entities; and (iv)
high-quality domestic money market instruments and short-term fixed income
securities. There can be no assurance that the Series' investment objective will
be achieved. See "Investment Objective and Policies."
The Series' address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
Prior to June 21, 1996, the name of the Fund was Prudential Global Fund,
Inc.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Series' Prospectus, dated September 18, 1996, a
copy of which may be obtained from the Series at the address noted above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference
to page in
Page Prospectus
---- ---------------
<S> <C> <C>
Investment Objective and Policies ..................................................... B-2 5
Investment Restrictions ............................................................... B-13 13
Directors and Officers ................................................................ B-14 13
Manager ............................................................................... B-17 13
Distributor ........................................................................... B-18 14
Net Asset Value ....................................................................... B-20 16
Portfolio Transactions and Brokerage .................................................. B-20 16
Purchase and Redemption of Series Shares .............................................. B-22 20
Shareholder Investment Account ........................................................ B-24 29
Performance Information ............................................................... B-27 16
Taxes ................................................................................. B-29 17
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants ......... B-31 16
Appendix--General Investment Information .............................................. App-1 --
Appendix--Historical Performance Data ................................................. App-2 --
Appendix--Information Relating to the Principal ....................................... App 6 --
Appendix--Description of S&P, Moody's and Duff & Phelps Ratings ....................... App-9 --
================================================================================================================
</TABLE>
MF115B-1
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Series is to seek long-term growth of
capital through investment in equity securities of foreign issuers. Income is a
secondary objective. The Series will seek to achieve its objective primarily
through investment in a diversified portfolio of securities which will consist
of equity securities of foreign issuers. The Series will, under normal
circumstances, invest at least 65% of the value of its total assets in common
stocks and preferred stocks of issuers located in at least three foreign
countries. The Series may invest up to 35% of its total assets in (i) other
equity-related securities of foreign issuers; (ii) common stocks, preferred
stocks, and other equity-related securities of U.S. issuers; (iii) investment
grade debt securities of domestic and foreign corporations, governments,
governmental entities, and supranational entities; and (iv) high-quality
domestic money market instruments and short-term fixed income securities.
Although the Series does not purchase securities with a view to rapid turnover,
there are no limitations on the length of time that securities must be held by
the Series and the Series' annual portfolio turnover rate may vary significantly
from year to year. A portfolio turnover rate in excess of 100% may exceed that
of other investment companies with similar objectives. A higher portfolio
turnover rate may involve correspondingly greater transaction costs, which would
be borne directly by the Series, as well as additional realized gains and/or
losses to shareholders. There can be no assurance that the Series' investment
objective will be achieved. For a further description of the Series' investment
objective and policies, see "How the Series Invests--Investment Objective and
Policies" in the Prospectus.
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or one of its
agencies, authorities or instrumentalities in which the Series may invest
include debt obligations of varying maturities issued by the U.S. Treasury or
issued or guaranteed by an agency or instrumentality of the U.S. Government,
including the Federal Housing Administration, Farmers' Home Administration,
Export-Import Bank of the U.S. Small Business Administration, Government
National Mortgage Association ("GNMA"), General Services Administration, Central
Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit
Banks, Federal Land Banks, Federal National Mortgage Association ("FNMA"),
Maritime Administration, Tennessee Valley Authority, District of Columbia Armory
Board, Student Loan Marketing Association and Resolution Trust Corporation.
Direct obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. Because the
U.S. Government is not obligated by law to provide support to an instrumentality
that it sponsors, the Series will invest in obligations issued by an
instrumentality of the U.S. Government only if the Series' Subadvisor determines
that the instrumentality's credit risk does not render its securities unsuitable
for investment by the Series. For further information, see "Mortgage-Related
Securities" below.
Repurchase Agreements and Reverse Repurchase Agreements
The Series may enter into repurchase and reverse repurchase agreements with
banks and securities dealers which meet the creditworthiness standards
established by the Board of Directors ("Qualified Institutions"). The Subadviser
will monitor the continued creditworthness of Qualified Institutions, subject to
the oversight of the Manager and the Board of Directors. The resale price of the
securities purchased reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The Series receives collateral equal to the resale price.
These agreements permit the Series to keep all its assets earning interest while
retaining "overnight" flexibility to pursue investment of a longer-term nature.
The use of repurchase agreements and reverse repurchase agreements involves
certain risks. For example, if the seller of securities under a repurchase
agreement defaults on its obligation to repurchase the underlying securities, as
a result of its bankruptcy or otherwise, the Series will seek to dispose of such
securities, which action could involve costs or delays. If the seller becomes
insolvent and subject to liquidation or reorganization under applicable
bankruptcy or other laws, the Series' ability to dispose of the underlying
securities may be restricted. Finally, it is possible that the Series may not be
able to substantiate its interest in the underlying securities. To minimize this
risk, the securities underlying the agreement will be held by the Custodian at
all times in an amount at least equal to the repurchase price, including accrued
interest. If the counterparty fails to resell or repurchase the securities, the
Series may suffer a loss to the extent proceeds from the sale of the underlying
collateral are less than the repurchase price. Reverse repurchase agreements
involve the risk that the market value of the securities retained in lieu of
sale by the Series may decline below the price of the securities the Series has
sold but is obligated to repurchase.
Fixed Income Securities
In general, the ratings of Moody's Investors Service ("Moody's"), Standard
& Poor's Ratings Services ("S&P Ratings"), Duff and Phelps, Inc. ("Duff &
Phelps") and other nationally recognized statistical rating organizations
("NRSROs") represent the
B-2
<PAGE>
opinions of those organizations as to the quality of debt obligations that they
rate. These ratings are relative and subjective, are not absolute standards of
quality and do not evaluate the market risk of securities. These ratings will be
among the initial criteria used for the selection of portfolio securities. Among
the factors that the rating agencies consider are the long-term ability of the
issuer to pay principal and interest and general economic trends.
Subsequent to its purchase by the Series, an issue of debt obligations may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Series. Neither event will require the sale of the debt
obligation by the Series, but the Series' Subadvisor will consider the event in
its determination of whether the Series should continue to hold the obligation.
In addition, to the extent that the ratings change as a result of changes in
rating organizations or their rating systems or owing to a corporate
restructuring of Moody's, S&P Ratings, Duff & Phelps or other NRSRO, the Series
will attempt to use comparable ratings as standards for its investments in
accordance with its investment objectives and policies. The Appendix to this
Statement of Additional Information contains further information concerning the
ratings of Moody's, S&P Ratings and Duff & Phelps and their significance.
The Series may invest, to a limited extent, in medium, lower-rated and
unrated debt securities. Debt securities rated in the lowest category of
investment grade debt (i.e., Baa by Moody's or BBB by S&P Ratings) may have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds.
Non-investment grade fixed income securities are rated lower than Baa/BBB
(or the equivalent rating or, if not rated, determined by the Subadviser to be
of comparable quality to securities so rated) and are commonly referred to as
high risk or high yield securities or "junk" bonds. High yield securities are
generally riskier than higher quality securities and are subject to more credit
risk, including risk of default, and the prices of such securities are more
volatile than higher quality securities. Such securities may also have less
liquidity than higher quality securities. The Series is not authorized to invest
in excess of 5% of its net assets in non-investment grade fixed income
securities.
The markets in which medium and lower-rated securities (or unrated
securities that are equivalent to medium and lower-rated securities) are traded
are generally more limited than those in which higher-rated securities are
traded. The existence of limited markets may make it more difficult for the
Series to obtain accurate market quotations for purposes of valuing its
portfolio and calculating its net asset value. Moreover, the lack of a liquid
trading market may restrict the availability of debt securities for the Series
to purchase and may also have the effect of limiting the ability of the Series
to sell debt securities at their fair value either to meet redemption requests
or to respond to changes in the economy or the financial markets.
Lower-rated fixed income securities present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Series may
have to replace the security with a lower-yielding security, resulting in a
decreased return for investors. Also, as the principal value of fixed income
securities moves inversely with movements in interest rates, in the event of
rising interest rates, the value of the securities held by the Series may
decline proportionately more than if the Series consisted of higher-rated
securities. Investments in zero coupon bonds may be more speculative and subject
to greater fluctuations in value due to changes in interest rates than bonds
that pay interest currently. If the Series experiences unexpected net
redemptions, it may be forced to sell its higher-rated bonds, resulting in a
decline in the overall credit quality of the securities held by the Series and
increasing the exposure of the Series to the risks of lower-rated securities.
When-Issued and Delayed Delivery Securities
To secure prices deemed advantageous at a particular time, the Series may
purchase securities on a when-issued or delayed delivery basis, in which case
delivery of the securities occurs beyond the normal settlement period; payment
for or delivery of the securities would be made at the same time or prior to the
reciprocal delivery or payment by the other party to the transaction. The Series
will enter into when-issued or delayed delivery transactions for the purpose of
acquiring securities and not for the purpose of leverage. When-issued securities
purchased by the Series may include securities purchased on a "when, as and if
issued" basis under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring.
Securities purchased on a when-issued or delayed delivery basis may expose
the Series to risk because the securities may experience fluctuations in value
prior to their actual delivery. The Series does not accrue income with respect
to a when-issued or delayed-delivery security prior to its stated delivery date.
Purchasing securities on a when-issued or delayed delivery basis may involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself.
Forward Rolls and Dollar Rolls
Forward roll and dollar roll transactions involve the risk that the
market value of the securities sold by the Series may decline below the
repurchase price of those securities. At the time the Series enters into a
forward roll transaction, it will place in a
B-3
<PAGE>
segregated account with its Custodian cash, U.S. Government securities, equity
securities and other liquid, unencumbered assets, marked-to-market daily, having
a value equal to the repurchase price (including accrued interest).
Mortgage-Related Securities
Mortgage-backed securities may be classified as private, governmental or
government related, depending on the issuer or guarantor. Private
mortgage-backed securities represent pass-through pools consisting principally
of conventional residential mortgage loans created by non-governmental issuers,
such as commercial banks, savings and loan associations and private mortgage
insurance companies. Governmental mortgage-backed securities are backed by the
full faith and credit of the United States. GNMA, the principal U.S. guarantor
of such securities, is a wholly-owned corporate instrumentality of the United
States within the Department of Housing and Urban Development. Pass-through
securities issued by FNMA are guaranteed as to timely payment of principal and
interest by FNMA, which guarantee is not backed by the full faith and credit of
the U.S. Government. FHLMC is a corporate instrumentality of the United States,
the stock of which is owned by the Federal Home Loan Banks. Participation
certificates representing interests in mortgages from FHLMC's national portfolio
are guaranteed as to the timely payment of interest and ultimate, but generally
not timely collection of principal by FHLMC. The obligations of the FHLMC under
its guarantee are obligations solely of FHLMC and are not backed by the full
faith and credit of the U.S. Government.
The Series expects that private and governmental entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payments may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, the Series, consistent with its investment objective and policies,
will consider making investments in those new types of securities.
The Series may also invest in pass-through securities backed by adjustable
rate mortgages that have been issued by GNMA, FNMA and FHLMC or private issuers.
These securities bear interest at a rate that is adjusted monthly, quarterly or
annually. The prepayment experience of the mortgages underlying these securities
may vary from that for fixed rate mortgages.
The average maturity of pass-through pools of mortgage-related securities
varies with the maturities of the underlying mortgage instruments. In addition,
a pool's stated maturity may be shortened by unscheduled payments on the
underlying mortgages. Factors affecting mortgage prepayments include the level
of interest rates, general economic and social conditions, the location of the
mortgaged property and age of the mortgage. Because prepayment rates of
individual pools vary widely, it is not possible to predict accurately the
average life of a particular pool. Common practice is to assume that prepayments
will result in an average life ranging from two to ten years for pools of fixed
rate 30-year mortgages. Pools of mortgages with other maturities or different
characteristics will have varying average life assumptions.
Because prepayments of principal generally occur when interest rates are
declining, it is likely that the Series will have to reinvest the proceeds of
prepayments at lower interest rates than those at which the assets were
previously invested. If this occurs, the Series' yield will correspondingly
decline. Thus, mortgage-related securities may have less potential for capital
appreciation in periods of falling interest rates than other fixed-income
securities of comparable maturity, although these securities may have a
comparable risk of decline in market value in periods of rising interest rates.
To the extent that the Series purchases mortgage-related securities at a
premium, unscheduled prepayments, which are made at par, will result in a loss
equal to any unamortized premium.
Government stripped mortgage-related interest-only ("IOs") and principal
only ("POs") securities are currently traded in an over-the-counter market
maintained by several large investment banking firms. There can be no assurance
that the Series will be able to effect a trade of IOs or POs at a time when it
wishes to do so. The Series will acquire IOs and POs only if, in the opinion of
the Series' Subadviser, a secondary market for the securities exists at the time
of acquisition, or is subsequently expected. The Series will treat IOs and POs
that are not U.S. Government securities as illiquid and will limit its
investments in these securities, together with other illiquid investments, in
order not to hold more than 15% of its net assets in illiquid securities. With
respect to IOs and POs that are issued by the U.S. Government, the Subadviser,
subject to the supervision of the Manager and the Board of Directors, may
determine that such securities are liquid, if they determine the securities can
be disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of net asset value per share.
Investing in IOs and POs involves the risks normally associated with
investing in government and government agency mortgage-related securities. In
addition, the yields on IOs and POs are extremely sensitive to the prepayment
experience on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on IOs and
increasing the yield to maturity on POs. Sufficiently high prepayment rates
could result in the Series not fully recovering its initial investment in an IO.
Mortgage-related securities may not be readily marketable. To the extent
any of these securities are not readily marketable in the judgment of the
Series' Subadviser, the investment restriction limiting a Series' investment in
illiquid instruments will apply.
B-4
<PAGE>
Collateralized Mortgage Obligations
The Series also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs (PAC Bonds). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds always are
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
In reliance on SEC rules and orders, the Series' investments in certain
qualifying CMOs, including CMOs that have elected to be treated as Real Estate
Mortgage Investment Conduits (REMICs), are not subject to the Investment Company
Act of 1940, as amended (Investment Company Act) limitation on acquiring
interests in other investment companies. In order to be able to rely on the
SEC's interpretation, the CMOs and REMICs must be unmanaged, fixed-asset issuers
that (i) invest primarily in mortgage-backed securities, (ii) do not issue
redeemable securities, (iii) operate under general exemptive orders exempting
them from all provisions of the Investment Company Act, and (iv) are not
registered or regulated under the Investment Company Act as investment
companies. To the extent that the Series selects CMOs or REMICs that do not meet
the above requirements, the Series may not invest more than 10% of its assets in
all such entities and may not acquire more than 3% of the voting securities of
any single such entity.
Asset-Backed Securities
The value of these securities may change because of changes in the market's
perception of the creditworthiness of the servicing agent for the pool, the
originator of the pool, or the financial institution providing credit support
enhancement for the pool.
Securities Lending
The Series will enter into securities lending transactions only with
Qualified Institutions. The Series will comply with the following conditions
whenever it lends securities: (i) the Series must receive at least 100% cash
collateral or equivalent securities from the borrower; (ii) the value of the
loan is "marked-to-market" on a daily basis; (iii) the Series must be able to
terminate the loan at any time; (iv) the Series must receive reasonable interest
on the loan, as well as any dividends, interest or other distributions on the
loaned securities and any increase in market value; (v) the Series may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower except that, if a material event
adversely affecting the investment in the loaned securities occurs, the Series
must terminate the loan and regain the right to vote the securities. The Series
may pay reasonable finders', administrative and custodial fees in connection
with a loan of its securities. In these transactions, there are risks of delay
in recovery and in some cases even of loss of rights in the collateral should
the borrower of the securities fail financially.
Borrowing
The Series may borrow from time to time, at the Subadviser's discretion, to
take advantage of investment opportunities, when yields on available investments
exceed interest rates and other expenses of related borrowing, or when, in the
Subadviser's opinion, unusual market conditions otherwise make it advantageous
for the Series to increase its investment capacity. The Series will only borrow
when there is an expectation that it will benefit the Series after taking into
account considerations such as interest income and possible losses upon
liquidation. Borrowing by the Series creates an opportunity for increased net
income but, at the same time, creates risks, including the fact that leverage
may exaggerate rate changes in the net asset value of Series' shares and in the
yield on the Series. The Series does not intend to borrow more than 5% of its
total assets for investment purposes, although the Series may borrow up to 20%
of the value of its total assets for temporary, extraordinary or emergency
purposes and for the clearance of transactions.
Securities of Foreign Issuers
The value of the Series' foreign investments may be significantly affected
by changes in currency exchange rates. The dollar value of a foreign security
generally decreases when the value of the dollar rises against the foreign
currency in which the security is denominated and tends to increase when the
value of the dollar falls against such currency. In addition, the value of the
Series' assets may be affected by losses and other expenses incurred in
converting between various currencies in order to purchase and sell foreign
securities and by currency restrictions and exchange control regulation.
The economies of many of the countries in which the Series may invest are
not as developed as the economy of the U.S. and may be subject to significantly
different forces. Political or social instability, expropriation or confiscatory
taxation, and limitations on the removal of funds or other assets, could also
adversely affect the value of investments.
B-5
<PAGE>
Foreign companies are generally not subject to the regulatory controls
imposed on U.S. issuers and, in general, there is less publicly available
information about foreign securities than is available about domestic
securities. Many foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by the Series may be reduced by a withholding tax at the source
which would reduce dividend income payable to shareholders.
Brokerage commission rates in foreign countries, which are generally fixed
rather than subject to negotiation as in the U.S. are likely to be higher. The
securities markets in many of the countries in which the Series may invest will
have substantially less trading volume than the principal U.S. markets. As a
result, the securities of some companies in these countries may be less liquid
and more volatile than comparable U.S. securities. There is generally less
government regulation and supervision of foreign stock exchanges, brokers and
issuers which may make it difficult to enforce contractual obligations.
Liquidity Puts
The Series may purchase instruments together with the right to resell the
instruments at an agreed-upon price or yield, within a specified period prior to
the maturity date of the instruments. This instrument is commonly known as a
"put bond" or a "tender option bond."
Consistent with the Series' investment objective, the Series may purchase a
put so that it will be fully invested in securities while preserving the
necessary liquidity to purchase securities on a when-issued basis, to meet
unusually large redemptions and to purchase at a later date securities other
than those subject to the put. The Series will generally exercise the puts or
tender options on their expiration date when the exercise price is higher than
the current market price for the related fixed income security. Puts or tender
options may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Series'
shares and from recent sales of portfolio securities are insufficient to meet
such obligations or when the funds available are otherwise allocated for
investment. In addition, puts may be exercised prior to the expiration date in
the event the Subadvisor for the Series revises its evaluation of the
creditworthiness of the issuer of the underlying security. In determining
whether to exercise puts or tender options prior to their expiration date and in
selecting which puts or tender options to exercise in such circumstances, the
Series' Subadviser considers, among other things, the amount of cash available
to the Series, the expiration dates of the available puts or tender options, any
future commitments for securities purchases, the yield, quality and maturity
dates of the underlying securities, alternative investment opportunities and the
desirability of retaining the underlying securities in the Series.
These instruments are not deemed to be "put options" for purposes of the
Series' investment restrictions.
Options on Securities and Securities Indices
A number of risk factors are associated with options transactions. There is
no assurance that a liquid secondary market on an options exchange will exist
for any particular option, at any particular time. If the Series is unable to
effect a closing purchase transaction with respect to covered options it has
written, the Series will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Series is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and may incur transaction costs upon
the purchase or sale of underlying securities. The ability to terminate
over-the-counter ("OTC") option positions is more limited than the ability to
terminate exchange-traded option positions because the Series would have to
negotiate directly with a contra party. In addition, with OTC options, there is
a risk that the contra party in such transactions will not fulfill its
obligations.
The Series pays brokerage commissions or spreads in connection with its
options transactions, as well as for purchases and sales of underlying
securities. The writing of options could result in significant increases in the
Series' turnover rate. The Series' transactions in options may be limited by the
requirements of the Internal Revenue Code for qualification as a regulated
investment company.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when the Series writes a
call option on an index it cannot provide in advance for its potential
settlement obligations by acquiring and holding the underlying securities. The
Series can offset some of the risk of writing a call index option position by
holding a diversified portfolio of securities similar to those on which the
underlying index is based. However, the Series cannot, as a practical matter,
acquire and hold a portfolio containing exactly the same securities as underlie
the index and, as a result, bears a risk that the value of the securities held
will vary from the value of the index.
Even if the Series could assemble a securities portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index
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option is exercised, the amount of cash that the holder is entitled to receive
is determined by the difference between the exercise price and the closing index
level on the date when the option is exercised. As with other kinds of options,
the Series as the call writer will not know that it has been assigned until the
next business day at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer of a covered call on a specific
underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
securities that exactly match the composition of the underlying index, it will
not be able to satisfy its assignment obligations by delivering those securities
against payment of the exercise price. Instead, it will be required to pay cash
in an amount based on the closing index value on the exercise date; and by the
time it learns that it has been assigned, the index may have declined, with a
corresponding decline in the value of its securities portfolio. This "timing
risk" is an inherent limitation on the ability of index call writers to cover
their risk exposure by holding securities positions.
If the Series has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Series will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer.
The Series will not purchase put options or call options if, after any such
purchase, the aggregate premiums paid for such options would exceed 20% of the
Series net assets. The aggregate value of the obligations underlying put options
will not exceed 25% of the Series' net assets.
Risks of Transactions in Stock Options. Writing of options involves the
risk that there will be no market in which to effect a closing transaction. An
option position may be closed out only on an exchange which provides a secondary
market for an option of the same series. Although the Series will generally
write only those options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time, and for some options
no secondary market on an exchange may exist. If the Series as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.
Risks of Options on Indices. The Series' purchase and sale of options on
indices will be subject to risks described above under "Risks of Transactions in
Stock Options." In addition, the distinctive characteristics of options on
indices create certain risks that are not present with stock options.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the Series will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of stock prices in the stock market generally or in
an industry or market segment rather than movements in the price of a particular
stock. Accordingly, successful use by the Series of options on indices would be
subject to the Subadviser's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Series would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Series. It is the Series' policy to
purchase or write options only on indices which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.
Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the CBOE 100). Since that time a number of additional index
option contracts have been introduced including options on industry indices.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop in all index option contracts. The Series will not
purchase or sell any index option contract unless and until, in the Subadviser's
opinion, the market for such options has developed sufficiently that such risk
in connection with such transactions is no greater than such risk in connection
with options on stocks.
Special Risks of Writing Calls on Indices. Because exercises of index
options are settled in cash, a call writer such as the Series cannot determine
the amount of its settlement obligations in advance and, unlike call writing on
specific stocks, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities.
Price movements in the Series' portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Series
bears the risk that the price of the securities held by the Series may not
increase as much as the index. In such
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event, the Series would bear a loss on the call which is not completely offset
by movements in the price of the Series portfolio. It is also possible that the
index may rise when the Series' portfolio of stocks does not rise. If this
occurred, the Series would experience a loss on the call which is not offset by
an increase in the value of its portfolio and might also experience a loss in
its portfolio. However, because the value of a diversified portfolio will, over
time, tend to move in the same direction as the market, movements in the value
of the Series in the opposite direction as the market would be likely to occur
for only a short period or to a small degree.
Unless the Series has other liquid assets which are sufficient to satisfy
the exercise of a call, the Series would be required to liquidate portfolio
securities in order to satisfy the exercise. Because an exercise must be settled
within hours after receiving the notice of exercise, if the Series fails to
anticipate an exercise, it may have to borrow (in amounts not exceeding 20% of
the Series total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.
When the Series has written a call, there is also a risk that the market
may decline between the time the Series has a call exercised against it, at a
price which is fixed as of the closing level of the index on the date of
exercise, and the time the Series is able to sell stocks in its portfolio. As
with stock options, the Series will not learn that an index option has been
exercised until the day following the exercise date but, unlike a call on stock
where the Series would be able to deliver the underlying securities in
settlement, the Series may have to sell part of its stock portfolio in order to
make settlement in cash, and the price of such stocks might decline before they
can be sold. This timing risk makes certain strategies involving more than one
option substantially more risky with index options than with stock options. For
example, even if an index call which the Series has written is "covered" by an
index call held by the Series with the same strike price, the Series will bear
the risk that the level of the index may decline between the close of trading on
the date the exercise notice is filed with the clearing corporation and the
close of trading on the date the Series exercises the call it holds or the time
the Series sells the call which in either case would occur no earlier than the
day following the day the exercise notice was filed.
Special Risks of Purchasing Puts and Calls on Indices. If the Series holds
an index option and exercises it before final determination of the closing index
value for that day, it runs the risk that the level of the underlying index may
change before closing. If such a change causes the exercised option to fall
out-of-the-money, the Series will be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiple) to the assigned writer. Although the Series may be able to minimize
this risk by withholding exercise instructions until just before the daily cut
off time or by selling rather than exercising an option when the index level is
close to the exercise price, it may not be possible to eliminate this risk
entirely because the cut off times for index options may be earlier than those
fixed for other types of options and may occur before definitive closing index
values are announced.
Special Risks of Purchasing OTC Options. When the Series writes an OTC
option, it generally will be able to close out the OTC option prior to its
expiration only by entering into a closing purchase transaction with the dealer
with which the Series originally wrote the OTC option. Any such cancellation, if
agreed to, may require the Series to pay a premium to the counterparty. While
the Series will enter into OTC options only with dealers which agree to, and
which are expected to be capable of, entering into closing transactions with the
Series, there can be no assurance that the Series will be able to liquidate an
OTC option at a favorable price at any time prior to expiration. Until the
Series is able to effect a closing purchase transaction in a covered OTC call
option the Series has written, it will not be able to liquidate securities used
as cover until the option expires or is exercised or different cover is
substituted. Alternatively, the Series could write an OTC call option to, in
effect, close an existing OTC call option or write an OTC put option to close
its position on an OTC put option. However, the Series would remain exposed to
each counterparty's credit risk on the put or call until such option is
exercised or expires. There is no guarantee that the Series will be able to
write put or call options, as the case may be, that would effectively close an
existing position. In the event of insolvency of the counterparty, the Fund may
be unable to liquidate an OTC option.
In entering into OTC options, the Series will be exposed to the risk that
the counterparty will default on, or be unable to complete, due to bankruptcy or
otherwise, its obligation on the option. In such event, the Series may lose the
benefit of the transaction. The value of an OTC option to the Series is
dependent upon the financial viability of the counterparty. If the Series
decides to enter into transactions in OTC options, the Subadviser will take into
account the credit quality of counterparties in order to limit the risk of
default by the counterparty.
OTC options may also be illiquid securities with respect to which no
secondary market exists. Similarly, the assets used to "cover" OTC options
written by the Series will be treated as illiquid. OTC options are sold to
qualified dealers who agree that the Series may repurchase any OTC options it
writes for a maximum price to be calculated by a formula set forth in the option
agreement. The "cover" for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option. Accordingly, to the
extent that OTC options are illiquid securities, investments in illiquid OTC
options will be subject to the limitations applicable to investments in illiquid
securities. See "Investment Restrictions."
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Foreign Currency Forward Contracts, Options and Futures Transactions
There is no limitation on the value of forward contracts into which the
Series may enter. However, the Series' transactions in forward contracts will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of a forward contract
with respect to specific receivables or payables of the Series generally arising
in connection with the purchase or sale of its securities and accruals of
interest or dividends receivable and Series expenses. Position hedging is the
sale of a foreign currency with respect to security positions denominated or
quoted in that currency. The Series may not position hedge with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of a forward contract) of securities,
denominated or quoted in, or currently convertible into, such currency. A
forward contract generally has no deposit requirements, and no commissions are
charged for such trades.
The Series may enter into a forward contract to hedge against risk in the
following circumstances: (i) during the time period when the Series contracts
for the purchase or sale of a security denominated in a foreign currency, or
(ii) when the Series anticipates the receipt in a foreign currency of dividends
or interest payments on a security which it holds. By entering into a forward
contract for a fixed amount of dollars for the purchase or sale of the amount of
foreign currency involved in the underlying transaction, the Series will be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the subject foreign currency during
the period between the date on which the security is purchased or sold, or on
which the dividend or interest payment is declared, and the date on which such
payments are made or received. Additionally, when the Series' Subadviser
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar, the Series may enter into a forward
contract, for a fixed amount of dollars, to sell the amount of foreign currency
approximating the value of some or all of the securities of the Series
denominated in such foreign currency. Further, the Series may enter into a
forward contract in one foreign currency, or basket of currencies, to hedge
against the decline or increase in value in another foreign currency. Use of a
different currency or basket of currencies magnifies the risk that movements in
the price of the forward contract will not correlate or will correlate
unfavorably with the foreign currency being hedged.
Forward currency contracts (i) are traded in an interbank market conducted
directly between currency traders (typically commercial banks or other financial
institutions) and their customers, (ii) generally have no deposit requirements
and (iii) are typically consummated without payment of any commissions. Failure
by the Series' contra party to make or take delivery of the underlying currency
at the maturity of the forward contract would result in the loss to the Series
of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the contra party. Thus, there can be no assurance
that the Series will in fact be able to close out a forward currency contract at
a favorable price prior to maturity. In addition, in the event of insolvency of
the contra party, the Series might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Series would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in the securities or currencies
that are the subject of the hedge or to maintain cash or securities in a
segregated account.
The Series may purchase and write put and call options on foreign
currencies traded on securities exchanges or boards of trade (foreign and
domestic) and OTC options for hedging purposes in a manner similar to that in
which forward foreign currency exchange contracts and futures contracts on
foreign currencies will be employed. Options on foreign currencies are similar
to options on securities, except that the Series has the right to take or make
delivery of a specified amount of foreign currency, rather than securities.
Generally, the OTC foreign currency options used by the Series are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
If the Series' Subadviser anticipates purchasing a foreign security and
also anticipates a rise in the value of such foreign currency (thereby
increasing the cost of such security), the Series may purchase call options or
write put options on the foreign currency. The Series could also enter into a
long forward contract or a long futures contract on such currency, or purchase a
call option, or write a put option, on a currency futures contract. The use of
such instruments could offset, at least partially, the effects of the adverse
movements of the exchange rates.
Foreign Currency Strategies--Special Considerations
The Series may use options on foreign currencies, futures on foreign
currencies, options on futures on foreign currencies and forward currency
contracts, to hedge against movements in the values of the foreign currencies in
which the Series'
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securities are denominated. Such currency hedges can protect against price
movements in a security that the Series owns or intends to acquire that are
attributable to changes in the value of the currency in which it is denominated.
Such hedges do not, however, protect against price movements in the securities
that are attributable to other causes.
The Series might seek to hedge against changes in the value of a particular
currency when no futures contract, forward contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, the Series may hedge against price movements in
that currency by entering into a contract on another currency or basket of
currencies, the values of which the Series' Subadvisor believes will have a
positive correlation to the value of the currency being hedged. The risk that
movements in the price of the contract will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of futures contracts, options on futures contracts, forward
contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of futures contracts, forward
contracts or options, the Series could be disadvantaged by dealing in the odd-
lot market (generally consisting of transactions of less than $1 million) for
the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the futures contracts or options until they
reopen.
Settlement of futures contracts, forward contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, the Series might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
Covered Forward Currency Contracts, Futures Contracts and Options
Transactions using forward currency contracts, futures contracts and
options (other than options that the Series has purchased) expose the Series to
an obligation to another party. The Series will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, forward currency contracts or futures
contracts, or (2) liquid assets with a value sufficient at all times to cover
its potential obligations not covered as provided in (1) above. The Series will
comply with SEC guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash, U.S. government securities, equity
securities or other liquid, unencumbered assets, marked-to-market daily in a
segregated account with its Custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding forward currency contract, futures contract or
option is open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of the Series' assets to cover segregated accounts
could impede portfolio management or the Series' ability to meet redemption
requests or other current obligations.
Risks of Transactions in Options on Foreign Currencies
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Series will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect closing transactions in particular options, with the result
that the Series would have to exercise its options in order to realize any
profits and would incur brokerage commissions upon the exercise of call options
and upon the subsequent disposition of underlying currencies acquired through
the exercise of call options or upon the purchase of underlying currencies for
the exercise of put options. If the Series as a covered call option writer is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying currency until the option expires or it
delivers the underlying currency upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing
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transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in the class or series
of options) would cease to exist, although outstanding options on that exchange
that had been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms. There
is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of any
of the clearing corporations inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders. The Series intends to purchase and sell only
those options which are cleared by a clearinghouse whose facilities are
considered to be adequate to handle the volume of options transactions.
Risks of Options on Foreign Currencies
Options on foreign currencies involve the currencies of two nations, and
therefore, developments in either or both countries can affect the values of
options on foreign currencies. Risks include those described in the Prospectus
under "How the Series Invests--Risks and Special Considerations," including
government actions affecting currency valuation and the movements of currencies
from one country to another. The quality of currency underlying option contracts
represent odd lots in a market dominated by transactions between banks; this can
mean extra transaction costs upon exercise. Options markets may be closed while
round-the-clock interbank currency markets are open, and this can create price
and rate discrepancies.
Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures contracts as
a hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the currency or group of currencies, the price of a
futures contract may move more or less than the price of the currencies being
hedged. Therefore, a correct forecast of currency rates, market trends or
international political trends by the Manager or Subadviser may still not result
in a successful hedging transaction.
Although the Series will purchase or sell futures contracts only on
exchanges where there appears to be an adequate secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular contract or at any particular time. Accordingly, there can be no
assurance that it will be possible, at any particular time, to close a futures
position. In the event the Series could not close a futures position and the
value of such position declined, the Series would be required to continue to
make daily cash payments of variation margin. There is no guarantee that the
price movements of the portfolio securities denominated in foreign currencies
will, in fact, correlate with the price movements in the futures contracts and
thus provide an offset to losses on a futures contract. Currently, futures
contracts are available on the Australian Dollar, British Pound, Canadian
Dollar, Japanese Yen, Swiss Franc, Deutsche Mark and Eurodollar.
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act are exempt from the definition of
"commodity pool operator," subject to compliance with certain conditions. The
exemption is conditioned upon a requirement that all of the Series' futures or
options transactions constitute bona fide hedging transactions within the
meaning of the Commodity Futures Trading Commission's (CFTC's) regulations. The
Series will use currency futures and options on futures in a manner consistent
with this requirement. The Series may also enter into futures or related options
contracts for income enhancement and risk management purposes if the aggregate
initial margin and option premiums do not exceed 5% of the liquidation value of
the Series' total assets.
Successful use of futures contracts by the Series is also subject to the
ability of the Series' Manager or Subadviser to predict correctly movements in
the direction of markets and other factors affecting currencies generally. For
example, if the Series has hedged against the possibility of an increase in the
price of securities in its portfolio and the price of such securities increases
instead, the Series will lose part or all of the benefit of the increased value
of its securities because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Series has insufficient cash
to meet daily variation margin requirements, it may need to sell securities to
meet such requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. The Series
may have to sell securities at a time when it is disadvantageous to do so.
The hours of trading of futures contracts may not conform to the hours
during which the Series may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures markets.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time
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during the option exercise period. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
the option, the assumption of offsetting futures positions by the writer and
holder of the option will be accompanied by delivery of the accumulated cash
balance in the writer's futures margin account which represents the amount by
which the market price of the futures contract, at exercise, exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract. Currently options can be purchased or written
with respect to futures contracts on the Australian Dollar, British Pound,
Canadian Dollar, Japanese Yen, Swiss Franc, Deutsche Mark and Eurodollar.
The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.
Segregated Accounts. The Series will establish a segregated account with
State Street Bank and Trust Company (State Street or Custodian) in which it will
maintain cash, U.S. Government securities, equity securities or other liquid,
unencumbered assets, marked-to-market daily, equal in value to its obligations
in respect of potentially leveraged transactions including forward contracts,
when-issued and delayed-delivery securities, repurchase and reverse repurchase
agreements, forward rolls, dollar rolls, futures contracts, written options and,
options on futures contracts (unless otherwise covered).
Illiquid Securities
The Series may hold up to 15% of its net assets in illiquid securities.
Illiquid securities include repurchase agreements which have a maturity of
longer than seven days and securities that are illiquid by virtue of the absence
of a readily available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended ("Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A of the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The Subadviser anticipates that the market for certain
restricted securities such as institutional commercial paper will expand further
as a result of this new regulation and the development of automated systems for
the trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the NASD.
Restricted securities eligible for resale pursuant to Rule 144A and
commercial paper for which there is a readily available market will not be
deemed illiquid. The Subadviser will monitor the liquidity of such restricted
securities, subject to the supervision of the Manager and the Board of
Directors. In reaching liquidity decisions, Subadviser will consider, among
other things, the following factors: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer). In addition, in order
for commercial paper that is issued in reliance on Section 4(2) of the
Securities Act to be considered liquid, (i) it must be rated in one of the two
highest rating categories by at least two NRSROs, or if only one NRSRO rates the
securities, by that NRSRO, or, if unrated, be of comparable quality in the view
of the Subadviser, and (ii) it must not be "traded flat" (i.e., without
accrued interest) or in default as to principal or interest. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
Other Investment Techniques
The Series may take advantage of opportunities in the area of options and
futures contracts and any other derivative instruments that are not presently
contemplated for use by the Series or that are not currently available but that
may be developed,
B-12
<PAGE>
to the extent such opportunities are both consistent with its investment
objective and legally permissible for the Series. Before entering into such
transactions or making any such investment, the Series will provide appropriate
disclosure in its Prospectus.
INVESTMENT RESTRICTIONS
The investment restrictions listed below have been adopted by the Series as
fundamental policies, except as otherwise indicated. Under the Investment
Company Act, a fundamental policy of the Series may not be changed without the
vote of a majority of the outstanding voting securities of the Series. As
defined in the Investment Company Act, a "majority of a Fund's outstanding
voting securities" means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are present in person
or represented by proxy or (ii) more than 50% of the outstanding shares. For
purposes of the following limitations: (i) all percentage limitations apply
immediately after a purchase or initial investment; and (ii) any subsequent
change in any applicable percentage resulting from market fluctuations does not
require elimination of any asset from the Series.
The Series may not:
1. Purchase any security if, as a result, with respect to 75% of the
Series' total assets, more than 5% of the value of its total assets (determined
at the time of investment) would then be invested in the securities of any one
issuer.
2. Purchase a security if more than 10% of the outstanding voting
securities of any one issuer would be held by the Series.
3. Purchase a security if, as a result, 25% or more of the value of its
total assets (determined at the time of investment) would be invested in
securities of one or more issuers having their principal business activities in
the same industry. This restriction does not apply to obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities.
4. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Series may purchase securities of issuers
which engage in real estate operations and securities which are secured by real
estate or interests therein.
5. Purchase or sell commodities or commodity futures contracts, except that
the Series may purchase and sell financial futures contracts and options thereon
and that forward contracts are not deemed to be commodities or commodity futures
contracts.
6. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Series may invest in the
securities of companies which operate, invest in or sponsor such programs.
7. Issue senior securities, borrow money or pledge its assets, except that
the Series may borrow from banks or through forward rolls, dollar rolls or
reverse repurchase agreements up to 20% of the value of its total assets to take
advantage of investment opportunities, for temporary, extraordinary or emergency
purposes, or for the clearance of transactions and may pledge up to 20% of the
value of its total assets to secure such borrowings. For purposes of this
restriction, the purchase or sale of securities on a "when-issued" or
delayed-delivery basis; the purchase and sale of options, financial futures
contracts and options thereon; the entry into repurchase agreements and
collateral and margin arrangements with respect to any of the foregoing, will
not be deemed to be a pledge of assets nor the issuance of senior securities.
8. Make loans except by the purchase of fixed income securities in which
the Series may invest consistently with its investment objective and policies or
by use of reverse repurchase and repurchase agreements, forward rolls, dollar
rolls and securities lending arrangements.
9. Make short sales of securities.
10. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities. (For the
purpose of this restriction, the deposit or payment by the Series of initial or
maintenance margin in connection with financial futures contracts is not
considered the purchase of a security on margin.)
11. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, the Series may be deemed to be an
underwriter under certain federal securities laws. The Series has no limit with
respect to investments in restricted securities.
The Series will not as a matter of operating policy:
1. Invest in oil, gas and mineral leases or development programs.
B-13
<PAGE>
2. Purchase a security if, as a result, more than 15% of its total assets
would be invested in securities which are restricted as to disposition. This
restriction shall not apply to mortgage-backed securities or obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
3. Purchase or retain the securities of any issuer if any officer or
director or the Manager or the Subadviser owns more than 1/2 of 1% of the
outstanding securities of such issuer, and such officers and/or directors, who
own more than 1/2 of 1%, own in the aggregate more than 5% of the outstanding
securities of such issuer.
4. Purchase warrants if, as a result, the Series would then have more than
5% of its assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and investment in
warrants which are not listed on the New York Stock Exchange or American Stock
Exchange or a major foreign exchange will be limited to 2% of the Series' total
assets (determined at the time of investment). For purposes of this limitation,
warrants acquired in units or attached to securities are deemed to be without
value.
5. Purchase securities of other investment companies except in compliance
with the Investment Company Act and applicable state law.
6. Invest in companies for the purpose of exercising control or management
of any other issuer, except in connection with a merger, consolidation,
acquisition or reorganization.
7. Invest more than 15% of its total assets in securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Series' assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later change
in percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that a Series'
asset coverage for borrowings falls below 300%, the Series will take prompt
action to reduce its borrowings, as required by applicable law.
In order to comply with the rules and regulations of certain State
securities commissions, the Series has agreed (i) that over-the-counter options
transactions shall be entered into only when such options are not available on a
national securities exchange, and (ii) broker-dealers with whom the Series shall
enter into such transaction shall have a minimum net worth, at the time of the
transaction is entered into, of $20 million. In addition, the Series will only
buy and sell puts and calls on securities, stock index futures, or financial
futures or options on financial futures, if such options are written by other
persons, and if;
(i) the aggregate premiums paid on all such options which are held at any
time do not exceed 20% of the Series' total net assets; and
(ii) the aggregate margin deposits required on all such futures or options
thereon held at any time do not exceed 5% of the Series' total assets.
<TABLE>
DIRECTORS AND OFFICERS
<CAPTION>
Position with Principal Occupation
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- -----------------------
<S> <C> <C>
Stephen C. Eyre (73) Director Executive Director, The John A. Hartford Foundation, Inc. (charitable
c/o Prudential Mutual Fund foundation) (since May 1985); Director of Faircom, Inc. and Trustee Emeritus
Management, Inc. of Pace University
One Seaport Plaza
New York, NY
Delayne Dedrick Gold (57) Director Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
Don G. Hoff (60) Director Chairman and Chief Executive Officer of Intertec, Inc. (investments)
c/o Prudential Mutual Fund since 1980; Director of Innovative Capital Management, Inc.,
Management, Inc. The Asia Pacific Fund, Inc. and The Greater China Fund, Inc.
One Seaport Plaza
New York, NY
</TABLE>
B-14
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- ----------------------
<S> <C> <C>
*Harry A. Jacobs, Jr. (75) Director Senior Director (since January 1986) of Prudential Securities
One Seaport Plaza Incorporated (Prudential Securities); formerly Interim Chairman and
New York, NY Chief Executive Officer of Prudential Mutual Fund Management Inc.
(PMF); (June-September 1993); formerly Chairman of the Board
of Prudential Securities (1982-1985); Chairman and Chief
Executive Officer of Bache Group Inc. (1977-1982); Trustee
of The Trudeau Institute; Director of The First Australia
Fund, Inc. and The First Australia Prime Income Fund, Inc.
Sidney R. Knafel (65) Director Managing Partner of SRK Management Company (investments) since 1981;
c/o Prudential Mutual Fund Chairman of Insight Communications Company, L.P. and Microbiological
Management, Inc. Associates, Inc.; Director of Cellular Communications, Inc., Cellular
One Seaport Plaza Communications International, Inc., Cellular Communications of Puerto
New York, NY Rico, Inc., General American Investors Company, Inc., IGENE
Biotechnology, Inc., International CableTel Incorporated and
a number of private companies.
Robert E. LaBlanc (62) Director President of Robert E. LaBlanc Associates, Inc. (telecommunications)
c/o Prudential Mutual Fund since 1981; formerly General Partner at Salomon Brothers; formerly
Management, Inc. Vice Chairman of Continental Telecom; Director of Storage Technology
One Seaport Plaza Corporation, Titan Corporation, Tribune Company and Trustee of
New York, NY Manhattan College.
Thomas A. Owens, Jr. (73) Director Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
*Richard A. Redeker (53) President and President, Chief Executive Officer and Director (since October 1993)
One Seaport Plaza Director of PMF; Executive Vice President, Director and Member of the Operating
New York, NY Committee (since October 1993) of 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 and President
of The High Yield Income Fund, Inc.
Clay T. Whitehead (57) Director President of National Exchange Inc. (new business development firm)
c/o Prudential Mutual Fund (since May 1983).
Management, Inc.
One Seaport Plaza
New York, NY
David W. Drasnin (58) Vice President Vice President and Branch Manager of Prudential Securities.
39 Public Square,
Suite 500 Wilkes Barre, PA
</TABLE>
- --------------
* "Interested" director, as defined in the Investment Company Act, by reason of
his affiliation with Prudential or PMF.
B-15
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- ----------------------
<S> <C> <C>
Robert F. Gunia (49) Vice President Director (since January 1989), Chief Administrative Officer (since
One Seaport Plaza July 1990), and Executive Vice President, Treasurer and Chief
New York, NY Financial Officer (since June 1987) of PMF; Comptroller of The
Money Management Group of Prudential (since 1996); Senior Vice President
(since March 1987) of Prudential Securities; Executive Vice President
Treasurer and Comptroller (since March 1991) of PMFD; Director (since
June 1987) of PMFS; Vice President and Director of The Asia Pacific
Fund, Inc. (since May 1989).
Grace C. Torres (37) Treasurer and First Vice President (since March 1994) of PMF and of Prudential
One Seaport Plaza Principal Securities; prior thereto, Vice President of Bankers Trust
New York, NY Financial and (July 1989-March 1994).
Accounting
Officer
Stephen M. Ungerman (43) Assistant First Vice President (since February 1993) of PMF; Tax Director of
One Seaport Plaza Treasurer the Money Management Group and the Private Asset Group of
New York, NY The Prudential Insurance Company of America (since March 1996); prior
thereto, Senior Tax Manager at Price Waterhouse LLP.
S. Jane Rose (50) Secretary Senior Vice President (since January 1991) and Senior Counsel (since
One Seaport Plaza June 1987) of PMF; Senior Vice President and Senior Counsel of
New York, NY Prudential Securities (since July 1992); formerly Vice President and
Associate General Counsel of Prudential Securities.
Ellyn C. Vogin (35) Assistant Vice President and Associate General Counsel of Prudential Securities
One Seaport Plaza Secretary and of PMF (since March 1995); prior thereto, associated with the law
New York, NY firm of Fulbright & Jaworski L.L.P.
</TABLE>
- -----------------
* "Interested" director, as defined in the Investment Company Act, by reason
of his affiliation with Prudential or PMF.
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities.
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Fund pays each of its Directors who is not an "affiliated" person of PMF
annual compensation of $12,000, in addition to certain out-of-pocket expenses.
The chairman of the Audit Committee receives an additional $4,000 per year.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of such agreement, the Fund accrues
daily the amount of Directors' fees which accrue interest at a rate equivalent
to the prevailing rate applicable to 90-day U.S. Treasury Bills at the beginning
of each calendar quarter or, pursuant to an SEC exemptive order, at the daily
rate of return of the Fund (the Fund rate). Payment of the interest so accrued
is also deferred and accruals become payable at the option of the Director. The
Fund's obligation to make payments of deferred Directors' fees, together with
interest thereon, is a general obligation of the Fund.
The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under this phase-in provision, Messrs. Eyre,
Jacobs and Owens are scheduled to retire on December 31, 1998.
The Board of Directors has nominated a new slate of Directors for the Fund
which will be submitted of the Fund of record as of August 9, 1996 at a special
meeting to be held on or about October 30, 1996.
Pursuant to the terms of the Management Agreement with the Fund, the
Manager pays all compensation of officers and employees of the Fund as well as
the fees and expenses of all Directors of the Fund who are affiliated persons of
the Manager.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended October 31, 1995 to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the Fund's board and that of all other funds managed by
Prudential Mutual Fund Management, Inc. (Fund Complex) for the calendar year
ended December 31, 1995.
B-16
<PAGE>
Compensation Table
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From Fund
Aggregate Benefits Accrued Estimated Annual and Fund
Compensation As Part of Fund Benefits Upon Complex Paid
Name and Position From Fund Expenses Retirement to Directors
- ------------------------------------------- ------------ ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Stephen C. Eyre--Director ................. $16,000 None N/A $ 41,000(4/4)*
Delayne Dedrick Gold--Director ............ $12,000 None N/A $185,000(22/39)*
Don G. Hoff--Director ..................... $12,000 None N/A $ 48,500(4/4)*
Sidney R. Knafel--Director ................ $12,000 None N/A $ 35,500(4/4)*
Robert E. LaBlanc--Director ............... $12,000 None N/A $ 35,500(4/4)*
Thomas A. Owens, Jr.--Director ............ $12,000 None N/A $100,500(12/13)*
Clay T. Whitehead--Director ............... $12,000 None N/A $ 35,500(4)*
</TABLE>
- -------------
* Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.
As of August 30, 1996, the Directors and officers of the Fund, as a
group, owned less than 1% of the outstanding common stock of the Series.
As of August 30, 1996, there were no beneficial owners, directly or
indirectly, of more than 5% of the outstanding common stock of the Series.
MANAGER
The manager of the Series is Prudential Mutual Fund Management, Inc. (PMF
or the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as
manager to substantially all of the other investment companies that, together
with the Series, comprise the "Prudential Mutual Funds." See "How the Series is
Managed" in the Prospectus. As of July 31, 1996 PMF managed and/or administered
open-end and closed-end management investment companies with assets of
approximately $52 billion and, according to the Investment Company Institute, as
of December 31, 1995, the Prudential Mutual Funds were the 13th largest family
of mutual funds in the United States.
PMF is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management, Inc. PMFS serves as the transfer agent for the Prudential
Mutual Funds and, in addition, provides customer service, recordkeeping and
management and administration services to qualified plans.
Pursuant to the Management Agreement with the Series (the Management
Agreement), PMF, subject to the supervision of the Series' Board of Directors
and in conformity with the stated policies of the Series, manages both the
investment operations of the Series and the composition of the Series'
portfolio, including the purchase, retention, disposition and loan of
securities. In connection therewith, PMF is obligated to keep certain books and
records of the Series. PMF also administers the Series' corporate affairs and,
in connection therewith, furnishes the Series with office facilities, together
with those ordinary clerical and bookkeeping services which are not being
furnished by State Street Bank and Trust Company, the Series' custodian, and
PMFS, the Series' transfer and dividend disbursing agent. The management
services of PMF for the Series are not exclusive under the terms of the
Management Agreement and PMF is free to, and does, render management services to
others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of 1% of the Series' average daily net assets. The fee
is computed daily and payable monthly. The Management Agreement also provides
that, in the event the expenses of the Series (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 Series' business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Series'
shares are qualified for offer and sale, the compensation due to PMF will be
reduced by the amount of such excess. Reductions in excess of the total
compensation payable to PMF will be paid by PMF to the Fund. Currently, the
Series believes that the most restrictive expense limitation of state securities
commissions is 2-1/2% of the Series' 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. Because the expenses incurred by the Series are anticipated to be
higher than those of funds that invest only in U.S. securities, the Series has
received waivers from applicable state expense limitations to exclude certain
foreign transactional expenses from expenses subject to the limitation.
In connection with its management of the corporate affairs of the Series,
PMF bears the following expenses:
(a) the salaries and expenses of all of its and the Series' personnel
except the fees and expenses of Directors who are not affiliated persons of PMF
or the Series' investment adviser;
B-17
<PAGE>
(b) all expenses incurred, by PMF or by the Series in connection with
managing the ordinary course of the Series' business, other than those assumed
by the Series as described below; and
(c) the costs and expenses payable to Mercator Asset Management, L.P.
(Mercator) pursuant to the subadvisory agreement between PMF and Mercator (the
Subadvisory Agreement).
Under the terms of the Management Agreement, the Series is responsible for
the payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated persons of the Manager
or the Series' investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Series and of pricing the Series' shares,
(d) the charges and expenses of legal counsel and independent accountants for
the Series, (e) brokerage commissions and any issue or transfer taxes chargeable
to the Series in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Series to governmental agencies, (g) the fees of
any trade associations of which the Series may be a member, (h) the cost of
stock certificates representing shares of the Series, (i) the cost of fidelity
and liability insurance, (j) the fees and expenses involved in registering and
maintaining registration of the Series and of its shares with the Securities and
Exchange Commission, registering the Series and qualifying its shares under
state securities laws, including the preparation and printing of the Series'
registration statements and prospectuses for such purposes, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing
reports, proxy statements and prospectuses to shareholders in the amount
necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Series' business and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Series in connection with the
matters to which the Management Agreement relates, except a loss resulting from
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Management Agreement provides that it will terminate automatically if
assigned, and that it may be terminated without penalty by either party upon not
more than 60 days' nor less than 30 days' written notice. The Management
Agreement will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the Investment Company Act.
PMF has entered into a Subadvisory Agreement (the Subadvisory Agreement)
with Mercator (the Subadviser). Dedicated to global and international common
stock investing, Mercator was initially founded in 1984 by senior professionals
formerly associated with Templeton Investment Counsel as Mercator Asset
Management, Inc. ("Mercator, Inc."). On November 30, 1995 Mercator, a limited
partnership organized under the laws of the State of Delaware, assumed the
investment advisory business of Mercator, Inc. As of December 31, 1995, Mercator
had $1.8 billion in assets under management. The Subadvisory Agreement provides
that Mercator will furnish investment advisory services in connection with the
management of the Series. In connection therewith, Mercator is obligated to keep
certain books and records of the Fund. PMF continues to have responsibility for
all investment advisory services pursuant to the Management Agreement and
supervises Mercator's performance of such services.
Pursuant to a subadvisory agreement with PMF, The Prudential Investment
Corporation (PIC) provides investment advisory services to the Series with
respect to (i) the management of short-term assets, including cash, money market
instruments and repurchase agreements and (ii) the lending of portfolio
securities in connection with the management of the International Stock Series.
For these services, PMF will reimburse PIC for reasonable costs and expenses
incurred by PIC determined in a manner acceptable to PMF.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or Mercator upon not more than 60 days', nor less
than 30 days', written notice. The Subadvisory Agreement provides that it will
continue in effect for a period of more than two years from its execution only
so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act.
DISTRIBUTOR
Prudential Securities Incorporated, One Seaport Plaza, New York, New York
10292 (Prudential Securities), acts as the distributor of the shares of the
Series.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively the Plans) adopted by the Series
under Rule 12b-1 under the Investment Company Act and separate distribution
agreements (the Distribution Agreements), Prudential Securities (the
Distributor) incurs the expenses of distributing the Series' Class A, Class B
and Class C shares. Prudential Securities serves as the Distributor of the Class
Z shares and incurs the expenses of distributing the Series' Class Z shares
under a Distribution Agreement with the Fund, none of which are reimbursed by or
paid for by the Series. See "How the Series is Managed--Distributor" in the
Prospectus.
B-18
<PAGE>
The Class A Plan provides that (i) up to .25 of 1% of the average daily net
assets of the Class A shares may be used to pay for personal service and the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1%. The
Class B Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class B shares may be paid as a service fee and .75 of 1% (not including
the service fee) per annum of the Series' average daily net assets may be used
as reimbursement for distribution-related expenses with respect to the Class B
shares (asset-based sales charge).
Prudential Securities will also receive the proceeds of contingent deferred
sales charges paid by holders of Class B shares upon certain redemptions of
Class B shares. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges" in the Prospectus.
The Class A, Class B and Class C Plans continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Directors, including a majority vote of the Rule 12b-1
Directors, cast in person at a meeting called for the purpose of voting on such
continuance. The Plans may each be terminated at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders
of a majority of the outstanding shares of the applicable class of the Series.
The Plans may not be amended to increase materially the amounts to be spent for
the services described therein without approval by the shareholders of the
applicable class (by both Class A and Class B shareholders, voting separately,
in the case of material amendments to the Class A Plan), and all material
amendments are required to be approved by the Board of Directors in the manner
described above. Each Plan will automatically terminate in the event of its
assignment. The Series will not be contractually obligated to pay expenses
incurred under any Plan if it is terminated or not continued.
Pursuant to each Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf of
each class of shares of the Series by the Distributor. The report includes an
itemization of the distribution expenses and the purposes of such expenditures.
In addition, as long as the Plans remain in effect, the selection and nomination
of Rule 12b-1 Directors shall be committed to the Rule 12b-1 Directors.
Pursuant to each Distribution Agreement, the Series has agreed to indemnify
Prudential Securities to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933, as amended.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on
B-19
<PAGE>
the Board of Directors of PSG and the Compliance Committee of PSI. The new
director also serves as an independent "ombudsman" whom PSI employees can call
anonymously with complaints about ethics and compliance. Prudential Securities
reports any allegations or instances of criminal conduct and material
improprieties to the new director. The new director will submit compliance
reports which identify all such allegations or instances of criminal conduct and
material improprieties every three months and will continue to do so for a
three-year period.
NASD Maximum Sales Charge Rule. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. Interest charges on unreimbursed distribution expenses equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not included in
the calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of the Series may not exceed .75 of 1% per class. The 6.25% limitation
applies to the Series rather than on a per shareholder basis. If aggregate sales
charges were to exceed 6.25% of total gross sales of any class, all sales
charges on shares of that class would be suspended.
NET ASSET VALUE
Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at the
last sales price on the day of valuation, or, if there was no sale on such day,
the mean between the last bid and asked prices on such day, as provided by a
pricing service. Corporate bonds (other than convertible debt securities) and
U.S. Government securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed to
be over-the-counter, are valued on the basis of valuations provided by a pricing
service which uses information with respect to transactions in bonds, quotations
from bond dealers, agency ratings, market transactions in comparable securities
and various relationships between securities in determining value. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary value is believed to be
over-the-counter, are valued at the mean between the last reported bid and asked
prices provided by principal market makers or independent pricing agents. Other
securities will be valued at the mean of the most recently quoted bid and asked
prices in the over-the-counter market. Options on stock and stock indices traded
on an exchange are valued at the mean between the most recently quoted bid and
asked prices on the respective exchange and futures contracts and options
thereon are valued at their last sales prices as of the close of the commodities
exchange or board of trade. Quotations of foreign securities in a foreign
currency are converted to U.S. dollar equivalents at the current rate obtained
from a recognized bank or dealer and forward currency exchange contracts are
valued at the current cost of covering or offsetting such contracts. Should an
extraordinary event, which is likely to affect the value of the security, occur
after the close of an exchange on which a portfolio security is traded, such
security will be valued at fair value considering factors determined in good
faith by the investment adviser under procedures established by and under the
general supervision of the Fund's Board of Directors.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Directors. Short-term debt securities are valued at cost, with interest
accrued or discount amortized to the date of maturity, if their original
maturity was 60 days or less, unless this is determined by the Board of
Directors not to represent fair value. Short-term securities with remaining
maturities of more than 60 days, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or principal market maker. The Series will compute its
net asset value at 4:15 P.M., New York time, on each day the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem Series shares have been received or days on which changes in the value
of the Series' portfolio securities do not affect net asset value. In the event
the New York Stock Exchange closes early on any business day, the net asset
value of the Series' shares shall be determined at a time between such closing
and 4:15 P.M., New York time.
Net asset value is calculated separately for each class. The net asset
value of Class B and Class C shares will generally be lower than the net asset
value of Class A and Class Z shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. The
net asset value of Class Z shares will generally be higher than the net asset
value of Class A, Class B or Class C shares as a result of the fact that the
Class Z shares are not subject to any distribution or service fee. It is
expected, however, that the net asset value per share of each class will tend to
converge immediately after the recording of dividends which will differ by
approximately the amount of the distribution expense accrual differential among
the classes.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities,
options and futures contracts for the Series, the selection of brokers, dealers
and futures commis-
B-20
<PAGE>
sion merchants to effect the transactions and the negotiation
of brokerage commissions, if any. Purchases and sales of securities, options or
futures on a national securities exchange or board of trade are effected through
brokers or futures commission merchants who charge a negotiated commission for
their services; on foreign securities exchanges, commissions may be fixed.
Orders may be directed to any broker or futures commission merchant including,
to the extent and in the manner permitted by applicable law, Prudential
Securities and its affiliates. The term "Manager" as used in this section
includes the Subadviser.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Series 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 over-the-counter
securities with Prudential Securities acting as market maker, and it will not
execute a negotiated trade with Prudential Securities if execution involves
Prudential Securities' acting as principal with respect to any part of the
Series' order.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities (or any affiliate), during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the SEC. This
limitation, in the opinion of the Series, will not significantly affect the
Series' ability to pursue its present investment objective. However, in the
future, in other circumstances, the Series may be at a disadvantage because of
this limitation in comparison to other funds with similar objectives but not
subject to such limitations.
In placing orders for portfolio securities of the Series, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the
Series will not necessarily be paying the lowest spread or commission available.
Within the framework of this policy, the Manager will consider research and
investment services provided by brokers, dealers or futures commission merchants
who effect or are parties to portfolio transactions of the Series, the Manager
or its 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 Series 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 assets are far larger than those of the
Series, and the services furnished by such brokers, dealers or futures
commission merchants may be used by the Manager in providing investment
management for the Series. 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, dealer or
futures commission merchant in the light of generally prevailing rates. The
Manager is authorized to pay higher commissions on brokerage transactions for
the Series to brokers, dealers or futures commission merchants other than
Prudential Securities in order to secure research and investment services
described above, subject to review by the Series' Board of Directors from time
to time as to the extent and continuation of this practice. The allocation of
orders among brokers, dealers and futures commission merchants and the
commission rates paid are reviewed periodically by the Series' Board of
Directors.
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
Series, the commissions,fees or other remuneration received by Prudential
Securities (or any affiliate) must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers or futures
commission merchants in connection with comparable transactions involving
similar securities or futures being purchased or sold on a securities exchange
or board of trade during a comparable period of time. This standard would allow
Prudential Securities (or any affiliate) to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction. Furthermore, the Board of Directors of
the Series, including a majority of the noninterested directors, has adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to Prudential Securities (or any affiliate) are
consistent with the foregoing standard. In accordance with Section 11(a) of the
Securities Exchange Act of 1934, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange for
the Series unless the Series has expressly authorized the retention of such
compensation. Prudential Securities must furnish to the Series at least annually
a statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Series 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.
B-21
<PAGE>
PURCHASE AND REDEMPTION OF SERIES SHARES
Shares of the Series may be purchased at a price equal to the next
determined net asset value per share plus a sales charge which, at the election
of the investor, may be imposed either (i) at the time of purchase (Class A
shares) or (ii) on a deferred basis (Class B or Class C shares). Class Z shares
of the Fund are offered to a limited group of investors at net asset value
without any sales charge. See "Shareholder Guide--How to Buy Shares of the
Fund" in the Prospectus.
Each class represents an interest in the same assets of the Fund and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or fees (except for Class Z shares, which are
not subject to any sales charge or distribution and/or service fee), which may
affect performance, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangements and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (iii) each
class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to a
limited group of investors. See "Distributor" and "Shareholder Investment
Account--Exchange Privilege."
Reduction and Waiver of Initial Sales Charges--Class A Shares
Combined Purchase and Cumulative Purchase Privilege. If an investor or
eligible group of related investors purchases Class A shares of the Series
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See the table of break points under "Shareholder
Guide--Alternative Purchase Plan" in the Prospectus.
An eligible group of related Series investors includes any combination of
the following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group
that holds 25% or more of the outstanding voting securities of a
company will be deemed to control the company, and a partnership will
be deemed to be controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Series investors may include the
following: an employer (or group of related employers) and one or more
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed related to
that employer).
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investor's holdings. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants in any
retirement or group plans.
Rights of Accumulation. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of the shares of
the Series and shares of other Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) to determine
the reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering or price (net asset value plus maximum sales charge)
as of the previous business day. See "How the Series Values Its Shares" in the
Prospectus. The Distributor must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charges will
be granted subject to confirmation of the investor's holdings. Rights of
accumulation are not available to individual participants in any retirement or
group plans.
Letters of Intent. Reduced sales charges are also available to investors
(or an eligible group of related investors), including retirement and groups
plans, who enter into a written Letter of Intent providing for the purchase,
within a thirteen-month period, of shares of the Fund and shares of other
Prudential Mutual Funds (Investment Letter of Intent). Retirement and group
plans may also qualify to purchase Class A shares at net asset value by entering
into an LOI whereby they agree to enroll, within a thirteen-month period, a
specified number of eligible employees or participants (Participant Letter of
Intent).
B-22
<PAGE>
For purposes of the Investment Letter of Intent, all shares of the Fund
and shares of other Prudential Mutual Funds (excluding money market funds other
than those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
and through Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the Transfer
Agent or through Prudential Securities.
A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number of
investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish a minimum eligible employee or participant
enrollment goal over a thirteen-month period. Each investment made during the
period, in the case of an Investment Letter of Intent, will receive the reduced
sales charge applicable to the amount represented by the goal as if it were a
single investment. In the case of a Participant Letter of Intent, each
investment made during the period will be made at net asset value. Escrowed
Class A shares totaling 5% of the dollar amount of the Letter of Intent will be
held by the Transfer Agent in the name of the purchaser, except in the case of
retirement and group plans where the employer or plan sponsor will be
responsible for paying any applicable sales charge. The effective date of an
Investment Letter of Intent (except in the case of retirement and group plans)
may be back-dated up to 90 days, in order that any investment made during this
90-day period, valued at the purchaser's cost, can be applied to the fulfillment
of the Letter of Intent goal.
The Investment Letter of Intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. Similarly, the Participant Letter of
Intent does not obligate the retirement or group plan to enroll the indicated
number of eligible employees or participants. In the event the Letter of Intent
goals is not achieved within the thirteen-month period, the purchaser (or the
employer or plan sponsor in the case of any retirement or group plan) is
required to pay the difference between the sales charge otherwise applicable to
the purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the Distributor
will liquidate sufficient escrowed shares to obtain such difference. Investors
electing to purchase Class A shares of the Fund pursuant to a Letter of Intent
should carefully read such Letter of Intent.
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charges will, in the
case of an Investment Letter of Intent, be granted subject to confirmation of
the investor's holdings or, in the case of a Participant Letter of Intent,
subject to confirmation of the number of eligible employees or participants in
the retirement or group plan. Letters of Intent are not available to any
individual participant in any retirement or group plans.
Waiver of the Contingent Deferred Sales Charge--Class B Shares
The Contingent Deferred Sales Charge is waived under circumstances
described in the Prospectus. See "Shareholder Guide--How to Sell Your
Shares--Waiver of Contingent Deferred Sales Charges--Class B Shares" in the
Prospectus. In connection with these waivers, the Transfer Agent will require
you to submit the supporting documentation set forth below.
<TABLE>
<CAPTION>
Category of Waiver Required Documentation
<S> <C>
Death A copy of the shareholder's death certificate or,
in the case of a trust, a copy of the grantor's
death certificate, plus a copy of the trust
agreement identifying the grantor.
Disability--An individual will be considered A copy of the Social Security Administration award
disabled if he or she is unable to engage in any letter or a letter from a physician on the
substantial gainful activity by reason of any physician's letterhead stating that the
medically determinable physical or mental shareholder (or, in the case of a trust, the
impairment which can be expected to result in grantor) is permanently disabled. The letter must
death or to be of long-continued and indefinite also indicate the date of disability.
duration.
Distribution from an IRA or 403(b) Custodial Account A copy of the distribution form from the custodial
firm indicating (i) the date of birth of the
shareholder and(ii) that the shareholder is over
age 59 1/2 and is taking a normal
distribution--signed by the shareholder.
Distribution from Retirement Plan A letter signed by the plan administrator/trustee
indicating the reason for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or the
plan administrator/trustee on company letterhead
indicating the amount of the excess and whether or
not taxes have been paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
B-23
<PAGE>
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Series shares, a Shareholder Investment
Account is established for each investor under which a record of the shares held
is maintained by the Transfer Agent. If a stock certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for issuance of a certificate. The Series makes available
to the shareholders the following privileges and plans.
Automatic Reinvestment of Dividends and/or Distributions
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Series at the net
asset value per share at the close of business on the record date. An investor
may direct the Transfer Agent in writing not less than five full business days
prior to the record date to have subsequent dividends and/or distributions sent
in cash rather than reinvested. In the case of recently purchased shares for
which registration instructions have not been received on the record date, cash
payment will be made directly to the dealer. Any shareholder who receives a cash
payment representing a dividend or distribution may reinvest such distribution
at net asset value by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. Such investment will be made at the net
asset value per share next determined after receipt of the check or proceeds by
the Transfer Agent. Such shareholder will receive credit for any contingent
deferred sales charge paid in connection with the amount of proceeds being
reinvested.
Exchange Privilege
The Series makes available to its shareholders the privilege of exchanging
their shares of the Series for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Series. All exchanges are
made on the basis of relative net asset value next determined after receipt of
an order in proper form. An exchange will be treated as a redemption and
purchase for tax purposes. Shares may be exchanged for shares of another fund
only if shares of such fund may legally be sold under applicable state laws. For
retirement and group plans having a limited menu of Prudential Mutual Funds, the
Exchange Privilege is available for those funds eligible for investment in the
particular program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
Class A. Shareholders of the Series may exchange their Class A shares for Class
A shares of certain other Prudential Mutual Funds, shares of Prudential
Structured Maturity Fund and Prudential Government Securities Trust
(Intermediate Term Series) and shares of the money market funds specified below.
No fee or sales load will be imposed upon the exchange. Shareholders of money
market funds who acquired such shares upon exchange of Class A shares may use
the Exchange Privilege only to acquire Class A shares of the Prudential Mutual
Funds participating in the Exchange Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential Money Mart Assets
Prudential Tax-Free Money Fund
Class B and Class C. Shareholders of the Series may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund, a
money market fund. No CDSC will be payable upon such exchange, but a CDSC may be
payable upon the redemption of Class B and Class C shares acquired as a result
of the exchange. The applicable sales charge will be that imposed by the fund in
which shares were initially purchased and the purchase date will be deemed to be
the date of the initial purchase, rather than the date of the exchange.
Class B and Class C shares of the Series may also be exchanged for shares
of an eligible money market fund without imposition of any CDSC at the time of
exchange. Upon subsequent redemption from such money market fund or after
re-exchange into
B-24
<PAGE>
the Series, such shares may be subject to the CDSC calculated without regard to
the time such shares were held in the money market fund. In order to minimize
the period of time in which shares are subject to a CDSC, shares exchanged out
of the money market fund will be exchanged on the basis of their remaining
holding periods, with the longest remaining holding periods being transferred
first. In measuring the time period shares are held in a money market fund and
"tolled" for purposes of calculating the CDSC holding period, exchanges are
deemed to have been made on the last day of the month. Thus, if shares are
exchanged into the Series from a money market fund during the month (and are
held in the Series at the end of the month), the entire month will be included
in the CDSC holding period. Conversely, if shares are exchanged into a money
market fund prior to the last day of the month (and are held in the money market
fund on the last day of the month), the entire month will be excluded from the
CDSC holding period. For purposes of calculating the seven year holding period
applicable to the Class B conversion feature, the time period during which Class
B shares were held in a money market fund will be excluded.
At any time after acquiring shares of other funds participating in the
Class B and Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B and Class C
shares of the Series, respectively, without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares of other funds, respectively, without
being subject to any CDSC.
Class Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
Additional details about the Exchange Privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Series' Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the
Series, or the Distributor, has the right to reject any exchange application
relating to such fund's shares.
Dollar Cost Averaging
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university. (1)
B-25
<PAGE>
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
<TABLE>
<CAPTION>
Period of
Monthly investments: $100,000 $150,000 $200,000 $250,000
-------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years ......................... $ 110 $ 165 $ 220 $ 275
20 Years ......................... 176 264 352 440
15 Years ......................... 296 444 592 740
10 Years ......................... 555 833 1,110 1,388
5 Years .......................... 1,371 2,057 2,742 3,428
</TABLE>
See "Automatic Savings Accumulation Plan."
- ----------
(1) Source information concerning the costs of education at public and
private universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition, fees,
room and board for the 1993-1994 academic year.
(2) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Series. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.
Automatic Savings Accumulation Plan (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Series monthly by authorizing his or her bank account
or Prudential Securities Account (including a Command Account) to be debited to
invest specified dollar amounts in shares of the Series. The investor's bank
must be a member of the Automatic Clearing House System. Stock certificates are
not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
Systematic Withdrawal Plan
A systematic withdrawal plan is available to shareholders through
Prudential Securities or the Transfer Agent. Such withdrawal plan provides for
monthly or quarterly checks in any amount, except as provided below, up to the
value of the shares in the shareholder's account. Withdrawals of Class B or
Class C shares may be subject to a CDSC. See "Shareholder Guide--How to Sell
Your Shares--Contingent Deferred Sales Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment
Account--Automatic Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charge applicable to (i) the purchase of Class
A shares and (ii) the withdrawal of Class B and Class C shares. Each shareholder
should consult his or her own tax adviser with regard to the tax consequences of
the systematic withdrawal plan, particularly if used in connection with a
retirement plan.
Tax-Deferred Retirement Plans
Various qualified retirement plans, including a 401(k) Plan, self-directed
individual retirement accounts and "tax sheltered accounts" under Section
403(b)(7) of the Internal Revenue Code are available through the Distributor.
These plans are for use by
B-26
<PAGE>
both self-employed individuals and corporate employers. These plans permit
either self-direction of accounts by participants or a pooled account
arrangement. Information regarding the establishment of these plans, the
administration, custodial fees and other details are available from Prudential
Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
Tax-Deferred Retirement Accounts
Individual Retirement Accounts. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
Tax-Deferred Compounding(1)
Contributions Personal
Made Over: Savings IRA
- ----------- --------- --------
10 years $ 26,165 $ 31,291
15 years 44,676 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
- ----------
(1)The chart is for illustrative purposes only and does not represent the
performance of the Series or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings in
the IRA account will be subject to tax when withdrawn from the account.
Mutual Fund Programs
From time to time, the Series may be included in a mutual fund program with
other Prudential Mutual Funds. Under such a program, a group of portfolios will
be selected and thereafter promoted collectively. Typically, these programs are
created with an investment theme, e.g., to seek greater diversification,
protection from interest rate movements or access to different management
styles. In the event such a program is instituted, there may be a minimum
investment requirement for the program as a whole. The Series may waive or
reduce the minimum initial investment requirements in connection with such a
program.
The mutual funds in the program may be purchased individually or as a part
of the program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, investors should consult their Prudential
Securities Financial Adviser or Prudential/Pruco Securities Representative
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
PERFORMANCE INFORMATION
Average Annual Total Return. The Series may from time to time advertise
its average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares. See "How the Series
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the 1, 5 or 10 year
periods.
Average annual total return takes into account any applicable initial or
contingent deferred sales charge but does not take into account any federal or
state income taxes that may be payable upon redemption.
Yield. The Series may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B, Class
C and Class Z shares. This yield will be computed by dividing the Series' net
investment income per
B-27
<PAGE>
share earned during this 30-day period by the maximum offering price per share
on the last day of this period. Yield is calculated according to the following
formula:
a-b 6
YIELD = 2 [(-----+1) -1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield fluctuates and an annualized yield quotation is not a representation
by the Series as to what an investment in the Series will actually yield for any
given period. Yields for the Series will vary based on a number of factors
including changes in net asset value, market conditions, the level of interest
rates and the level of Series income and expenses.
Aggregate Total Return. The Series may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares. See "How the Series Calculates Performance" in the
Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Series and is computed according to the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1000.
ERV = ending redeemable value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof)
of a hypothetical $1000 payment made at the beginning of
the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
From time to time, the performance of the Series may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long term and the rate of inflation.(1)
PERFORMANCE
COMPARISON OF DIFFERENT
TYPES OF INVESTMENTS
OVER THE LONG TERM
(1/1926 - 12/1994)
Common Stocks ............... 10.2%
Long-Term Govt. Bonds ....... 4.8%
Inflation ................... 3.1%
- ----------
(1) Source: Ibbotson Associates, Stocks, Bonds, Bills and Inflation--1995
Yearbook (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. Common stock returns
are based on the Standard and Poor's 500 Stock Index, a market-weighted,
unmanaged index of 500 common stocks in a variety of industry sectors. It is a
commonly used indicator of broad stock price movements. This chart is for
illustrative purposes only and is not intended to represent the performance of
any particular investment or fund. Investors cannot invest directly in an index.
Past performance is not a guarantee of future results.
B-28
<PAGE>
TAXES
The Series has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code for each taxable
year. Accordingly, the Series must, among other things, (a) derive at least 90%
of its gross income from dividends, interest, proceeds from loans of securities
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including, but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of investing
in such securities or currencies; (b) derive less than 30% of its gross income
from the sale or other disposition of securities or certain options, futures and
forward contracts held less than three months; and (c) diversify its holdings so
that, at the end of each fiscal quarter, (i) at least 50% of the value of
the Series' assets is represented by cash, U.S. Government securities,
securities of other regulated investment companies and other securities, with
such other securities limited in respect of any one issuer to an amount not
greater than 5% of the Series' assets, and not greater than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government securities or the securities of other regulated investment
companies). These requirements may limit the Series' ability to invest in other
types of assets.
As a regulated investment company, the Series will not be subject to
federal income tax on its net investment income and capital gains, if any, that
it distributes to its shareholders, provided (among other things) that at least
90% of the Series' net investment income including net short-term capital gains
earned in the taxable year is distributed. The Series intends to distribute
annually to its shareholders all of its taxable net investment income, which
includes dividends, interest and any net short-term capital gains in excess of
net long-term capital losses. The Board of Directors of the Series will
determine once a year whether to distribute any net long-term capital gains in
excess of any net short-term capital losses. In determining the amount of
capital gains to be distributed, any capital loss carryovers from prior years
will be offset against capital gains. A 4% nondeductible excise tax will be
imposed on the Series to the extent the Series does not meet certain
distribution requirements by the end of each calendar year.
Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates between the time the Series accrues income,
expenses or other liabilities denominated in a foreign currency and the time the
Series actually collects such income or pays such liabilities, are treated as
ordinary income or ordinary loss for federal income tax purposes. Similarly,
gains or losses on the disposition of debt securities held by the Series, if
any, denominated in a foreign currency, to the extent attributable to
fluctuations in exchange rates between the acquisition and disposition dates are
also treated as ordinary income or loss.
Gains or losses on sales of securities by the Series will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where the Series acquires a put or
writes a call thereon. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will generally be treated as gains and
losses from the sale of securities. If an option written by the Series on
securities lapses or is terminated through a closing transaction, such as a
purchase by the Series of the option from its holder, the Series will generally
realize short-term capital gain or loss, depending on whether the premium income
is greater or less than the amount paid by the Series in the closing
transaction. If securities are sold by the Series pursuant to the exercise of a
call option written by it, the Series will include the premium received in the
sale proceeds of the securities delivered in determining the amount of gain or
loss on the sale. The requirement that the Series derive less than 30% of its
gross income from gains from the sale of stocks or securities held less than
three months may limit the Series' ability to write or acquire options. Certain
of the Series' transactions may be subject to wash sale and short sale
provisions of the Internal Revenue Code which may, among other things, require
the Series to defer losses. In addition, debt securities acquired by the Series
may be subject to original issue discount and market discount rules which may,
among other things, cause the Series to accrue income in advance of the receipt
of cash with respect to interest.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which the
Series may invest. See "Investment Objective and Policies." These investments
will generally constitute Section 1256 contracts and will be required to
be marked to market" for federal income tax purposes at the end of the Series'
taxable year; that is, treated as having been sold at market value. Sixty
percent of any capital gain or loss recognized on such deemed sales and on
actual dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.
Forward currency contracts, options and futures contracts entered into by
the Series may create "straddles" for federal income tax purposes and this may
affect the character and timing of gains or losses realized by the Series on
such contracts or options or on the underlying securities. Straddles may also
result in the loss of the holding period of underlying property, and therefore,
the Series' ability to enter into forward currency contracts, options and
futures contracts may be limited by the 30% of gross income test described
above.
A "passive foreign investment company" ("PFIC") is a foreign corporation
that, in general, meets either of the following tests: (a) at least 75% of its
gross income is passive or (b) an average of at least 50% of its assets produce,
or are held for the
B-29
<PAGE>
production of, passive income. If the Series acquires and holds stock in a PFIC
beyond the end of the year of its acquisition, the Series will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or of any gain from disposition of the stock (collectively "PFIC income"),
plus interest thereon, even if the Series distributes the PFIC income as a
taxable dividend to its shareholders. If the Series elects to treat any PFIC in
which it invests as a "qualified electing fund," then in lieu of the foregoing
tax and interest obligation, the Series will be required to include in income
each year its pro rata share of the qualified electing fund's annual ordinary
earnings and net capital gain, even if they are not distributed to the Series;
those amounts would be subject to the distribution requirements applicable to
the Series described above. It may be very difficult, if not impossible, to make
this election because of certain requirements thereof. Under proposed Treasury
regulations, if the Series does not or cannot elect to treat such a PFIC as a
"qualified electing fund", the Series can make a "mark-to-market" election,
i.e., treat the shares of the PFIC as sold on the last day of the Series'
taxable year, and thus avoid the special tax and interest charge. The gains the
Series recognizes from the mark-to-market election would be included as ordinary
income in the net investment income the Series must distribute to shareholders,
notwithstanding that the Series would receive no cash in respect of such gains.
Dividends of net investment income will be taxable to a U.S. shareholder as
ordinary income regardless of whether such shareholder receives such dividends
in additional shares or in cash. Dividends received from the Series will be
eligible for the dividends received deduction for corporate shareholders only to
the extent that the Series' income is derived from certain dividends-received
from domestic corporations. The amount of dividends qualifying for the
dividends-received deduction will be designated as such in a written notice to
shareholders mailed not later than 60 days after the end of the Series' taxable
year. Distributions of net long-term capital gains, if any, will be taxable as
long-term capital gains regardless of whether the shareholder receives such
distribution in additional shares or in cash and regardless of how long the
shareholder has held the Series' shares, and will not be eligible for the
dividends received deduction for corporations. Any gain or loss realized upon a
sale or redemption of Series shares by a shareholder who is not a dealer in
securities will be treated as long-term capital gain or loss if the shares have
been held for more than one year and otherwise as short-term capital gain or
loss. However, any loss realized by a shareholder upon the sale of shares in the
Series held for six months or less will be treated as a long-term capital loss
to the extent of any net long-term capital gain distributions received by the
shareholder. Additionally, any loss realized on a sale, redemption or exchange
of shares of the Series by a shareholder will be disallowed to the extent the
shares are replaced within a 61-day period (beginning 30 days before the
disposition of shares). Shares purchased pursuant to the reinvestment of a
dividend will constitute a replacement of shares.
Any dividends or capital gains distributions received by a shareholder will
have the effect of reducing the net asset value of the Series' shares by the
exact amount of the dividend or capital gains distribution. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
a dividend or capital gains distribution, such dividend or capital gains
distribution, although constituting a return of capital, will be taxable as
described above. Prior to purchasing shares of the Series, therefore, the
investor should carefully consider the impact of dividends or capital gains
distributions which are expected to be or have been announced.
A shareholder who sells or otherwise disposes of shares of the Series
within 90 days of acquisition may not be allowed to include certain sales
charges incurred in acquiring such shares for purposes of calculating gain or
loss realized upon a sale or exchange of shares of the Series.
Distributions of net investment income made to a nonresident alien
individual, a nonresident alien fiduciary of a foreign estate or trust, foreign
corporation or foreign partnership (foreign shareholder) will be subject to U.S.
withholding tax at a rate of 30% (or lower treaty rate), unless the dividends
are effectively connected with the U.S. trade or business of the shareholder and
the shareholder complies with certain filing requirements. Gains realized upon
the sale or redemption of shares of the Series by a foreign shareholder and
distributions of net long-term capital gains to a foreign shareholder will
generally not be subject to U.S. income tax unless the gain is effectively
connected with a trade or business carried on by the shareholder within the
United States or, in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the United States for more than 182
days during the taxable year and certain other conditions are met. In the case
of a foreign shareholder who is a nonresident alien individual, the Series may
be required to withhold U.S. federal income tax at the rate of 31% of
distributions of net long-term capital gains unless IRS Form W-8 is provided. If
distributions are effectively connected with a U.S. trade or business carried on
by a foreign shareholder, distributions of net investment income and net
long-term capital gains will be subject to U.S. income tax at the graduated
rates applicable to U.S. citizens or domestic corporations. Transfers by gift of
shares of the Series by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of the
shares of the Series held by such a shareholder at his death will be includable
in his gross estate for U.S. federal estate tax purposes. The tax consequences
to a foreign shareholder entitled to claim the benefits of an applicable tax
treaty may be different from those described herein. Foreign shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Series.
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<PAGE>
Income received by the Series from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Series' assets to be invested in
various countries is not known.
If the Series is liable for foreign taxes, the Series expects to meet the
requirements of the Internal Revenue Code for "passing-through" to its
shareholders foreign income taxes paid, but there can be no assurance that the
Series will be able to do so. Under the Internal Revenue Code, if more than 50%
of the value of the Series' total assets at the close of its taxable year
consists of stock or securities of foreign corporations, the Series will be
eligible and may file an election with the Internal Revenue Service to
"pass-through" to the Series' shareholders the amount of foreign income taxes
paid by the Series. Pursuant to this election shareholders will be required to:
(i) include in gross income (in addition to taxable dividends actually received)
their pro rata share of the foreign income taxes paid by the Series; (ii) treat
their pro rata share of foreign income taxes as paid by them; and (iii) either
deduct their pro rata share of foreign income taxes in computing their taxable
income or, subject to certain limitations, use it as a foreign tax credit
against U.S. income taxes imposed on foreign source income. For this purpose,
the portion of dividends paid by the Series from its foreign source income will
be treated as such. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. A shareholder that is a nonresident
alien individual or foreign corporation may be subject to U.S. withholding tax
on the income resulting from the election described in this paragraph, but may
not be able to claim a credit or deduction against such tax for the foreign
taxes treated as having been paid by such shareholder. A tax-exempt shareholder
will not ordinarily benefit from this election. The amount of foreign taxes for
which a shareholder may claim a credit in any year will generally be subject to
various limitations including a separate limitation for "passive income," which
includes, among other things, dividends, interest and certain foreign currency
gains.
Each shareholder will be notified within 60 days after the close of the
Series' taxable year whether the foreign income taxes paid by the Series will
"pass-through" for that year and, if so, such notification will designate (a)
the shareholder's portion of the foreign income taxes paid to each such country
and (b) the portion of the dividend which represents income derived from sources
within each such country.
The per share dividends on Class B and Class C shares will be lower than
the per share dividends on Class A or Class Z shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions of net capital gains, if any, will be paid in the same
amount for Class A, Class B, Class C and Class Z shares. See "Net Asset Value."
Distributions may be subject to additional state and local taxes.
Pennsylvania Personal Property Tax. The Series has received a written
letter of determination from the Pennsylvania Department of Revenue that the
Series will be subject to the Pennsylvania foreign franchise and corporate net
income tax by reason of the Series' business activities in Pennsylvania.
Accordingly, it is believed that Series shares are exempt from Pennsylvania
personal property taxes. The Series anticipates that it will continue such
business activities but reserves the right to suspend them at any time,
resulting in the termination of the exemption.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND
INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Series' portfolio securities
and cash and in that capacity maintains certain financial and accounting books
and records pursuant to an agreement with the Series. Subcustodians provide
custodial services for the Series' foreign assets held outside the United
States. See "General Information--Custodian and Transfer and Dividend Disbursing
Agent" in the Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the
Series. Its mailing address is P.O. Box 15005, New Brunswick, New Jersey
08906-5005. PMFS is a wholly-owned subsidiary of PMF. PMFS provides customary
transfer agency services to the Series, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions, and related
functions. For these services, PMFS receives an annual fee per shareholder
account, a new account set-up fee for each manually-established account and a
monthly inactive zero balance account fee per shareholder account. PMFS is also
reimbursed for its out-of-pocket expenses, including but not limited to postage,
stationery, printing, allocable communications expenses and other costs.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, serves as the Series' independent accountants, and in that capacity
audits the Series' annual financial statements.
B-31
<PAGE>
APPENDIX--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
Asset Allocation
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.
Diversification
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks and (general returns) of any one type of security.
Duration
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
Market Timing
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
Power of Compounding
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
App-1
<PAGE>
APPENDIX--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This chart shows the long-term performance of various asset classes and the
rate of inflation.
[GRAPHICAL REPRESENTATION]
Source: Prudential Investment Corporation based on data from Ibbotson
Associates' EnCORR Software, Chicago, Il. As of 12/31/95. Used with permission.
All rights reserved. This chart is for illustrative purposes only and is not
indicative of the past, present, or future performance of any asset class or any
Prudential Mutual Fund.
Generally, stock returns are attributable to capital appreciation and the
reinvestment of distributions. Bond returns are attributable mainly to the
reinvestment of distributions. Also, stock prices are usually more volatile than
bond prices over the long-term.
Small stock returns for 1926-1989 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.
Long-term government bond returns are represented by a portfolio that contains
only one bond with a maturity of roughly 20 years. At the beginning of each year
a new bond with a then-current coupon replaces the old bond. Treasury bill
returns are for a one-month bill. Treasuries are guaranteed by the government as
to the timely payment of principal and interest; equities are not. Inflation is
measured by the consumer price index (CPI).
Impact of Inflation. The "real" rate of investment return is that which exceeds
the rate of inflation, the percentage change in the value of consumer goods and
the general cost of living. A common goal of long-term investors is to outpace
the erosive impact of inflation on investment returns.
App-2
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1987 to
December 1995. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Series or of any sector in which the
Series invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Series Expenses" in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.
Historical Total Returns of Different Bond Market Sector
[GRAPHICAL REPRESENTATION]
(1) Lehman Brothers Treasury Bond Index is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one year.
(2) Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
(3) Lehman Brothers Corporate Bond Index includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.
(4) Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.
(5) Salomon Brothers World Government Index (Non U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the U.S.,
but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
App-3
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from 1985 through 1995. It does not represent the performance of any
Prudential Mutual Fund.
[GRAPHICAL REPRESENTATION]
Source: Morgan Stanley Capital International as of 12/31/95. Morgan Stanley
country indices area unmanaged indices which include those stocks making up the
largest two-thirds of each country's total stock market capitalization. This
chart is for illustrative purposes only and is not indicative of the past,
present or future performance of any specific investment. Investors cannot
invest directly in stock indices.
Source: Lipper Analytical New Applications (LANA). This chart is for
illustrative purposes only and is not representative of the past, present or
future performance of any Prudential Mutual Fund. Common Stock total returns are
based on the S&P 500 Index, a market-value weighted index made up of 500 of the
largest stocks in the U.S. based upon their stock market value. Investors cannot
buy or invest in market indices.
This chart shows the growth of a hypothetical $10,000 investment made in the
stock representing the S&P 500 stock index with and without reinvested
dividends. As of 12/31/95.
[GRAPHICAL REPRESENTATION]
App-4
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
[GRAPHICAL REPRESENTATION]
Source: Prudential Investment Corporation based on data from Ibbotson
Associates' EnCORR Software, Chicago, Il. Used with permission. All rights
reserved. The chart illustrates the historical yield of the long-term U.S.
Treasury Bond from 1926-1995. Yields represent that of an annually renewed
one-bond portfolio with a remaining maturity of approximately 20 years. This
chart is for illustrative purposes and should not be construed to represent the
yields of any Prudential Mutual Fund.
The following chart, although not relevant to share ownership in the Fund,
may provide useful information about the effects of a hypothetical investment
diversified over different asset portfolios. The chart shows the range of annual
total returns for major stock and bond indices for the period from December 31,
1975 through December 31, 1995. The horizontal "Best Returns Zone" band shows
that a hypothetical blended portfolio constructed of one-third U.S. stocks (S&P
500), one-third foreign stocks (EAFE Index), and one-third U.S. bonds (Lehman
Index) would have eliminated the "highest highs" and "lowest lows" of any single
asset class.
[CHART]
- ------------
*Source: Prudential Investment Corporation based on data from Lipper Analytical
New Application (LANA). Past performance is not indicative of future results.
The S&P 500 Index is a weighted, unmanaged index comprised of 500 stocks which
provides a broad indication of stock price movements. The Morgan Stanley EAFE
Index is an unmanaged index comprised of 20 overseas stock markets in Europe,
Australia, New Zealand and the Far East. The Lehman Aggregate Index includes all
publicly-issued investment grade debt with maturities over one year, including
U.S. government and agency issues, 15 and 30 year fixed-rate government agency
mortgage securities, dollar denominated SEC registered corporate and government
securities, as well as asset-backed securities. Investors cannot invest directly
in stock or bond market indices.
App-5
<PAGE>
APPENDIX--INFORMATION RELATING TO THE PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "Management of the Fund--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1995 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.
Information about Prudential
The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1995. Its primary business is to offer a full range of products and services in
three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs more
than 92,000 persons worldwide, and maintains a sales force of approximately
13,000 agents and 5,600 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.
Insurance. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million life
insurance policies in force today with a face value of $1 trillion. Prudential
has the largest capital base ($11.4 billion) of any life insurance company in
the United States. The Prudential provides auto insurance for more than 1.7
million cars and insures more than 1.4 million homes.
Money Management. The Prudential is one of the largest pension fund
managers in the country, providing pension services to 1 in 3 Fortune 500 firms.
It manages $36 billion of individual retirement plan assets, such as 401(k)
plans. In July 1995, Institutional Investor ranked Prudential the third largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1994. As of December 31, 1995, Prudential
had more than $314 billion in assets under management. Prudential's Money
Management Group (of which Prudential Mutual Funds is a key part) manages over
$190 billion in assets of institutions and individuals.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 34,000 brokers and
agents and more than 1,100 offices in the United States.(2)
Healthcare. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
Information about the Prudential Mutual Funds
Prudential Mutual Fund Management is one of the sixteenth largest mutual
fund companies in the country, with over 2.5 million shareholders invested in
more than 50 mutual fund portfolios and variable annuities with more than 3.7
million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
- ----------
(1) Prudential Mutual Fund Investment Management, a unit of PIC, serves as the
Subadviser to substantially all of the Prudential Mutual Funds. Wellington
Management Company serves as the subadviser to Global Utility Fund, Inc.
Nicholas-Applegate Capital Management as subadviser to Nicholas-Applegate
Fund, Inc., Jennison Associates Capital Corp. as the subadviser to
Prudential Jennison Fund, Inc. and BlackRock Financial Management, Inc. as
subadviser to The BlackRock Government Income Trust. There are multiple
subadvisers for The Target Portfolio Trust.
(2) As of December 31, 1994.
App-6
<PAGE>
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York Times, Barron's and USA Today.
Equity Funds. Forbes magazines listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Fund, a growth-style
equity fund managed by Jennison Associates Capital Corp., a premier
institutional equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so other high yield bonds, which may be
considered for purchase.(3) Non-investment grade bonds, also known as junk bonds
or high yield bonds, are subject to a greater risk of loss of principal and
interest including default risk than higher-rated bonds. Prudential high yield
portfolio managers and analysts meet face-to-face with almost every bond issuer
in the High Yield Fund's portfolio annually, and have additional telephone
contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over
1,200 companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their
visits overseas, often holding private meetings with a company in a foreign
language (our global equity managers speak 7 different languages, including
Mandarin Chinese).
Trading Data.(4) On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing over
3.8 million shares with nearly 200 different firms. Prudential Mutual Funds'
bond trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets(5). Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In 1994,
the Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities.(6)
- ----------
(3) As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
(4) Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-US accounts managed
by Prudential Mutual Fund Investment Management, a division of PIC, for the
year ended December 31, 1995.
(5) Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage funds.
(6) As of December 31, 1994.
App-7
<PAGE>
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.
Information about Prudential Securities
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI.(7)
Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities' Financial
Advisor training programs received a grade of A- (compared to an industry
average of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey. Five
Prudential Securities' analysts were ranked as first-team finishers.(8)
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect(SM), a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
advisor or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ----------
(7) As of December 31, 1994.
(8) In 1995, Institutional Investor magazine surveyed more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in approximately 80 industry
sectors. Scores were produced by taking the number of votes awarded to an
individual analyst and weighting them based on the size of the voting
institution. In total, the magazine sent its survey to more than 2,000
institutions, including a group of European and Asian institutions. This
survey is conducted annually.
App-8
<PAGE>
DESCRIPTION OF S&P, MOODY'S AND DUFF & PHELPS RATINGS
Description of S&P Corporate Bond Ratings:
AAA - Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, or C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Description of Moody's Corporate Bond Ratings:
Aaa - Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of these issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well-safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
App-9
<PAGE>
Description of Duff & Phelps Bond Ratings:
AAA - Bonds rated AAA by Duff & Phelps are considered to be of the highest
credit quality. The risk factors are negligible, being only slightly more than
for risk-free U.S. Treasury debt.
AA+, AA, AA- - Bonds rated AA+, AA or AA- are considered to be of high
credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions.
A+, A, A- - Bonds rated A+, A or A- have protection factors which are
average but adequate; however, risk factors are more variable and greater in
periods of economic stress.
BBB+, BBB, BBB- - Bonds rated BBB+, BBB or BBB- have below average
protection factors but are still considered sufficient for prudent investment.
These bonds demonstrate considerable variability in risk during economic cycles.
BB+, BB, BB- - Bonds rated BB+, BB, or BB- are below investment grade but
are still deemed likely to meet obligations when due. Present or prospective
financial protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently within this
category.
B+, B, B- - Bonds rated B+, B, or B- are below investment grade and possess
the risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC - Bonds rated CCC are well below investment grade securities.
Considerable uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable company
developments.
DD - Bonds rated DD are defaulted debt obligations. The issuer failed to
meet scheduled principal and/or interest payments.
Description of S&P Commercial Paper Ratings:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1.
Description of Moody's Commercial Paper Ratings:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
Description of Duff & Phelps Commercial Paper Rating:
Duff & Phelps commercial paper ratings are divided into three categories,
ranging from "1" for the highest quality obligations to "3" for the lowest. No
ratings are issued for companies whose paper is not deemed investment grade.
Issues assigned the Duff 1 rating are considered top grade. This category is
further divided into three gradations as follows: Duff 1 plus -- highest
certainty of timely payment, short-term liquidity, including internal operating
factors and/or ready access to alternative sources of funds, is clearly
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations; Duff 1 -- very high certainty of timely payment, liquidity factors
are excellent and supported by strong fundamental protection factors, risk
factors are minor; Duff 1 minus-high certainty of timely payment, liquidity
factors are strong and supported by good fundamental protection factors, risk
factors are very small. Issues rated Duff 2 represent a good certainty of timely
payment; liquidity factors and company fundamentals are sound; although ongoing
internal funds needs may enlarge total financing requirements, access to capital
markets is good; risk factors are small. Duff 3 represents a satisfactory grade;
satisfactory liquidity and other protection factors qualify issue as to
investment grade; risk factors are larger and subject to more variation;
nevertheless timely payment is expected.
App-10
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) The following financial statement is included in the Prospectus of
the Global Series as constituting Part A of this Post-Effective Amendment
to the Registration Statement:
Financial Highlights.
(2) The following financial statements are included in the Statement
of Additional Information of the Global Series constituting Part B of this
Post-Effective Amendment to the Registration Statement:
Independent Auditors' Report.
Portfolio of Investments at October 31, 1995.
Statement of Assets and Liabilities at October 31, 1995.
Statement of Operations for the Year ended October 31, 1995.
Statement of Changes in Net Assets for the years ended October 31,
1995 and 1994.
Notes to Financial Statements.
Financial Highlights for the Five Years ended October 31, 1995.
(b) Exhibits:
1. (a) Restated Articles of Incorporation. Incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 17 to the Registration
Statement filed on Form N-1A via EDGAR on January 3, 1995 (File No.
2-89725).
(b) Articles Supplementary. Incorporated by reference to
Exhibit 1(b) to Post-Effective Amendment No. 20
to the Registration Statement on Form N-1A (File No. 2-89725)
filed via EDGAR.
(c) Amendment to Articles of Incorporation. Incorporated by
reference to Exhibit 1(c) to Post-Effective Amendment No. 20 to
the Registration Statement on Form N-1A (File No. 2-89725)
filed via EDGAR.
2. Amended and Restated By-Laws of the Registrant, incorporated by
reference to Exhibit 2 to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A (File No. 2-89725) filed via
EDGAR.
4. (a) Specimen Certificate for shares of Common Stock of the
Registrant, incorporated by reference to Exhibit No. 4 to the
Registration Statement on Form N-1A, Pre-Effective Amendment No. 1
(File No. 2-89725).
(b) Specimen Certificate for shares of Common Stock of the
Registrant for Class A Shares, incorporated by reference to Exhibit
4(b) to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A (File No. 2-89725).
(c) Instruments defining rights of shareholders, incorporated by
reference to Exhibit No. 4(c) to the Registration Statement on Form
N-1A, Post-Effective Amendment No. 14 (File No. 2-89725) filed via
EDGAR.
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc., incorporated by reference to Exhibit
No. 5(a) to Post-Effective Amendment No. 7 to Registration Statement
on Form N-1A (File No. 2-89725).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation, incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No. 7 to
the Registration Statement on Form N-1A (File No. 2-89725).
(c) Management Agreement between Registrant and Prudential Mutual
Fund Management, Inc. with respect to the International Stock Series
of the Registrant.
(d) Subadvisory Agreement between Mercator Asset Management, L.P.
and Prudential Mutual Fund Management, Inc. with respect to the
International Stock Series of the Registrant.
(e) Subadvisory Agreement between the Prudential Investment
Corporation and Prudential Mutual Fund Management Inc. with respect
to the International Stock Series of the Registrant.
6. Distribution Agreement for Shares of the Registrant.*
C-1
<PAGE>
8. (a) Custodian Agreement between the Registrant and State Street Bank
and Trust Company, incorporated by reference to Exhibit No. 8 to the
Registration Statement on Form N-1A (File No. 2-89725).
(b) Form of Amendment to Custodian Agreement, incorporated by
reference to Exhibit No. 8(b) to Post-Effective Amendment No. 18 to
the Registration Statement on Form N-1A (File No. 2-89725) filed on
November 1, 1995.
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit No. 9 to the Registration Statement on Form N-1A,
Post-Effective Amendment No. 7 (File No. 2-89725).
10. (a) Opinion of Sullivan & Cromwell, incorporated by reference to
Exhibit No. 10 to the Registration Statement on Form N-1A,
Pre-Effective Amendment No. 1 (File No. 2-89725).
(b) Opinion of Sullivan & Cromwell, incorporated by reference to
Exhibit 10(b) to Post-Effective Amendment No. 19 to the Registration
Statement on Form N-1A (File No. 2-89725) filed on December 29,
1995.
(c) Opinion of Sullivan & Cromwell.*
11. Consent of Independent Accountants.*
13. Purchase Agreement incorporated by reference to Exhibit No. 13 to
the Registration Statement on Form N-1A, Pre-Effective Amendment No.
1 (File No. 2-89725).
15. (a) Amended and Restated Distribution and Service Plan for Class A
shares dated July 1, 1993, incorporated by reference to Exhibit
No.15(d) to the Registration Statement on Form N-1A, Post-Effective
Amendment No. 14 (File No. 2-89725) filed via EDGAR.
(b) Amended and Restated Distribution and Service Plan for Class B
shares dated July 1, 1993, incorporated by reference to Exhibit
No.15(e) to the Registration Statement on Form N-1A, Post-Effective
Amendment No. 14 (File No. 2-89725) filed via EDGAR.
(c) Distribution and Service Plan for Class A shares; incorporated
by reference to Exhibit 6(c) to Post-Effective Amendment No. 17 to
the Registration Statement filed on Form N-1A via EDGAR on January
3, 1995 (File No. 2-89725).
(d) Distribution and Service Plan for Class B shares; incorporated
by reference to Exhibit 6(d) to Post-Effective Amendment No. 17 to
the Registration Statement filed on Form N-1A via EDGAR on January
3, 1995 (File No. 2-89725).
(e) Distribution and Service Plan for Class C shares; incorporated
by reference to Exhibit 6(e) to Post-Effective Amendment No. 17 to
the Registration Statement filed on Form N-1A via EDGAR on January
3, 1995 (File No. 2-89725).
(f) Distribution and Service Plan for Class A Shares of
International Stock Series of the Registrant.*
(g) Distribution and Service Plan for Class B Shares of
International Stock Series of the Registrant.*
(h) Distribution and Service Plan for Class C Shares of
International Stock Series of the Registrant.*
16. Schedule of Computation of Performance Quotations, incorporated by
reference to Exhibit No. 16 to the Registration Statement on Form
N-1A, Post-Effective Amendment No. 1 (File No. 2-89725).
18. Rule 18f-3 Plan, incorporated by reference to Exhibit No. 18 to
Post-Effective Amendment No. 18 to the Registration Statement on
Form N-1A (File No. 2-89725) filed on November 1, 1995.
Other Exhibits.
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* Filed herewith.
C-2
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of Ausust 30, 1996, there were 43,258, 56,941, 1,513 and 4,880 record
holders of Class A, Class B, Class C and Class Z common stock, $.01 par value
per share, of the Registrant's Global Series, respectively. As of August 30,
1996, there were no shareholders of common stock, $.01 par value per share of
the Registrant's International Stock Series.
Item 27. Indemnification
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VI of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of each Distribution Agreement (Exhibits 6(a),
(b), (c), (d), (e), (f), (g) and (h) to the Registration Statement), each
Distributor of the Registrant may be indemnified against liabilities which it
may incur, except liabilities arising from bad faith, gross negligence, willful
misfeasance or reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of such
issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibits 5(a) and 5(b) to the
Registration Statement) and Section 4 of the Subadvisory Agreements (Exhibits
5(b) and 5(d) to the Registration Statement) limit the liability of Prudential
Mutual Fund Management, Inc. (PMF) and Mercator Asset Management, L.P.
(Mercator), respectively, to liabilities arising from willful misfeasance, bad
faith or gross negligence in the performance of their respective duties or from
reckless disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Section 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
Item 28. Business and other Connections of Investment Adviser
(a) Prudential Mutual Fund Management, Inc.
See "How the Series is Managed--Manager" in the Prospectus constituting
Part A of this Registration Statement and "Manager" in the Statement of
Additional Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-3110, filed on March 30, 1994).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities; Vice President, PMFD
Frank W. Giordano Executive Vice Executive Vice President, General Counsel, Secretary
President, General and Director, PMF and PMFD; Senior Vice President,
Counsel, Secretary and Prudential Securities; Director, Prudential Mutual
Director Fund Services, Inc. (PMFS)
Robert F. Gunia Executive Vice President, Executive Vice President, Chief Financial and Administrative
Chief Financial and Officer, Treasurer and Director, PMF; Senior Vice President,
Administrative Officer, Prudential Securities; Executive Vice President, Chief
Treasurer and Director Financial Officer, Treasurer and Director, PMFD; Director,
PMFS
Theresa A. Hamacher Director Director, PMF; Vice President, Prudential; Vice President,
Prudential Investment Corporation (PIC)
Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating Officer
and Director, PMFD; Chief Executive Officer and Director,
PMFS; Director, PMF
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF;
Executive Officer and Executive Vice President, Director and Member of the
Director Operating Committee, Prudential Securities; Director,
Prudential Securities Group, Inc. (PSG); Executive Vice
President, PIC; Director, PMFD; Director, PMFS
S. Jane Rose Senior Vice President, Senior Vice President and Senior Counsel and Assistant
Senior Counsel Secretary, PMF; Senior Vice President and Senior Counsel,
and Assistant Prudential Securities
Secretary
Donald Webber Executive Vice President Executive Vice President and Director of Sales, PMF
and Director of Sales
</TABLE>
(b) The Prudential Investment Corporation (PIC)
See "How the Series is Managed--Manager" in the Prospectus constituting
Part A of this Registration Statement and "Manager" in the Statement of
Additional Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person is Prudential Plaza, Newark, NJ 07101.
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
William M. Bethke Senior Vice President Senior Vice President, The Prudential Insurance Company of
Two Gateway Center America (Prudential); Senior Vice President, PIC
Newark, N.J. 07102
Barry M. Gillman Director Director, PIC
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC; Director,
PMF
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Richard A. Redeker Executive Vice President President, Chief Executive Officer and Director, PMF;
One Seaport Plaza Executive Vice President, Director and Member of the
New York, NY 10292 Operating Committee, Prudential Securities; Director, PSG;
Executive Vice President, PIC; Director, PMFD; Director, PMFS
John L. Reeve Senior Vice President Managing Director, Prudential Asset Management Group
Four Gateway Center
Newark, NJ 07102
Eric A. Simonson Vice President and Director Vice President and Director, PIC; Executive Vice President,
Prudential
</TABLE>
Item 29. Principal Underwriters
(a) Prudential Securities Incorporated
Prudential Securities is distributor for Command Government Fund, Command
Money Fund, Command Tax-Free Fund, Prudential Government Securities Trust
(Intermediate Term Series, Money Market Series and U.S. Treasury Money Market
Series), Prudential MoneyMart Assets, Inc., Prudential Institutional Liquidity
Portfolio, Inc., Prudential Special Money Market Fund, Inc., Prudential Tax-Free
Money Fund, Inc., Prudential Jennison Fund, Inc., The Target Portfolio Trust,
Prudential Allocation Fund, Prudential California Municipal Fund, Prudential
Diversified Bond Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity
Income Fund, Prudential Europe Growth Fund, Inc., Prudential Global Fund, Inc.,
Prudential Global Genesis Fund, Inc., Prudential Global Limited Maturity Fund,
Inc., Prudential Global Natural Resources Fund, Inc., Prudential Government
Income Fund, Inc., Prudential Growth Opportunity Fund, Inc., Prudential High
Yield Fund, Inc., Prudential Intermediate Global Income Fund, Inc., Prudential
Mortgage Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund, Prudential National
Municipals Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential
Structured Maturity Fund, Inc., Prudential Utility Fund, Inc., The Global
Government Plus Fund Inc., The Global Total Return Fund, Inc., Global Utility
Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity
Fund) and The BlackRock Government Income Trust. Prudential Securities is also a
depositor for the following unit investment trusts:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
C-5
<PAGE>
(b) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below.
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ----------- ----------
<S> <C> <C>
Robert Golden ........ Executive Vice President and Director None
One New York Plaza
New York, NY
Alan D. Hogan ........ Executive Vice President, Chief Administrative Officer and Director None
George A. Murray ..... Executive Vice President and Director None
Leland B. Paton ...... Executive Vice President and Director None
One New York Plaza
New York, NY
Martin Pfinsgraff .... Executive Vice President, Chief Financial Officer and Director None
Vincent T. Pica, II .. Executive Vice President and Director None
One New York Plaza
New York, NY
Richard A. Redeker ... Executive Vice President and Director President and
Director
Gregory W. Scott ..... Executive Vice President, Chief Financial Officer and Director None
Hardwick Simmons ..... Chief Executive Officer, President and Director None
Lee B. Spencer, Jr. .. Executive Vice President, Secretary, General Counsel and Director None
</TABLE>
- ----------
(1) The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential Plaza,
745 Broad Street, Newark, New Jersey 07102, the Registrant, One Seaport Plaza,
New York, New York 10292, and Prudential Mutual Fund Services, Inc., Raritan
Plaza One, Edison, New Jersey 08837. Documents required by Rules 31a-1(b)(5),
(6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Two Gateway Center,
documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport
Plaza and the remaining accounts, books and other documents required by such
other pertinent provisions of Section 31(a) and the Rules promulgated thereunder
will be kept by State Street Bank and Trust Company and Prudential Mutual Fund
Services, Inc.
Item 31. Management Services
Other than as set forth under the captions "How the Fund is
Managed--Manager" and "How the Fund is Managed--Distributor" in the Prospectus
of Global Series and "How the Series is Managed--Manager" and "How the Series is
Managed--Distributor" in the Prospectus of International Stock Series and the
captions "Manager" and "Distributor" in the Statement of Additional Information,
constituting Parts A and B, respectively, of this Registration Statement,
Registrant is not a party to any management-related service contract.
Item 32. Undertakings
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge. The Registrant undertakes to file a
post-effective amendment using financial statements with respect to Prudential
World Fund, Inc.--International Stock Series, a series of the Registrant, which
need not be certified, within four to six months from the effective date of this
Post-Effective Amendment.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State of
New York, on the 18th day of September, 1996.
PRUDENTIAL WORLD FUND, INC.
/s/ Richard A. Redeker
-------------------------------------
(Richard A. Redeker, President)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Stephen C. Eyre Director September 18, 1996
- -------------------------------
Stephen C. Eyre
/s/ Delayne D. Gold Director September 18, 1996
- -------------------------------
Delayne D. Gold
/s/ Don G. Hoff Director September 18, 1996
- -------------------------------
Don G. Hoff
/s/ Harry A. Jacobs, Jr. Director September 18, 1996
- -------------------------------
Harry A. Jacobs, Jr.
/s/ Sidney R. Knafel Director September 18, 1996
- -------------------------------
Sidney R. Knafel
/s/ Robert E. LaBlanc Director September 18, 1996
- -------------------------------
Robert E. LaBlanc
/s/ Thomas A. Owens, Jr. Director September 18, 1996
- -------------------------------
Thomas A. Owens, Jr.
/s/ Richard A. Redeker President and Director September 18, 1996
- -------------------------------
Richard A. Redeker
/s/ Clay T. Whitehead Director September 18, 1996
- -------------------------------
Clay T. Whitehead
/s/ Grace C. Torres Treasurer, Principal September 18, 1996
- ------------------------------- Financial and
Grace C. Torres Accounting Officer
<PAGE>
EXHIBIT INDEX
1. (a) Restated Articles of Incorporation. Incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 17 to the Registration Statement
filed on Form N-1A via EDGAR on January 3, 1995 (File No. 2-89725).
(b) Articles Supplementary. Incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 20 to the Registration Statement on Form
N-1A (file No. 2-89725) filed via EDGAR.
(c) Amendment to Articles of Incorporation. Incorporated by reference
to Exhibit 1(c) to Post-Effective Amendment No. 20 to the Registration
Statement on Form N-1A (file No. 2-89725) filed via EDGAR.
2. Amended and Restated By-Laws of the Registrant, incorporated by reference
to Exhibit 2 to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A (File No. 2-89725) filed via EDGAR.
4. (a) Specimen Certificate for shares of Common Stock of the Registrant,
incorporated by reference to Exhibit No. 4 to the Registration Statement on
Form N-1A, Pre-Effective Amendment No. 1 (File No. 2-89725).
(b) Specimen Certificate for shares of Common Stock of the Registrant for
Class A Shares, incorporated by reference to Exhibit 4(b) to Post-Effective
Amendment No. 11 to the Registration Statement on Form N-1A (File No.
2-89725).
(c) Instruments defining rights of shareholders, incorporated by reference
to Exhibit No. 4(c) to the Registration Statement on Form N-1A,
Post-Effective Amendment No. 14 (File No. 2-89725) filed via EDGAR.
5. (a) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc., incorporated by reference to Exhibit No. 5(a) to
Post-Effective Amendment No. 7 to Registration Statement on Form N-1A (File
No. 2-89725).
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation, incorporated by reference to
Exhibit No. 5(b) to Post-Effective Amendment No. 7 to the Registration
Statement on Form N-1A (File No. 2-89725).
(c) Management Agreement between Registrant and Prudential Mutual Fund
Management, Inc. with respect to the International Stock Series of the
Registrant.*
(d) Subadvisory Agreement between Mercator Asset Management, L.P. and
Prudential Mutual Fund Management, Inc. with respect to the International
Stock Series of the Registrant.*
(e) Subadvisory Agreement between The Prudential Investment Corporation and
Prudential Mutual Fund Management Inc. with respect to the International
Stock Series of the Registrant.*
6. Distribution Agreement for Shares of the Registrant.*
8. (a) Custodian Agreement between the Registrant and State Street Bank and
Trust Company, incorporated by reference to Exhibit No. 8 to the
Registration Statement on Form N-1A (File No. 2-89725).
(b) Form of Amendment to Custodian Agreement, incorporated by reference to
Exhibit No. 8(b) to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A (File No. 2-89725) filed on November 1, 1995.
9. Transfer Agency and Service Agreement between the Registrant and Prudential
Mutual Fund Services, Inc., incorporated by reference to Exhibit No. 9 to
the Registration Statement on Form N-1A, Post-Effective Amendment No. 7
(File No. 2-89725).
<PAGE>
10. (a) Opinion of Sullivan & Cromwell, incorporated by reference to Exhibit
No. 10 to the Registration Statement on Form N-1A, Pre-Effective Amendment
No. 1 (File No. 2-89725).
(b) Opinion of Sullivan & Cromwell, incorporated by reference to Exhibit
10(b) to Post-Effective Amendment No. 19 to the Registration Statement on
Form N-1A (File No. 2-89725) filed on December 29, 1995.
(c) Opinion of Sullivan & Cromwell.*
11. Consent of Independent Accountants.*
13. Purchase Agreement incorporated by reference to Exhibit No. 13 to the
Registration Statement on Form N-1A, Pre-Effective Amendment No. 1 (File
No. 2-89725).
15. (a) Amended and Restated Distribution and Service Plan for Class A shares
dated July 1, 1993, incorporated by reference to Exhibit No. 15(d) to the
Registration Statement on Form N-1A, Post-Effective Amendment No. 14 (File
No. 2-89725) filed via EDGAR.
(b) Amended and Restated Distribution and Service Plan for Class B shares
dated July 1, 1993, incorporated by reference to Exhibit No.15(e) to the
Registration Statement on Form N-1A, Post-Effective Amendment No. 14 (File
No. 2-89725) filed via EDGAR.
(c) Distribution and Service Plan for Class A shares. Incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 17 to the
Registration Statement filed on Form N-1A via EDGAR on January 3, 1995
(File No. 2-89725).
(d) Distribution and Service Plan for Class B shares; incorporated by
reference to Exhibit 6(d) to Post-Effective Amendment No. 17 to the
Registration Statement filed on Form N-1A via EDGAR on January 3, 1995
(File No. 2-89725).
(e) Distribution and Service Plan for Class C shares; incorporated by
reference to Exhibit 6(e) to Post-Effective Amendment No. 17 to the
Registration Statement filed on Form N-1A via EDGAR on January 3, 1995
(File No. 2-89725).
(f) Distribution and Service Plan for Class A Shares of International Stock
Series of the Registrant.*
(g) Distribution and Service Plan for Class B Shares of International Stock
Series of the Registrant.*
(h) Distribution and Service Plan for Class C Shares of International Stock
Series of the Registrant.*
16. Schedule of Computation of Performance Quotations, incorporated by
reference to Exhibit No. 16 to the Registration Statement on Form N-1A,
Post-Effective Amendment No. 1 (File No. 2-89725).
18. Rule 18f-3 Plan, incorporated by reference to Exhibit No. 18 to
Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A
(File No. 2-89725) filed on November 1, 1995.
- -----------
* Filed herewith.
EXHIBIT 5(c)
PRUDENTIAL WORLD FUND, INC.
(The Fund)
International Stock Series
MANAGEMENT AGREEMENT
Agreement made as of the 18th day of September, 1996 between the Fund, a
Maryland corporation, on behalf of its International Stock Series, and
Prudential Mutual Fund Management, Inc., a Delaware corporation (the "Manager").
W I T N E S S E T H
WHEREAS, the Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund desires to retain the Manager to render or contract to
obtain as hereinafter provided investment advisory services to the International
Stock Series and the Fund also desires to avail itself of the facilities
available to the Manager with respect to the administration of its day to day
corporate affairs, and the Manager is willing to render such investment advisory
and administrative services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of the Fund and
administrator of its corporate affairs for the period and on the terms set forth
in this Agreement. The Manager accepts such appointment and agrees to render the
services herein described, for the compensation herein provided. The Manager
will enter into agreements, dated the date hereof, with each of Mercator Asset
Management, L.P. (Mercator) and The Prudential Investment
<PAGE>
Corporation ("PIC") pursuant to which each shall furnish to the Fund and its
International Stock Series the investment advisory services specified therein in
connection with the management of the Fund. Such agreements in the forms
attached as Exhibit A are hereinafter referred to as the "Subadvisory
Agreements." The Manager will continue to have responsibility for all investment
advisory services furnished pursuant to the Subadvisory Agreements.
2. Subject to the supervision of the Board of Directors of the Fund, the
Manager shall administer the Fund's corporate affairs and, in connection
therewith, shall furnish the Fund with office facilities and with clerical,
bookkeeping and recordkeeping services at such office facilities and, subject to
Section 1 hereof and the Subadvisory Agreements, the Manager shall manage the
investment operations of the International Stock Series and the composition of
the International Stock Series' portfolio, including the purchase, retention and
disposition thereof, in accordance with the International Stock Series'
investment objective, policies and restrictions as stated in the Prospectus
(hereinafter defined) and subject to the following understandings:
(a) The Manager shall provide supervision of the International Stock
Series' investments and determine from time to time what investments or
securities will be purchased, retained, sold or loaned by the International
Stock Series, and what portion of the assets will be invested or held
uninvested as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with
2
<PAGE>
the Fund's Articles of Incorporation and By-Laws, and Prospectus
(hereinafter defined) of the International Stock Series and with the
instructions and directions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal and state laws and regulations.
(c) The Manager shall determine the securities and futures contracts
to be purchased or sold by the International Stock Series and will place
orders pursuant to its determinations with or through such persons,
brokers, dealers or futures commission merchants (including but not limited
to Prudential Securities Incorporated) in conformity with the policy with
respect to brokerage as set forth in the Fund's Registration Statement and
the International Stock Series' Prospectus (hereinafter defined) or as the
Board of Directors may direct from time to time. In providing the
International Stock Series with investment supervision, it is recognized
that the Manager will give primary consideration to securing the most
favorable price and efficient execution. Consistent with this policy, the
Manager may consider the financial responsibility, research and investment
information and other services provided by brokers, dealers or futures
commission merchants who may effect or be a party to any such transaction
or other transactions to which other clients of the Manager may be a party.
It is understood that Prudential Securities Incorporated may be used as
principal broker for securities
3
<PAGE>
transactions but that no formula has been adopted for allocation of the
International Stock Series' investment transaction business. It is also
understood that it is desirable for the International Stock Series that the
Manager have access to supplemental investment and market research and
security and economic analysis provided by brokers or futures commission
merchants and that such brokers may execute brokerage transactions at a
higher cost to the International Stock Series than may result when
allocating brokerage to other brokers or futures commission merchants on
the basis of seeking the most favorable price and efficient execution.
Therefore, the Manager is authorized to pay higher brokerage commissions
for the purchase and sale of securities and futures contracts for the
International Stock Series to brokers or futures commission merchants who
provide such research and analysis, subject to review by the Fund's Board
of Directors from time to time with respect to the extent and continuation
of this practice. It is understood that the services provided by such
broker or futures commission merchant may be useful to the Manager in
connection with its services to other clients.
On occasions when the Manager deems the purchase or sale of a security
or a futures contract to be in the best interest of the International Stock
Series as well as other clients of the Manager, Mercator or PIC, the
Manager, to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities or futures
4
<PAGE>
contracts to be so sold or purchased in order to obtain the most
favorable price or lower brokerage commissions and efficient execution. In
such event, allocation of the securities or futures contracts so purchased
or sold, as well as the expenses incurred in the transaction, will be made
by the Manager in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the International Stock
Series, the Fund and to such other clients.
(d) The Manager shall maintain all books and records with respect to
the International Stock Series' portfolio transactions and shall render to
the Fund's Board of Directors such periodic and special reports as the
Board may reasonably request.
(e) The Manager shall be responsible for the financial and accounting
records to be maintained by the International Stock Series (including those
being maintained by the Fund's Custodian).
(f) The Manager shall provide the Fund's Custodian on each business
day with information relating to all transactions concerning the
International Stock Series' assets.
(g) The investment management services of the Manager to the Fund
under this Agreement are not to be deemed exclusive, and the Manager shall
be free to render similar services to others.
3. The Fund has delivered to the Manager copies of each of the following
documents and will deliver to it all future
5
<PAGE>
amendments and supplements, if any:
(a) Articles of Incorporation of the Fund, as filed with the Secretary
of State of Maryland (such Articles of Incorporation, as in effect on the
date hereof and as amended from time to time, are herein called the
"Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect on the date hereof
and as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Board of Directors of the Fund
authorizing the appointment of the Manager and approving the form of this
agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-1A (the "Registration Statement"), as filed
with the Securities and Exchange Commission (the "Commission") relating to
the Fund and its International Stock Series, and shares of the Fund's
Common Stock and all amendments thereto;
(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus of the Fund and its International Stock Series (such
Prospectus and Statement of Additional Information, as currently in effect
and as amended or supplemented from time to time, being herein called the
"Prospectus").
6
<PAGE>
4. The Manager shall authorize and permit any of its directors, officers
and employees who may be elected as Directors or officers of the Fund to serve
in the capacities in which they are elected. All services to be furnished by the
Manager under this Agreement may be furnished through the medium of any such
directors, officers or employees of the Manager.
5. The Manager shall keep the Fund's books and records required to be
maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the International Stock Series are the property
of the Fund and it will surrender promptly to the Fund any such records upon the
Fund's request provided, however, that the Manager may retain a copy of such
records. The Manager further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any such records as are required to be maintained
by the Manager pursuant to Paragraph 2 hereof.
6. During the term of this Agreement, the Manager shall pay the following
expenses:
(i) the salaries and expenses of all personnel of the Fund and the
Manager except the fees and expenses of Directors who are not affiliated
persons of the Manager or the International Stock Series investment
adviser,
(ii) all expenses incurred by the Manager or by the International
Stock Series in connection with managing the ordinary course of the
International Stock Series' business other than those assumed by the
International Stock Series
7
<PAGE>
herein, and
(iii) the costs and expenses payable to Mercator and PIC pursuant to
the Subadvisory Agreements.
The Fund on behalf of its International Stock Series assumes and will pay
the expenses described below:
(a) the fees and expenses incurred by the International Stock Series
in connection with the management of the investment and reinvestment of the
International Stock Series' assets,
(b) the fees and expenses of Directors who are not affiliated persons
of the Manager or the International Stock Series' investment advisers,
(c) the fees and expenses of the Custodian that relate to (i) the
custodial function and the recordkeeping connected therewith, (ii)
preparing and maintaining the general accounting records of the
International Stock Series and the providing of any such records to the
Manager useful to the Manager in connection with the Manager's
responsibility for the accounting records of the International Stock Series
pursuant to Section 31 of the 1940 Act and the rules promulgated
thereunder, (iii) the pricing of the shares of the International Stock
Series, including the cost of any pricing service or services which may be
retained pursuant to the authorization of the Board of Directors of the
Fund, and (iv) for both mail and wire orders, the cashiering function in
connection with the issuance and redemption of the
8
<PAGE>
International Stock Series' securities,
(d) the fees and expenses of the Fund's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the
maintenance of each shareholder account,
(e) the charges and expenses of legal counsel and independent
accountants for the Fund,
(f) brokers' commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities and futures transactions,
(g) all taxes and corporate fees payable by the Fund to federal, state
or other governmental agencies,
(h) the fees of any trade associations of which the Fund may be a
member,
(i) the cost of stock certificates representing, and/or non-negotiable
share deposit receipts evidencing, shares of the International Stock
Series,
(j) the cost of fidelity, directors and officers and errors and
omissions insurance,
(k) the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the Securities and Exchange
Commission, registering the Fund as a broker or dealer and qualifying its
shares under state securities laws, including the preparation and printing
of the Fund's registration statements, prospectuses and statements of
additional information for filing under federal and state securities laws
for such purposes,
9
<PAGE>
(l) allocable communications expenses with respect to investor
services and all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing reports to shareholders in the amount
necessary for distribution to the shareholders,
(m) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
(n) any expenses assumed by the Fund's International Stock Series
pursuant to a Plan of Distribution adopted in conformity with Rule 12b-1
under the 1940 Act.
7. In the event the expenses of the Fund's International Stock Series for
any fiscal year (including the fees payable to the Manager 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) exceed the lowest applicable annual
expense limitation established and enforced pursuant to the statute or
regulations of any jurisdictions in which shares of the Fund are then qualified
for offer and sale, the compensation due the Manager will be reduced by the
amount of such excess, or, if such reduction exceeds the compensation payable to
the Manager, the Manager will pay to the Fund the amount of such reduction which
exceeds the amount of such compensation.
8. For the services provided and the expenses assumed pursuant to this
Agreement, the Fund will pay to the Manager as
10
<PAGE>
full compensation therefor a fee at an annual rate of 1% of the Fund's average
daily net assets. This fee will be computed daily and will be paid to the
Manager monthly. Any reduction in the fee payable and any payment by the Manager
to the Fund pursuant to paragraph 7 shall be made monthly. Any such reductions
or payments are subject to readjustment during the year.
9. The Manager shall not be liable for any error of judgment or for any
loss suffered by the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
10. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Directors of the Fund
or by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the International Stock Series, or by the Manager at any time,
without the payment of any penalty, on not more than 60 days' nor less than 30
days' written
11
<PAGE>
notice to the other party. This Agreement shall terminate automatically in the
event of its assignment (as defined in the 1940 Act).
11. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Manager who may also be a Director, officer
or employee of the Fund to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.
12. Except as otherwise provided herein or authorized by the Board of
Directors of the Fund from time to time, the Manager shall for all purposes
herein be deemed to be an independent contractor and shall have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
13. During the term of this Agreement, the Fund agrees to furnish the
Manager at its principal office all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
shareholders of the Fund or the public, which refer in any way to the Manager,
prior to use thereof and not to use such material if the Manager reasonably
objects in writing within five business days (or such other time as may be
mutually agreed) after receipt thereof. In the event of termination of this
Agreement, the Fund will continue to furnish to
12
<PAGE>
the Manager copies of any of the above mentioned materials which refer in any
way to the Manager. Sales literature may be furnished to the Manager hereunder
by first-class or overnight mail, facsimile transmission equipment or hand
delivery. The Fund shall furnish or otherwise make available to the Manager such
other information relating to the business affairs of the Fund as the Manager at
any time, or from time to time, reasonably requests in order to discharge its
obligations hereunder.
14. This Agreement may be amended by mutual consent, but the consent of the
Fund must be obtained in conformity with the requirements of the 1940 Act.
15. Any notice or other communication required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (1) to the Manager at One Seaport Plaza, New York, N.Y. 10292,
Attention: Secretary; or (2) to the Fund at One Seaport Plaza, New York, N.Y.
10292, Attention: President.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
17. The Fund may use the name "Prudential World Fund, Inc." or any name
including the word "Prudential" only for so long as this Agreement or any
extension, renewal or amendment hereof remains in effect, including any similar
agreement with any organization which shall have succeeded to the Manager's
business as Manager or any extension, renewal or amendment thereof remain in
effect. At such time as such an agreement shall no longer be in
13
<PAGE>
effect, the Fund will (to the extent that it lawfully can) cease to use such a
name or any other name indicating that it is advised by, managed by or otherwise
connected with the Manager, or any organization which shall have so succeeded to
such businesses. In no event shall the Fund use the name "Prudential World Fund,
Inc." or any name including the word "Prudential" if the Manager's function is
transferred or assigned to a company of which The Prudential Insurance Company
of America does not have control.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
PRUDENTIAL WORLD FUND, INC.
By /s/RICHARD A. REDEKER
----------------------------------
Richard A. Redeker
President
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By /s/ROBERT F. GUNIA
----------------------------------
Robert F. Gunia
Executive Vice President
14
EXHIBIT 5(d)
PRUDENTIAL WORLD FUND, INC.
(The Fund)
International Stock Series
SUBADVISORY AGREEMENT
Agreement made as of the 18th day of September, 1996, between Prudential
Mutual Fund Management, Inc. (PMF or the Manager), a Delaware corporation, and
Mercator Asset Management, L.P. (the Subadviser), a limited partnership
organized under the laws of the State of Delaware.
W I T N E S S E T H
WHEREAS, the Manager has entered into a Management Agreement, dated
as of September 18, 1996 (the Management Agreement), with the Fund, on behalf of
its International Stock Series, a diversified, open-end management investment
company registered under the Investment Company Act of 1940 (the 1940 Act),
pursuant to which PMF will act as Manager of the International Stock Series;
WHEREAS, the shares of the Fund are divided into separate series or funds,
each of which is established pursuant to a resolution of the Board of Directors
of the Fund, and the Board of Directors may from time to time terminate such
series or funds or establish and terminate additional series or funds;
WHEREAS, the Manager has entered into a separate subadvisory agreement,
dated as of September 18, 1996, with The Prudential Investment Corporation (PIC)
a New Jersey corporation, pursuant to which PIC will provide investment advisory
services to the International
<PAGE>
Stock Series with respect to (i) the management of short-term assets, including
cash, money market instruments and repurchase agreements and (ii) the lending of
portfolio securities;
WHEREAS, the Manager desires to retain the Subadviser to provide investment
advisory services to the International Stock Series in connection with the
management of its assets and the Subadviser is willing to render such investment
advisory services;
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board of
Directors of the Fund, the Subadviser shall manage the investment
operations of the International Stock Series and the composition of the
International Stock Series' portfolio, including the purchase, retention
and disposition thereof, in accordance with the International Stock Series'
investment objective, policies and restrictions as stated in the Prospectus
(such Prospectus and Statement of Additional Information as currently in
effect and as amended or supplemented from time to time, being herein
collectively called the "Prospectus") and subject to the following
understandings:
(i) The Subadviser shall provide supervision of the International
Stock Series' investments and determine from time to time what
investments and securities will be purchased, retained, sold or loaned
by the International Stock Series, and what portion of the assets will
be invested or held uninvested as cash.
2
<PAGE>
(ii) In the performance of its duties and obligations under this
Agreement, the Subadviser shall act in conformity with the Fund's
Articles of Incorporation and By-Laws, and Prospectus of the
International Stock Series and with the instructions and directions of
the Manager and of the Board of Directors of the Fund and will conform
to and comply with the requirements of the 1940 Act, the Internal
Revenue Code of 1986 and all other applicable federal and state laws
and regulations.
(iii) The Subadviser shall advise PIC of the dollar amount of the
Fund's assets that shall be invested in repurchase agreements, money
market instruments or held in cash and advise PIC as to the securities
available for lending and the securities to be recalled from loan. In
the event the agreement with PIC is terminated, the Subadviser shall
provide investment advisory services to the Fund with respect to the
management of short-term assets and the lending of portfolio
securities under this Agreement.
(iv) The Subadviser shall determine the securities, futures
contracts and currencies to be purchased or sold by the International
Stock Series and will place orders with or through such persons,
brokers, dealers or futures commission merchants (including but not
limited to Prudential Securities
3
<PAGE>
Incorporated) to carry out the policy with respect to brokerage as set
forth in the International Stock Series Registration Statement and
Prospectus or as the Board of Directors may direct from time to time.
In providing the International Stock Series with investment
supervision, it is recognized that the Subadviser will give primary
consideration to securing the most favorable price and efficient
execution. Within the framework of this policy, the Subadviser may
consider the financial responsibility, research and investment
information and other services provided by brokers, dealers or futures
commission merchants who may effect or be a party to any such
transaction or other transactions to which the Subadviser's other
clients may be a party. It is understood that Prudential Securities
Incorporated may be used as principal broker for securities
transactions but that no formula has been adopted for allocation of
the International Stock Series' investment transaction business. It is
also understood that it is desirable for the International Stock
Series that the Subadviser have access to supplemental investment and
market research and security and economic analysis provided by brokers
or futures commission merchants who may execute brokerage transactions
at a higher cost to the Fund than may result when allocating brokerage
to
4
<PAGE>
other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, the Subadviser is authorized to place
orders for the purchase and sale of securities and futures contracts
for the International Stock Series with such brokers or futures
commission merchants, subject to review by the Board of Directors of
the Fund from time to time with respect to the extent and continuation
of this practice. It is understood that the services provided by such
brokers or futures commission merchants may be useful to the
Subadviser in connection with the Subadviser's services to other
clients.
On occasions when the Subadviser deems the purchase or sale of a
security or futures contract to be in the best interest of the
International Stock Series as well as other clients of the Subadviser,
the Subadviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the
securities or futures contracts to be sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities or
futures contracts so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Subadviser in the
manner the Subadviser considers to be the most equitable and
5
<PAGE>
consistent with its fiduciary obligations to the International Stock
Series, the Fund and to such other clients.
(v) The Subadviser shall maintain all books and records with
respect to the International Stock Series' portfolio transactions
required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and shall render to the
Board of Directors of the Fund such periodic and special reports as
the Board may reasonably request.
(vi) The Subadviser shall provide the Fund's Custodian on each
business day with information relating to all transactions concerning
the International Stock Series' assets and shall provide the Manager
with such information upon request of the Manager.
(vii) The investment management services provided by the
Subadviser hereunder are not to be deemed exclusive, and the
Subadviser shall be free to render similar services to others.
(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as Directors or officers of the
Fund to serve in the capacities in which they are elected. Services to be
furnished by the Subadviser under this Agreement may be furnished through
the medium of any of such directors,
6
<PAGE>
officers or employees.
(c) The Subadviser shall keep the International Stock Series books and
records required to be maintained by the Subadviser pursuant to paragraph
1(a)(v) hereof and shall timely furnish to the Manager all information
relating to the Subadviser's services hereunder needed by the Manager to
keep the other books and records of the International Stock Series required
by Rule 31a-1 under the 1940 Act. The Subadviser agrees that all records
which it maintains for the International Stock Series are the property of
the Fund and the Subadviser will surrender promptly to the Fund any of such
records upon the Fund's request; provided, however, that the Subadviser may
retain a copy of such records. The Subadviser further agrees to preserve
for the periods prescribed by Rule 31a-2 of the Commission under the 1940
Act any such records as are required to be maintained by it pursuant to
paragraph 1(a)(v) hereof.
2. The Manager shall continue to have responsibility for all services to be
provided to the International Stock Series pursuant to the Management Agreement
and shall oversee and review the Subadviser's performance of its duties under
this Agreement.
3. The Manager shall compensate the Subadviser for the services provided
and the expenses assumed pursuant to this Subadvisory Agreement, a fee at an
annual rate of .75 of 1% of the average daily net assets of the Fund up to and
including $50 million and .60 of 1% of the average daily net assets of the Fund
7
<PAGE>
in excess of $50 million and up to and including $300 million and .45 of 1% of
the average daily net assets in excess of $300 million. This fee will be
computed daily and paid monthly.
8
<PAGE>
4. The Subadviser shall not be liable for any error of judgment or for any
loss suffered by the Fund or the Manager in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the Subadviser's part in the performance of its
duties or from its reckless disregard of its obligations and duties under this
Agreement.
5. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Directors of the Fund
or by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Fund, or by the Manager or the Subadviser at any time, without
the payment of any penalty, on not more than 60 days' nor less than 30 days'
written notice to the other party. This Agreement shall terminate automatically
in the event of its assignment (as defined in the 1940 Act) or upon the
termination of the Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any of
the Subadviser's directors, officers, or employees who may also be a Director,
officer or employee of the Fund to engage in any other business or to devote his
or her time and attention in part to the management or other aspects of any
business, whether of a similar or a dissimilar nature, nor limit or
9
<PAGE>
restrict the Subadviser's right to engage in any other business or to render
services of any kind to any other corporation, firm, individual or association.
7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements, reports
to stockholders, sales literature or other material prepared for distribution to
shareholders of the Fund or the public, which refer to the Subadviser in any
way, prior to use thereof and not to use material if the Subadviser reasonably
objects in writing five business days (or such other time as may be mutually
agreed) after receipt thereof. Sales literature may be furnished to the
Subadviser hereunder by first-class or overnight mail, facsimile transmission
equipment or hand delivery.
8. Any notice or other communication required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (1) to the Manager at One Seaport Plaza, New York, New York
10292, Attention: Secretary; or (2) to the Subadviser at 2400 East Commercial
Blvd., Fort Lauderdale, FL 33308, Attention: General Partner.
9. This Agreement may be amended by mutual consent, but the consent of the
Fund must be obtained in conformity with the requirements of the 1940 Act.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without reference to choice of law principles
thereof and in accordance with the 1940 Act. In the case of any conflict the
1940 Act shall control.
10
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By /s/ROBERT F. GUNIA
----------------------------------
Robert F. Gunia
Executive Vice President
MERCATOR ASSET MANAGEMENT, L.P.
By /s/PETER F. SPANO
----------------------------------
Peter F. Spano
General Partner
11
PRUDENTIAL WORLD FUND, INC.
(The Fund)
International Stock Series
SUBADVISORY AGREEMENT
Agreement made as of the 18th day of September, 1996, between Prudential
Mutual Fund Management, Inc. (PMF or the Manager), a Delaware corporation, and
The Prudential Investment Corporation (PIC), a New Jersey Corporation.
W I T N E S S E T H
WHEREAS, the Manager has entered into a Management Agreement, dated
as of September 18, 1996 (the Management Agreement), with the Fund, on behalf of
its International Stock Series, a diversified, open-end management investment
company registered under the Investment Company Act of 1940 (the 1940 Act),
pursuant to which PMF will act as Manager of the International Stock Series;
WHEREAS, the shares of common stock of the Fund are divided into
separate series or portfolios, each of which is established pursuant to a
resolution of the Directors of the Fund and documents appropriately filed with
the State of Maryland, and the Directors may from time to time terminate such
series or portfolios or establish and terminate additional series and
portfolios;
<PAGE>
WHEREAS, the Manager has entered into separate subadvisory agreements with
a "Subadviser" for the International Stock Series pursuant to which investment
advisory services will be provided to the International Stock Series except with
respect to (i) the management of short-term assets, including cash, money market
instruments and repurchase agreements and (ii) the lending of portfolio
securities; WHEREAS, the Manager desires to retain PIC to provide investment
advisory services to the International Stock Series with respect to (i) the
management of short-term assets, including cash, money market instruments and
repurchase agreements and (ii) the lending of portfolio securities in connection
with the management of the International Stock Series and PIC is willing to
render such investment advisory services;
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Directors of
the Fund, PIC shall manage the short-term assets and cash of the
International Stock Series, including the purchase, retention and
disposition thereof, in accordance with the International Stock Series'
investment objective, policies and restrictions as stated in the Prospectus
(such Prospectus and Statement of Additional Information as currently in
effect and as amended or supplemented from time to time, being herein
collectively called the "Prospectus") and subject to the following
understandings:
(i) PIC shall provide supervision of International Stock Series'
investments and determine from time to time what investments and
securities will
2
<PAGE>
be purchased, retained, sold or loaned by International Stock Series,
and what portion of the assets will be invested or held uninvested as
cash.
(ii) In the performance of its duties and obligations under this
Agreement, PIC shall act in conformity with the Fund's Articles of
Incorporation, By-Laws and Prospectus of the Fund and with the
instructions and directions of the Manager and of the Directors of the
Fund and will conform to and comply with the requirements of the 1940
Act, the Internal Revenue Code of 1986 and all other applicable
federal and state laws and regulations.
(iii) The Subadviser shall advise PIC of the dollar amount of
International Stock Series' assets that shall be invested in
repurchase agreements, money market instruments or held in cash and
advise PIC as to the securities available for lending and the
securities to be recalled from loan.
(iv) Upon receipt of information from the Subadviser as to the
amount of funds available for short-term investment, as described in
paragraph 1(a)(iii) above, PIC shall determine the securities to be
purchased or sold by International Stock Series and will place orders
with or through such persons, brokers or dealers (including but not
limited to Prudential Securities Incorporated) to carry out the
3
<PAGE>
policy with respect to brokerage as set forth in the International
Stock Series' Registration Statement and Prospectus or as the Board of
Directors may direct from time to time. In providing International
Stock Series with investment supervision, it is recognized that PIC
will give primary consideration to securing the most favorable price
and efficient execution. Within the framework of this policy, PIC may
consider the financial responsibility, research and investment
information and other services provided by brokers or dealers who may
effect or be a party to any such transaction or other transactions to
which PIC's other clients may be a party.
On occasions when PIC deems the purchase or sale of a security to
be in the best interest of the International Stock Series as well as
other clients of PIC, PIC, to the extent permitted by applicable laws
and regulations, may, but shall be under no obligation to, aggregate
the securities to be sold or purchased in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be
made by PIC in the manner PIC considers to be the most equitable and
consistent with its fiduciary obligations to the International Stock
4
<PAGE>
Series, the Fund and to such other clients.
(v) PIC shall maintain all books and records with respect to
International Stock Series' portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph (f)
of Rule 31a-1 under the 1940 Act and shall render to the Board of
Directors of the Fund such periodic and special reports as the Board
may reasonably request.
(vi) PIC shall provide the Fund's Custodian on each business day
with information relating to all transactions concerning International
Stock Series' assets and shall provide the Manager with such
information upon request of the Manager.
(vii) The investment management services provided by PIC
hereunder are not to be deemed exclusive, and PIC shall be free to
render similar services to others.
(b) PIC shall authorize and permit any of its directors, officers and
employees who may be elected as Directors or officers of the Fund to serve
in the capacities in which they are elected. Services to be furnished by
PIC under this Agreement may be furnished through the medium of any of such
directors, officers or employees.
(c) PIC shall keep the International Stock Series' books and records
required to be maintained by PIC pursuant to paragraph 1(a)(v) hereof and
shall timely furnish to the Manager all information relating to PIC's
services
5
<PAGE>
hereunder needed by the Manager to keep the other books and records of the
Fund required by Rule 31a-1 under the 1940 Act. PIC agrees that all records
which it maintains for the International Stock Series are the property of
the Fund and PIC will surrender promptly to the Fund any of such records
upon the Fund's request, provided however that PIC may retain a copy of
such records. PIC further agrees to preserve for the periods prescribed by
Rule 31a-2 of the Commission under the 1940 Act any such records as are
required to be maintained by it pursuant to paragraph 1(a)(v) hereof.
2. The Manager shall continue to have responsibility for all services to be
provided to the International Stock Series pursuant to the Management Agreement
and shall oversee and review PIC's performance of its duties under this
Agreement.
3. The Manager shall reimburse PIC for reasonable costs and expenses
incurred by PIC determined in a manner acceptable to the Manager in furnishing
the services provided in paragraph 1 hereof.
4. PIC shall not be liable for any error of judgment or for any loss
suffered by a Fund or the Manager in connection with the matters to which this
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 its obligations and duties under this Agreement.
6
<PAGE>
5. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Directors of the Fund
or by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the International Stock Series, or by the Manager or PIC at any
time, without the payment of any penalty, on not more than 60 days' nor less
than 30 days' written notice to the other party. This Agreement shall terminate
automatically in the event of its assignment (as defined in the 1940 Act) or
upon the termination of the Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any of
PIC's directors, officers, or employees who may also be a Director, officer or
employee of the Fund to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or a dissimilar nature, nor limit or restrict PIC's right
to engage in any other business or to render services of any kind to any other
corporation, firm, individual or association.
7. During the term of this Agreement, the Manager agrees to furnish PIC at
its principal office all prospectuses, proxy statements, reports to
shareholders, sales literature or other material prepared for distribution to
shareholders of International Stock Series or the public, which refer to PIC in
any way, prior to
7
<PAGE>
use thereof and not to use material if PIC reasonably objects in writing five
business days (or such other time as may be mutually agreed) after receipt
thereof. Sales literature may be furnished to PIC hereunder by first-class or
overnight mail, facsimile transmission equipment or hand delivery.
8. Any notice or other communication required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (1) to the Manager at One Seaport Plaza, New York, New York
10292, Attention: Secretary; or (2) to PIC at Prudential Plaza, 751 Broad
Street, Newark, NJ 07102-3777, Attention: President.
9. This Agreement may be amended by mutual consent, but the consent of a
Fund must be obtained in conformity with the requirements of the 1940 Act.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without reference to choice of law principles
thereof and in accordance with the 1940 Act. In the case of any conflict the
1940 Act shall control.
8
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By /s/ROBERT F. GUNIA
----------------------------------
Robert F. Gunia
Executive Vice President
THE PRUDENTIAL INVESTMENT CORPORATION
By /s/RICHARD A. REDEKER
----------------------------------
Richard A. Redeker
Executive Vice President
9
PRUDENTIAL GLOBAL FUND, INC. EXHIBIT 6
Distribution Agreement
Agreement made as of April 11, 1996 between Prudential Global Fund,
Inc., a Maryland corporation (the Fund), and Prudential Securities Incorporated,
a Delaware corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
shares for sale continuously;
WHEREAS, the shares of the Fund may be divided into classes and/or
series (all such shares being referred to herein as Shares) and the Fund
currently is authorized to offer Class A, Class B, Class C and Class Z Shares;
WHEREAS, the Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934, as amended, and is engaged in the business
of selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other, with respect to the continuous offering of the Fund's
Shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Shares; and
WHEREAS, upon approval by the holders of the respective classes
and/or series of Shares of the Fund it is contemplated that the Fund will adopt
a plan (or plans) of distribution pursuant to Rule 12b-1 under the Investment
Company Act with respect to certain of its classes and/or series of Shares (the
Plans) authorizing payments by the Fund to the Distributor with respect to the
distribution of such classes and/or series of Shares and the maintenance of
related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Shares of the Fund to sell
Shares to the public on behalf of the Fund and the Distributor
hereby accepts such appointment and agrees to act hereunder. The
<PAGE>
Fund hereby agrees during the term of this Agreement to sell Shares of the Fund
through the Distributor on the terms and conditions set forth below.
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Shares, except that:
2.1 The exclusive rights granted to the Distributor to sell Shares
of the Fund shall not apply to Shares of the Fund issued in connection with the
merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund.
2.2 Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions or
through the exercise of any conversion feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean the
Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund on
behalf of investors the Shares needed, but not more than the Shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers).
3.2 The Shares shall be sold by the Distributor on
behalf of the Fund and delivered by the Distributor or selected
2
<PAGE>
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of any or all
classes and/or series of its Shares at times when redemption is suspended
pursuant to the conditions in Section 4.3 hereof or at such other times as may
be determined by the Board of Directors. The Fund shall also have the right to
suspend the sale of any or all classes and/or series of its Shares if a banking
moratorium shall have been declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Shares. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts
for such Shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds or federal funds. The
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by the Fund
4.1 Any of the outstanding Shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Shares so tendered in
accordance with its Articles of Incorporation as amended from time to time, and
in accordance with the applicable provisions of the Prospectus. The price to be
paid to redeem or repurchase the Shares shall be equal to the net asset value
determined as set forth in the Prospectus. All payments by the Fund hereunder
shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Shares shall be
paid by the Fund as follows: (i) in the case of Shares subject to a contingent
deferred sales charge, any applicable contingent deferred sales charge shall be
paid to the Distributor, and the balance shall be paid to or for the account of
the redeeming shareholder, in each case in accordance with applicable provisions
of the Prospectus; and (ii) in the case of all other Shares, proceeds shall be
paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus.
3
<PAGE>
4.3 Redemption of any class and/or series of Shares or payment may
be suspended at times when the New York Stock Exchange is closed for other than
customary weekends and holidays, when trading on said Exchange is restricted,
when an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of Shares as
provided herein, the Fund agrees to sell its Shares so long as it has Shares of
the respective class and/or series available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Shares, and
this shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Shares for sales under the
securities laws of such states as the Distributor and the Fund may approve;
provided, that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Shares in any
state from the terms set forth in its Registration Statement, to qualify as a
foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its
Shares. Any such qualification
4
<PAGE>
may be withheld, terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 9 hereof, the expense of qualification and
maintenance of qualification shall be borne by the Fund. The Distributor shall
furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to
effect sales of Shares, but shall not be obligated to sell any specific number
of Shares. Sales of the Shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with other
investment companies. The Distributor shall compensate the selected dealers as
set forth in the Prospectus.
6.2 In selling the Shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Shares only to such selected dealers as are
members in good standing of the NASD. Shares sold to selected dealers shall be
for resale by such dealers only at the offering price determined as set forth in
the Prospectus.
Section 7. Payments to the Distributor
7.1 With respect to classes and/or series of Shares which impose a
front-end sales charge, the Distributor shall receive and may retain any portion
of any front-end sales charge which is imposed on such sales and not reallocated
to selected dealers as set forth in the Prospectus, subject to the limitations
of Article III, Section 26 of the NASD Rules of Fair Practice.
5
<PAGE>
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of any applicable Plans.
7.2 With respect to classes and/or series of Shares which impose a
contingent deferred sales charge, the Distributor shall receive and may retain
any contingent deferred sales charge which is imposed on such sales as set forth
in the Prospectus, subject to the limitations of Article III, Section 26 of the
NASD Rules of Fair Practice. Payment of these amounts to the Distributor is not
contingent upon the adoption or continuation of any Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as compensation for
services under any Plans adopted by the Fund and this Agreement a distribution
and service fee with respect to the Fund's classes and/or series of Shares as
described in each of the Fund's respective Plans and this Agreement.
8.2 So long as a Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions and account
servicing fees with respect to the relevant class and/or series of Shares to be
paid by the Distributor to account executives of the Distributor and to
broker-dealers and financial institutions which have dealer agreements with the
Distributor. So long as a Plan (or any amendment thereto) is in effect, at the
request of the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities with respect to the relevant class and/or
series of Shares.
Section 9. Allocation of Expenses
The Fund shall bear all costs and expenses of the continuous
offering of its Shares (except for those costs and expenses borne by the
Distributor pursuant to a Plan and subject to the requirements of Rule 12b-1
under the Investment Company Act), including fees and disbursements of its
counsel and auditors, in connection with the preparation and filing of any
required Registration Statements and/or Prospectuses under the Investment
Company Act or the Securities Act, and all amendments and supplements thereto,
and preparing and mailing annual and periodic reports and proxy materials to
shareholders (including but not limited to the expense of setting in type any
such Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of qualification of
the Shares for sale, and, if necessary or advisable in connection therewith, of
qualifying the Fund as a broker or dealer, in such states of the United States
or other
6
<PAGE>
jurisdictions as shall be selected by the Fund and the Distributor pursuant to
Section 5.4 hereof and the cost and expense payable to each such state for
continuing qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5.4 hereof. As set forth in Section 8 above,
the Fund shall also bear the expenses it assumes pursuant to any Plan, so long
as such Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Distributor,
its officers, directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a material fact contained in the Registration Statement
or Prospectus or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary to make the
statements in either thereof not misleading, except insofar as such claims,
demands, liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus; provided,
however, that this indemnity agreement shall not inure to the benefit of any
such officer, director, trustee or controlling person unless a court of
competent jurisdiction shall determine in a final decision on the merits, that
the person to be indemnified was not liable by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
its reckless disregard of its obligations under this Agreement (disabling
conduct), or, in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnified person was not liable by
reason of disabling conduct, by (a) a vote of a majority of a quorum of
directors or trustees who are neither "interested persons" of the Fund as
defined in Section 2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion. The Fund's
agreement to indemnify the Distributor, its officers and directors or trustees
and any such controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the Distributor,
its officers or directors or trustees, or any such controlling person, such
notification to be given by letter or telegram addressed to the Fund at its
principal business office. The Fund agrees promptly to notify the Distributor of
the commencement of any litigation or proceedings against it or any of
7
<PAGE>
its officers or directors in connection with the issue and sale of
any Shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any reasonable counsel fees incurred in connection therewith) which the
Fund, its officers and Directors or any such controlling person may incur under
the Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to make such information not misleading. The Distributor's agreement to
indemnify the Fund, its officers and Directors and any such controlling person
as aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification being given to the Distributor at
its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date first
above written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the applicable class and/or
series of the Fund, and (b) by the vote of a majority of those Directors who are
not parties to this Agreement or interested persons of any such parties and who
have no direct or indirect financial interest in this Agreement or in the
operation of any of the Fund's Plans or in any agreement related thereto
(Independent Directors), cast in person at a meeting called for the purpose of
voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Independent Directors or by vote of
a majority of the outstanding voting securities of the applicable class and/or
series of the Fund, or by the Distributor, on sixty (60) days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
8
<PAGE>
11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting securities", when used
in this Agreement, shall have the respective meanings specified in the
Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such amendment
is specifically approved by (a) the Board of Directors of the Fund, or by the
vote of a majority of the outstanding voting securities of the applicable class
and/or series of the Fund, and (b) by the vote of a majority of the Independent
Directors cast in person at a meeting called for the purpose of voting on such
amendment.
Section 13. Separate Agreement as to Classes and/or Series
The amendment or termination of this Agreement with respect to any
class and/or series shall not result in the amendment or termination of this
Agreement with respect to any other class and/or series unless explicitly so
provided.
Section 14. Governing Law
The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of New York as at the time in effect
and the applicable provisions of the Investment Company Act. To the extent that
the applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year above written.
Prudential Securities Incorporated
By: /s/ROBERT F. GUNIA
------------------------------
Robert F. Gunia
Senior Vice President
Prudential Global Fund, Inc.
By: /s/RICHARD A. REDEKER
------------------------------
Richard A. Redeker
President
10
SULLIVAN & CROMWELL Exhibit 10(c)
NEW YORK TELEPHONE: (212) 558-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC)
CABLE ADDRESS: LADYCOURT, NEW YORK
FACSIMILE: (212) 558-3588 (125 Broad Street)
(212) 558-3792 (250 Park Avenue)
125 Broad Street, New York 10004-2498
__________
1701 PENNSYLVANIA AVE, N.W. WASHINGTON, D.C. 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901
8, PLACE VENDOOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI I-CHOME, CHIYODA-KU, TOKYO 100
3602 GLOUCESTER TOWER, 11 PEDDER STREET, HONG KONG
September 17, 1996
Prudential World Fund, Inc.,
199 Water Street,
New York, New York 10292.
Dear Sirs:
In connection with Post-Effective Amendment No. 21 to the Registration
Statement on Form N-1A (File No. 2-89725) of Prudential World Fund, Inc., a
Maryland corporation (the "Fund"), filed under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to an indefinite number of shares
of Common Stock, par value $.01 per share, including shares of the class
designated as International Stock Series (International Stock Series being
referred to herein an "Series", and the shares of the Series being referred to
herein as the "Shares"), we, as your counsel, have examined such corporate
records, certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our opinion, up
to 500,000,000 Shares have been
<PAGE>
Prudential World Fund, Inc. -2-
duly authorized, and when the Shares are issued and sold (a) in accordance with
the Registration Statement referred to above, (b) so as not to exceed the
authorized number of Shares and (c) in accordance with the authorization of the
Board of Directors, the Shares will be validly issued, fully paid and
nonassessable.
The foregoing opinion is limited to the Federal laws of the United States
and the General Corporation Law of the State of Maryland, and we are expressing
no opinion as to the effect of the laws of any other jurisdiction.
Also, we have relied as to certain matters on information obtained from
public officials, officers of the Company and other sources believed by us to be
responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Post-Effective Amendment referred to above. In giving such consent, we do not
thereby admit that we are in the category of person whose consent is required
under Section 7 of the Securities Act.
Very truly yours,
/s/ SULLIVAN & CROMWELL
Sullivan & Cromwell
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 21 to Registration
Statement No. 2-89725 of Prudential World Fund, Inc. of our report on the
financial statements of Global Series (formerly Prudential Global Fund, Inc.)
dated December 13, 1995, appearing in the Statement of Additional Information,
which is incorporated by reference in such Registration Statement, and to the
references to us under the headings "Financial Highlights" in the Prospectus of
Global Series, which is incorporated by reference in such Registration
Statement, and "Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants" in the Statement of Additional Information of Global
Series and in the Statement of Additional Information of International Stock
Series, which is a part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
New York, New York
September 17, 1996
EXHIBIT 15(f)
PRUDENTIAL WORLD FUND, INC.
(International Stock Series)
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 World Fund, Inc. (the Fund) for the
International Stock Series (the Series) and by Prudential Securities
Incorporated (Prudential Securities), the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors of the Fund, including a majority of
those Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for
<PAGE>
the purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and its shareholders. Expenditures
under this Plan by the Fund for Distribution Activities (defined below) are
primarily intended to result in the sale of Class A shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
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 A shares of the Fund are referred to
herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class A
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors 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
3
<PAGE>
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.
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 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;
(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 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
4
<PAGE>
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.
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
5
<PAGE>
the outstanding voting securities (as defined in the Investment Company Act) of
the Class A shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors 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: September 18, 1996
6
EXHIBIT 15(g)
PRUDENTIAL WORLD FUND, INC.
(International Stock Series)
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 World Fund, Inc. (the Fund) for the
International Stock Series (the Series) and by Prudential Securities
Incorporated (Prudential Securities), the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will continue to employ the Distributor to distribute Class B shares
issued by the Fund (Class B shares). Under the Plan, the Fund wishes to pay to
the Distributor, as compensation for its services, a distribution and service
fee with respect to Class B shares.
A majority of the Board of Directors 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
<PAGE>
this Plan will benefit the Fund and its shareholders. Expenditures under this
Plan by the Fund for Distribution Activities (defined below) are primarily
intended to result in the sale of Class B shares of the Fund within the meaning
of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B shares of
the Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class B shares of the Fund are referred to
herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class B
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services
a distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class B shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among classes will be subject
to the review of the Board of Directors.
3
<PAGE>
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 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
4
<PAGE>
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.
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
5
<PAGE>
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class B shares of the Fund.
All material amendments of the Plan shall be approved by a majority of the Board
of Directors 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: September 18, 1996
6
EXHIBIT 15(h)
PRUDENTIAL WORLD FUND, INC.
(International Stock Series)
Distribution and Service Plan
(Class C Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b- 1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential World Fund, Inc. (the Fund) for the
International Stock Series (the Series) and by Prudential Securities
Incorporated (Prudential Securities), the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will continue to employ the Distributor to distribute Class C shares
issued by the Fund (Class C shares). Under the Plan, the Fund wishes to pay to
the Distributor, as compensation for its services, a distribution and service
fee with respect to Class C shares.
A majority of the Board of Directors 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
<PAGE>
this Plan will benefit the Fund and its shareholders. Expenditures under this
Plan by the Fund for Distribution Activities (defined below) are primarily
intended to result in the sale of Class C shares of the Fund within the meaning
of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class C shares of
the Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class C shares of the Fund are referred to
herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services
a distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class C shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among
3
<PAGE>
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 C shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and overhead
costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing Fund
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than current
shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and other financial institutions
(other than Prusec) which have entered into selected dealer agreements
with the Distributor with respect to Class C 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 they shall from time to time reasonably request, including
4
<PAGE>
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.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class C shares of the Fund, the Plan shall, unless earlier
terminated in accordance with its terms, continue in full force and effect
thereafter for so long as such continuance is specifically approved at least
annually by a majority of the Board of Directors 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 C shares of
the Fund.
5
<PAGE>
7. Amendments
The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class C shares of the Fund.
All material amendments of the Plan shall be approved by a majority of the Board
of Directors 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: September 18, 1996
6
