As filed with the Securities and Exchange Commission on November 2, 1998
Registration Statement Nos. 2-89725
811-3981
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
PRE-EFFECTIVE AMENDMENT NO. |_|
POST-EFFECTIVE AMENDMENT NO. 24 |X|
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 25 |X|
(CHECK APPROPRIATE BOX OR BOXES)
-----------------------
PRUDENTIAL WORLD FUND, INC.
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7530
S. JANE ROSE, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Name and Address of Agent for Service of Process)
-----------------------
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):
|_| immediately upon filing pursuant to paragraph (b)
|_| on (date) pursuant to paragraph (b)
|X| 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
-----------------------
Title of Securities Being Registered.... Shares of Common Stock, $.01 Par Value.
================================================================================
<PAGE>
FUND TYPE:
----------------------------------------------------------------------
Global stock
INVESTMENT OBJECTIVE:
----------------------------------------------------------------------
Long-term growth of capital
Prudential World Fund, Inc.
Global Series
International Stock Series
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PROSPECTUS: DECEMBER 30, 1998
As with all mutual funds, filing this prospectus with the Securities
and Exchange Commission does not mean that the SEC has judged this
Fund a good investment, nor has the SEC determined that this
prospectus is complete or accurate. It is a criminal offense to state
otherwise
[OBJECT OMITTED]
<PAGE>
- ---------------------------------------------------------
TABLE OF CONTENTS
- ---------------------------------------------------------
- ---------------------------------------------------------
1 Introduction
2 Risk/Return Summary
Global Series:
2 Investment Objective and Principal Strategies
2 Principal Risks
3 Evaluating Performance
4 Shareholder Fees and Expenses
International Stock Series:
6 Investment Objective and Principal Strategies
6 Principal Risks
6 Evaluating Performance
8 Shareholder Fees and Expenses
10 How the Fund Invests
10 Global Series: Investment Objective and Policies
11 International Stock Series: Investment Objective and Policies
12 Other Investments
13 Derivative Strategies
13 Additional Strategies
14 Investment Risks
16 How the Fund is Managed
16 Manager
16 Investment Adviser
16 Portfolio Managers
17 Distributor
18 Year 2000
19 Fund Distributions and Tax Issues
19 Distributions
20 Tax Issues
21 If You Sell or Exchange Your Shares
<PAGE>
23 How to Buy, Sell and Exchange Shares of the Fund
23 How to Buy Shares
30 How to Sell Your Shares
34 How to Exchange Your Shares
36 Financial Highlights
Global Series:
37 Class A Shares
38 Class B Shares
39 Class C Shares
40 Class Z Shares
International Stock Series:
41 Class A Shares
42 Class B Shares
43 Class C Shares
44 Class Z Shares
46 The Prudential Mutual Fund Family
For More Information (Back Cover)
<PAGE>
INTRODUCTION
This prospectus provides information about the PRUDENTIAL WORLD FUND, INC. (the
Fund), which consists of two separate series--the GLOBAL SERIES and the
INTERNATIONAL STOCK SERIES (each, a Series). While the two Series have some
common attributes, each one has its own portfolio managers, investment objective
and policies, performance information, financial highlights and risks.
Therefore, some sections of this prospectus deal with each Series separately,
while other sections address both Series at the same time.
A key difference between the two Series is that the Global Series makes
investments anywhere in the world--INCLUDING THE U.S.--while the International
Stock Series usually invests anywhere in the world EXCEPT THE U.S.
In sections that concern just the Global Series, "the Series" refers to the
Global Series. In sections that concern just the International Stock Series,
"the Series" refers to the International Stock Series.
<PAGE>
RISK/RETURN SUMMARY
This section highlights key information about each Series. Additional
information follows this summary.
GLOBAL SERIES
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is LONG-TERM GROWTH OF CAPITAL, with income as a
secondary objective. This means we look for investments that we think will
increase in value over a period of years. To achieve our objective, we invest
primarily in the STOCK of MEDIUM-SIZED and LARGE U.S. and FOREIGN COMPANIES. We
also invest in securities similar to common stock, like preferred stock. While
we make every effort to achieve our objective, we can't guarantee success.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Series
invests primarily in stock--also known as equities--there is the risk that the
value of a particular stock we own could go down. Generally, the stock of large
and medium-sized companies is more stable than the stock of smaller companies,
but this is not always the case. In addition to an individual stock losing
value, the value of the EQUITY MARKETS as a whole could go down. Investing in
FOREIGN SECURITIES presents additional risks, since foreign political, economic
and legal systems may be less stable than in the U.S. and foreign stock markets
could decline. The changing value of FOREIGN CURRENCIES could also affect the
value of the assets we hold.
There is also risk involved in the investment strategies we may use. Some
of our strategies require us to try to predict whether the price or value of an
underlying investment will go up or down over a certain period of time. There is
always the risk that investments will not perform as we thought they would. Like
any mutual fund, an investment in the Series could lose value, and you could
lose money. For more information about risk, see "Investment Risks."
An investment in the Series is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
<PAGE>
RISK/RETURN SUMMARY
EVALUATING PERFORMANCE
A number of factors--including risk--can affect how the Series performs. The
following bar chart and table show the Series' performance over the past 10
years and demonstrate how returns can change from year to year. Past performance
does not mean that the Series will achieve similar results in the future.
Annual Returns (Class B shares)(1)
[Bar Chart Here]
Best Quarter: 14.65% (4th quarter of 1993) Worst Quarter: -14.84% (3rd
quarter of 1990)
- -----
(1) These annual returns do not include sales charges. If the sales charges
were included, the annual returns would be lower than those shown. The
total return of the Class B shares from _____ to_____ was __%.
AVERAGE ANNUAL RETURNS (AS OF 12-31-97)(1)
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
------ ------- -------- ---------------
Class A shares % % % % (since 1-22-90)
Class B shares % % % % (since 5-16-84)
Class C shares % % % % (since 8-1-94)
Class Z shares % % % % (since 3-1-96)
MSCI World(2) % % % n/a
Lipper Average(3) % % % n/a
- ----------
(1) The Series' returns are after deduction of sales charges and expenses.
(2) The Morgan Stanley Capital International (MSCI) World Index is a weighted,
unmanaged index of performance of approximately 1,500 securities listed on
stock exchanges of the U.S., Europe, Canada, Australasia, and the Far East.
These returns do not include the effect of any sales charges. These returns
would be lower if they included the effect of sales charges. MSCI World
Index Since Inception returns are _% for Class A, _% for Class B, _% for
Class C and _% for Class Z shares.
(3) The Lipper Average is based on the average return of all mutual funds in
the Global Funds category and does not include the effect of any sales
charges. Again, these returns would be lower if they included the effect of
sales charges. Lipper Since Inception returns are _% for Class A, for Class
B, _% for Class C and _% for Class Z shares.
<PAGE>
RISK/RETURN SUMMARY
SHAREHOLDER FEES AND EXPENSES
This table shows the sales charges, fees and expenses for each share class of
the Series--Class A, B, C and Z. Each share class has different sales
charges--known as loads--and expenses, but represents an investment in the same
fund. Class Z shares are available only to a limited group of investors. For
more information about which share class may be right for you, see "How to Buy,
Sell and Exchange Shares of the Fund."
SHAREHOLDER FEES(1) (paid directly from your investment)
Class A Class B Class C Class Z
------- ------- ------- -------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5% None 1% None
Maximum deferred
sales charge (load)
(as a percentage of
the lower of original
purchase price or
sale proceeds) None 5%(2) 1%(3) None
Maximum sales charge
(load) imposed on
reinvested dividends
and other
distributions None None None None
Redemption fees None None None None
Exchange fee None None None None
Maximum account fee None None None None
ANNUAL FUND OPERATING EXPENSES (deducted from Fund assets)
Class A Class B Class C Class Z
------- ------- ------- -------
Management fees ___% ___% ___% ___%
+ Distribution
(12b-1) and service
fees .30%(4) 1.00% 1.00% None
+ Other expenses ___% ___% ___% ___%
= Total annual Fund
operating expenses ___% ___% ___% ___%
- ----------
(1) The maximum sales charges permitted by the National Association of
Securities Dealers, Inc. may not exceed 6.25% of total gross sales per
class. Because of 12b-1 fees, long-term shareholders may pay more than
6.25% of their investment in shares of the Fund. Your broker may charge you
a separate or additional fee for purchases and sales of shares.
(2) The Contingent Deferred Sales Charge (CDSC) for Class B shares decreases by
1% annually to 1% in the fifth and sixth years and 0% in the seventh year.
(3) The CDSC for Class C shares is 1% for shares redeemed within 18 months of
purchase.
(4) The Distributor of the Fund has voluntarily reduced its distribution and
service fees for Class A shares to .25 of 1% of the average daily net
assets of the Class A shares. This voluntary reduction may be terminated at
any time without notice. With this reduction, Total annual Fund operating
expenses are __%.
<PAGE>
RISK/RETURN SUMMARY
FEES AND EXPENSES EXAMPLE
This example will help you compare the fees and expenses of the Series'
different share classes.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Series' operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 yr 3 yrs 5 yrs 10 yrs
---- ----- ----- ------
Class A shares $____ $____ $____ $____
Class B shares $____ $____ $____ $____
Class C shares $____ $____ $____ $____
Class Z shares $____ $____ $____ $____
You would pay the following expenses on the same investment if you did not sell
your shares:
1 yr 3 yrs 5 yrs 10 yrs
---- ----- ----- ------
Class A shares $____ $____ $____ $____
Class B shares $____ $____ $____ $____
Class C shares $____ $____ $____ $____
Class Z shares $____ $____ $____ $____
<PAGE>
RISK/RETURN SUMMARY
INTERNATIONAL STOCK SERIES
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is LONG-TERM GROWTH OF CAPITAL, with income as a
secondary objective. This means we look for investments that we think will
increase in value over a period of years. To achieve our objective, we invest
primarily in the STOCK of FOREIGN COMPANIES. We also invest in securities
similar to common stock, like preferred stock. While we make every effort to
achieve our objective, we can't guarantee success.
PRINCIPAL RISKS
Since the Series invests primarily in stock, there is the risk that the value of
a particular stock we own could go down. In addition to an individual stock
losing value, the value of the EQUITY MARKETS of the countries in which we
invest could go down. There is also the additional risk that foreign political,
economic and legal systems may be less stable than in the U.S. The changing
value of foreign currencies could also affect the value of the assets we hold.
There is also risk involved in the investment strategies we may use. Some
of our strategies require us to try to predict whether the price or value of an
underlying investment will go up or down over a certain period of time. There is
always the risk that investments will not perform as we thought they would. Like
any mutual fund, an investment in the Series could lose value, and you could
lose money. For more information about risk, see "Investment Risks."
An investment in the Series is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
EVALUATING PERFORMANCE
A number of factors--including risk--can affect how the International Stock
Series performs. The following bar chart and table show the Series' performance
over the past 5 years and demonstrate how returns can change from year to year.
Past performance does not mean that the Series will achieve similar results in
the future.
<PAGE>
RISK/RETURN SUMMARY
Annual Returns (Class Z shares)(1)
[ Bar Chart Here]
Best Quarter: 13.83% (4th quarter of 1993) Worst Quarter: -8.58% (4th
quarter of 1997)
- -----
(1) These annual returns do not include sales charges. If the sales charges
were included, the annual returns would be lower than those shown. The
total return of the Class Z shares from _____ to _____ was __%.
AVERAGE ANNUAL RETURNS (AS OF 12-31-97)(1)
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
------ ------- -------- ---------------
Class A shares % % % % (since 9-23-96)
Class B shares % % % % (since 9-23-96)
Class C shares % % % % (since 9-23-96)
Class Z shares % % % % (since 11-5-92)
MSCI EAFE(2) % % % n/a
Lipper Average(3) % % % n/a
- ----------
(1) The Series' returns are after deduction of sales charges and expenses.
(2) The Morgan Stanley Capital International (MSCI) EAFE(R) Index is a
weighted, unmanaged index of performance that reflects stock price
movements in Europe, Australasia and the Far East. These returns do not
include the effect of any sales charges. These returns would be lower if
they included the effect of sales charges. MSCI EAFE(R) Index Since
Inception returns are _% for Class A, _% for Class B, _% for Class C and _%
for Class Z shares.
(3) The Lipper Average is based on the average return of all mutual funds in
the International Funds category and does not include the effect of any
sales charges. Again, these returns would be lower if they included the
effect of sales charges. Lipper Since Inception returns are _% for Class A,
for Class B, _% for Class C and _% for Class Z shares.
<PAGE>
RISK/RETURN SUMMARY
SHAREHOLDER FEES AND EXPENSES
This table shows the sales charges, fees and expenses for each share class of
the Series--Class A, B, C and Z. Each share class has different sales
charges--known as loads--and expenses, but represents an investment in the same
fund. Class Z shares are available only to a limited group of investors. For
more information about which share class may be right for you, see "How to Buy,
Sell and Exchange Shares of the Fund."
SHAREHOLDER FEES(1) (paid directly from your investment)
Class A Class B Class C Class Z
------- ------- ------- -------
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 5% None 1% None
Maximum deferred
sales charge (load)
(as a percentage of
the lower of original
purchase price or
sale proceeds) None 5%(2) 1%(3) None
Maximum sales charge
(load) imposed on
reinvested dividends
and other
distributions None None None None
Redemption fees None None None None
Exchange fee None None None None
Maximum account fee None None None None
ANNUAL FUND OPERATING EXPENSES (deducted from Fund assets)
Class A Class B Class C Class Z
------- ------- ------- -------
Management fees ___% ___% ___% ___%
+ Distribution
(12b-1) and service
fees .30%(4) 1.00% 1.00% None
+ Other expenses ___% ___% ___% ___%
= Total annual Fund
operating expenses ___% ___% ___% ___%
- ----------
(1) The maximum sales charges permitted by the National Association of
Securities Dealers, Inc. may not exceed 6.25% of total gross sales per
class. Because of 12b-1 fees, long-term shareholders may pay more than
6.25% of their investment in shares of the Fund. Your broker may charge you
a separate or additional fee for purchases and sales of shares.
(2) The Contingent Deferred Sales Charge (CDSC) for Class B shares decreases by
1% annually to 1% in the fifth and sixth years and 0% in the seventh year.
(3) The CDSC for Class C shares is 1% for shares redeemed within 18 months of
purchase.
(4) The Distributor of the Fund has voluntarily reduced its distribution and
service fees for Class A shares to .25 of 1% of the average daily net
assets of the Class A shares. This voluntary reduction may be terminated at
any time without notice. With this reduction, Total annual Fund operating
expenses are __%.
<PAGE>
RISK/RETURN SUMMARY
FEES AND EXPENSES EXAMPLE
This example will help you compare the fees and expenses of the Series'
different share classes.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Series' operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 yr 3 yrs 5 yrs 10 yrs
------ ----- ----- ------
Class A shares $____ $____ $____ $____
Class B shares $____ $____ $____ $____
Class C shares $____ $____ $____ $____
Class Z shares $____ $____ $____ $____
You would pay the following expenses on the same investment if you did not sell
your shares:
1 yr 3 yrs 5 yrs 10 yrs
------ ----- ----- ------
Class A shares $____ $____ $____ $____
Class B shares $____ $____ $____ $____
Class C shares $____ $____ $____ $____
Class Z shares $____ $____ $____ $____
<PAGE>
HOW THE FUND INVESTS
GLOBAL SERIES: INVESTMENT OBJECTIVE AND POLICIES
The investment objective of this Series is to seek LONG-TERM GROWTH OF capital,
with income as a secondary objective. This means we seek investments that will
increase in value over a period of years. We invest primarily in the STOCK of
U.S. AND FOREIGN COMPANIES, although we may also invest in securities similar to
common stock, like preferred stock. While we make every effort to achieve our
objective, we can't guarantee success.
_________________________(side bar)_________________________________
- --------------------------------------------------------------------------------
WE LOOK FOR GROWTH OPPORTUNITIES
In deciding which stock to buy, we use a growth investment style. That
is, we look for companies that we believe are undervalued and/or will
grow faster--and earn better profits--than other companies. We also look
for companies with strong competitive advantages, effective research,
product development, strong management and financial strength. We
consider selling a stock when the conditions for growth are no longer
present or begin to change, the price of the stock reaches the level we
expected, or when the stock falls short of our expectations.
- --------------------------------------------------------------------------------
While the Series may invest in companies of any size, in the past we
have invested primarily in medium-sized and large companies, which means
companies with a MARKET CAPITALIZATION of $1 billion or more (market
capitalization is the price per share times the number of outstanding shares).
Geographically, we intend to have investments in at least four developed
countries, including the U.S. We may invest in stock markets and countries
around the world, including countries in the Pacific Basin (like Japan and
Australia), Western Europe (like the United Kingdom and Germany) and North
America (like the U.S. and Canada).
From time to time we may invest up to 65% of the Series' total assets in
just one country, and under unusual market conditions, we may invest all of our
assets in U.S. equities. For more information, see "Investment Risks" and the
Statement of Additional Information, "Description of the Series, Their
Investments and Risks." The Statement of Additional Information--which we refer
to as the SAI--contains more information about the Series. To obtain a copy, see
the back cover page of this prospectus.
Our investment objective is a fundamental policy that cannot be changed
without shareholder approval. The Board of the Fund can change investment
policies that are not fundamental.
<PAGE>
HOW THE FUND INVESTS
INTERNATIONAL STOCK SERIES: INVESTMENT OBJECTIVE
AND POLICIES
The investment objective of this Series is to seek LONG-TERM GROWTH OF CAPITAL
with income as a secondary objective. This means we seek investments--primarily
the STOCK of FOREIGN COMPANIES--that will increase in value over a period of
years. We also invest in securities similar to common stock, like preferred
stock. While we make every effort to achieve our objective, we can't guarantee
success.
_________________________(side bar)_________________________________
- --------------------------------------------------------------------------------
WE'RE VALUE INVESTORS
We look primarily for stock that is undervalued. This means that the
price of a stock--in our view--is lower than it really should be,
given the company's financial and business outlook. The idea is to
find undervalued stock before the rest of the market and buy it
before the price goes up. We consider selling a stock after it has
increased in value to the point where we believe the price is no
longer a good value or we believe the stock cannot maintain its
current price.
- --------------------------------------------------------------------------------
In deciding whether to buy a particular stock, we look at a number of
factors, including the company's sales, earnings, book value, cash flow and
overall ability to grow and profit. We take a bottom-up stock selection
approach, rather than allocating by country or sector. Typically, we focus on
companies that have been operating for at least three years.
Under normal conditions, we intend to invest at least 65% of our total
assets in the stock of companies in at least three foreign countries, with no
more than 25% of our net assets in any one country. We may invest anywhere in
the world, including North America, Western Europe, the United Kingdom and the
Pacific Basin, but generally NOT THE U.S. However, under unusual market
conditions, we may invest up to 100% of the Series' total assets in the stock
and other equity-related securities of U.S. companies.
Our investment objective is a fundamental policy that cannot be changed
without shareholder approval. The Board of the Fund can change investment
policies that are not fundamental. For more information, see "Investment Risks"
and the Statement of Additional Information, "Description of the Series, Their
Investments and Risks." The Statement of Additional Information--which we refer
to as the SAI--contains more information about the Series. To obtain a copy, see
the back cover page of this prospectus.
<PAGE>
HOW THE FUND INVESTS
OTHER INVESTMENTS
While both Series invest primarily in stock, they may invest in other securities
or use certain investment strategies to increase returns or protect their assets
if market conditions warrant.
EQUITY-RELATED SECURITIES
These include preferred stock or securities that may be converted to or
exchanged for common stock--known as CONVERTIBLE SECURITIES--like rights and
warrants. Each Series may also invest in American Depositary Receipts (ADRs),
which are certificates--usually issued by a U.S. bank or trust company--that
represent an equity investment in a foreign company or some other foreign
issuer. ADRs are valued in U.S. dollars.
MONEY MARKET INSTRUMENTS, BONDS AND OTHER FIXED-INCOME OBLIGATIONS
Money market instruments and bonds are known as FIXED-INCOME securities because
they pay a fixed rate of interest. Typically, fixed-income securities don't
increase in value as stock may, but their fixed rate of interest usually
provides a dependable rate of return. Corporations and governments issue MONEY
MARKET INSTRUMENTS and BONDS to raise money. Each Series may buy obligations of
companies, foreign countries or the U.S. Government. Money market instruments
include the commercial paper and short-term obligations of foreign and domestic
corporations, banks and governments and their agencies.
If we believe it is necessary, we may temporarily invest 100% of each
Series' assets in money market instruments. Investing heavily in these
securities limits our ability to achieve capital appreciation, but may help to
preserve the Series' assets when global or international markets are unstable.
Generally, each Series will purchase only "INVESTMENT-GRADE" commercial
paper and bonds. This means the commercial paper and bonds have received one of
the four highest quality ratings determined by Moody's Investors Service, Inc.
("Moody's"), or Standard & Poor's Ratings Group ("S&P"), or one of the other
nationally recognized statistical rating organizations (NRSROs). On occasion,
each Series may buy instruments that are not rated, but that are of comparable
quality to the investment-grade bonds described above. In addition, the
International Stock Series may invest up to 5% of its assets in lower-rated
instruments that are more speculative, including high-yield or "junk" bonds. For
more information
<PAGE>
HOW THE FUND INVESTS
about bonds and bond ratings, see the SAI, "Appendix, Description of S&P,
Moody's, and Duff & Phelps Ratings."
DERIVATIVE STRATEGIES
We may use a number of alternative investment strategies--including
derivatives--to try to improve both Series' returns or protect their assets,
although we cannot guarantee these strategies will work. Derivatives--such as
futures, options, forward foreign currency exchange contracts and options on
futures--involve costs and can be volatile. The Global Series may also use stock
index futures. With derivatives, the investment adviser tries to predict whether
the underlying investment, a security, market index, currency, interest rate or
some other investment, will go up or down at some future date. We may use
derivatives to try to reduce risk or to increase return, consistent with a
Series' overall investment objective. Any derivatives we may use may not match a
Series' underlying holdings. For more information about these strategies, see
the SAI, "Description of the Series, Their Investments and Risks--Hedging and
Return Enhancement Strategies."
ADDITIONAL STRATEGIES
Each Series may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Series and then repurchase it at an agreed-upon price at a
stated time. This creates a fixed return for the Series.
Each Series also follows certain policies when it: BORROWS MONEY (each
Series can borrow up to 20% of the value of its total assets); LENDS ITS
SECURITIES to others (each Series can lend up to 30% of the value of its total
assets, including collateral received in the transaction); and holds ILLIQUID
SECURITIES (each Series may hold up to 15% of its net assets in illiquid
securities, including restricted securities, those without a readily available
market and repurchase agreements with maturities longer than seven days). Each
Series is subject to certain investment restrictions that are fundamental
policies, which means they cannot be changed without shareholder approval. For
more information about these restrictions, see the SAI.
<PAGE>
HOW THE FUND INVESTS
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception. This chart outlines the key risks and potential rewards of the
principal investments each Series may make.
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
INVESTMENT TYPE RISKS POTENTIAL REWARDS
% OF SERIES'
TOTAL ASSETS
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
FOREIGN o Foreign markets, economies o Changing value of foreign
SECURITIES and political systems may not currencies
be as stable as in the U.S.
Global Series: o Investors can participate
Percentage o May be less public in the growth of foreign
varies, up to information about foreign markets and companies
65% in one companies operating in those markets
country
o Currency risk - changing
International values of foreign
Stock Series: currencies
At least 65%;
up to 100% o Foreign laws and accounting
standards may not be as
strict as they are in the
U.S.
o May be less liquid than
U.S. stocks or bonds
o Year 2000 conversion may
not be successful
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
STOCK AND o Individual stocks could lose o Historically, stocks have
CONVERTIBLE value outperformed other
SECURITIES OF investments over the long
U.S. COMPANIES o The equity markets could go term
down
o Generally, economic growth
means higher corporate
Global Series: o Companies that pay dividends profits, which leads to an
Up to 65% may not do so if they don't increase in stock prices,
have profits or adequate cash known as capital
flow appreciation
International o Charges in economic or o May be one source of
Stock Series: political conditions, both dividend income
Usually 0% domestic and international
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
INVESTMENT o Credit risk--the risk o Regular interest income
GRADE BONDS that the borrower can't
pay back the money
Both Series: borrowed or make o Generally more secure than
Up to 35% interest payments stock since companies
must pay their debts
before they pay dividends
o Market risk--the risk
that bonds or other debt
instruments may lose
value in the market
because interest rates
change or there is a
lack of confidence in
the borrower
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
DERIVATIVES o Generally involves trying o May be a good way to manage
to predict whether the risk/return balance by
Both Series: the underlying security, locking in the value of an
Percentage market index, currency investment ahead of time
varies or interest rate will
increase or decrease at
some future date
o If the investment adviser
predicts wrong, the Series
can lose money.
o Using derivatives costs
money
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
ILLIQUID o May be difficult to o May offer a more
SECURITIES value and sell attractive yield or
potential for growth
Up to 15% of o Could result in losses than more liquid
net assets securities
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
- ----------------- -------------------------------- ----------------------------
<PAGE>
HOW THE FUND IS MANAGED
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. For the fiscal year
ended October 31, 1998, Global Series and International Stock Series paid PIFM
management fees of __% and __% of their respective average net assets.
As of November 30, 1998, PIFM served as the Manager to all __ of the
Prudential Mutual Funds, and as Manager or administrator to __ closed-end
investment companies, with aggregate assets of approximately $__ billion.
INVESTMENT ADVISER
The Prudential Investment Corporation (PIC), known as Prudential Investments, is
the Global Series' investment adviser (the subadviser). Its address is
Prudential Plaza, 751 Broad Street, Newark, New Jersey 07102. Mercator Asset
Management, L.P. is the International Stock Series' investment adviser (also
referred to as a subadviser). Its address is 2400 East Commercial Blvd, Suite
810, Fort Lauderdale, Florida 33308. PIFM is responsible for all investment
advisory services, supervises the subadvisers and reimburses each of them for
its reasonable costs and expenses.
PORTFOLIO MANAGERS
GLOBAL SERIES
The Global Series is co-managed by DANIEL J. DUANE, CFA; INGRID HOLM, CFA and
MICHELLE PICKER, CFA.
Dan Duane is a Managing Director of Prudential Investments and has
managed the Global Series since 1991. He earned a B.A. from Boston College, a
Ph.D. from Yale University and an M.B.A. from New York University. He was
awarded the Chartered Financial Analyst (CFA) designation.
Ingrid Holm is a Vice President of Prudential Investments who joined
Prudential in 1987. She has co-managed the Global Series since October 1997.
Ingrid earned a B.S. from University of Pennsylvania's Wharton School of
Business and an M.B.A. from Columbia University. She was also awarded the
Chartered Financial Analyst designation.
<PAGE>
HOW THE FUND IS MANAGED
Michelle Picker is a Vice President of Prudential Investments who
joined Prudential in 1992. She has co-managed the Global Series since October
1997. Michelle earned a B.A. from the University of Pennsylvania and an M.B.A.
from New York University. She was also awarded the Chartered Financial Analyst
designation.
Dan, Ingrid and Michelle are growth-oriented global equity investors.
Their primary focus is on individual stock selection.
INTERNATIONAL STOCK SERIES
Mercator Asset Management, L.P. is the subadviser for the International Stock
Series. PETER F. SPANO, CFA, is a founder of Mercator, which started in 1984.
He has managed the International Stock Series since its inception in November
1992. Peter earned a B.B.A. from St. John's University and an M.B.A. from
Baruch College, City University of New York. He has also been awarded the
Chartered Financial Analyst designation.
Peter, along with his partners at Mercator, are value investors who
seek undervalued stocks with good prospects for earnings growth momentum. They
focus on a bottom-up stock selection, rather than a country or sector
allocation. Mercator uses a global research network to generate investment
ideas.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing the
Fund's Class A, B, C and Z shares, and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares other than Class Z. These fees--known as
12b-1 fees--are shown in the "Shareholder Fees and Expenses" tables.
YEAR 2000
Many computer systems used today cannot distinguish the year 2000 from the year
1900 because of the way dates are encoded. This could be a problem when the year
2000 arrives and could affect securities trades, interest and dividend payments,
pricing and account services. Although we cannot guarantee that this will not be
a problem, the Fund's service providers have been working on adapting their
computer systems. They expect that their systems, and the systems of their
service providers, will be ready for the year 2000.
In addition, issuers of securities may also encounter year 2000
compliance problems. If these problems are significant and are not corrected,
securities markets could go down or issuers could have poor performance. If the
Fund owns these securities, then it is possible that the Fund could lose money.
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES
Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS and CAPITAL GAINS, if any,
to shareholders. These distributions are subject to taxes, unless you hold your
shares in a 401(k) plan, an Individual Retirement Account (IRA) or some other
qualified tax-deferred plan or account.
Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless your shares are
held in a qualified tax-deferred plan or account.
The following briefly discusses some of the important federal tax
issues you should be aware of, but is not meant to be tax advice. For tax
advice, please speak with your tax adviser.
DISTRIBUTIONS
The Fund distributes DIVIDENDS of any net investment income to shareholders,
typically every quarter. For example, if the Fund owns ACME Corp. stock and the
stock pays a dividend, the Fund will pay out a portion of this dividend to its
shareholders, assuming the Fund's income is more than its costs and expenses.
The dividends you receive from the Fund will be taxed as ordinary income,
whether or not they are reinvested in the Fund.
The Fund also distributes CAPITAL GAINS to shareholders--typically once
a year--which are generated when the Fund sells its assets for a profit. For
example, if the Fund bought 100 shares of ACME Corp. stock for a total of $1,000
and later sold the shares for a total of $1,500, the Fund has capital gains of
$500, which it will pass on to shareholders (assuming the Fund's total gains are
greater than any losses it may have). Capital gains are taxed differently
depending on how long the Fund holds the security--the longer a security is held
before it is sold, the lower the capital gains tax rate, up to a point.
For your convenience, Fund distributions of dividends and capital gains
are AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us
to pay the distributions in cash, we will send you a check if your account is
with the Transfer Agent. Otherwise, if your account is with a broker, you will
receive a credit to your account. Either way, the distributions may be subject
to taxes, unless your shares are held in a qualified tax-deferred plan or
account. For more information about automatic reinvestment and other shareholder
services, see "Step 4: Additional Shareholder Services" in the next section.
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES
TAX ISSUES
FORM 1099
During the tax season every year, you will receive a Form 1099, which reports
the amount of dividends and capital gains we distributed to you during the prior
year. If you own shares of the Fund as part of a qualified tax-deferred plan or
account, your taxes are deferred, so you will not receive a Form 1099. However,
you will receive a Form 1099 when you take any distributions from your qualified
tax-deferred plan or account.
Fund distributions are generally taxable to you in the year they are
received, except when we declare certain dividends in the fourth quarter, and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year. Corporate
shareholders are eligible for the 70% dividends-received deduction for certain
dividends.
WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your tax identification
number and certifications as to your tax status, and you fail to do so, we will
withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. If you are subject to backup withholding, we will withhold and pay to
the U.S. Treasury 31% of your distributions. Dividends of net investment income
and short-term capital gains paid to a nonresident foreign shareholder generally
will be subject to a U.S. withholding tax of 30%. This rate may be lower,
depending on any tax treaty the U.S. may have with the shareholder's country.
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to you
as a shareholder of record. As explained above, the distribution may be subject
to income or capital gains taxes. You may think you've done well, since you
bought shares one day, and soon thereafter received a distribution. That is not
so because when dividends are paid out, the value of each share of the Fund
decreases by the amount of the dividend and the market changes (if any) to
reflect the payout. The distribution you receive makes up for the decrease in
share value. However, the timing of your purchase does mean that part of your
investment came back to you as taxable income.
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES
RETIREMENT PLANS
Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts--available to certain taxpayers beginning in
1998--contributions are not tax deductible, but distributions from the plan may
be tax-free. Please contact your broker or a Prudential professional for
information on a variety of retirement plans offered by Prudential.
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax, unless you hold shares in a qualified
tax-deferred plan or account. The amount of tax you pay depends on how long you
owned your shares. If you sell shares of the Fund for a loss, you may have a
capital loss, which you may use to offset certain capital gains you have.
EXCHANGING your shares of the Fund for the shares of another Prudential
Mutual Fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
Any gain or loss you may have from selling or exchanging Fund shares
will not be reported on the Form 1099. Therefore, unless you hold your shares in
a qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Fund shares, as
well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event" because it does not involve an actual sale of
your Class B shares. This opinion, however, is not binding on the IRS. For more
information about the automatic conversion of Class B shares, see "Class B
Shares Convert to Class A Shares After Approximately Seven Years" in the next
section.
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Fund, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Fund) or suspend or modify the sale of the Fund
shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C, and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within certain time periods (that is why it is called a
Contingent Deferred Sales Charge, or CDSC), but the operating expenses each year
are higher than the Class A share expenses. With Class C shares, you pay a low
front-end sales charge and low CDSC, but the operating expenses are also higher
than the expenses for Class A shares.
When choosing a share class, you should consider the following:
o The amount of your investment
o The length of time you expect to hold the shares and the impact of the
varying distribution fees.
o The different sales charges that apply to each share class--Class A's
front-end sales charge vs. Class B's CDSC vs. Class C's low front-end
sales charge and low CDSC.
o Whether you qualify for any reduction or waiver of sales charges
o The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
o Whether you qualify to purchase Class Z shares
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
SHARE CLASS COMPARISON. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.
<TABLE>
<CAPTION>
Class A Class B Class C Class Z
------- ------- ------- -------
<S> <C> <C> <C> <C>
Minimum
purchase amount (1) $1,000 $1,000 $2,500 None
Minimum amount
for subsequent
purchases(1) $100 $100 $100 None
Maximum initial 5% of the public None 1% of the None
sales charge offering price public
offering
price
Contingent
Deferred Sales None If sold during: 1% on sales None
Charge (CDSC)(2) Year 1 5% made within
Year 2 4% 18 months
Year 3 3% of purchase(2)
Year 4 2%
Year 5/6 1%
Year 7 0%
Annual .30 of 1% (.25 of 1% 1% None
distribution 1% currently)
(12b-1) and
service fees
(shown as a
percentage of
average net
assets)3
- ----------
(1) The minimum investment requirements do not apply to certain retirement and
employee savings plans and custodial accounts forminors. The minimum
initial and subsequent investment for purchases made through the Automatic
Investment Plan is $50. For more information, see "Additional Shareholder
Services-Automatic Investment Plan."
(2) For more information about the CDSC and how it is calculated, see
"Contingent Deferred Sales Charges (CDSC)." Class C shares bought before
November 2, 1998 have a 1% CDSC if sold within one year.
(3) These distribution fees are paid from the Fund's assets on a continuous
basis. Over time, the fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
</TABLE>
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid paying
Class A's initial sales charge.
Increase the Amount of Your Investment. You can reduce Class A's sales charge by
increasing the amount of your investment. This table shows you how the sales
charge decreases as the amount of your investment increases.
Sales charge as % Sales charge as % Dealer
Amount of purchase of offering price of amount invested reallowance
- --------------------------------------------------------------------------------
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00% 4.17% 3.75%
$100,000 to $249,999 3.25% 3.36% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.40%
$500,000 to $999,999 2.00% 2.04% 1.90%
$1 million and above(1) None None None
- ----------
(1) If you invest $1 million or more, you can buy only Class A shares, unless
you qualify to buy Class Z shares.
To satisfy the purchase amounts above, you can:
o invest with a group of investors who are related to you
o buy the Class A shares of two or more Prudential Mutual Funds at the same
time;
o use your RIGHTS OF ACCUMULATION, which allow you to combine the value of
Prudential Mutual Fund shares you already own with the value of the shares
you are purchasing for purposes of determining the applicable sales charge;
or
o sign a LETTER OF INTENT, stating in writing that you or a group of investors
will purchase a certain amount of shares in the Fund and other
Prudential Mutual Funds within 13 months.
For more information about reducing or eliminating Class A's sales charge,
see the SAI, "Purchase, Redemption and Pricing of Fund Shares Reduction and
Waiver of Initial Sales Charges - Class A Shares."
Benefit Plans. Pension, profit-sharing or other employee benefit plans qualified
under Section 401 of the Internal Revenue Code and deferred compensation and
annuity plans under Sections 457 and 403(b)(7) of the Internal Revenue
Code--which we call BENEFIT PLANS--can avoid Class A's initial sales charges if
the Benefit Plan has existing assets of at least $1 million invested in shares
of Prudential Mutual Funds (excluding money market
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
funds other than those acquired under the exchange privilege) or 250 eligible
employees or participants. Class A shares may also be purchased without a sales
charge by participants who are repaying loans from Benefit Plans where
Prudential (or its affiliates) provides administrative or recordkeeping
services, sponsors the product or provides account services.
[Certain Prudential retirement programs--such as PruArray Association
Benefit Plans and PruArray Savings Programs--may also be exempt from Class A's
sales charges. For more information, see the SAI or contact your Prudential
professional. In addition, waivers are available to investors in certain
programs sponsored by brokers, investment advisers and financial planners who
have agreements with Prudential Investments Advisory Group relating to:
o Mutual fund "wrap" or asset allocation programs where the sponsor places
Fund trades and charges its clients a management, consulting or other fee
for its services;
o Mutual fund "supermarket" programs where the sponsor links its customers'
accounts to a master account in the sponsor's name; or
o Retirement programs where Prudential provides no administrative
services.]
Other Types of Investors. Other investors may pay no sales charges, including
certain officers, employees or agents of Prudential and its affiliates,
Prudential Mutual Funds, the subadvisers of the Prudential Mutual Funds and of
brokers that have entered into a selected dealer agreement with the Distributor.
To qualify for a reduction or waiver of sales charges, you must notify the
Transfer Agent or your broker at the time of purchase. For more information
about reducing or eliminating Class A's sales charge, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Reduction and Waiver of Initial Sales
Charges--Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
[Prudential Retirement Plans. The initial sales charge will be waived for
purchases of Class C shares by both qualified and nonqualified retirement and
deferred compensation plans participating in the PruArray Plan if Prudential
also provides administrative or recordkeeping services.
Investment of Redemption Proceeds from Other Investment Companies. The initial
sales charge will be waived for purchases of Class C shares if the
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
purchase is made with money from the redemption of shares of any unaffiliated
investment company, as long as the shares were not held in an account at
Prudential Securities Incorporated or one of its affiliates. Such purchases must
be made within 60 days of redemption. If you are entitled to the waiver, you
must notify the Transfer Agent or your broker. The Transfer Agent may require
any supporting documents it considers to be appropriate.]
QUALIFYING FOR CLASS Z SHARES
Class Z shares of the Fund can be purchased by any of the following:
o Any Benefit Plan as defined above, and certain nonqualified plans, provided
the Benefit Plan--in combination with other plans sponsored by the same
employer or group of related employers--has at least $50 million in defined
contribution assets
o Participants in any fee-based program sponsored by Prudential or an
affiliate which includes mutual funds as investment options and the Fund as
an available option
o Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the Prudential
Mutual Funds are an available option
o Benefit Plans for which an affiliate of the Distributor serves as
recordkeeper and as of September 20, 1996 were either Class Z shareholders
of the Prudential Mutual Funds or executed a letter of intent to purchase
Class Z shares of the Prudential Mutual Funds
o The Prudential Securities Cash Balance Pension Plan, an employee defined
benefit plan sponsored by Prudential Securities
o Current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund)
o Employees of Prudential and/or Prudential Securities who participate in a
Prudential-sponsored employee savings plan
o Prudential and its affiliates with an investment of $10 million or more
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers, and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class Z
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
shares from their own resources based on a percentage of the net asset value of
shares sold or otherwise.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Fund
expenses.
When we do the conversion, you will get fewer Class A shares than the
number of Class B shares converted if the price of the Class A shares is higher
than the price of Class B shares. The total dollar value will be the same, so
you will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares-Conversion Feature-Class B Shares."
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV --is
determined by a simple calculation--it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding.
(Page Break)
- --------------------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a
fund's portfolio changes constantly. For example, if Fund XYZ holds ACME
Corp. stock in its portfolio and the price of ACME stock goes up, while
the value of the fund's other holdings remains the same and expenses
don't change, the NAV of Fund XYZ will increase.
- --------------------------------------------------------------------------------
For example, if the value of the investments held by Fund XYZ (minus its
expenses) is $1,000 and there are 100 shares of Fund XYZ owned by shareholders,
the price of one share of the fund--or the NAV--is $10 ($1,000 divided by 100).
Portfolio securities are valued based upon market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Fund's Board. Most national newspapers report the NAVs of
most mutual funds, which allows investors to price mutual funds daily.
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
We determine the NAV of our shares once each business day at 4:15 p.m. New
York Time on days that the New York Stock Exchange is open for trading. We do
not determine NAV on days when we have not received any orders to purchase, sell
or exchange, or when changes in the value of the Fund's portfolio do not
materially affect the NAV.
WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class A and Class C shares, you'll pay the public offering price, which is
NAV next determined after we receive your order to purchase, plus an initial
sales charge (unless you're entitled to a waiver). For Class B and Class Z
shares, you will pay the NAV next determined after we receive your order to
purchase (remember, there are no up-front sales charges for these share
classes). Your broker may charge a separate or additional fee for purchases of
shares.
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
Automatic Reinvestment. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV, without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker, or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
Automatic Investment Plan. You can make regular purchases of the Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
Retirement Plan Services. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs, or SEP-IRAs for a one-person business,
please contact your broker or a Prudential professional. If you are interested
in opening a 401(k) or other company-sponsored retirement plan (SIMPLES, SEP
plans, Keoghs, 403(b)(7) plans, pension and profit-sharing plans), your broker
or a Prudential professional will help you determine which retirement plan best
meets your needs. Complete instructions about how to establish and maintain your
plan and how to open accounts for you and your employees will be included in the
retirement plan kit you receive in the mail.
The PruTector Program. Optional group term life insurance--which protects the
value of your Prudential Mutual Fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and is
not available in all states.
Systematic Withdrawal Plan. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks. Remember, the sale of Class B and
Class C shares may be subject to a CDSC.
Reports to Shareholders. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household.
HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund--also known as REDEEMING your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, he must receive your order to sell by 4:15 p.m. New York Time to
process the sale on that day. Otherwise, contact:
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTENTION: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent receives your sell order. If you hold shares through a
broker, payment will be credited to your account. If you are selling shares you
recently purchased with a check, we may delay your sale until your check clears,
which can take up to ten days. Your broker may charge a separate or additional
fee for purchases and sales of shares.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the
Fund, or when we may delay paying you the proceeds from a sale. This may happen
during unusual market conditions or emergencies when the Fund can't determine
the value of its assets or sell its holdings. If you invest by check, we will
only process your redemptions after your check clears. This can take up to 10
calendar days. You can avoid delay if you purchase shares by wire, certified
check or cashier's check. For more information, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Sale of Shares."
If you hold your shares directly with the Transfer Agent, you may have to
have the signature on your sell order guaranteed by a financial institution. For
more information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares--."
CONTINGENT DEFERRED SALES CHARGES (CDSC)
If you sell Class B shares within six years of purchase or Class C shares
within 18 months of purchase (one year for Class C shares purchased before
November 2, 1998), you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:
o Amounts representing shares you purchased with reinvested dividends and
distributions
o Amounts representing shares that represent the increase in NAV above the
total amount of payments for shares made during the past six years (five
years for Class B shares purchased before January 22, 1990)
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
o Amounts representing shares held beyond the CDSC period (six years for
Class B shares and 18 months for Class C shares)
Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to the value of your oldest
shares first. To value these shares, we will use the original purchase price or
the current value, whichever is less.
As we noted before in the "Share Class Comparison" chart, the CDSC for
Class B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in
the fourth and 1% in the fifth and sixth years. The rate decreases on the first
day of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC of 1% for Class C shares--which is applied to
shares sold within 18 months of purchase (one year for Class C shares purchased
before November 2, 1998)--is the lesser of the original purchase price or the
redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.
The CDSC will be calculated from the first day of the month after initial
purchase, excluding any time shares were held in a money market fund.
WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
o After a shareholder is deceased or disabled (or, in the case of a trust
account, the death or disability of the grantor). This waiver applies to
individual shareholders, as well as shares owned in joint tenancy (with
rights of survivorship), provided the shares were purchased before the death
or disability
o To provide for certain distributions--made without IRS penalty--from a
tax-deferred retirement plan, IRA, or Section 403(b) custodial account
o On certain sales from a Systematic Withdrawal Plan
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
For more information, see the SAI, "Purchase, Redemption and Pricing of
Fund Share--Waiver of Contingent Deferred Sales Charges--Class B Shares."
WAIVER OF THE CDSC--CLASS C SHARES
The CDSC will be waived for purchases of Class C shares by both qualified
and nonqualified retirement and deferred compensation plans participating in the
PruArray Plan if Prudential also provides administrative or recordkeeping
services.
REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the
lesser of $250,000 or 1% of the value of the Fund's net assets, we can then give
you securities from the Fund's portfolio instead of cash. If you want to sell
the securities for cash, you would have to pay the costs charged by a broker.
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Fund's expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action. This involuntary sale does not apply to
shareholders who own their shares as part of a 401(k) plan, an IRA or some other
tax-deferred plan or account.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC when you redeemed your
shares, we will credit your new account with the appropriate number of shares to
reflect the amount of the CDSC you paid. In order to take advantage of this
privilege, you must notify the Transfer Agent or your broker at the time of the
repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund Shares-Sale
of Shares."
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
RETIREMENT PLANS
To sell shares and receive a distribution from your retirement account, call
your broker or the Transfer Agent for a distribution request form. There are
special distribution and income tax withholding requirements for distributions
from retirement plans and you must submit a withholding form with your request
to avoid delay. If your retirement plan account is held for you by your employer
or plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Fund for shares of the same class in certain
other Prudential Mutual Funds--including certain money market funds--if you
satisfy the minimum investment requirements. For example, you can exchange Class
A shares of the Fund for Class A shares of another Prudential Mutual Fund, but
you can't exchange Class A shares for Class B, Class C or Class Z shares. Class
B and C shares may not be exchanged into money market funds other than
Prudential Special Money Market Fund, Inc. We may change the terms of the
exchange privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
There is no sales charge for such exchanges. However, if you exchange--and
then sell--Class B shares within approximately six years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B shares into a money
market fund, the time you hold the shares in the money market account will not
be counted for purposes of calculating the required holding periods for CDSC
liability.
Remember, as we explained in the section entitled "If You Sell or Exchange
Your Shares," exchanging shares is considered a sale for tax
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
purposes. Therefore, if the shares you exchange are worth more than you paid
for them, you may have to pay capital gains tax. For additional information
about exchanging shares, see the SAI, "Shareholder Investment Account--Exchange
Privilege."
[If you own Class B or Class C shares and qualify to purchase either Class
A shares without paying an initial sales charge or Class Z shares, we will
automatically exchange your Class B or Class C shares which are not subject to a
CDSC for Class A or Class Z shares, as appropriate. We make such exchanges on a
quarterly basis, if you notify the Transfer Agent that you qualify for this
exchange privilege. We have obtained a legal opinion that this exchange is not a
"taxable event" for federal income tax purposes. This opinion is not binding on
the IRS.]
FREQUENT TRADING
You should not use the Fund for frequent trading in response to short-term
changes in the market. Doing this makes it harder for us to efficiently manage
the Fund, and it also increases transaction costs. If we believe you are engaged
in this kind of trading, we reserve the right to refuse any of your purchase
orders or exchanges. The Fund will reject all exchanges and purchases from any
person or group that follows a market timing strategy unless we have an
agreement to abide by certain procedures, including a daily dollar limit on
trading.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Series. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Series, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants, which appear in the SAI and are available upon request. Additional
performance information for each share class is contained in the annual report,
which you can receive at no charge.
<PAGE>
FINANCIAL HIGHLIGHTS
GLOBAL SERIES: CLASS A SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by, and the financial highlights for the three years ended October 31, 1996 were
audited by other independent auditors, whose reports were unqualified.
Class A Shares (fiscal years ended 10-31-98)
<TABLE>
<CAPTION>
Per Share Operating Performance 1998 1997 1996 1995(1) 1994(1)
----- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $____ $16.62 $15.52 $14.89 $13.17
Income from investment operations:
Net investment income (loss) _____ (.01) -- .01 (.04)
Net realized and unrealized gain (loss)
on investment transactions _____ 1.96 1.83 .81 1.76
Total from investment operations _____ 1.95 1.83 .82 1.72
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income _____ _____ _____ _____ _____
Distributions in excess of
net investment income _____ (.05) _____ _____ _____
Distributions paid to shareholders from
net realized gains on investment
and foreign currency transactions _____ (1.25) (.73) (.19) _____
Total distributions ( ) (1.30) (.73) (.19) _____
Net asset value, end of period $_____ $17.27 $16.62 $15.52 $14.89
Total return(2) _____% 12.42% 12.33% 5.74% 13.06%
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
Net assets, end of period (000) $_____ $158,080 $234,700 $222,002 $73,815
Average net assets (000) $_____ $265,380 $222,948 $174,316 $58,455
Ratios to average net assets:
Expenses, including, distribution, fees _____% 1.39% 1.45% 1.51% 1.55%
Expenses, excluding distribution fees _____% 1.14% 1.20% 1.26% 1.30%
Net investment income (loss) _____% 0.01% (0.04)% .10% (0.29)%
Portfolio turnover _____% 64% 52% 50% 49%
- --------------------------------------------------------------------------------
<FN>
(1) Based on average shares outstanding, by class.
(2) Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported.
</FN>
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
GLOBAL SERIES: CLASS B SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by, and the financial highlights for the three years ended October 31, 1996 were
audited by other independent auditors, whose reports were unqualified.
Class B Shares (fiscal years ended 10-31-98)
<TABLE>
<CAPTION>
Per Share Operating Performance 1998 1997 1996 1995(1) 1994(1)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $_____ $15.96 $15.03 $14.53 $12.94
Income from investment operations:
Net investment income (loss) _____ (.12) (.08) (.11) (.13)
Net realized and unrealized gain (loss)
on investment transactions. _____ 1.88 1.74 .80 1.72
Total from investment operations _____ 1.76 1.66 .69 1.59
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income _____ _____ _____ _____ _____
Distributions in excess of
net investment income _____ (.05) _____ _____ _____
Distributions paid to shareholders from
net ealized gains on investment and
foreign currency transactions _____ (1.25) (.73) (.19) _____
Total distributions ( ) (1.30) (.73) (.19) _____
Net asset value, end of period $_____ $16.42 $15.96 $15.03 $14.53
Total return(2) _____% 11.70% 11.57% 4.98% 12.29%
_____
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
Net assets, end of period (000) $_____ $335,007 $326,978 $268,498 $410,520
Average net assets (000) $_____ $350,518 $294,230 $287,656 $345,771
Ratios to average net assets:
Expenses, including distribution fees _____% 2.07% 2.12% 2.19% 2.24%
Expenses, excluding distribution fees _____% 1.14% 1.20% 1.27% 1.31%
Net investment income (loss) _____% (.68)% (.67)% (.84)% (.97)%
Portfolio turnover _____% 64% 52% 50% 49%
- --------------------------------------------------------------------------------
</TABLE>
(1) Based on average shares outstanding, by class.
(2) Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported.
<PAGE>
FINANCIAL HIGHLIGHTS
GLOBAL SERIES: CLASS C SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by, and the financial highlights for the two years ended October 31, 1996 and
the period from August 1, 1994 through October 31, 1994 were audited by other
independent auditors, whose reports were unqualified.
Class C Shares (fiscal years ended 10-31-98)
Per Share Operating Performance 1998 1997 1996 1995(2) 1994(1,2)
Net asset value, beginning of period $ $15.96 $15.03 $14.53 $12.94
----
Income from investment operations:
Net investment income (loss) (.11) (.05) (.11) (.03)
----
Net realized and unrealized gain (loss) 1.86 1.71 .80 1.62
on investment transactions. ----
Total from investment operations 1.75 1.66 .69 1.59
----
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions in excess of -- (.05) -- -- --
net investment income
Distributions paid to shareholders from -- (1.25) (.73) (.19) --
net realized gains on investment and
foreign currency transactions
Total distributions ( ) (1.30) (.73) (.19) --
----
Net asset value, end of period $ $16.41 $15.96 $15.03 $14.53
----
Total return(3) % 11.63% 11.57% 4.98% 3.56%
----
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Net assets, end of period (000) $ $10,244 $7,693 $3,733 $1,205
---
Average net assets (000) $ $9,093 $5,516 $2,284 $630
---
Ratios to average net assets:
Expenses, including distribution fees % 2.14% 2.20% 2.25% 2.63%(4)
---
Expenses, excluding distribution fees % 1.14% 1.20% 1.25% 1.63%(4)
---
Net investment income (loss) % (.75)% (.72)% (.76)% (1.21)%(4)
---
Portfolio turnover % 64% 52% 50% 49%(4)
---
- --------------------------------------------------------------------------------
(1) Information shown is for period 8-1-94 (when Class C shares were first
offered) through 10-31-94.
(2) Based on average shares outstanding, by class.
(3) Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total return for a period of less than a full year is not
annualized.
(4) Annualized
<PAGE>
FINANCIAL HIGHLIGHTS
GLOBAL SERIES: CLASS Z SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by, and the financial highlights for the two years ended for the period from
March 1, 1996 through October 31, 1996 were audited by other independent
auditors, whose reports were unqualified.
Class Z Shares (fiscal years ended 10-31-98)
Per Share Operating Performance 1998 1997 1996(1)
Net asset value, beginning of period $ $16.65 $15.42
----
Income from investment operations:
Net investment income (loss) .04 .06
----
Net realized and unrealized gain (loss) 1.96 1.18
----
on investment transactions.
Total from investment operations 2.00 1.24
----
- --------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- --
Distributions in excess of -- (.05) --
net investment income
Distributions paid to shareholders from -- (1.25) (.01)
net realized gains on investment and
foreign currency transactions
Total distributions ( ) (1.30) (.01)
----
Net asset value, end of period $ $17.35 $16.65
----
Total return(4) % 12.72% 12.307%
----
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996
- -----------------------------------------------------------------
Net assets, end of period (000) $ $44,412 $40,416
---
Average net assets (000) $ $46,545 $26,452
---
Ratios to average net assets:
Expenses, including distribution fees % 1.14% 1.20%(3)
---
Expenses, excluding distribution fees % 1.14% 1.20%(3)
---
Net investment income (loss) % .27% .55%(3)
---
Portfolio turnover % 64% 52%
---
- --------------------------------------------------------------------------------
(1) Information shown is for period 3-1-96 (when Class Z shares were first
offered) through 10-31-96.
(2) Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total return for a period of less than a full year is not
annualized.
(3) Annualized
<PAGE>
INTERNATIONAL STOCK SERIES: CLASS A SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by, and the financial highlights for the one month period ended October 31, 1996
and the period from September 23, 1996 through September 30, 1996 were audited
by other independent auditors, whose reports were unqualified.
Class A Shares (fiscal years ended 10-31-98)
Per Share Operating Performance 1998(1) 1997(1) 1996(2) 1996(3)
Net asset value, beginning of period $____ $16.59 $16.48 $16.54
Income from investment operations:
Net investment income (loss) ____ .24 (.01) _____
Net realized and unrealized gain (loss)
on investment transactions. ____ 1.85 .12 (.06)
Total from investment operations ____ 2.09 .11 (.06)
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- (.24) -- --
Distributions paid to shareholders from -- (.20) -- --
net realized gains on investment and
foreign currency transactions
Total distributions (____) (44) ____ ____
Net asset value, end of period $____ $18.24 $16.59 $16.48
Total return(4) ____% 11.63% 11.57% 4.98%
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1996
- -------------------------------------------------------------------------------
Net assets, end of period (000) $___ $36,184 $5,1695 $199 (5)
Average net assets (000) $___ $18,779 $2,7935 $199 (5)
Ratios to average net assets:
Expenses, including distribution fees ___% 1.75% 2.05% 2.46% (6)
Expenses, excluding distribution fees ___% 1.50% 1.80% 2.21% (6)
Net investment income (loss) ___% 1.40% (1.03)% .75 (6)
Portfolio turnover ___% 9% 4% 15%
- --------------------------------------------------------------------------------
(1) Fiscal year ended 10-31. Calculated based on weighted average shares
outstanding during the year.
(2) Information shown is for period 10-1-96 through 10-31-96.
(3) Information shown is for the period 9-23-96 (when Class A shares were first
offered) through 9-30-96. International Stock Fund, a Mercator managed
series of The Prudential Institutional Fund, had a fiscal year of September
30. International Stock Series has a fiscal year of October 31.
(4) Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total return for a period of less than a full year is not
annualized.
(5) Figures are actual and are not rounded to the nearest thousand.
(6) Annualized
<PAGE>
INTERNATIONAL STOCK SERIES: CLASS B SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by PricewaterhouseCoopers LLP, and the financial highlights for the one month
period ended October 31, 1996 and the period from September 23, 1996 through
September 30, 1996 were audited by other independent auditors, whose reports
were unqualified.
<TABLE>
<CAPTION>
Class B Shares (fiscal years ended 10-31-98)
Per Share Operating Performance 1998 1997(1) 1996(2) 1996(3)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $____ $16.57 $16.47 $16.54
Income from investment operations:
Net investment income (loss) ____ .12 (.02) ____
Net realized and unrealized gain (loss) ____ 1.84 .12 (.07)
on investment transactions.
Total from investment operations ____ 1.96 .10 (.07)
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- (.20) -- --
Distributions paid to shareholders from -- (.20) -- --
net realized gains on investment and
foreign currency transactions
Total distributions (____) (40) ____ ____
Net asset value, end of period $____ $18.13 $16.57 $16.47
Total return(4) ____% 12.04% .61% (.42)%
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1996
- ---------------------------------------------------------------------------
Net assets, end of period (000) $___ $87,155 $1,9225 $199 (5)
Average net assets (000) $___ $47,584 $3135 $199 (5)
Ratios to average net assets:
Expenses, including distribution fees ___% 2.50% 2.80% 3.21% (6)
Expenses, excluding distribution fees ___% 1.50% 1.80% 2.21% (6)
Net investment income (loss) ___% .65% (1.78)% 0% (6)
Portfolio turnover ___% 9% 4% 15%
- --------------------------------------------------------------------------------
<FN>
(1) Fiscal year ended 10-31. Calculated based on weighted average shares
outstanding during the year.
(2) Information shown is for period 10-1-96 through 10-31-96.
(3) Information shown is for the period 9-23-96 (when Class B shares were first
offered) through 9-30-96. International Stock Fund, a Mercator managed
series of The Prudential Institutional Fund, had a fiscal year of September
30. International Stock Series has a fiscal year of October 31.
(4) Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total return for a period of less than a full year is not
annualized.
(5) Figures are actual and are not rounded to the nearest thousand.
(6) Annualized
</FN>
</TABLE>
<PAGE>
INTERNATIONAL STOCK SERIES: CLASS C SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by, and the financial highlights for the one month period ended October 31, 1996
and the period from September 23, 1996 through September 30, 1996 were audited
by other independent auditors, whose reports were unqualified.
<TABLE>
<CAPTION>
Class C Shares (fiscal years ended 10-31-98)
<S> <C> <C> <C> <C>
Per Share Operating Performance 1998 1997(1) 1996(2) 1996(3)
Net asset value, beginning of period $____ $16.57 $16.47 $16.54
Income from investment operations:
Net investment income (loss) ____ .12 (.02) ____
Net realized and unrealized gain (loss) ____ 1.84 .12 (.07)
on investment transactions.
Total from investment operations ____ 1.96 .10 (.07)
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- (.20) -- --
Distributions paid to shareholders from -- (.20) -- --
net realized gains on investment and
foreign currency transactions
Total distributions (____) (40) ____ ____
Net asset value, end of period $____ $18.13 $16.57 $16.47
Total return(4) ____% 12.04% .61% (.42)%
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1996
- ---------------------------------------------------------------------------
Net assets, end of period (000) $___ $12,354 $2005 $199 (5)
Average net assets (000) $___ $ 7,473 $2025 $199 (5)
Ratios to average net assets:
Expenses, including distribution fees ___% 2.50% 2.80% 3.21% (6)
Expenses, excluding distribution fees ___% 1.50% 1.80% 2.21% (6)
Net investment income (loss) ___% .65% (1.78)% 0% (6)
Portfolio turnover ___% 9% 4% 15%
- --------------------------------------------------------------------------------
<FN>
(1) Fiscal year ended 10-31. Calculated based on weighted average shares
outstanding during the year.
(2) Information shown is for period 10-1-96 through 10-31-96.
(3) Information shown is for the period 9-23-96 (when Class C shares were first
offered) through 9-30-96. International Stock Fund, a Mercator managed
series of The Prudential Institutional Fund, had a fiscal year of September
30. International Stock Series has a fiscal year of October 31.
(4) Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total return for a period of less than a full year is not
annualized.
(5) Figures are actual and are not rounded to the nearest thousand.
(6) Annualized
</FN>
</TABLE>
<PAGE>
INTERNATIONAL STOCK SERIES: CLASS Z SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by, and the financial highlights for the month period ended October 31, 1996 and
for the three years ended September 30, 1996, were audited by other independent
auditors, whose reports were unqualified.
Class Z Shares (fiscal years ended 10-31-98)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance 1998 1997 (2) 1996 (3) 1996 (4) 1995 (2) 1994
Net asset value, beginning of period $____ $16.59 $16.48 $15.25 $14.84 $12.35
Income from investment operations:
Net investment income (loss) ____ .31 (.01) .22 .18(1) .13(1)
Net realized and unrealized gain (loss) ____ 1.82 .12 1.20 .66 2.54
on investment transactions.
Total from investment operations ____ 2.13 .11 1.42 .84 2.67
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- (.24) -- (.19) (.10) (.03)
Distributions paid to shareholders from -- (.20) -- (.33) (.15)
net realized gains on investment and
foreign currency transactions
Total distributions (____) (44) ____ (.19) (.43) (.18)
Net asset value, end of period $____ $18.28 $16.59 $16.48 $15.25 $14.84
Total return(5) ____% 13.13% .67% 9.44% 5.95% 21.71%
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1996 1995 (2) 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets, end of period (000) $___ $237,976 $190,428 $188,386 $136,685 $102,824
Average net assets (000) $___ $219,419 $191,428 $161,356 $118,9 $ 68,476
Ratios to average net assets:
Expenses, including distribution fees ___% 1.50% 1.80% (6) 1.61% (1) 1.60% (1) 1.60% (1)
Expenses, excluding distribution fees ___% 1.50% 1.80% (6) 1.61% (1) 1.60% (1) 1.60% (1)
Net investment income (loss) ___% 1.65% (.78)% (6) 1.58% (1) 1.58% (1) 1.08% (1)
Portfolio turnover ___% 9% 4% 15% 20% 21%
- -----------------------------------------------------------------------------------------------------------------
<FN>
(1) Net of expense/recovery.
(2) Fiscal year ended 10-31. Calculated based on weighted average shares
outstanding during the year.
(3) Information shown is for period 10-1-96 through 10-31-96.
(4) Fiscal year ended 9-30. On September 20, 1996, the manager changed from
Prudential Institutional Fund Management, Inc. to Prudential Mutual Fund
Management LLC, each company being an indirect wholly-owned subsidiary of
The prudential Insurance Company of America. International Stock Fund, a
Mercator managed series of The Prudential Institutional Fund, had a fiscal
year of September 30. International Stock Series has a fiscal year of
October 31.
(5) Total return assumes reinvestment of dividends and any other distributions.
It is calculated assuming shares are purchased on the first day and sold on
the last day of each period reported. Total returns for periods of less
than a full year are not annualized. Total return includes the effect of
expense subsidiaries/recoveries, as applicable
(6) Annualized
</FN>
</TABLE>
<PAGE>
Prudential offers a broad range of mutual funds designed to meet your
individual needs. For information about these funds, contact your broker or
Prudential professional or call us at (800) 225-1852. Please read the prospectus
carefully before you invest or send money.
<PAGE>
The Prudential Mutual Fund Family
STOCK FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL UTILITY FUND, INC.
NICHOLAS-APPLEGATE FUND, INC.
Nicholas-Applegate Growth Equity Fund
GLOBAL FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
Limited Maturity Portfolio
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
Global Series
International Stock Series
THE GLOBAL TOTAL RETURN FUND, INC.
GLOBAL UTILITY FUND, INC.
<PAGE>
BOND FUNDS
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 HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Income Portfolio
Tax-Exempt Bond Funds
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
California Series
California Income Series
PRUDENTIAL MUNICIPAL BOND FUND
High Income Series
Insured Series
PRUDENTIAL MUNICIPAL SERIES FUND
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
Taxable Money Market Funds
CASH ACCUMULATION TRUST
Liquid Assets Fund
National Money Market Fund
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.
<PAGE>
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
Command Funds
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
Institutional Money Market Funds
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Institutional Money Market Series
<PAGE>
FOR MORE INFORMATION
Please read this prospectus before you invest
in the Fund and keep it for future reference.
For information or shareholder questions
contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- ---------------------------------------------
Brokers should contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 225-1852
- ----------------------------------------------
Visit Prudential's web site at
HTTP://WWW.PRUDENTIAL.COM
- ----------------------------------------------
Additional information about the Fund can be
obtained without charge and can be found in
the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this
prospectus)
ANNUAL REPORT
(contains a discussion of the
market conditions and investment strategies
that significantly affected the Fund's
performance)
SEMI-ANNUAL REPORT
<PAGE>
You can also obtain copies of Fund documents
from the Securities and Exchange Commission as
follows:
BY MAIL:
SECURITIES AND EXCHANGE COMMISSION
PUBLIC REFERENCE SECTION
WASHINGTON, DC 20549-6009
(The SEC charges a fee to copy
documents.)
IN PERSON:
PUBLIC REFERENCE ROOM
IN WASHINGTON, DC
(For hours of operation, call 1(800) SEC-0330.)
VIA THE INTERNET:
HTTP://WWW.SEC.GOV
- ----------------------------------------------
CUSIP Numbers:
Global Series
Class A Shares--743969-10-7
Class B Shares--743969-20-6
Class C Shares--743969-30-5
Class Z Shares--743969-40-4
International Series
Class A Shares--743969-50-3
Class B Shares--743969-60-2
Class C Shares--743969-70-1
Class Z Shares--743969-80-0
Investment Company Act File No:
811-3981
MF115A
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Global Series
International Stock Series
Statement of Additional Information
December __, 1998
Prudential World Fund, Inc. (the Fund) is an open-end, diversified
management investment company presently consisting of two series.
Global Series' investment objective is to seek long-term growth of capital,
with income as a secondary objective. Global Series will seek to achieve its
objective through investment in a diversified portfolio of securities which will
consist of marketable securities of U.S. and non-U.S. issuers. Global Series may
invest in all types of equity-related securities and debt obligations, including
money market instruments, of foreign and domestic companies and governments,
governmental agencies and international organizations. There can be no assurance
that Global Series' investment objective will be achieved. See "Description of
the Series, their Investments and Risks."
International Stock Series' investment objective is to achieve long-term
growth of capital through investment in equity securities of foreign issuers.
Income is a secondary objective. International Stock 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.
International Stock Series will, under normal circumstances, invest at least 65%
of the value of its total assets in common stock and preferred stock of issuers
located in at least three foreign countries. International Stock Series may
invest up to 35% of its total assets in (i) other equity-related securities of
foreign issuers; (ii) common stock, preferred stock, 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 International Stock
Series' investment objective will be achieved. "Description of the Series, their
Investments and Risks."
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077, and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated December __, 1998, a copy
of which may be obtained from the Fund at the address noted above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference
to page in
Page Prospectus
---- ----------
<S> <C> <C>
Fund History ............................................... B-2
Description of the Series, their Investments and Risks ..... B-2
Investment Restrictions .................................... B-16
Management of the Fund ..................................... B-19
Control Persons and Principal Holders of Securities ........ B-22
Investment Advisory and Other Services ..................... B-23
Brokerage Allocation and Other Practices ................... B-27
Capital Stock and Organization ............................. B-29
Purchase, Redemption and Pricing of Fund Shares............. B 30
Shareholder Investment Account ............................. B-38
Net Asset Value ............................................ B-42
Taxes, Dividends and Distributions ......................... B-43
Performance Information .................................... B-45
Financial Statements ....................................... B- --
Report of Independent Accountants --
Appendix I--Description of Security Ratings ................ I-1 --
Appendix II--General Investment Information ................ II-1 --
Appendix III--Historical Performance Data .................. III-1 --
Appendix IV--Information Relating to Prudential ............ IV-1 --
</TABLE>
================================================================================
<PAGE>
FUND HISTORY
The Fund was organized under the laws of Maryland on September 28, 1994 as
a corporation.
DESCRIPTION OF THE SERIES, THEIR INVESTMENTS AND RISKS
(a) Classification. The Fund is a diversified open-end management investment
company.
(b) INVESTMENT STRATEGIES AND RISKS
Global Series: The investment objective of the Global Series is to seek
long-term growth of capital, with income as a secondary objective. Global Series
will seek to achieve this objective through investment in a diversified
portfolio of securities which consist of marketable securities of U.S. and
non-U.S. issuers. Global Series may invest in all types of equity-related
securities, including common stock, preferred stock, rights, warrants and debt
securities or preferred stock which are convertible or exchangeable for common
stock or preferred stock and master limited partnerships, bonds and other debt
obligations, including money market instruments, of foreign and domestic
companies and governments, governmental agencies and international
organizations. Global Series has no fixed policy with respect to portfolio
turnover; however, it is anticipated that Global Series' annual portfolio
turnover rate will not normally exceed 100%, though Global Series is not
restricted from investing in short-term obligations. There can be no assurance
that Global Series' investment objective will be achieved. For a further
description of the Global Series' investment objective and policies, see "How
the Fund Invests--Global Series: Investment Objective and Policies" in the
Prospectus.
International Stock Series: The investment objective of International Stock
Series is to seek long-term growth of capital through investment in equity
securities of foreign issuers. Income is a secondary objective. International
Stock Series will seek to achieve this objective primarily through investment in
a diversified portfolio of securities which will consist of equity securities of
foreign issuers. International Stock Series will, under normal circumstances,
invest at least 65% of the value of its total assets in common stock and
preferred stock of issuers located in at least three foreign countries.
International Stock Series may invest up to 35% of its total assets in (i) other
equity-related securities of foreign issuers; (ii) common stock, preferred
stock, 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 International Stock 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 International Stock Series and International Stock Series'
annual portfolio turnover rate may vary significantly from year to year. A
higher portfolio turnover rate may involve correspondingly greater transaction
costs, which would be borne directly by International Stock Series, as well as
additional realized gains and/or losses to shareholders. There can be no
assurance that International Stock Series' investment objective will be
achieved. For a further description of International Stock Series' investment
objective and policies, see "How the Fund Invests--International Stock Series:
Investment Objective and Policies" in the Prospectus.
Equity-Related Securities
Each Series may invest in equity-related securities. Equity-related
securities include common stock, preferred stock, rights, warrants and debt
securities or preferred stock which are convertible into or exchangeable for
common stock or preferred stock and master limited partnerships, among others.
With respect to equity-related securities, each Series may purchase
American Depositary Receipts ("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.
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or one of its
agencies, authorities or instrumentalities in which each Series may invest
include debt obligations of varying maturities issued by the U.S. Treasury or
issued or guaranteed by an agency
B-2
<PAGE>
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, a
Series will invest in obligations issued by an instrumentality of the U.S.
Government only if the relevant Series' Subadviser determines that the
instrumentality's credit risk does not render its securities unsuitable for
investment by the relevant Series. For further information, see
"Mortgage-Related Securities" below.
Repurchase Agreements
Each Series may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from such 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 such Series' money
is invested in the security.
Each Series will only enter into repurchase agreements with banks and
securities dealers which meet the creditworthiness standards established by the
Board of Directors ("Qualified Institutions"). The relevant Subadviser will
monitor the continued creditworthness of Qualified Institutions, subject to the
oversight of the Manager and the Board of Directors. These agreements permit a
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 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, a 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, a
Series' ability to dispose of the underlying securities may be restricted.
Finally, it is possible that a 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 repurchase the securities, a Series may suffer a loss to
the extent proceeds from the sale of the underlying collateral are less than the
repurchase price. Each Series may participate in a joint repurchase account
managed by Prudential Investments Fund Management LLC pursuant to an order of
the Commission.
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 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 a 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 a Series, but such Series' Subadviser will consider the event in
its determination of whether such 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, a 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.
Each Series may invest, to a limited extent, in debt securities rated in
the lowest category of investment grade debt (i.e., Baa by Moody's or BBB by S&P
Ratings). These securities 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
B-3
<PAGE>
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. International Stock Series is not
authorized to invest in excess of 5% of its net assets in non-investment grade
fixed income securities. Global Series will invest only in 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
International Stock 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
International Stock Series to purchase and may also have the effect of limiting
the ability of International Stock 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, International
Stock 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
International Stock 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 International Stock
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 International Stock Series and increasing the exposure of
International Stock Series to the risks of lower-rated securities.
When-Issued and Delayed Delivery Securities
Each Series may purchase securities on a when-issued or delayed-delivery
basis. When-issued or delayed-delivery transactions arise when securities are
purchased or sold by a Series with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price and
yield to such Series at the time of entering into the transaction. The Custodian
will maintain, in a segregated account of the Series, cash or other liquid
assets, marked-to-market daily, having a value equal to or greater than the
Series' purchase commitments. A 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 a 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
a Series to risk because the securities may experience fluctuations in value
prior to their actual delivery. A 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, Dollar Rolls and Reverse Repurchase Agreements
International Stock 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
International Stock 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 or mortgages with different prepayment
histories than those sold. During the roll period, the International Stock
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 equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction.
Reverse repurchase agreements involve sales by the International Stock
Series of portfolio securities to a financial institution concurrently with
agreement by the International Stock Series to repurchase the same securities at
a later date at a fixed price. During the reverse repurchase agreement period,
the International Stock 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 International
Stock Series with the proceeds of the initial sale may decline below the price
of the securities the
B-4
<PAGE>
International Stock 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 International Stock Series' use of the proceeds from the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the International Stock 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 International Stock Series
expects that under normal conditions most of the borrowings of the International
Stock Series will consist of such investment techniques rather than bank
borrowings.
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.
Each 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, each Series, consistent with its investment objective and
policies, will consider making investments in those new types of securities.
Each 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 a 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, a 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 a 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 a Series will be able to effect a trade of IOs or POs at a time when it
wishes to do so. A 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. A 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 5% in the case of Global Series, and 15% in the case
of International Series, of its net assets in illiquid securities. With respect
to IOs and POs that are issued by the U.S. Government, a 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.
B-5
<PAGE>
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 a 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 a Series'
Subadviser, the investment restriction limiting such Series' investment in
illiquid instruments will apply.
Collateralized Mortgage Obligations
Each 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 a 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
Each Series will enter into securities lending transactions only with
Qualified Institutions. A Series will comply with the following conditions
whenever it lends securities: (i) such 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) such Series must be able to
terminate the loan at any time; (iv) such 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, such Series must terminate the loan and regain the right to vote the
securities. A Series may pay reasonable finder's, 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. Each Series
may lend up to 30% of the value of its total assets.
Segregated Accounts
When the Fund is required to segregate assets in connection with certain
hedging transactions, it will maintain cash or liquid securities in a segregated
account with the Fund's Custodian. "Liquid assets" mean cash, U.S. Government
securities, equity securities (including foreign securities), debt obligations
or other liquid unencumbered assets, marked-to-market daily.
Borrowing
Each Series may borrow 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.
A Series will only borrow when there is an expectation that it will
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benefit after taking into account considerations such as interest income and
possible losses upon liquidation. Borrowing by a 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 such
Series' shares and in the yield on the Series. International Stock Series does
not intend to borrow more than 5% of its total assets for investment purposes,
although it 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 a 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 a 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.
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 a 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 a 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
International Stock 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 International Stock Series' investment objective,
International Stock 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 International Stock 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
International Stock 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, International Stock Series'
Subadviser considers, among other things, the amount of cash available to
International Stock 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
International Stock Series.
These instruments are not deemed to be "put options" for purposes of
International Stock Series' investment restrictions.
Illiquid Securities
Global Series and International Stock Series may each 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
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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 Subadvisers anticipate that the market for certain
restricted securities such as institutional commercial paper will expand further
as a result of this 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 Subadvisers will monitor the liquidity of such restricted
securities, subject to the supervision of the Manager and the Board of
Directors. In reaching liquidity decisions, Subadvisers 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 relevant 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.
The staff of the SEC has taken the position that purchased over-the-counter
options and assets used as "cover" for written over-the-counter 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."
HEDGING AND RETURN ENHANCEMENT STRATEGIES
Options on Securities and Securities Indices
Each Series may purchase and sell put and call options on any security in
which it may invest or options on any securities index based on securities in
which the Series may invest. Each 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 a 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. A Series as the writer of a put option might, therefore, be
obligated to purchase underlying securities for more than their current market
price.
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Each Series will write only "covered" options. A written option is covered
if, as long as a Series is obligated under the option, it (i) owns an offsetting
position in the underlying security or currency or (ii) maintains in a
segregated account cash or liquid assets in an amount equal to or greater than
its obligation under the option. Under the first circumstance, a Series' losses
are limited because it owns the underlying security or currency; under the
second circumstance, in the case of a written call option, a Series' losses are
potentially unlimited.
Options on securities indices are similar to options on equity securities,
except that the exercise of securities index options requires cash payments and
does not involve the actual purchase or sale of securities. 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.
A 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 such
Series or against an increase in the market value of the type of securities in
which such 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.
Each Series may also purchase and write put and call options on equity and
debt securities, on currencies and on stock indices in the over-the-counter
market (OTC options). Unlike exchange-traded options, OTC options are contracts
between a Series and its counterparty without the interposition of any clearing
organization.
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 a Series is unable to
effect a closing purchase transaction with respect to covered options it has
written, such 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 a 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 counterparty. In addition, with OTC options, there is a risk
that the counterparty in such transactions will not fulfill its obligations.
A 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 a
Series' turnover rate. Global Series will not write put options on indices.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a 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, a 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 a 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 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 a 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
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out-of-the-money, the relevant 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.
A 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 such
Series' net assets. The aggregate value of the obligations underlying put
options will not exceed 25% of the relevant Series' net assets.
Except as described below, the Global Series will write call options on
indices only if on such date it holds a portfolio of stocks at least equal to
the value of the index times the multiplier times the number of contracts. When
the Global Series writes a call option on a broadly-based stock market index,
the Global Series will segregate or put into escrow with its Custodian, or
pledge to a broker as collateral for the option, cash, U.S. Government
securities, liquid high-grade debt securities or a portfolio of stocks
substantially replicating the movement of the index, in the judgment of the
Global Series' investment adviser, with a market value at the time the option is
written of not less than 100% of the current index value times the multiplier
times the number of contracts.
If the Global Series has written an option on an industry or market segment
index,it will segregate or put into escrow with its Custodian, or pledge to a
broker as collateral for the option, at least ten "qualified securities," which
are securities of an issuer in such industry or market segment, with a market
value at the time the option is written of not less than 100% of the current
index value times the multiplier times the number of contracts. Such securities
will include stocks which represent at least 50% of the weighting of the
industry or market segment index and will represent at least 50% of the Global
Series' holdings in that industry or market segment. No individual security will
represent more than 25% of the amount so segregated, pledged or escrowed. If at
the close of business on any day the market value of such qualified securities
so segregated, escrowed or pledged falls below 100% of the current index value
times the multiplier times the number of contracts, the Global Series will so
segregate, escrow or pledge an amount in cash, Treasury bills or other
high-grade short-term obligations equal in value to the difference. In addition,
when the Global Series writes a call on an index which is in-the-money at the
time the call is written, the Global Series will segregate with its Custodian or
pledge to the broker as collateral cash, short-term U.S. Government securities
or other high-grade, short-term debt obligations equal in value to the amount by
which the call is in-the-money times the multiplier times the number of
contracts. Any amount segregated pursuant to the foregoing sentence may be
applied to the Global Series' obligation to segregate additional amounts in the
event that the market value of the qualified securities falls below 100% of the
current index value times the multiplier times the number of contracts. A
"qualified security" is an equity security which is listed on a national
securities exchange or listed on the National Association of Securities Dealers
Automated Quotation System against which the Global Series has not written a
stock call option and which has not been hedged by the Global Series by the sale
of stock index futures. However, if the Global Series holds a call on the same
index as the call written where the exercise price of the call held is equal to
or less than the exercise price of the call written or greater than the exercise
price of the call written if the difference is maintained by the Global Series
in cash, Treasury bills or other high-grade, short-term obligations in a
segregated account with its Custodian, it will not be subject to the
requirements described in this paragraph.
Options Transactions. A 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. A 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. A 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.
A Series would normally purchase put options to hedge against a decline in
the market value of securities in its portfolio ("protective puts"). Gains and
losses on the purchase of protective puts would tend to be offset by
countervailing changes in the value of underlying Series' securities. A 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, a Series would realize a loss on
the purchase of the put option. A 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.
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 a 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 a 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.
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Risks of Options on Indices. A 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 a 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 a Series of options on indices would be
subject to a 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, a 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 such Series. It is each 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. A Series will not
purchase or sell any index option contract unless and until, in the relevant
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.
Global Series will write call options on indices only under the circumstances
described under "Options on Securities and Securities Indices."
Price movements in a Series' portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, a Series
bears the risk that the price of the securities held by the Series may not
increase as much as the index. In such event, a Series would bear a loss on the
call which is not completely offset by movements in the price of the its
portfolio. It is also possible that the index may rise when a Series' portfolio
of stocks does not rise. If this occurred, the relevant 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' portfolio in the
opposite direction as the market would be likely to occur for only a short
period or to a small degree.
Unless a Series has other liquid assets which are sufficient to satisfy the
exercise of a call, it 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 such Series fails to anticipate an
exercise, it may have to borrow (in amounts not exceeding 20% of such Series'
total assets) pending settlement of the sale of securities in its portfolio and
would incur interest charges thereon.
When a Series has written a call on an index, there is also a risk that the
market may decline between the time such 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 such Series is able to sell securities in its portfolio
to generate cash to settle the exercise. As with stock options, a 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 a Series would be able to
deliver the underlying securities in settlement, such 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
a Series has written is "covered" by an index call held by such Series with the
same strike price, such 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 such 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 a 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
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closing. If such a change causes the exercised option to fall out-of-the-money,
such 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 such 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. Global Series will not write put options on indices.
Special Risks of Purchasing OTC Options. When a 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 relevant Series originally wrote the OTC option. Any such
cancellation, if agreed to, may require the relevant Series to pay a premium to
the counterparty. While a 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 such Series, there can be no assurance that such Series will
be able to liquidate an OTC option at a favorable price at any time prior to
expiration. Until a Series is able to effect a closing purchase transaction in a
covered OTC call option that such 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, a 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 a 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, a Series
may be unable to liquidate an OTC option.
In entering into OTC options, a 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, a Series may lose the
benefit of the transaction. The value of an OTC option to a Series is dependent
upon the financial viability of the counterparty. If a Series decides to enter
into transactions in OTC options, the relevant Subadviser will take into account
the credit quality of counterparties in order to limit the risk of default by
the counterparty.
Stock Index Futures. Global Series may purchase and sell stock index
futures which are traded on a commodities exchange or board of trade for certain
hedging and risk management purposes in accordance with regulations of the
Commodity Futures Trading Commission. A stock index futures contract is an
agreement in which one party agrees to deliver to another an amount of cash
equal to a specific dollar amount times the difference between a specific stock
index at the close of the last trading day of the contract and the price at
which the agreement is made. No physical delivery of the underlying stocks in
the index is made.
The successful use of stock index futures contracts and options on indices
by Global Series depends upon its ability to predict the direction of the market
underyling the index and is subject to various additional risks. The correlation
between movements in the price of the stock index future and the price of the
securities being hedged is imperfect and there is a risk that the value of the
securities being hedged may increase or decrease at a greater rate than the
related futures contract, resulting in losses to Global Series. Certain futures
exchanges or boards of trade have established daily limits on the amount that
the price of a futures contract or related options may vary, either up or down,
from the previous day's settlement price. These daily limits may restrict the
Global Series' ability to purchase or sell certain futures contracts or related
options on any particular day. In addition, if Global Series purchases futures
to hedge against market advances before it can invest in common stock in an
advantageous manner and the market declines, Global Series might create a loss
on the futures contract. In addition, the ability of Global Series to close out
a futures position or an option depends on a liquid secondary market. There is
no assurance that liquid secondary markets will exist for any particular futures
contract or option at any particular time.
Global Series will engage in transactions in stock index futures contracts
as a hedge against changes resulting from market conditions in the values of
securities which are held in Global Series' portfolio or which it intends to
purchase. Global Series will engage in such transactions when they are
economically appropriate for the reduction of risks inherent in the ongoing
management of Global Series. The Global Series may not purchase or sell stock
index futures if, immediately thereafter, more than one-third of its net assets
would be hedged and, in addition, except as described above in the case of a
call written and held on the same index, will write call options on indices or
sell stock index futures only if the amount resulting from the multiplication of
the then current level of the index (or indices) upon which the option or future
contract(s) is based, the applicable multiplier(s), and the number of futures or
options contracts which would be outstanding, would not exceed one-third of the
value of Global Series' net assets. Global Series also may not purchase or sell
stock index futures for risk management purposes if, immediately thereafter, the
sum of the amount of margin deposits on Global Series' existing futures
positions and premiums paid for such options would exceed 5% of the liquidation
value of the Global Series' total assets after taking into account unrealized
profits and unrealized losses on any such contracts, provided, however, that in
the case of an option that is in-the-money, the in-the-money
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amount may be excluded in computing such 5%. The above restriction does not
apply to the purchase and sale of stock index futures for bona fide hedging
purposes. In instances involving the purchase of stock index futures contracts
by the Global Series, an amount of cash, short-term U.S. Government securities
or other high-grade short-term debt obligations, equal to the market value of
the futures contracts, may be deposited in a segregated account with the Fund's
Custodian and/or in a margin account with a broker to collateralize the position
and thereby insure that the use of such futures is unleveraged.
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the Investment
Company Act), are exempt from the definition of "community pool operator,"
subject to compliance with certain conditions. The exemption is conditioned upon
a requirement that all commodity futures or commodity options transactions
constitute bona fide hedging transactions within the meaning of the CFTC's
regulations. The Global Series will use stock index futures and options on
futures as described herein in a manner consistent with this requirement. The
Global Series may also enter into commodity futures or commodity 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
Global Series' total assets.
Foreign Currency Forward Contracts, Options and Futures Transactions
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. There is no limitation on the value of
forward contracts into which a Series may enter. However, a 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 a
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. A 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.
A Series may enter into a forward contract to hedge against risk in the
following circumstances: (i) during the time period when such Series contracts
for the purchase or sale of a security denominated in a foreign currency, or
(ii) when such 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, such 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 a Series' Subadviser
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar, such 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 a Series
denominated in such foreign currency. Further, a 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 a Series' counterparty to make or take delivery of the underlying currency at
the maturity of the forward contract would result in the loss to such 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 counterparty. Thus, there can be no assurance
that a 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 counterparty, a Series might be unable to close out a forward currency
contract at any time prior to maturity. In either event, such 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.
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Each Series may also purchase and sell futures contracts on foreign
currencies and groups of foreign currencies to protect against the effect of
adverse changes on foreign currencies. A 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 contractural obligation to deliver the specified amount of
foreign currency at a specified price in 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, a 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 in such Series' providing or receiving cash
that reflects any decline or increase in the contract's value, a process known
as "marking to market."
A 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 a Series has the right to take or make delivery of a
specified amount of foreign currency, rather than securities.
Generally, OTC foreign currency options used by a 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 a 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), such Series may purchase call options or write put
options on the foreign currency. A 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
A 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 such Series' securities are denominated. Such currency hedges can protect
against price movements in a security that a 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.
A 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, a 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 such Series' Subadviser 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, a 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, a 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.
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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 a Series to an
obligation to another party. A 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 or liquid assets 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.
Limitations on Purchase and Sale of Options on Foreign Currencies and Futures
Contracts on Foreign Currencies
Global Series will not (a) write puts having aggregate exercise prices
greater than 25% of total net assets; or (b) purchase (i) put options on
currencies or futures contracts on foreign currencies or (ii) call options on
foreign currencies if, after any such purchase, the aggregate premiums paid for
such options would exceed 10% of Global Series' total net assets.
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 a 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 a 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 a 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 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 intend 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
such options. These risks include 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, which 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
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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 a Subadviser may still not result in a successful
hedging transaction.
Although a 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 a Series could not close a futures position and the value of such position
declined, such 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 relevant Series' total assets.
Successful use of futures contracts by a Series is also subject to the
ability of such Series' Manager or Subadviser to predict correctly movements in
the direction of markets and other factors affecting currencies generally. For
example, if a 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, such 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 such 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. A 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 a 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 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.
Other Investment Techniques
Each 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 it or that are not currently available but that may be
developed, to the extent such opportunities are both consistent with its
investment objective and legally permissible for it.
INVESTMENT RESTRICTIONS
The investment restrictions listed below have been adopted by the indicated
Series as fundamental policies, except as otherwise indicated. Under the
Investment Company Act, a fundamental policy of a Series may not be changed
without the vote of a majority of the outstanding voting securities of such
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
B-16
<PAGE>
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 a Series.
Global Series may not:
1. Purchase securities on margin (but Global Series may obtain such
short-term credits as may be necessary for the clearance of transactions);
provided that the deposit or payment by Global Series of initial or maintenance
margin in connection with futures or options is not considered the purchase of a
security on margin.
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money or pledge its assets, except that
Global Series may borrow up to 20% of the value of its total assets (calculated
when the loan is made) for temporary, extraordinary or emergency purposes or for
the clearance of transactions. Global Series may pledge up to 20% of the value
of its total assets to secure such borrowings. For the purpose of this
restriction, obligations of the Fund to Directors pursuant to deferred
compensation arrangements, the purchase and sale of securities on a when-issued
or delayed delivery basis, the purchase and sale of forward foreign exchange
contracts, options and futures contracts and any collateral arrangements with
respect to the purchase and sale of forward foreign exchange contracts, options
and futures contracts are not deemed to be the issuance of a senior security or
a pledge of assets.
4. Purchase any security (other than obligations of the U.S. Government,
its agencies, or instrumentalities) if as a result:(i) with respect to 75% of
Global Series' total assets, more than 5% of Global Series' total assets (taken
at current value) would then be invested in securities of a single issuer, or
(ii) more than 25% of Global Series' total assets (taken at current value) would
be invested in a single industry.
5. Purchase any security if as a result the Global Series would then hold
more than 10% of the outstanding voting securities of an issuer.
6. Buy or sell commodities or commodity contracts or real estate or invest
in real estate, although it may purchase or sell securities which are secured by
real estate and securities of companies which invest or deal in real estate (for
the purposes of this restriction, stock options, options on debt securities,
options on stock indices, stock indices futures, options on stock index futures,
futures contracts on currencies, options on such contracts and forward foreign
exchange contracts are not deemed to be a commodity or commodity contract).
7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.
8. Make investments for the purpose of exercising control or management.
9. Invest in securities of other registered investment companies, except by
purchases in the open market involving only customary brokerage commissions and
as a result of which not more than 10% of its total assets (determined at the
time of investment) would be invested in such securities, or except as part of a
merger, consolidation or other acquisition.
10. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stocks of companies
which invest in or sponsor such programs.
11. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities (limited to 30% of Global Series' total assets).
12. Purchase warrants if as a result the Fund would then have more than 5%
of its total assets (taken at current value) invested in warrants.
International Stock Series may not:
1. Purchase any security if, as a result, with respect to 75% of
International Stock 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 International Stock 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 International Stock Series may purchase
securities of issuers which engage in real estate operations and securities
which are secured by real estate or interests therein.
B-17
<PAGE>
5. Purchase or sell commodities or commodity futures contracts, except that
International Stock 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 International Stock 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
International Stock 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
International Stock 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 International Stock
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. International Stock Series
has no limit with respect to investments in restricted securities.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of a Series' assets or net assets, it is intended that if
the percentage limitation is met at the time the investment is made, then 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.
B-18
<PAGE>
MANAGEMENT OF THE FUND
(a) Directors
The Fund has Directors who, in addition to overseeing the actions of the
Fund's Manager, Subadvisers and Distributor, decide upon matters of general
policy.
The Directors also review the actions of the Fund's officers who conduct
and supervise the daily business operations of the Fund.
(b) Management Information--Directors and Officers
Position with Principal Occupation
Name, Address and Age(1) Fund During Past Five Years
- ------------------------ ---- ----------------------
Edward D. Beach (73) Director President and Director of BMC
Fund, Inc., a closed-end
investment company; previously
Vice Chairman of Broyhill
Furniture Industries, Inc.;
Certified Public Accountant;
Secretary and Treasurer of
Broyhill Family Foundation,
Inc.; Member of the Board of
Trustees of Mars Hill College;
and Director of The High Yield
Income Fund, Inc.
Stephen C. Eyre (75) Director Executive Director (May 1985
through December 1997) of The
John A. Hartford Foundation,
Inc. (charitable foundation);
Director of Faircom, Inc.; and
Trustee Emeritus of Pace
University.
Delayne Dedrick Gold (59) Director Marketing and Management
Consultant; Director of The High
Yield Income Fund, Inc.
* Robert F. Gunia (51) Vice President Vice President, Prudential
and Director Investments since September
1997; Executive Vice President
and Treasurer (since December
1996), Prudential Investments
Fund Management LLC (PIFM);
Senior Vice President (since
March 1987) of Prudential
Securities Incorporated
(Prudential Securities);
formerly Chief Administrative
Officer (July 1990-September
1996), Director (January
1989-September 1996) and
Executive Vice President,
Treasurer and Chief Financial
Officer (June 1987-September
1996) of Prudential Mutual Fund
Management, Inc. (PMF), Vice
President and Director (since
May 1989) of The Asia Pacific
Fund, Inc.; Director of The High
Yield Income Fund, Inc.
Don G. Hoff (62) Director Chairman and Chief Executive
Officer (since 1980) of
Intertec, Inc. (investments);
Chairman and Chief Executive
Officer of The Lamour
Corporation, Inc.; Director of
Innovative Capital Management,
Inc. and The Greater China Fund,
Inc.; and Chairman and Director
of The Asia Pacific Fund, Inc.
Robert E. LaBlanc (63) Director President (since 1981) of Robert
E. LaBlanc Associates, Inc.
(telecommunications); formerly
General Partner at Salomon
Brothers and Vice-Chairman of
Continental Telecom; Director of
Storage Technology Corporation,
Titan Corporation, Salient 3
Communications, Inc. and Tribune
Company; and Trustee of
Manhattan College.
B-19
<PAGE>
Position with Principal Occupation
Name, Address and Age(1) Fund During Past Five Years
- ------------------------ ---- ----------------------
* Mendel A. Melzer (37) Director Chief Investment Officer (since
October 1996) of Prudential
Mutual Funds; formerly Chief
Financial Officer (November
1995-October 1996) of Prudential
Investments; Senior Vice
President and Chief Financial
Officer (April 1993-November
1995) of Prudential Preferred
Financial Services; Managing
Director (April 1991-April 1993)
of Prudential Investment
Advisors and Senior Vice
President (July 1989-April 1991)
of Prudential Capital
Corporation; Chairman and
Director of Prudential Series
Fund, Inc.; and Director of The
High Yield Income Fund, Inc.
* Richard A. Redeker (55) President and Employee of Prudential
Director Investments, formerly President,
Chief Executive Officer and
Director (October 1993-September
1996) Prudential Mutual Fund
Management, Inc., Executive Vice
President, Director and Member
of the Operating Committee
(October 1993-September 1996);
Prudential Securities, Director
(October 1993-September 1996) of
Prudential Securities Group,
Inc.; Executive Vice President
(January 1994-September 1996),
The Prudential Investment
Corporation, Director (January
1994-September 1996) Prudential
Mutual Fund Distributors, Inc.
and Prudential Mutual Fund
Services, Inc. and Senior
Executive Vice President and
Director (September
1978-September 1993) of Kemper
Financial Services, Inc.;
President and Director of The
High Yield Income Fund, Inc.
Robin B. Smith (58) Director Chairman (since August 1996) and
Chief Executive Officer (since
January 1988), formerly
President (September 1981-August
1996) and Chief Operating
Officer (September 1981-December
1988) of Publishers Clearing
House; Director of BellSouth
Corporation, Texaco Inc.,
Springs Industries Inc. and
Kmart Corporation.
Stephen Stoneburn (54) Director President and Chief Executive
Officer (since June 1996) of
Quadrant Media Corp. (a
publishing company); formerly,
President (June 1995-June 1996)
of Argus Integrated Media, Inc.;
formerly Senior Vice President
and Managing Director, (January
1993-1995) Cowles Business
Media; and Senior Vice President
(January 1991-1992) of Gralla
Publications (a division of
United Newspapers, U.K.); and
Senior Vice President of
Fairchild Publications, Inc.
Nancy H. Teeters (67) Director Economist; formerly Vice
President and Chief Economist
(March 1986- June 1990) of
International Business Machines
Corporation; Director (since
July 1991) of Inland Steel
Corporation; Director of The
High Yield Income Fund, Inc.
B-20
<PAGE>
Position with Principal Occupation
Name, Address and Age(1) Fund During Past Five Years
- ------------------------ ---- ----------------------
S. Jane Rose (52) Secretary Senior Vice President (since
December 1996), PIFM; Senior
Vice President and Senior
Counsel (since July 1992)
Prudential Securities; formerly
Senior Vice President (January
1991-September 1996) and Senior
Counsel (June 1987-September
1996) of Prudential Mutual Fund
Management, Inc.
Grace C. Torres (39) Treasurer First Vice President (since
and Principal December 1996) of PIFM; First
Financial and Vice President (since March
Accounting 1994) of Prudential Securities;
Officer formerly First Vice President
(March 1994-September 1996),
Prudential Mutual Fund
Management, Inc. and Vice
President (July 1989-March 1994)
of Bankers Trust Corporation.
Robert C. Rosselot (38) Assistant Assistant General Counsel (since
Secretary September 1997) of PIFM.
Formerly, partner with the firm
of Howard & Howard, Bloomfield
Hills, Michigan (since December
1995) and, prior thereto,
Corporate Counsel, Federated
Investors (1990-1995).
Stephen M. Ungerman (44) Assistant Vice President and Tax Director
Treasurer (since March 1996) Prudential
Investments; formerly First Vice
President, Prudential Mutual
Fund Management, Inc. (February
1993-September 1996)
- ----------
(1) Unless otherwise noted, the address for each of the above persons is c/o
Prudential Mutual Fund Management LLC, Gateway Center Three, 100 Mulberry
Street, 9th Floor, Newark, New Jersey 07102-4077.
* Interested director, as defined in the Investment Company Act, by reason of
his affiliation with Prudential Securities or PIFM.
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 Fund pays each of its Directors who is not an "affiliated" person of
PIFM annual compensation of $7,000, in addition to certain out-of-pocket
expenses. The amount of annual compensation paid to each Director may change as
a result of the introduction of additional funds upon which the Director will be
asked to serve.
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. Beach
and Eyre are scheduled to retire on December 31, 1999 and 1998, respectively.
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.
B-21
<PAGE>
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended October 31, 1998 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 investment
companies managed by Prudential Investments Fund Management LLC (Fund Complex)
for the calendar year ended December 31, 1997. Below are listed the Directors
who have served the Fund during its most recent fiscal year.
<TABLE>
<CAPTION>
Compensation Table
Total 1997
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(2)
----------------- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
Edward D. Beach--Director ............................... $ None N/A $ *
Stephen C. Eyre--Director ............................... None N/A *
Delayne D. Gold--Director ............................... None N/A *
Robert F. Gunia (1)--Director ........................... -- None N/A --
Don G. Hoff--Director ................................... None N/A *
Robert F. LaBlanc--Director ............................. None N/A *
Mendel A. Melzer (1)--Director .......................... -- None N/A --
Richard A. Redeker (1)--Director ........................ -- None N/A --
Robin B. Smith--Director ................................ None N/A *
Stephen Stoneburn--Director ............................. None N/A *
Nancy H. Teeters--Director .............................. None N/A *
</TABLE>
- ----------
Effective January 1997, the annual compensation paid to Directors was reduced to
$7,000 in addition to certain out-of-pocket expenses.
* Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.
(1) Directors who are "interested" do not receive compensation from Fund
Complex (including the Fund).
(2) Total compensation from all the Funds in the Fund Complex for the Calendar
ended December 31, 1997, includes amounts deferred at the election of
Directors under the Funds' deferred compensation plans. Including accrued
interest, total compensation amounted to $ for Director Robin B. Smith.
Currently, Ms. Smith has agreed to defer some of her fees at the T-Bill
rate and other fees at the fund rate.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Directors of the Fund are eligible to purchase Class Z shares of each
Series, which are sold without either an initial sales charge or CDSC to a
limited group of investors.
As of December ____, 1998, the Directors and officers of the Fund, as a
group, owned less than 1% of the outstanding common stock of the Fund.
As of December ____, 1998, there were no beneficial owners, directly or
indirectly, of more than 5% of the outstanding common stock of Global Series and
the beneficial owners, directly or indirectly, of more than 5% of the
outstanding common stock of International Stock Series were: [Prudential
Employee Savings Plan, Att. Cara India, 71 Hanover Road, Florham Park, New
Jersey held ____ Class Z shares (or approximately ____% of the outstanding Class
Z shares); Prudential Trust Company, FBO Pru-DC Trust Accounts, Att. John Surdy,
30 Scranton Office Park, Moosic, Pennsylvania held ____ Class Z shares (or
approximately ____% of the outstanding Class Z shares)].
As of December ____, 1998, with respect to the Global Series, Prudential
Securities was the record holder for other beneficial owners of ____ Class A
shares (or approximately ____% of the outstanding Class A shares), ____ Class B
shares (or approximately ____% of the outstanding Class B shares), ____ Class C
shares (or approximately ____% of the outstanding Class C shares) and ____ Class
Z shares (or approximately ____% of the outstanding Class Z shares) of the
Series. As of December ____, 1998, with respect to International Stock Series,
Prudential Securities was the record holder for other beneficial owners of ____
Class A shares (or approximately ____% of the outstanding Class A shares), ____
Class B shares (or approximately ____% of the outstanding Class B shares), ____
Class C shares (or approximately ____% of the outstanding Class C shares) and
____ Class Z shares (or approximately ____% of the outstanding Class Z) shares
of the Series.
B-22
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
(a) Investment Advisors
The manager of each Series is Prudential Investments Fund Management LLC
(PIFM or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077. PIFM serves as manager to substantially all of the other
investment companies that, together with the Series, comprise the "Prudential
Mutual Funds." See "How the Fund is Managed--Manager" in the Prospectus. As of
November 30, 1998 PIFM managed and/or administered open-end and closed-end
management investment companies with assets of approximately $________ billion
and, according to the Investment Company Institute, as of ________, 1998, the
Prudential Mutual Funds were the ________th largest family of mutual funds in
the United States.
PIFM is a subsidiary of Prudential Securities. Prudential Mutual Fund
Services LLC (PMFS or the Transfer Agent), a wholly-owned subsidiary of PIFM,
serves as the transfer agent for the Prudential Mutual Funds and, in addition,
provides customerservice, recordkeeping and management and administration
services to qualified plans.
Pursuant to the Management Agreements with the Fund with respect to each
Series (the Management Agreement), PIFM, subject to the supervision of the
Fund's Board of Directors and in conformity with the stated policies of each
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, PIFM is obligated to keep certain
books and records of the Series. PIFM 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 Fund's
custodian, and PMFS, the Fund's transfer and dividend disbursing agent. The
management services of PIFM for the Series are not exclusive under the terms of
the Management Agreement and PIFM is free to, and does, render management
services to others.
For its services, PIFM receives, pursuant to the Management Agreement, a
fee at an annual rate of .75% of Global Series average daily net assets and 1%
of International Stock 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 a Series (including the fees of PIFM, but excluding
interest, taxes, brokerage commissions, distribution fees and litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of a 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 a Series' shares are
qualified for offer and sale, the compensation due to PIFM will be reduced by
the amount of such excess. Reductions in excess of the total compensation
payable to PIFM will be paid by PIFM to the Fund. Currently, each Series
believes that there are no such expense limitations.
In connection with its management of the corporate affairs of each Series,
PIFM bears the following expenses:
(a) the salaries and expenses of all of its and a Series' personnel
except the fees and expenses of Directors who are not affiliated persons of
PIFM or the Series' investment adviser;
(b) all expenses incurred, by PIFM or by a Series in connection with
managing the ordinary course of such Series' business, other than those
assumed by such Series as described below;
(c) with respect to the Global Series, the costs and expenses payable
to The Prudential Investment Corporation, doing business as Prudential
Investments (PI or Subadviser) pursuant to the subadvisory agreement
between PIFM and PI (the Subadvisory Agreement).
(d) with respect to International Stock Series, the fees payable to
Mercator Asset Management, L.P. (Mercator) pursuant to the subadvisory
agreement between PIFM and Mercator; and
(e) with respect to International Stock Series, the costs and expenses
payable to PI pursuant to a subadvisory agreement between PIFM and PI.
Under the terms of the Management Agreements, each 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 such 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 each Series and of pricing such Series' shares,
(d) the charges and expenses of legal counsel and independent accountants for
such Series, (e) brokerage commissions and any issue or transfer taxes
chargeable to such Series in connection with its securities transactions, (f)
all taxes and corporate fees payable by such Series to governmental agencies,
(g) the fees of any trade associations of which such Series may be a member, (h)
the cost of stock certificates representing shares of such Series, (i) the cost
of fidelity and liability insurance, (j) the fees and expenses involved in
registering and maintaining registration of such Series and of
B-23
<PAGE>
its shares with the Securities and Exchange Commission, registering such Series
and qualifying its shares under state securities laws, including the preparation
and printing of the Fund's registration statements and prospectuses for such
purposes, (k) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing reports, proxy statements and prospectuses to
shareholders in the amount necessary for distribution to the shareholders, (l)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of such Series' business and (m) distribution
fees.
The Management Agreements provide that PIFM will not be liable for any
error of judgment or for any loss suffered by a 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 Agreements provide 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
Agreements 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. For the fiscal
years ended October 31, 1998, 1997 and 1996, PIFM received management fees of
$________, $5,036,520, and $4,118,594, respectively, from Global Series. For the
fiscal years ended October 31, 1998, and 1997, and for the period from October
1, 1996 through October 31, 1996, PIFM received management fees of $________,
$2,932,554 and $162,415, respectively, from the newer International Stock
Series.
With respect to Global Series, PIFM has entered into a Subadvisory
Agreement (the Subadvisory Agreement) with PI (the Subadviser), a wholly-owned
subsidiary of The Prudential Insurance Company of America (Prudential). The
Subadvisory Agreement provides that PI will furnish investment advisory services
in connection with the management of the Global Series. In connection therewith,
PI is obligated to keep certain books and records of the Global Series. PIFM
continues to have responsibility for all investment advisory services pursuant
to the Management Agreement and supervises PI's performance of such services. PI
is reimbursed by PIFM for the reasonable costs and expenses incurred by PI in
furnishing those services. Investment advisory services are provided to the
Global Series by a unit at PI, known as Prudential Mutual Fund Investment
Management.
With respect to International Stock Series, PIFM has entered into a
Subadvisory Agreement (the Subadvisory Agreement) with Mercator. The Subadvisory
Agreement with Mercator provides that PIFM will compensate Mercator for its
services at an annual rate of .75% of International Stock Series' average daily
net assets up to and including $50 million, .60% of International Stock Series'
average daily net assets in excess of $50 million up to and including $300
million and .45% of International Stock Series' average daily net assets in
excess of $300 million. For the fiscal years ended October 31, 1998, and 1997,
and for the period from October 1, 1996 through October 31, 1996, Mercator
received fees of $________, $1,834,533 and $103,819, respectively, from PIFM.
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 September 30, 1998, Mercator had approximately $________
billion in assets under management. The Subadvisory Agreement provides that
Mercator will furnish investment advisory services in connection with the
management of the International Stock Series. In connection therewith, Mercator
is obligated to keep certain books and records of the International Stock
Series. PIFM continues to have responsibility for all investment advisory
services pursuant to the Management Agreement and supervises Mercator's
performance of such services.
Portfolio manager Peter Spano and the Mercator Asset Management team are
equity specialists with approximately 100 years of combined international
investing experience. They primarily use a value investing style in managing the
International Stock Series. Using a value investing style, International Stock
Series' managers search outside the U.S. for long-term growth from stocks deemed
to be underpriced. Mercator's team accesses a substantial network of top equity
analysts around the world who are experts in their local markets. The team
screens more than 5,500 stocks outside the U.S., selecting approximately 50
significantly undervalued stocks with strong prospects for earnings growth.
With respect to International Stock Series, and pursuant to a subadvisory
agreement with PIFM, PI provides investment advisory services to such 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, PIFM will reimburse PI for reasonable costs and expenses
incurred by PI determined in a manner acceptable to PIFM.
Each 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 relevant Management Agreement. Each Subadvisory Agreement may
be terminated by the Fund, PIFM, or (i) with respect to International Stock
Series, Mercator or PI and (ii) with respect to Global Series, PI, upon not more
than 60 days', nor less than 30 days', written notice. Each 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.
B-24
<PAGE>
(b) Principal Underwriter, Distributor and Rule 12b-1 Plans
Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Series. Prior to June 1, 1998,
Prudential Securities Incorporated (Prudential Securities) was the Series'
distributor.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the Class
B Plan and the Class C Plan, collectively the Plans) adopted by the Fund on
behalf of each Series under Rule 12b-1 under the Investment Company Act and a
distribution agreement (the Distribution Agreement), the Distributor incurs the
expenses of distributing the Fund's Class A, Class B and Class C shares. PIMS
serves as the Distributor of the Class Z shares and incurs the expenses of
distributing the Series' Class Z shares under the Distribution Agreement with
the Fund, none of which are reimbursed by or paid for by either Series. See "How
the Fund is Managed--Distributor" in the Prospectus.
Each Series' Class A Plan provides that (i) up to .25 of 1% of the average
daily net assets of the Class A shares of such Series 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% of the average daily net assets of the Class A shares of such
Series. The Global Series' Class B Plan provides that (i) up to .25 of 1% of the
average daily net assets of the Class B shares of such Series may be paid as a
service fee and (ii) .50 of 1% (not including the service fee) per annum of such
Series' average daily net assets up to the level of average daily net assets as
of February 26, 1986, plus .75 of 1% of the average daily net assets of the
Class B shares of such Series in excess of such level may be used as
compensation for distribution-related expenses with respect to the Class B
shares of such Series. The International Stock Series' Class B Plan provides
that (i) up to .25 of 1% of the average daily net assets of the Class B shares
of such Series may be paid as a service fee and (ii) .75 of 1% (not including
the service fee) per annum of such Series' average daily net assets may be used
as compensation for distribution-related expenses with respect to the Class B
shares (asset-based sales charge). Each Series' Class C Plan provides that (i)
up to .25 of 1% of the average daily net assets of the Class C shares of such
Series may be paid as a service fee and (ii) .75 of 1% (not including the
service fee) per annum of such Series' average daily net assets may be used as
compensation for distribution-related expenses with respect to the Class C
shares (asset-based sales charge).
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 to
which such Plan relates. 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. A 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 a 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 the Distribution Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933, as amended.
The distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis Dealers in consideration for the distribution,
marketing, administrative and other services and activities provided by dealers
with respect to the promotion of the sale of the Fund's shares and the
maintenance of related shareholder accounts.
Global Series
Class A Plan. For the fiscal year ended October 31, 1998, Prudential
Securities received payments of $________ and PIMS received payments of
$________ under the Class A Plan. These amounts were expended on commission
credits to Prudential Securities and Pruco Securities Corporation, an affiliated
broker-dealer (Prusec), for payments of commissions and account servicing fees
to financial advisers and other persons who sell Class A shares. For the fiscal
year ended October 31, 1998, Prudential Securities and PIMS also received
approximately $________ and $________ in initial sales charges, respectively.
Class B Plan. For the fiscal year ended October 31, 1998, Prudential
Securities received $________ and PIMS received payments of $______ from the
Series under the Class B Plan and spent approximately $________and $________,
respectively,
B-25
<PAGE>
in distributing the Class B shares of the Series. It is estimated that of the
latter amounts approximately $________(____%) and $________ (____%),
respectively, was spent on printing and mailing of prospectuses to other than
current shareholders; $________(____%) and $________ (____%), respectively, on
compensation to Prusec for commissions to its representatives and other
expenses, including an allocation on account of overhead and other branch office
distribution-related expenses incurred by it for distribution of Class B shares;
and $________ (____%) and $________ (____%), respectively, on the aggregate of
(i) payments of commissions and account servicing fees to its financial advisers
$_________ (____%) and $________ (____%), respectively, and (ii) an allocation
on account of overhead and other branch office distribution expenses $________
(____%) and $________ (____%), respectively. The term "overhead and other branch
office distribution related expenses" represents (a) the expenses of operating
Prusec's and Prudential Securities' branch offices in connection with the sale
of Series shares, including lease costs, the salaries and employee benefits of
operations and sales support personnel, utility costs, communications costs and
the costs of stationery and supplies, (b) the costs of client sales seminars,
(c) expenses of mutual fund sales coordinators to promote the sale of Series
shares and (d) other incidental expenses relating to branch promotion of Series
sales.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by holders of Class B shares upon certain redemptions of Class B
shares. For the fiscal year ended October 31, 1998, Prudential Securities and
PIMS received approximately $________ and $________, respectively, in contingent
deferred sales charges.
Class C Plan. For the fiscal year ended October 31, 1998, Prudential
Securities received $________ and PIMS received payments of $________ from the
Series under the Class C Plan and spent approximately $________ and $________
(____%), respectively, in distributing the Class C shares of the Series. It is
estimated that of the latter amounts approximately $________ (____%) and
$________(____%), respectively, was spent on printing and mailing of
prospectuses to other than current shareholders; $________ (____%) and $________
(____%), respectively, on compensation to Prusec for commissions to its
representatives and other expenses, including an allocation on account of
overhead and other branch office distribution-related expenses incurred by it
for distribution of Class C shares; and $________ (____%) and $________ (____%),
respectively, on the aggregate of (i) payments of commissions and account
servicing fees to its financial advisers $________ (____%) and $________
(____%), respectively, and (ii) an allocation on account of overhead and other
branch office distribution expenses $________ (____%) and $________ (____%),
respectively.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class C shares. For the
fiscal year ended October 31, 1998, Prudential Securities and PIMS received
contingent deferred sales charges of approximately $________ and $________,
respectively.
International Stock Series
Class A Plan. For the fiscal year ended October 31, 1998, Prudential
Securities received payments of $________ and PIMS received payments of
$________under the Class A. Plan. These amounts were expended on commission
credits to Prudential Securities and Pruco Securities Corporation, an affiliated
broker-dealer (Prusec), for payments of commissions and account servicing fees
to financial advisers and other persons who sell Class A shares. For the fiscal
year ended October 31, 1998, Prudential Securities and PIMS also received
approximately $________ and $________, respectively, in initial sales charges.
Class B Plan. For the fiscal year ended October 31, 1998, Prudential
Securities received $_________ and PIMS received payments $________ from the
Series under the Class B Plan and spent approximately $________ and $________ ,
respectively, in distributing the Class B shares of the Series. It is estimated
that of the latter amounts approximately $________ (____%) and $________(____%),
respectively, was spent on printing and mailing of prospectuses to other than
current shareholders; $________ (____%) and $________(____%), respectively, on
compensation to Prusec for commissions to its representatives and other
expenses, including an allocation on account of overhead and other branch office
distribution-related expenses incurred by it for distribution of Class B shares;
and $________(____%) and $________(____%), respectively, on the aggregate of (i)
payments of commissions and account servicing fees to its financial advisers
$________ (____%) and $________ (____%), respectively, and (ii) an allocation on
account of overhead and other branch office distribution-related expenses
$________(____%) and $________ (____%), respectively. The term "overhead and
other branch office distribution-related expenses" represents (a) the expenses
of operating Prusec's and Prudential Securities' branch offices in connection
with the sale of Series shares, including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) expenses of mutual fund sales coordinators to promote
the sale of Series shares and (d) other incidental expenses relating to branch
promotion of Series sales.
B-26
<PAGE>
The Distributor also receives the proceeds of contingent deferred sales
charges paid by holders of Class B shares upon certain redemptions of Class B
shares. For the fiscal year ended October 31, 1998, Prudential Securities
received approximately $________ in contingent deferred sales charges and PIMS
received approximately $________ in contingent deferred sales charges.
Class C Plan. For the fiscal year ended October 31, 1998, Prudential
Securities received payments of $________ and PIMS received payments of
$________ from the Series under the Class C Plan and spent approximately
$________ and $________ , respectively, in distributing the Class C shares of
the Series. It is estimated that of the latter amount approximately $________
(___%) and $________ (___%), respectively, was spent on printing and mailing of
prospectuses to other than current shareholders; $________ (___ %) and $________
(___%), respectively, on compensation to Prusec for commissions to its
representatives and other expenses, including an allocation on account of
overhead and other branch office distribution-related expenses incurred by it
for distribution of Class C shares; and $________ (___%) and $________ (___%),
respectively, on the aggregate of (i) payments of commissions and account
servicing fees to its financial advisers $________ (___%) and $________ (___%),
respectively, and (ii) an allocation on account of overhead and other branch
office distribution expenses $________ (___%) and $________ , respectively.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class C shares. For the
fiscal year ended October 31, 1998, Prudential Securities received contingent
deferred sales charges of approximately $________ and PIMS received contingent
deferred sales charges of approximately $________.
In addition to distribution and service fees paid by each 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 and other persons which
distribute shares of the Series (including Class Z shares). Such payments may be
calculated by reference to the net asset value of shares sold by such persons or
otherwise.
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 a Series may not exceed .75 of 1% per class. The 6.25% limitation
applies to a 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.
(c) Other Service Providers
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Subcustodians provide custodial
services for the Fund's foreign assets held outside the United States.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the transfer and dividend disbursing agent of the Fund.
PMFS is a wholly-owned subsidiary of PIFM. PMFS provides customary transfer
agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee per
shareholder account, 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 communication expenses and
other costs. For the fiscal year ended October 31, 1998, the Fund incurred fees
of approximately $________ for the services of PMFS.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New
York, 10036, serves as the Fund's independent accountants and in that capacity
audits the Fund's annual financial statements.
BROKERAGE ALLOCATION AND OTHER PRACTICES
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 commission 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 Subadvisers.
B-27
<PAGE>
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, they will not deal in over-the-counter
securities with Prudential Securities acting as market maker, and they will not
execute a negotiated trade with Prudential Securities if execution involves
Prudential Securities' acting as principal with respect to any part of a 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 Commission. This
limitation, in the opinion of each Series, will not significantly affect the
Series' ability to pursue its present investment objective. However, in the
future, in other circumstances, a 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 Fund's 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 Fund's 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 Fund, 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 each Series at least
annually a statement setting forth the total amount of all compensation retained
by Prudential Securities from transactions effected for such 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-28
<PAGE>
The table presented below shows certain information regarding the payment
of commissions by Global Series, including the amount of such commissions paid
to Prudential Securities, for the three year period ended October 31, 1998.
<TABLE>
<CAPTION>
Fiscal Years ended October 31,
------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund .......................... $ $ 2,048,227 $ 1,544,620
Total brokerage commissions paid to Prudential Securities ............. $ $ 7,900 $ 40,100
Percentage of total brokerage commissions paid to
Prudential Securities ................................................. % .4% 2.6%
Percentage of total dollar amount of transactions involving
commissions that were effected through Prudential Securities ........ % .3% 2.0%
</TABLE>
Of the total brokerage commissions, none were paid to firms which provided
research, statistical or other services to PIFM during the fiscal year ended
October 31, 1998.
The table presented below shows certain information regarding the payment
of commissions by International Stock Series, including the amount of such
commissions paid to Prudential Securities, for the following periods:
<TABLE>
<CAPTION>
Fiscal Years Ended
October 31, October 1, 1996
----------------- Through
1998 1997 October 31, 1996
---- ---- ----------------
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund .............. $ $583,271 $ 45,000
Total brokerage commissions paid to Prudential Securities . $ $ 0 $ 0
Percentage of total brokerage commissions paid to
Prudential Securities ..................................... % 0% 0%
Percentage of total dollar amount of transactions
involving commissions that were effected
through Prudential Securities ............................ % 0% 0%
</TABLE>
Of the total brokerage commissions, none were paid to firms which provided
research, statistical or other services to PIFM during the fiscal year ended
October 31, 1998.
CAPITAL STOCK AND ORGANIZATION
The Fund is authorized to issue 1 billion shares of common stock, $.01 per
share which are currently divided into two portfolios or series, Global Series
and International Stock 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 shares. Each class of shares represents an
interest in the same assets of each 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 charges and distribution and/or service fees), which may
affect performance, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement 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 "How the Fund is Managed--Distributor." In
accordance with the Fund's Articles of Incorporation, the 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
Trustees may determine. Currently, the Fund is offering four classes, designated
Class A, Class B, Class C and Class Z shares.
The Articles of Incorporation further provide that no Director, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor is
any Director, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise from
his or her own bad faith, willful misfeasance, gross negligence or reckless
disregard of his or her duties. It also provides that all third parties shall
look solely to the Fund property for satisfaction of claims arising in
connection with the affairs of the Fund. With the exceptions stated, the
Articles of Incorporation permit the Directors to provide for the
indemnification of Directors, officers, employees or agents of the Fund against
all liability in connection with the affairs of the Fund.
The Fund shall continue without limitation of time subject to the
provisions in the Articles of Incorporation concerning termination by action of
the shareholders or by the Directors by written notice to the shareholders.
Pursuant to the Articles of Incorporation, the Directors may authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios with distinct investment
objectives and policies and share
B-29
<PAGE>
purchase, redemption and net asset value procedures) with such preferences,
privileges, limitations and voting and dividend rights as the Directors may
determine. All consideration received by the Fund for shares of any additional
series, and all assets in which such consideration is invested, would belong to
that series (subject only to the rights of creditors of that series) and would
be subject to the liabilities related thereto. Pursuant to the Investment
Company Act, shareholders of any additional series of shares would normally have
to approve the adoption of any advisory contract relating to such series and of
any changes in the investment policies related thereto. The Directors have no
intention of authorizing additional series at the present time.
The Directors have the power to alter the number and the terms of office of
the Directors and they may at any time lengthen their own terms or make their
terms of unlimited duration and appoint their own successors, provided that
always at least a majority of the Directors have been elected by the
shareholders of the Fund. The voting rights of shareholders are not cumulative,
so that holders of more than 50 percent of the shares voting can, if they
choose, elect all Directors being selected, while the holders of the remaining
shares would be unable to elect any Directors.
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). Class Z shares of the Fund
are offered to a limited group of investors at net asset value without any sales
charges. See "Shareholder Guide--How to Buy Shares of the Fund" in the
Prospectus.
Each class represents an interest in the same assets of such 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 a
limited group of investors.
Purchase by Wire. For an initial purchase of shares of the Series by wire,
you must complete an application and 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 to 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., Global
Series or International Stock Series, specifying on the wire the account number
assigned by PMFS and your name and identifying the class in which you are
eligible to invest (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 Fund as of that day. See "Net Asset Value."
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.,
Global Series or International Stock Series, 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.
Issuance of Fund Shares for Securities
Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (i) reorganizations, (ii) statutory mergers, or
(iii) other acquisitions of portfolio securities that: (a) meet the investment
objective and policies of the Fund, (b) are liquid and not subject to
restrictions on resale, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market, and (d) is approved by the series' investment adviser.
B-30
<PAGE>
Specimen Price Make-up
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 5%, Class C*
shares are sold at a maximum sales charge of 1% and Class B* and Class Z shares
are sold at net asset value. Using each Series' net asset value at October 31,
1998, the maximum offering price of the Series' shares is as follows:
<TABLE>
<CAPTION>
International
Global Series Stock Series
------------- ------------
<S> <C> <C>
Class A
Net asset value and redemption price per Class A share .......... $ $
Maximum sales charge (5% of offering price) ....................
Offering price to public ........................................ $ $
Class B
Net asset value, offering price and redemption
price per Class B share* ....................................... $ $
Class C
Net asset value and redemption price per Class C share* .......... $ $
Maximum sales charge 1% of offering price)
Offering price to public ......................................... $ $
Class Z
Net asset value, offering price and redemption
price per Class Z share ....................................... $ $
</TABLE>
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "How to Buy, Sell and Exchange Shares of
the Fund--How to Sell Your Shares--Contingent Deferred Sales Charges" in
the Prospectus.
Selecting a Purchase Alternative
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 each 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.
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 shares 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 fees on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fee on
the investment, fluctuations in NAV, the effect of the return on the investment
over this period of time or redemptions when the CDSC is applicable.
Reduction and Waiver of Initial Sale Charges--Class A Shares
Class A shares may be purchased at NAV, through the Distributor or the
Transfer Agent, by the following persons: (a) officers of the Prudential Mutual
Funds (including the Fund), (b) employees of Prudential Securities, PIFM 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 of subadvisers of the Prudential Mutual Funds provided that purchases
at NAV are permitted by such person's employer, (d) Prudential, 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,
(e) registered representatives and employees of Dealers who have entered into a
selected dealer agreement with the Distributor provided that purchases at NAV
are permitted by
B-31
<PAGE>
such person's employer, (f) 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 non-money market fund sponsored by the
financial adviser's previous employer (other than a fund which imposes a
distribution or service fee of .25 of 1% or less) and (iii) the financial
adviser served as the client's broker on the previous purchase, and (g)
investors in Individual Retirement Accounts, provided the purchase is made with
the proceeds of a tax-free rollover of assets from a Benefit Plan for which
Prudential Investments serves as the recordkeeper or administrator.
For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the Dealer
facilitating the transaction that the sale qualifies for the reduced or waived
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.
Combined Purchase and Cumulative Purchase Privilege. If an investor or
eligible group of related investors purchases Class A shares of a 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 "How to Buy, Sell and
Exchange Shares of the Fund--Reducing or Waiving Class A's Initial Sales Charge"
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 Transfer Agent, the Distributor or your Dealer 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 your Dealer will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the Transfer
Agent or through Prudential Securities. The value of existing holdings for
purposes of determining the reduced sales charge is calculated using the maximum
offering price (NAV plus maximum sales charge) as of the previous business day.
See "How the Fund Values Its Shares" in the Prospectus. The Distributor or the
Transfer Agent 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. 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 group
plans, who enter into a written Letter of Intent providing for the purchase,
within a thirteen-month period, of shares of the Portfolio and shares of other
Prudential Mutual Funds (Investment Letter of Intent). Retirement and group
plans may also qualify to purchase Class A shares at NAV by entering into a
Letter of Intent whereby they agree to enroll, within a thirteen-month period, a
specified number of eligible employees or participants (Participant Letter of
Intent).
B-32
<PAGE>
For purposes of the Investment Letter of Intent, all shares of each
Portfolio 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 your Dealer will not be aggregated to determine the
reduced sales charge.
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 minimum eligible employee or participant 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 a Series 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
goal 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 thesales 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 a Portfolio 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.
Class B and Class C Shares
The offering price of Class B shares is the NAV next determined following
receipt of an order by the Transfer Agent, your Dealer or the Distributor. Class
C shares are sold at a maximum sales charge of 1%. Redemptions of Class B and
Class C shares may be subject to a CDSC. See "Contingent Deferred Sales
Charges."
The Distributor will pay, from its own resources, 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. 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 "How the Fund is Managed--Distributor." In connection
with the sale of Class C shares, the Distributor will pay, from its own
resources, 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.
Class Z Shares
Class Z shares of each Series may be purchased by certain savings,
retirement and deferred compensation plans, qualified or non-qualified under the
Internal Revenue Code of 1986, as amended (the Internal Revenue Code), provided
that (i) the plan purchases shares of the Series pursuant to an investment
management agreement with The Prudential Insurance Company of America or its
affiliates, (ii) the Series is an available investment option under the
agreement and (iii) the plan will participate in the PruArray and SmartPath
Programs (benefit plan recordkeeping services) sponsored by Prudential Mutual
Fund Services LLC. These plans include pension, profit-sharing, stock-bonus or
other employee benefit plans under Section 401 of the Internal Revenue Code and
deferred compensation and annuity plans under Sections 457 or 403(b)(7) of the
Internal Revenue Code.
Sale of Shares
You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the
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<PAGE>
Transfer Agent. See "How the Fund Values its Shares." In certain cases, however,
redemption proceeds will be reduced by the amount of any applicable CDSC, as
described below. See "Contingent Deferred Sales Charges" below. If you are
redeeming your shares through a Dealer, your Dealer must receive your sell order
before the Fund computes its NAV for that day (i.e., 4:15 P.M., New York time)
in order to receive that day's NAV. Your Dealer will be responsible for
furnishing all necessary documentation to the Distributor and may charge you for
its services in connection with redeeming shares of the Fund.
If you hold shares of a Series through Prudential Securities, you must
redeem your shares through Prudential Securities. Please contact 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, the Distributor or
your Dealer in order for the redemption request to be processed. If redemption
is requested by a corporation, partnership, trust or fiduciary, written evidence
of authority acceptable to the Transfer Agent must be submitted before such
request will be accepted. All correspondence and documents concerning
redemptions should be sent to the Fund in care of its Transfer Agent, Prudential
Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010, the Distributor or to your Dealer.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices. In the case of redemptions
from a PruArray or SmartPath Plan, if the proceeds of the redemption are
invested in another investment option of the plan in the name of the record
holder and at the same address as reflected in the Transfer Agent's records, a
signature guarantee is not required.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent, the Distributor or your Dealer
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 account at your Dealer, 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 Commission shall govern as to whether the
conditions prescribed in (b), (c) or (d) exist.
Payment for redemption of recently purchased shares will be delayed until
the Series or its Transfer Agent has been advised that the purchase check has
been honored, which may take 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 cashier's check.
Redemption in Kind. If the Trustees determine 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 Commission. Securities will be readily marketable and will be valued in the
same manner as in a regular redemption. See "How the Series Values their
Shares." If your shares are redeemed in kind, you would incur transaction costs
in converting the assets into cash. The Fund, however, has elected to be
governed by Rule 18f-1 under the Investment Company Act, under which each Series
is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1%
of the NAV of the Series during any 90-day period for any one shareholder.
Involuntary Redemption. In order to reduce expenses of each Series, the
Trustees 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 CDSC 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 NAV next
determined after the order is received, which must be within 90 days after the
date of redemption. Any CDSC paid in connection with such redemption
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<PAGE>
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 Transfer
Agent either directly or through The Distributor of your Dealer, 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
Charges" 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 of 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 CDSC will be paid to and retained by the Distributor.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
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.
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
Contingent Deferred Sales
Charge as a Percentage
Year Since Purchase of Dollars Invested or
Payment Made Redemption Proceeds
------------ -------------------
First ...................................... 5.0%
Second ..................................... 4.0%
Third ...................................... 3.0%
Fourth ..................................... 2.0%
Fifth ...................................... 1.0%
Sixth ...................................... 1.0%
Seventh .................................... 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 NAV 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 represents appreciation ($260).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4% (the applicable rate in the second year after purchase)
for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
Waiver of the Contingent Deferred Sales Charge--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 right of survivorship), at the time of death or initial determination of
disability, provided that the shares were purchased prior to death or
disability.
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<PAGE>
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 are: (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 (including a Roth IRA), a lump-sum or other distribution after
attaining age 59-1/2; or a periodic distribution based on life expectancy; (iii)
in the case of a Section 403(b) custodial account, a lump sum or other
distribution after attaining age 59-1/2 and (iv) 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 Prudential Securities or Subsidiary Prototype Benefit Plans,
the CDSC will be waived on redemptions which represent borrowings from such
plans. Shares purchased with amounts used to repay a loan from such plans on
which a CDSC was not previously deducted will thereafter be subject to a CDSC
without regard to the time such amounts were previously invested. In the case of
a 401(k) plan, the CDSC will also be waived upon the redemption of shares
purchased with amounts used to repay loans made from the account to the
participant and from which a CDSC was previously deducted.
Systematic Withdrawal Plan. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge. The
Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase, or for shares purchased prior
to March 1, 1997, on March 1 of the current year. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% is reached.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
In connection with waivers of the CDSC, 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 A copy of the Social Security
considered disabled if he or she is Administration award letter or a letter
unable to engage in any substantial from a physician on the physician's
gainful activity by reason of any letterhead stating that the shareholder
medically determinable physical or (or, in the case of a trust, the
mental impairment which can be expected grantor) is permanently disabled. The
to result in death or to be of letter must also indicate the date of
long-continued and indefinite duration. disability.
Distribution from an IRA or A copy of the distribution form from the
403(b) Custodial Account 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.
Quantity Discount--Class B Shares Purchased Prior to August 1, 1994
The CDSC is reduced on redemptions of Class B shares of Global Series
purchased prior to August 1, 1994 if, immediately after a purchase of such
shares, the aggregate cost of all Class B shares of Global Series owned by you
in a single account exceeded $500,000. For example, if you purchased $100,000 of
Class B shares of Global Series in one year and an additional $450,000 of Class
B shares in the following year with the result that the aggregate cost of your
Class B shares of Global Series following the second purchase was $550,000, the
quantity discount would be available for the second purchase of $450,000 but
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<PAGE>
not for the first purchase of $100,000. The quantity discount will be imposed at
the following rates depending on whether the aggregate value exceeded $500,000
or $1 million:
Contingent Deferred Sales Charge
as a Percentage of Dollars Invested
or Redemption Proceeds
Year Since Purchase ------------------------------------------
Payment Made $500,001 to $1 million Over $1 million
------------ ---------------------- ---------------
First ............... 3.0% 2.0%
Second .............. 2.0% 1.0%
Third ............... 1.0% 0%
Fourth and thereafter 0% 0%
You must notify the Series' Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
Waiver of Contingent Deferred Sales Charges--Class C Shares
PruArray or SmartPath Plan. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in the PruArray and SmartPath programs.
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 each 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 NAV 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.
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 would 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, Class C and Class Z
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 conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
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<PAGE>
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of a 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 the issuance of a certificate. Each 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 NAV 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 NAV per share
next determined after receipt of the check or proceeds by the Transfer Agent.
Such shareholder will receive credit for any CDSC paid in connection with the
amount of proceeds being reinvested.
Exchange Privilege
Each 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 a Series. All exchanges are
made on the basis of the relative NAV 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 a 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 (Short-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 (Class A Shares)
Prudential Tax-Free Money Fund
CLASS B and CLASS C. Shareholders of a 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.
B-38
<PAGE>
Class B and Class C shares of a 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 a 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 a Series from a money market fund during the month
(and are held in a Series at the end of the month), the entire month will
beincluded 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 a 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.
In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. Neither
the Fund nor its agents will be liable for any loss, liability or cost which
results from acting upon instructions reasonably believed to be genuine under
the foregoing procedures. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order. The Exchange Privilege is available only in states where the
exchange may legally be made.
If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.
If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates, must be returned in order for the shares to be
exchanged. See "Sale of Shares" above.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange
of shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services LLC, at the address noted above.
Special Exchange Privileges. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Purchase,
Redemption and Pricing of Fund Shares--Reduction and Waiver of Initial Sales
Charges--Class A Shares" above) and for shareholders who qualify to purchase
Class Z shares (see "Purchase, Redemption and Pricing of Fund Shares--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, Prusec or another Dealer that they are eligible for this
special exchange privilege.
Participants in any fee-based program for which a Series 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
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<PAGE>
through participation in the program) will be exchanged for Class A shares at
net asset value. Similarly, participants in PSI's 401(k) Plan for which the
Fund's Class Z shares is an available option and who wish to transfer their
Class Z shares out of the PSI 401(k) Plan following separation from service
(i.e., voluntary or involuntary termination of employment or retirement) will
have their Class Z shares exchanged for Class A shares at NAV.
Additional details about the exchange privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Series' Transfer Agent,
the Distributor or your Dealer. The exchange privilege may be modified,
terminated or suspended on 60 days' notice, and any fund, including a 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)
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 a 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 such 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
B-40
<PAGE>
additional full and fractional shares at NAV on shares held under this plan. See
"Shareholder Investment Account--Automatic Reinvestment of Dividends and/or
Distributions" above.
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 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 a Series or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in a traditional IRA account will be subject to tax when withdrawn
from the account. Distributions from a Roth IRA which meet the conditions
required under the Internal Revenue Code will not be subject to tax upon
withdrawal from the account.
Mutual Fund Programs
From time to time, a 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. A Series may waive or reduce
its 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
B-41
<PAGE>
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.
NET ASSET VALUE
Each 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. The
Directors have fixed the specific time of day for the computation of each
Series' net asset value to be as of 4:15 P.M., New York time.
Under the Investment Company Act, the Directors are responsible for
determining in good faith fair value of securities of each Series. In accordance
with procedures adopted by the 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 sale price of such
exchange system 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, or at the bid price
on such day in the absence of an asked price. 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 by the Manager in consultation with the Subadviser to
be over-the-counter, are valued on the basis of valuations provided by an
independent pricing agent or principal market maker 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 market is believed by the Manager in consultation with the Subadviser to
be over-the-counter, are valued at the mean between the last reported bid and
asked prices provided by principal market makers. 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 sale prices as of the close of trading
on the applicable commodities exchange or board of trade or, if there was no
sale on the applicable commodities exchange or board of trade on such day, at
the mean between the most recently quoted bid and asked prices on such 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 reliable market quotations are not
readily available or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation or methodology
that, in the judgment of the Manager or Subadviser (or Valuation Committee or
Board of Trustees) does not represent fair value, are valued by the Valuation
Committee or Board of Directors in consultation with the Manager or Subadviser
including its portfolio manager, traders, and its research and credit analysts,
on the basis of the following factors; cost of the security, transactions in
comparable securities, relationships among various securities and such other
factors as may be determined by the Manager, Subadviser, Board of Directors or
Valuation Committee to materially affect the value of the security. 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 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. Each
Series will compute its NAV 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 NAV. In
the event the New York Stock Exchange closes early on any business day, the NAV
of the Series' shares shall be determined at the time between such closing and
4:15 P.M., New York Time. The New York Stock Exchange is closed on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. The
NAV of Class Z shares will generally be higher than the NAV 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
NAV of the four classes will tend to converge immediately after the recording of
dividends, if any, which will differ by approximately the amount of the
distribution and/or service fee expense accrual differential among the classes.
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<PAGE>
TAXES, DIVIDENDS AND DISTRIBUTIONS
Each 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, a 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; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the value of its 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 such 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 a Series' ability
to invest in other types of assets.
As a regulated investment company, a 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)
other than long-term capital gains earned in the taxable year is distributed.
Each 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 Fund 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 a Series to the extent such 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 a Series accrues income,
expenses or other liabilities denominated in a foreign currency and the time
such 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 a 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 a Series will generally 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 a 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 a Series on
securities lapses or is terminated through a closing transaction, such as a
purchase by a Series of the option from its holder, a 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 such Series in the closing
transaction. If securities are sold by a Series pursuant to the exercise of a
call option written by it, such 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. Certain of a Series' transactions may be subject to wash sale
straddle, constructive sale and short sale provisions of the Internal Revenue
Code which may, among other things, require such Series to defer losses or
recognize gain. In addition, debt securities acquired by a Series may be subject
to original issue discount rules which may, among other things, cause such
Series to accrue income in advance of the receipt of cash with respect to
interest and market discount rules which may, among other things, cause gains to
be treated as ordinary income.
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 Objectives and Policies." These investments
generally will 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, i.e., 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 a
Series may create "straddles" for federal income tax purposes, which may result
in the deferral of losses on positions held by the Series to the extent of any
unrecognized gain on offsetting positions held by the Series and a limitation on
the deductibility of interest or other charges incurred to purchase or carry
such positions.
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 production of, passive income. If a Series acquires and
holds stock in a PFIC beyond the end of the year of its acquisition, such 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 such Series distributes the PFIC
income as a
B-43
<PAGE>
taxable dividend to its shareholders. If a 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, such 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 such Series;
those amounts would be subject to the distribution requirements applicable to
such Series described above. It may be very difficult, if not impossible, to
make this election because of certain requirements thereof. For taxable years of
each Series beginning after December 31, 1997, if a Series does not or cannot
elect to treat such a PFIC as a "qualified electing fund," such Series can make
a "mark-to-market" election, i.e., treat the shares of the PFIC as sold on the
last day of such Series' taxable year, and thus avoid the special tax and
interest charge. The gains a Series recognizes from the mark-to-market election
would be included as ordinary income in the net investment income such Series
must distribute to shareholders, notwithstanding that such Series would receive
no cash in respect of such gains. Any loss from the mark-to-market election may
be recognized to the extent of previously reported mark-to-market 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 a Series will be
eligible for the dividends-received deduction for corporate shareholders only to
the extent that a 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 a 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 a Series' shares, and will not be eligible for the
dividends-received deduction for corporations.
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.
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.
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
B-44
<PAGE>
(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 and lower
on Class A shares in relation to Class Z 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.
Distributions may be subject to additional state and local taxes.
Pennsylvania Personal Property Tax. The Fund has received a written letter
of determination from the Pennsylvania Department of Revenue that the Global
Series will be subject to the Pennsylvania foreign franchise and corporate net
income tax by reason of the Global Series' business activities in Pennsylvania.
Accordingly, it is believed the Global Series' shares are exempt from
Pennsylvania personal property taxes. The Global 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.
PERFORMANCE INFORMATION
Average Annual Total Return. A 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.
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.
Global Series: The average annual total return for Class A shares for the
one year, five year and and since inception (January 22, 1990) periods ended
October 31, 1998 was ____%, ____% and ____%, respectively. The average annual
total return with respect to the Class B shares of Global Series for the one,
five and ten year periods ended on October 31, 1998 was ____%, ____% and ____%,
respectively. The average annual total return for Class C shares for the one
year and since-inception (August 1, 1994) periods ended October 31, 1998
was____% and ____%, respectively. The average annual total return for Class Z
shares of Global Series for the one year and since-inception (March 1, 1996)
periods ended October 31, 1998 was ____% and ____%, respectively.
International Stock Series: Class A, Class B and Class C shares were first
offered in September 1996. The average annual total return for Class A, Class B
and Class C shares for the one year period ended October 31, 1998 was ____%,
____% and ____%, respectively. The average annual total return for Class A,
Class B and Class C shares for the since-inception (September 22, 1996) period
ended October 31, 1998 was ____%, ____% and ____%, respectively. The average
annual total return for Class Z shares for the one year, five year and
since-inception (November 5, 1992) periods ended October 31, 1998 was ____%,
____% and ____%, respectively.
B-45
<PAGE>
Yield. A 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 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:
YIELD = 2 [((a-b)/(cd) +1)^6-1]
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 a 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 such Series income and expenses.
Aggregate Total Return. A 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.
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.
Global Series: The aggregate total return with respect to the Class A
shares of Global Series for the one year, five year and since-inception (January
22, 1990) periods ended October 31, 1998 was ____%, ____% and ____%,
respectively. The aggregate total return with respect to the Class B shares of
Global Series for the one, five and ten year periods ended on October 31, 1998
was ____%, ____% and ____%, respectively. The aggregate total return for Class C
shares for the one year and since-inception (August 1, 1994) periods ended
October 31, 1998 was % and %, respectively. The aggregate total return for Class
Z shares of Global Series for the one year and since-inception (March 1, 1996)
periods ended October 31, 1998 was ____% and ____%, respectively.
International Stock Series: The aggregate total return with respect to the
Class A shares of International Stock Series for the one year and
since-inception (September 23, 1996) periods ended October 31, 1998 was ____%
and ____%, respectively. The aggregate total return with respect to the Class B
shares of the International Stock Series for the one year and since-inception
(September 23, 1996) periods ended on October 31, 1998 was ____% and ____%,
respectively. The aggregate total return with respect to the Class C shares of
the Series for the one year and since-inception (September 23, 1996) periods
ended on October 31, 1998 was ____% and ____%, respectively. The aggregate total
return for Class Z shares for the one year, five year and since-inception
(November 5, 1992) periods ended October 31, 1998 was ____%, ____% and ____%,
respectively.
B-46
<PAGE>
From time to time, the performance of a 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)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
PERFORMANCE COMPARISON OF DIFFERENT TYPES OF INVESTMENTS OVER THE LONG TERM
(1/1926 - 9/1997)
Common Stocks 11.0%
Long-Term Govt. Bonds 5.1%
Inflation 3.1%
- ----------
(1) Source: Ibbotson Associates, Stocks, Bonds, Bills and Inflation--1997
Yearbook (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). 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-47
<PAGE>
APPENDIX I--DESCRIPTION OF SECURITY 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
edged." 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 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.
I-1
<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.
I-2
<PAGE>
APPENDIX II--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.
II-1
<PAGE>
APPENDIX III--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.
- --------------------------------------------------------------------------------
INSERT CHART A
- --------------------------------------------------------------------------------
Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook, Ibbotson Associates,
Chicago, Illinois (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. 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 due to capital appreciation and the reinvestment of
distributions. Bond returns are attributable mainly to reinvestment of interest.
Also, stock prices are usually more volatile than bond prices over the
long-term.
Small stock returns for 1926-1980 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 measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the U.S. 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.
III-1
<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 1996. 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 either Series or of any sector in which
a 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 "Fund 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
[Insert Chart B]
(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.
III-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from December 31, 1986 through September 30, 1997. It does not represent
the performance of any Prudential Mutual Fund.
[Insert Chart C]
Source: Morgan Stanley Capital International (MSCI) based on data retrieved from
Lipper Analytical New Application (LANA) as of 9/30/97. Morgan Stanley country
indices are 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.
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 12/31/96.
[Insert Chart D]
Source: Lipper Analytical New Application (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.
Insert Chart E
Source: Morgan Stanley Capital International, September 30, 1997. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of approximately
1577 companies in 22 countries (representing approximately 60% of the aggregate
market value of the stock exchanges). This chart is for illustrative purposes
only and does not represent the allocation of any Prudential Mutual Fund.
III-3
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
Long U.S. Treasury Bond Yield in Percent (1926-1996)
(INSERT CHART F)
- ----------
Source: Stocks, Bonds, Bills, and Inflation 1997 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. The chart illustrates the historical
yield of the long-term U.S. Treasury Bond from 1926-1994. 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,
1976 through December 31, 1996. 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.
The Range of Annual Total Returns for Major Stock &
Bond Indices Over the Past 20 Years
(12/31/76-12/31/96)*
(PASTE-UP 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.
III-4
<PAGE>
APPENDIX IV--INFORMATION RELATING TO 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 "How the Fund is Managed--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,
1996 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,
1996. Principal products and services include life and health insurance, other
healthcare products, property and casualty insurance, securities brokerage,
asset management, investment advisory services and real estate brokerage.
Prudential (together with its subsidiaries) employs almost 79,000 persons
worldwide, and maintains a sales force of approximately 10,100 agents and nearly
6,500 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 nearly 40 million people
worldwide. Long one of the largest issuers of individual life insurance, the
Prudential has 25 million life insurance policies and group certificates in
force today with a face value of almost $1 trillion. Prudential has the largest
capital base ($12.1 billion) of any life insurance company in the United States.
Prudential provides auto insurance for more than 1.5 million cars and insures
more than 1.2 million homes.
Money Management. 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. As of
December 31, 1996, Prudential had more than $370 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part) manages over $211 billion in assets of
institutions and individuals. In Pensions & Investments, May 12, 1997,
Prudential was ranked third in terms of total assets under management.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers and
agents and more than 1,100 offices in the United States.(2)
Healthcare. Over two decades ago, Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.9
million Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has nearly $4 billion in assets and serves nearly 1.5 million
customers across 50 states.
Information about the Prudential Mutual Funds
As of August 31, 1998, Prudential Investments Fund Management LLC isthe
eighteenth largest mutual fund company 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 Investments, a business group 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. LLC as one of the subadviser
to Prudential Investment Portfolio, Inc. and Mercator Asset Management,
L.P. as subadviser to International Stock Series, a portfolio of Prudential
World Fund, Inc. There are multiple subadvisers for The Target Portfolio
Trust.
(2) As of December 31, 1996.
IV-1
<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 Growth 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
approximately 200 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 Funds' 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 LLC, 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.
IV-2
<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 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1997, assets held by Prudential Securities for its
clients approximated $235 billion.
During 1997, approximately 29,000 new customer accounts were opened each
month at Prudential Securities.(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.
Standard & Poor's rates Prudential Securities Incorporated BBB+, with a
"Stable Outlook."
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, 1997.
(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.
IV-3
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits.
(a). (i) 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).
(ii) 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 on June 24, 1996.
(iii)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 on June 24, 1996.
(b). 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 on May 6, 1994.
(c). (i) Specimen Certificate for shares of Common Stock of the Registrant for
Class A Shares. Incorporated by reference to Exhibit 4(a) to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A (File No.
2-89725) filed via EDGAR on January 7, 1998.
(ii) Specimen Certificate for shares of Common Stock of the Registrant for
Class B Shares. Incorporated by reference to Exhibit 4(b) to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A (File No.
2-89725) filed via EDGAR on January 7, 1998.
(iii)Speciman Certificate for shares of Common Stock of the Registrant for
Class C Shares. Incorporated by reference to Exhibit 4(c) to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A (File No.
2-89725) filed via EDGAR on January 7, 1998.
(iv) Speciman Certificate for shares of Common Stock of the Registrant for
Class Z Shares. Incorporated by reference to Exhibit 4(d) to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A (File No.
2-89725) filed via EDGAR on January 7, 1998.
(v) Instruments defining rights of shareholders. Incorporated by reference
to Exhibit 4(e) to Post-Effective Amendment No. 23 to the Registration
Statement on Form N-1A (File No. 2-89725) filed via EDGAR on January 7,
1998.
(d). (i) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc. with respect to the Global Series of the Registrant.
Incorporated by reference to Exhibit 5(a) to Post-Effective Amendment No.
23 to the Registration Statement on Form N-1A (File No. 2-89725) filed via
EDGAR on January 7, 1998.
(ii) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation with respect to the Global Series
of the Registant. Incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A
(File No. 2-89725) filed via EDGAR on January 7, 1998.
(iii)Management Agreement between Registrant and Prudential Mutual Fund
Management, Inc. with respect to the International Stock Series of the
Registrant, incorporated by reference to Exhibit 5(c) to Post Effective
Amendment No. 22 to the Registration Statement on Form N-1A (File No.
2-89725) filed via EDGAR on January 14, 1997.
(iv) Subadvisory Agreement between Mercator Asset Management, L.P. and
Prudential Mutual Fund Management, Inc. with respect to the International
Stock Series of the Registrant, incorporated by reference to Exhibit 5(d)
to Post Effective Amendment No. 22 to the Registration Statement on Form
N-1A (File No. 2-89725) filed via EDGAR on January 14, 1997.
(v) Subadvisory Agreement between the Prudential Investment Corporation and
Prudential Mutual Fund Management Inc. with respect to the International
Stock Series of the Registrant, incorporated by reference to Exhibit 5(e)
to Post Effective Amendment No. 22 to the Registration Statement on Form
N-1A (File No. 2-89725) filed via EDGAR on January 14, 1997.
(e). (i) Distribution Agreement for Shares of the Registrant, incorporated by
reference to Exhibit 6 to Post Effective Amendment No. 22 to the
Registration Statement on Form N-1A (File No. 2-89725) filed via EDGAR
on January 14, 1997.
C-1
<PAGE>
(ii) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC.*
(iii) Form of Dealer Agreement.*
(g). (i) Custodian Agreement between the Registrant and State Street Bank and
Trust Company. Incorporated by reference to Exhibit 6 to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A (File No.
2-89725) filed via EDGAR on January 7, 1998.
(ii) 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 via EDGAR on November 1,
1995.
(h). Transfer Agency and Service Agreement between the Registrant and Prudential
Mutual Fund Services, Inc. Incorporated by reference to Exhibit 9 to
Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A
(File No. 2-89725) filed via EDGAR on January 7, 1998.
(i). Opinion of Sullivan & Cromwell. Incorporated by reference to Exhibit 10 to
Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A
(File No. 2-89725) filed via EDGAR on January 7, 1998.
(m). (i) Amended and Restated Distribution and Service Plan for Class A shares
of Global Series of the Registrant; dated July 1, 1993. Incorporated by
reference to Exhibit 15(a) to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A (File No. 2-89725) filed via EDGAR on
January 7, 1998.
(ii) Amended and Restated Distribution and Service Plan for Class B shares
of Global Series of the Registrant; dated July 1, 1993. Incorporated by
reference to Exhibit 15(b) to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A (File No. 2-89725) filed via EDGAR on
January 7, 1998.
(iii)Distribution and Service Plan for Class A shares of Global Series of
the Registrant; 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).
(iv) Distribution and Service Plan for Class B shares of Global Series of
the Registrant; 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).
(v) Distribution and Service Plan for Class C shares of Global Series of
the Registrant; 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).
(vi) Distribution and Service Plan for Class A Shares of International
Stock Series of the Registrant, incorporated by reference to Exhibit 15(f)
to Post-Effective Amendment No. 21 to the Registration Statement filed on
Form N-1A via EDGAR on September 19, 1996 (File No. 2-89725).
(vii)Distribution and Service Plan for Class B Shares of International
Stock Series of the Registrant, incorporated by reference to Exhibit 15(g)
to Post-Effective Amendment No. 21 to the Registration Statement filed on
Form N-1A via EDGAR on September 19, 1996 (File No. 2-89725).
(viii) Distribution and Service Plan for Class C Shares of International
Stock Series of the Registrant, incorporated by reference to Exhibit 15(h)
to Post-Effective Amendment No. 21 to the Registration Statement filed on
Form N-1A via EDGAR on September 19, 1996 (File No. 2-89725).
(ix) Amended and Restated Distribution and Service Plan for Class A shares
of Global Series of the Registrant.*
(x) Amended and Restated Distribution and Service Plan for Class B shares
of Global Series of the Registrant.*
(xi) Amended and Restated Distribution and Service Plan for Class C shares
of Global Series of the Registrant.*
(xii) Amended and Restated Distribution and Service Plan for Class A shares
of International Stock Series of the Registrant.*
(xiii) Amended and Restated Distribution and Serive Plan for Class B shares
of International Stock Series of the Registrant.*
(xiv)Amended and Restated Distribution and Service Plan for Class C shares
of International Stock Series of the Registrant.*
(n). Financial data schedules for the fiscal year ended October 31, 1997 filed
for electronic purposes as Exhibit 27.*
(o). (i) 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 via EDGAR on November 1, 1995.
(ii) Amended Rule 18f-3 plan.*
Other Exhibits.
- ----------
* Filed herewith.
C-2
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant
None.
Item 25. Indemnification
As permitted by Section 17(h) and (i) of the Investment Company Act of
1940, as amended (the 1940 Act), and pursuant to Article VI of the Fund's
By-Laws (Exhibit (a) to the Registration Statement), officers, directors,
employees and agents of the Registrant will not be liable to the Registrant, any
stockholder, officer, director, employee, agent or other person for any action
or failure to act, except for bad faith, willful misfeasance, gross negligence
or reckless disregard of duties, and those individuals may be indemnified
against liabilities in connection with the Registrant, subject to the same
exceptions. Section 2-418 of Maryland General Corporation Law permits
indemnification of directors who acted in good faith and reasonably believed
that the conduct was in the best interests of the Registrant. As permitted by
Section 17(i) of the 1940 Act, pursuant to Section 10 of the Distribution
Agreement (Exhibit (e)(ii) to the Registration Statement), the Distributor of
the Registrant may be indemnified against liabilities which it may incur, except
liabilities arising from bad faith, gross negligence, willful misfeasance or
reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (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 (d)(i) and (iii) to the
Registration Statement) and Section 4 of the Subadvisory Agreements (Exhibits
(d)(ii), (iv) and (v) to the Registration Statement) limit the liability of
Prudential Investments Fund Management LLC (PIFM) 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 remains
in effect and is consistently applied.
Item 26. Business and other Connections of Investment Adviser
(a) Prudential Investments Fund Management LLC (PIFM)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part
A of this Post-Effective Amendment to the Registration Statement and "Investment
Advisory and Other Services--Investment Advisers" in the Statement of Additional
Information constituting Part B of this Post-Effective Amendment to the
Registration Statement.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM 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).
C-3
<PAGE>
The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077.
<TABLE>
<CAPTION>
Name and Address Position with PIFM Principal Occupations
- ---------------- ------------------ ---------------------
<S> <C> <C>
Frank W. Giordano Executive Vice Senior Vice President, Prudential Securities
President, Secretary and Incorporated; Executive Vice President, Secretary and
General Counsel General Counsel, PIFM
Robert F. Gunia Executive Vice President Vice President, Prudential Investments; Executive Vice
and Treasurer President and Treasurer, PIFM; Senior Vice President,
Prudential Securities
Neil A. McGinness Executive Vice President Executive Vice President and Director of Marketing,
Prudential Mutual Funds and Annuities (PMF&A); Executive
Vice President, PIFM
Brian Storms Officer-in-Charge, President, PMF&A; Officer-in-Charge, President, Chief
President, Chief Executive Officer and Chief Operating Officer, PIFM
Executive Officer and
Chief Operating Officer
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A; Executive Vice
President, PIFM
</TABLE>
(b) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part
A of this Post-Effective Amendment to the Registration Statement and "Investment
Advisory and Other Services--Investment Advisers" in the Statement of Additional
Information constituting Part B of this Post-Effective Amendment to the
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 4077.
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of Prudential Investments of The
President and Chief Prudential Insurance Company of America (Prudential)
Executive Officer and
Director
Jonathan M. Greene Senior Vice President and President-Investment Management of the Prudential
Director Investments of Prudential; Senior Vice President and
Director, PIC
John R. Strangfeld Vice President and President of Private Assets Management Group of
Director Prudential; Senior Vice President, Prudential; Vice
President and Director, PIC
</TABLE>
Item 27. Principal Underwriters
(a) Prudential Investment Management Services LLC is distributor for Cash
Accumulation Trust Command Government Fund, Command Money Fund, Command Tax-Free
Fund, Prudential Government Securities Trust, Prudential MoneyMart Assets, Inc.,
Prudential Institutional Liquidity Portfolio, Inc., Prudential Special Money
Market Fund, Inc., Prudential Tax-Free Money Fund, Inc., The Target Portfolio
Trust, Prudential Balanced Fund, Prudential California Municipal Fund,
Prudential Developing Markets Fund, Prudential Diversified Bond Fund, Inc.,
Prudential Distressed Securities Fund, Inc., Prudential Index Series Fund,
Prudential Emerging Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential
Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential World Fund,
Inc., Prudential Global Genesis Fund, Inc., Prudential Global Limited Maturity
Fund, Inc., Prudential Natural Resources Fund, Inc., Prudential Government
Income Fund, Inc., Prudential High Yield Fund, Inc., Prudential High Yield Total
Return Fund, Inc. Prudential International Bond Fund, Inc., Prudential
Intermediate Global Income Fund, Inc., Prudential Mid-Cap Value Fund, Prudential
Mortgage Income Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal
C-4
<PAGE>
Series Fund, Prudential National Municipals Fund, Inc., Prudential Pacific
Growth Fund, Inc., Prudential Real Estate Securities Fund, Prudential Small-Cap
Quantum Fund, Inc., Prudential Small Company Value Fund, Inc., Prudential
Structured Maturity Fund, Inc., Prudential Utility Fund, Inc., Prudential 20/20
Focus Fund, The Global Total Return Fund, Inc., Global Utility Fund, Inc., and
Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund).
(b) Information concerning the directors and officers of Prudential
Investment Management Services LLC is set forth below.
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name Underwriter Registrant
- ---- ------------- -------------
<S> <C> <C>
E. Michael Caulfield President None
Mark R. Fetting Executive Vice President None
Jean D. Hamilton Executive Vice President None
Ronald P. Joelson Executive Vice President None
Brian M. Storms Executive Vice President None
John R. Stangfeld Executive Vice President None
Mario A. Mosse Senior Vice President and Chief Operating Officer None
Scott S. Wallner Vice President, Secretary and Chief Legal Officer None
Michael G. Williamson Vice President, Comptroller and Chief Financial Officer None
C. Edward Chaplin Treasurer None
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated person of
the Registrant.
Item 28. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey 07102, the Registrant, Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, and Prudential Mutual
Fund Services LLC, Raritan Plaza One, Edison, New Jersey 08837. Documents
required by Rules 31a-1(b) (4), (5), (6), (7), (9), (10) and (11) and 31a-1(d)
and (f) will be kept at Gateway Center Three, Newark, New Jersey 07102-4077, 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 LLC.
Item 29. Management Services
Other than as set forth under the captions "How the Fund is
Managed--Manager" and "How the Fund is Managed--Distributor" in the Prospectus
and the captions "Investment Advisory and Other Services--Investment Advisers"
and "Investment Advisory and Other Services--Principal Underwriters, Distributor
and Rule 12b-1 Plans" 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 30. Undertakings
None.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Newark, and
State of New Jersey, on the 2nd day of November, 1998.
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/ Edward D. Beach Director November 2, 1998
- -----------------------------
Edward D. Beach
/s/ Stephen C. Eyre Director November 2, 1998
- -----------------------------
Stephen C. Eyre
/s/ Delayne D. Gold Director November 2, 1998
- -----------------------------
Delayne D. Gold
/s/ Robert F. Gunia Vice President November 2, 1998
- ----------------------------- and Director
Robert F. Gunia
/s/ Don G. Hoff Director November 2, 1998
- -----------------------------
Don G. Hoff
/s/ Robert E. LaBlanc Director November 2, 1998
- -----------------------------
Robert E. LaBlanc
/s/ Mendel A. Melzer Director November 2, 1998
- -----------------------------
Mendel A. Melzer
s/ Richard A. Redeker President and Director November 2, 1998
- -----------------------------
Richard A. Redeker
s/ Robin B. Smith Director November 2, 1998
- -----------------------------
Robin B. Smith
s/ Stephen Stoneburn Director November 2, 1998
- -----------------------------
Stephen Stoneburn
/s/ Nancy H. Teeters Director November 2, 1998
- -----------------------------
Nancy H. Teeters
s/ Grace C. Torres Treasurer and Principal November 2, 1998
- ----------------------------- Financial and Accounting
Grace C. Torres Officer
<PAGE>
EXHIBIT INDEX
(a) (i) 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).
(ii) 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 on June 24, 1996.
(iii)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 on June 24, 1996.
(b) 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 on May 6, 1994.
(c) (i) Specimen Certificate for shares of Common Stock of the Registrant for
Class A Shares. Incorporated by reference to Exhibit 4(a) to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A (File No.
2-89725) filed via EDGAR on January 7, 1998.
(ii) Specimen Certificate for shares of Common Stock of the Registrant for
Class B Shares. Incorporated by reference to Exhibit 4(b) to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A (File No.
2-89725) filed via EDGAR on January 7, 1998.
(iii)Specimen Certificate for Shares of Common Stock of the Registrant for
Class C Shares. Incorporated by reference to Exhibit 4(c) to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A (File No.
2-89725) filed via EDGAR on January 7, 1998.
(iv) Specimen Certificate for Shares of Common Stock of the Registrant for
Class Z Shares. Incorporated by reference to Exhibit 4(d) to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A (File No.
2-89725) filed via EDGAR on January 7, 1998.
(v) Instruments defining rights of shareholders. Incorporated by reference
to Exhibit 4(e) to Post-Effective Amendment No. 23 to the Registration
Statement on Form N-1A (File No. 2-89725) filed via EDGAR on January 7,
1998.
(d) (i) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc. with respect to the Global Series of the Registrant,
Incorporated by reference to Exhibit 5(a) to Post-Effective Amendment No.
23 to the Registration Statement on Form N-A (file No. 2-89725) filed via
EDGAR on January 7, 1998.
(ii) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation with respect to the Global Series
of the Registrant, Incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A
(file No. 2-89725) filed via EDGAR on January 7, 1998.
(iii)Management Agreement between Registrant and Prudential Mutual Fund
Management, Inc. with respect to the International Stock Series of the
Registrant, incorporated by reference to Exhibit 5(c) to Post-Effective
Amendment No. 22 to the Registration Statement on Form N-1A (File No.
2-89725) filed via EDGAR on January 14, 1997.
(iv) Subadvisory Agreement between Mercator Asset Management, L.P. and
Prudential Mutual Fund Management, Inc. with respect to the International
Stock Series of the Registrant, incorporated by reference to Exhibit 5(d)
to Post-Effective Amendment No. 22 to the Registration Statement on Form
N-1A (File No. 2-89725) filed via EDGAR on January 14, 1997.
(v) Subadvisory Agreement between The Prudential Investment Corporation and
Prudential Mutual Fund Management Inc. with respect to the International
Stock Series of the Registrant, incorporated by reference to Exhibit 5(e)
to Post-Effective Amendment No. 22 to the Registration Statement on Form
N-1A (File No. 2-89725) filed via EDGAR on January 14, 1997.
(e) (i) Distribution Agreement for Shares of the Registrant, incorporated by
reference to Exhibit 6 to Post-Effective Amendment No. 22 on Form N-1A
(File No. 2-89725) filed via EDGAR on January 14, 1997.
(ii) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC.*
(iii) Form of Dealer Agreement.*
(g) (i) Custodian Agreement between the Registrant and State Street Bank and
Trust Company. Incorporated by reference to Exhibit 8 to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A (File No.
2-89725) filed via EDGAR on January 7, 1998.
<PAGE>
(ii) 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 via EDGAR on November 1,
1995.
(h) Transfer Agency and Service Agreement between the Registrant and Prudential
Mutual Fund Services, Inc. Incorporated by reference to Exhibit 9 to
Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A
(File No. 2-89725) filed via EDGAR on January 7, 1998.
(i) Opinion of Sullivan & Cromwell. Incorporated by reference to Exhibit 10 to
Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A
(File No. 2-89725) filed via EDGAR on January 7, 1998.
(m) (i) Amended and Restated Distribution and Service Plan for Class A shares
of Global Series of the Registrant; dated July 1, 1993. Incorporated by
reference to Exhibit 15(a) to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A (File No. 2-89725) filed via EDGAR on
January 7, 1998.
(ii) Amended and Restated Distribution and Service Plan for Class B shares
of Global Series of the Registrant; dated July 1, 1993. Incorporated by
reference to Exhibit 15(b) to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A (File No. 2-89725) filed via EDGAR on
January 7, 1998.
(iii)Distribution and Service Plan for Class A shares of Global Series of
the Registrant; 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).
(iv) Distribution and Service Plan for Class B shares of Global Series of
the Registrant; 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).
(v) Distribution and Service Plan for Class C shares of Global Series of
the Registrant; 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).
(vi) Distribution and Service Plan for Class A Shares of International
Stock Series of the Registrant; incorporated by reference to Exhibit 15(f)
to Post-Effective Amendment No. 21 to the Registration Statement filed on
Form N-1A via EDGAR on September 19, 1996 (File No. 2-89725).
(vii)Distribution and Service Plan for Class B Shares of International
Stock Series of the Registrant; incorporated by reference to Exhibit 15(g)
to Post-Effective Amendment No. 21 to the Registration Statement filed on
Form N-1A via EDGAR on September 19, 1996 (File No. 2-89725).
(viii) Distribution and Service Plan for Class C Shares of International
Stock Series of the Registrant; incorporated by reference to Exhibit 15(h)
to Post-Effective Amendment No. 21 to the Registration Statement filed on
Form N-1A via EDGAR on September 19, 1996 (File No. 2-89725).
(ix) Amended and Restated Distribution and Service Plan for Class A shares
of Global Series of the Registrant.*
(x) Amended and Restated Distribution and Service Plan for Class B shares
of Global Series of the Registrant.*
(xi) Amended and Restated Distribution and Service Plan for Class C shares
of Global Series of the Registrant.*
(xii) Amended and Restated Distribution and Service Plan for Class A shares
of International Stock Series of the Registrant.*
(xiii) Amended and Restated Distribution and Service Plan for Class B
shares of International Stock Series of the Registrant.*
(xiv) Amended and Restated Distribution and Service Plan for Class C shares
of International Stock Series of the Registrant.*
(n) Financial data schedules for the fiscal year ended October 31, 1997 filed
for electronic purposes as Exhibit 27.*
(o) (i) 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 via EDGAR on November 1, 1995.
(ii) Amended Rule 18f-3 plan.*
- ----------
* Filed herewith.
PRUDENTIAL WORLD FUND, INC.
Distribution Agreement
Agreement made as of June 1, 1998, between Prudential World Fund, Inc. (the
Fund), and Prudential Investment Management Services LLC, a Delaware limited
liability company (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, the Fund has adopted 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 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.
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the Fund's 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 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. The Fund shall also have the right to suspend the sale of any or
all classes
2
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and/or series of its Shares if a banking moratorium shall have been declared by
federal or New Jersey 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 Declaration of Trust 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.
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.
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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 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 notify such states as the
Distributor and the Fund may approve of its intention to sell any appropriate
number of its Shares; 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 notification may be withheld, terminated or
withdrawn by the Fund at any time in its discretion. As provided in Section 9
hereof, the expense of notification and maintenance of notification 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 notifications.
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<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to effect sales
of 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 Securities
Exchange Act Rule 10b-10 and the rules 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 or are institutions exempt from registration under
applicable federal securities laws. 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 Rule 2830 of the Conduct Rules of the NASD. 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 Rule 2830 of the Conduct Rules
of the NASD. Payment of these amounts to the Distributor is not contingent upon
the adoption or
5
<PAGE>
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 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,
financial institutions and investment advisers 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 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 making notice
filings for 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 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 notification therein until the Fund decides to
discontinue such notification 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
6
<PAGE>
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, members 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 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,
member 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 directors who are neither
"interested persons" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and members 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 members, or any such
controlling person, such notification to be given by letter or telegram
addressed to the Fund at its principal business office. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issue and
sale of any 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 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
7
<PAGE>
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 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.
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 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
8
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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 Jersey 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 Jersey, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year above written.
Prudential Investment Management Services LLC
By: /s/ Jonathan M. Greene
------------------------------
Jonathan M. Greene
Executive Vice President
Prudential World Fund, Inc.
By: /s/ Richard A. Redeker
------------------------------
Richard A. Redeker
President
9
FORM OF
DEALER AGREEMENT
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
Prudential Investment Management Services LLC ("Distributor") and
_________________ ("Dealer") have agreed that Dealer will participate in the
distribution of shares ("Shares") of all the funds and series thereof (as they
may exist from time to time) comprising the Prudential Mutual Fund Family (each
a "Fund" and collectively the "Funds") and any classes thereof for which
Distributor now or in the future serves as principal underwriter and
distributor, subject to the terms of this Dealer Agreement ("Agreement"). Any
such additional Funds will be included in this Agreement upon Distributor's
written notification to Dealer.
1. Licensing
a. Dealer represents and warrants that it is: (i) a broker-dealer
registered with the Securities and Exchange Commission ("SEC"); (ii) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
and (iii) licensed by the appropriate regulatory agency of each state or other
jurisdiction in which Dealer will offer and sell Shares of the Funds, to the
extent necessary to perform the duties and activities contemplated by this
Agreement.
b. Dealer represents and warrants that each of its partners, directors,
officers, employees, and agents who will be utilized by Dealer with respect to
its duties and activities under this Agreement is either appropriately licensed
or exempt from such licensing requirements by the appropriate regulatory agency
of each state or other jurisdiction in which Dealer will offer and sell Shares
of the Funds.
c. Dealer agrees that: (i) termination or suspension of its registration
with the SEC; (ii) termination or suspension of its membership with the NASD; or
(iii) termination or suspension of its license to do business by any state or
other jurisdiction or federal regulatory agency shall immediately cause the
termination of this Agreement. Dealer further agrees to immediately notify
Distributor in writing of any such action or event.
d. Dealer agrees that this Agreement is in all respects subject to the
Conduct Rules of the NASD and such Conduct Rules shall control any provision to
the contrary in this Agreement.
e. Dealer agrees to be bound by and to comply with all applicable state and
federal laws and all rules and regulations promulgated thereunder generally
affecting the sale or distribution of mutual fund shares.
2. Orders
a. Dealer agrees to offer and sell Shares of the Funds (including those of
each of its classes) only at the regular public offering price applicable to
such Shares and in effect at the time of each transaction. The procedures
relating to all orders and the handling of each order
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(including the manner of computing the net asset value of Shares and the
effective time of orders received from Dealer) are subject to: (i) the terms of
the then current prospectus and statement of additional information (including
any supplements, stickers or amendments thereto) relating to each Fund, as filed
with the SEC ("Prospectus"); (ii) the new account application for each Fund, as
supplemented or amended from time to time; and (iii) Distributor's written
instructions and multiple class pricing procedures and guidelines, as provided
to Dealer from time to time. To the extent that the Prospectus contains
provisions that are inconsistent with this Agreement or any other document, the
terms of the Prospectus shall be controlling.
b. Distributor reserves the right at any time, and without notice to
Dealer, to suspend the sale of Shares or to withdraw or limit the offering of
Shares. Distributor reserves the unqualified right not to accept any specific
order for the purchase or sale of Shares.
c. In all offers and sales of the Shares to the public, Dealer is not
authorized to act as broker or agent for, or employee of, Distributor, any Fund
or any other dealer, and Dealer shall not in any manner represent to any third
party that Dealer has such authority or is acting in such capacity. Rather,
Dealer agrees that it is acting as principal for Dealer's own account or as
agent on behalf of Dealer's customers in all transactions in Shares, except as
provided in Section 3.i. hereof. Dealer acknowledges that it is solely
responsible for all suitability determinations with respect to sales of Shares
of the Funds to Dealer's customers and that Distributor has no responsibility
for the manner of Dealer's performance of, or for Dealer's acts or omissions in
connection with, the duties and activities Dealer provides under this Agreement.
d. All orders are subject to acceptance by Distributor in its sole
discretion and become effective only upon confirmation by Distributor.
e. Distributor agrees that it will accept from Dealer orders placed through
a remote terminal or otherwise electronically transmitted via the National
Securities Clearing Corporation ("NSCC") Fund/Serv Networking program, provided,
however, that appropriate documentation thereof and agreements relating thereto
are executed by both parties to this Agreement, including in particular the
standard NSCC Networking Agreement and any other related agreements between
Distributor and Dealer deemed appropriate by Distributor, and that all accounts
opened or maintained pursuant to that program will be governed by applicable
NSCC rules and procedures. Both parties further agree that, if the NSCC
Fund/Serv Networking program is used to place orders, the standard NSCC
Networking Agreement will control insofar as there is any conflict between any
provision of the Dealer Agreement and the standard NSCC Networking Agreement.
3. Duties of Dealer
a. Dealer agrees to purchase Shares only from Distributor or from Dealer's
customers.
b. Dealer agrees to enter orders for the purchase of Shares only from
Distributor and only for the purpose of covering purchase orders Dealer has
already received from its customers or for Dealer's own bona fide investment.
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c. Dealer agrees to date and time stamp all orders received by Dealer and
promptly, upon receipt of any and all orders, to transmit to Distributor all
orders received prior to the time described in the Prospectus for the
calculation of each Fund's net asset value so as to permit Distributor to
process all orders at the price next determined after receipt by Dealer, in
accordance with the Prospectus. Dealer agrees not to withhold placing orders for
Shares with Distributor so as to profit itself as a result of such inaction.
d. Dealer agrees to maintain records of all purchases and sales of Shares
made through Dealer and to furnish Distributor or regulatory authorities with
copies of such records upon request. In that regard, Dealer agrees that, unless
Dealer holds Shares as nominee for its customers or participates in the NSCC
Fund/Serv Networking program, at certain matrix levels, it will provide
Distributor with all necessary information to comply properly with all federal,
state and local reporting requirements and backup and nonresident alien
withholding requirements for its customer accounts including, without
limitation, those requirements that apply by treating Shares issued by the Funds
as readily tradable instruments. Dealer represents and agrees that all Taxpayer
Identification Numbers ("TINs") provided are certified, and that no account that
requires a certified TIN will be established without such certified TIN. With
respect to all other accounts, including Shares held by Dealer in omnibus
accounts and Shares purchased or sold through the NSCC Fund/Serv Networking
program, at certain matrix levels, Dealer agrees to perform all federal, state
and local tax reporting with respect to such accounts, including without
limitation redemptions and exchanges.
e. Dealer agrees to distribute or cause to be delivered to its customers
Prospectuses, proxy solicitation materials and related information and proxy
cards, semi-annual and annual shareholder reports and any other materials in
compliance with applicable legal requirements, except to the extent that
Distributor expressly undertakes to do so in writing.
f. Dealer agrees that if any Share is repurchased by any Fund or is
tendered for redemption within seven (7) business days after confirmation by
Distributor of the original purchase order from Dealer, Dealer shall forfeit its
right to any concession or commission received by Dealer with respect to such
Share and shall forthwith refund to Distributor the full concession allowed to
Dealer or commission paid to Dealer on the original sale. Distributor agrees to
notify Dealer of such repurchase or redemption within a reasonable time after
settlement. Termination or cancellation of this Agreement shall not relieve
Dealer from its obligation under this provision.
g. Dealer agrees that payment for Shares ordered from Distributor shall be
in Fed Funds, New York clearinghouse or other immediately available funds and
that such funds shall be received by Distributor by the earlier of: (i) the end
of the third (3rd) business day following Dealer's receipt of the customer's
order to purchase such Shares; or (ii) the settlement date established in
accordance with Rule 15c6-1 under the Securities Exchange Act of 1934, as
amended. If such payment is not received by Distributor by such date, Dealer
shall forfeit its right to any concession or commission with respect to such
order, and Distributor reserves the right, without notice, forthwith to cancel
the sale, or, at its option, to sell the Shares ordered back to the Fund, in
which case Distributor may hold Dealer responsible for any loss, including loss
of profit, suffered by Distributor resulting from Dealer's failure to make
payment as aforesaid. If a
A-3
<PAGE>
purchase is made by check, the purchase is deemed made upon conversion of the
purchase instrument into Fed Funds, New York clearinghouse or other immediately
available funds.
h. Dealer agrees that it: (i) shall assume responsibility for any loss to
the Fund caused by a correction to any order placed by Dealer that is made
subsequent to the trade date for the order, provided such order correction was
not based on any negligence on Distributor's part; and (ii) will immediately pay
such loss to the Fund upon notification.
i. Dealer agrees that in connection with orders for the purchase of Shares
on behalf of any IRAs, 401(k) plans or other retirement plan accounts, by mail,
telephone, or wire, Dealer shall act as agent for the custodian or trustee of
such plans (solely with respect to the time of receipt of the application and
payments), and Dealer shall not place such an order with Distributor until it
has received from its customer payment for such purchase and, if such purchase
represents the first contribution to such a retirement plan account, the
completed documents necessary to establish the retirement plan. Dealer agrees to
indemnify Distributor and its affiliates for any claim, loss, or liability
resulting from incorrect investment instructions received by Distributor from
Dealer.
j. Dealer agrees that it will not make any conditional orders for the
purchase or redemption of Shares and acknowledges that Distributor will not
accept conditional orders for Shares.
k. Dealer agrees that all out-of-pocket expenses incurred by it in
connection with its activities under this Agreement will be borne by Dealer.
l. Dealer agrees that it will keep in force appropriate broker's blanket
bond insurance policies covering any and all acts of Dealer's partners,
directors, officers, employees, and agents adequate to reasonably protect and
indemnify the Distributor and the Funds against any loss which any party may
suffer or incur, directly or indirectly, as a result of any action by Dealer or
Dealer's partners, directors, officers, employees, and agents.
m. Dealer agrees that it will maintain the required net capital as
specified by the rules and regulations of the SEC, NASD and other regulatory
authorities.
4. Dealer Compensation
a. On each purchase of Shares by Dealer from Distributor, the total sales
charges and dealer concessions or commissions, if any, payable to Dealer shall
be as stated on Schedule A to this Agreement, which may be amended by
Distributor from time to time. Distributor reserves the right, without prior
notice, to suspend or eliminate such dealer concession or commissions by
amendment, sticker or supplement to the then current Prospectus for each Fund.
Such sales charges and dealer concessions or commissions, are subject to
reduction under a variety of circumstances as described in each Fund's then
current Prospectus. For an investor to obtain any reduction, Distributor must be
notified at the time of the sale that the sale qualifies for the reduced sales
charge. If Dealer fails to notify Distributor of the applicability of a
reduction in the sales charge at the time the trade is placed, neither
Distributor nor any Fund will be liable for amounts necessary to reimburse any
investor for the reduction that should have been effected. Dealer acknowledges
that no sales charge or concession or
A-4
<PAGE>
commission will be paid to Dealer on the reinvestment of dividends or capital
gains reinvestment or on Shares acquired in exchange for Shares of another Fund,
or class thereof, having the same sales charge structure as the Fund, or class
thereof, from which the exchange was made, in accordance with the Prospectus.
b. In accordance with the Funds' Prospectuses, Distributor or any affiliate
may, but is not obligated to, make payments to dealers from Distributor's own
resources as compensation for certain sales that are made at net asset value
("Qualifying Sales"). If Dealer notifies Distributor of a Qualifying Sale,
Distributor may make a contingent advance payment up to the maximum amount
available for payment on the sale. If any of the Shares purchased in a
Qualifying Sale are redeemed within twelve (12) months of the end of the month
of purchase, Distributor shall be entitled to recover any advance payment
attributable to the redeemed Shares by reducing any account payable or other
monetary obligation Distributor may owe to Dealer or by making demand upon
Dealer for repayment in cash. Distributor reserves the right to withhold
advances to Dealer, if for any reason Distributor believes that it may not be
able to recover unearned advances from Dealer.
c. With respect to any Fund that offers Shares for which distribution plans
have been adopted under Rule 12b-1 under the Investment Company Act of 1940, as
amended ("Rule 12b-1 Plans"), Distributor also is authorized to pay the Dealer
continuing distribution and/or service fees, as specified in Schedule A and the
relevant Fund Prospectus, with respect to Shares of any such Fund, to the extent
that Dealer provides distribution, marketing, administrative and other services
and activities regarding the promotion of such Shares and the maintenance of
related shareholder accounts.
d. In connection with the receipt of distribution fees and/or service fees
under Rule 12b-1 Plans applicable to Shares purchased by Dealer's customers,
Distributor directs Dealer to provide enhanced shareholder services such as:
processing purchase and redemption transactions; establishing shareholder
accounts; and providing certain information and assistance with respect to the
Funds. (Redemption levels of shareholder accounts assigned to Dealer will be
considered in evaluating Dealer's continued ability to receive payments of
distribution and/or service fees.) In addition, Dealer agrees to support
Distributor's marketing efforts by, among other things, granting reasonable
requests for visits to Dealer's office by Distributor's wholesalers and
marketing representatives, including all Funds covered by a Rule 12b-1 Plan on
Dealer's "approved," "preferred" or other similar product lists, if applicable,
and otherwise providing satisfactory product, marketing and sales support.
Further, Dealer agrees to provide Distributor with supporting documentation
concerning the shareholder services provided, as Distributor may reasonably
request from time to time.
e. All Rule 12b-1 Plan distribution and/or servicing fees shall be based on
the value of Shares attributable to Dealer's customers and eligible for such
payment, and shall be calculated on the basis of and at the rates set forth in
the compensation schedule then in effect. Without prior approval by a majority
of the outstanding shares of a Fund, the aggregate annual fees paid to Dealer
pursuant to any Rule 12b-1 Plan shall not exceed the amounts stated as the
"annual maximums" in each Fund's Prospectus, which amount shall be a specified
percent of the value of the Fund's net assets held in Dealer's customers'
accounts that are eligible for payment pursuant to the Rule 12b-1 Plans
(determined in the same manner as each Fund uses to compute its net assets as
set forth in its then current Prospectus).
A-5
<PAGE>
f. The provisions of any Rule 12b-1 Plan between the Funds and the
Distributor shall control over this Agreement in the event of any inconsistency.
Each Rule 12b-1 Plan in effect on the date of this Agreement is described in the
relevant Fund's Prospectus. Dealer hereby acknowledges that all payments under
Rule 12b-1 Plans are subject to limitations contained in such Rule 12b-1 Plans
and may be varied or discontinued at any time.
5. Redemptions, Repurchases and Exchanges
a. The Prospectus for each Fund describes the provisions whereby the Fund,
under all ordinary circumstances, will redeem Shares held by shareholders on
demand. Dealer agrees that it will not make any representations to shareholders
relating to the redemption of their Shares other than the statements contained
in the Prospectus and the underlying organizational documents of the Fund, to
which it refers, and that Dealer will pay as redemption proceeds to shareholders
the net asset value, minus any applicable deferred sales charge or redemption
fee, determined after receipt of the order as discussed in the Prospectus.
b. Dealer agrees not to repurchase any Shares from its customers at a price
below that next quoted by the Fund for redemption or repurchase, i.e., at the
net asset value of such Shares, less any applicable deferred sales charge, or
redemption fee, in accordance with the Fund's Prospectus. Dealer shall, however,
be permitted to sell Shares for the account of the customer or record owner to
the Funds at the repurchase price then currently in effect for such Shares and
may charge the customer or record owner a fair service fee or commission for
handling the transaction, provided Dealer discloses the fee or commission to the
customer or record owner. Nevertheless, Dealer agrees that it shall not under
any circumstances maintain a secondary market in such repurchased Shares.
c. Dealer agrees that, with respect to a redemption order it has made, if
instructions in proper form, including any outstanding certificates, are not
received by Distributor within the time customary or the time required by law,
the redemption may be canceled forthwith without any responsibility or liability
on Distributor's part or on the part of any Fund, or Distributor, at its option,
may buy the shares redeemed on behalf of the Fund, in which latter case
Distributor may hold Dealer responsible for any loss, including loss of profit,
suffered by Distributor resulting from Distributor's failure to settle the
redemption.
d. Dealer agrees that it will comply with any restrictions and limitations
on exchanges described in each Fund's Prospectus, including any restrictions or
prohibitions relating to frequent purchases and redemptions (i.e., market
timing).
6. Multiple Classes of Shares
Distributor may, from time to time, provide Dealer with written guidelines
or standards relating to the sale or distribution of Funds offering multiple
classes of Shares with different sales charges and distribution-related
operating expenses.
7. Fund Information
A-6
<PAGE>
a. Dealer agrees that neither it nor any of its partners, directors,
officers, employees, and agents is authorized to give any information or make
any representations concerning Shares of any Fund except those contained in the
Fund's then current Prospectus or in materials provided by Distributor.
b. Distributor will supply to Dealer Prospectuses, reasonable quantities of
sales literature, sales bulletins, and additional sales information as provided
by Distributor. Dealer agrees to use only advertising or sales material relating
to the Funds that: (i) is supplied by Distributor, or (ii) conforms to the
requirements of all applicable laws or regulations of any government or
authorized agency having jurisdiction over the offering or sale of Shares of the
Funds and is approved in writing by Distributor in advance of its use. Such
approval may be withdrawn by Distributor in whole or in part upon written notice
to Dealer, and Dealer shall, upon receipt of such notice, immediately
discontinue the use of such sales literature, sales bulletins and advertising.
Dealer is not authorized to modify or translate any such materials without
Distributor's prior written consent.
8. Shares
a. Distributor acts solely as agent for the Fund and Distributor shall have
no obligation or responsibility with respect to Dealer's right to purchase or
sell Shares in any state or jurisdiction.
b. Distributor shall periodically furnish Dealer with information
identifying the states or jurisdictions in which it is believed that all
necessary notice, registration or exemptive filings for Shares have been made
under applicable securities laws such that offers and sales of Shares may be
made in such states or jurisdictions. Distributor shall have no obligation to
make such notice, registration or exemptive filings with respect to Shares in
any state or jurisdiction.
c. Dealer agrees not to transact orders for Shares in states or
jurisdictions in which it has been informed that Shares may not be sold or in
which it and its personnel are not authorized to sell Shares.
d. Distributor shall have no responsibility, under the laws regulating the
sale of securities in the United States or any foreign jurisdiction, with
respect to the qualification or status of Dealer or Dealer's personnel selling
Fund Shares. Distributor shall not, in any event, be liable or responsible for
the issue, form, validity, enforceability and value of such Shares or for any
matter in connection therewith.
e. Dealer agrees that it will make no offers or sales of Shares in any
foreign jurisdiction, except with the express written consent of Distributor.
9. Indemnification
a. Dealer agrees to indemnify, defend and hold harmless Distributor and the
Funds and their predecessors, successors, and affiliates, each current or former
partner, officer, director, employee, shareholder or agent and each person who
controls or is controlled by Distributor from any and all losses, claims,
liabilities, costs, and expenses, including attorney
A-7
<PAGE>
fees, that may be assessed against or suffered or incurred by any of them
howsoever they arise, and as they are incurred, which relate in any way to: (i)
any alleged violation of any statute or regulation (including without limitation
the securities laws and regulations of the United States or any state or foreign
country) or any alleged tort or breach of contract, related to the offer or sale
by Dealer of Shares of the Funds pursuant to this Agreement (except to the
extent that Distributor's negligence or failure to follow correct instructions
received from Dealer is the cause of such loss, claim, liability, cost or
expense); (ii) any redemption or exchange pursuant to instructions received from
Dealer or its partners, affiliates, officers, directors, employees or agents; or
(iii) the breach by Dealer of any of its representations and warranties
specified herein or the Dealer's failure to comply with the terms and conditions
of this Agreement, whether or not such action, failure, error, omission,
misconduct or breach is committed by Dealer or its predecessor, successor, or
affiliate, each current or former partner, officer, director, employee or agent
and each person who controls or is controlled by Dealer.
b. Distributor agrees to indemnify, defend and hold harmless Dealer and its
predecessors, successors and affiliates, each current or former partner,
officer, director, employee or agent, and each person who controls or is
controlled by Dealer from any and all losses, claims, liabilities, costs and
expenses, including attorney fees, that may be assessed against or suffered or
incurred by any of them which arise, and which relate to any untrue statement of
or omission to state a material fact contained in the Prospectus or any written
sales literature or other marketing materials provided by the Distributor to the
Dealer, required to be stated therein or necessary to make the statements
therein not misleading.
c. Dealer agrees to notify Distributor, within a reasonable time, of any
claim or complaint or any enforcement action or other proceeding with respect to
Shares offered hereunder against Dealer or its partners, affiliates, officers,
directors, employees or agents, or any person who controls Dealer, within the
meaning of Section 15 of the Securities Act of 1933, as amended.
d. Dealer further agrees promptly to send Distributor copies of (i) any
report filed pursuant to NASD Conduct Rule 3070, including, without limitation
quarterly reports filed pursuant to Rule 3070(c), (ii) reports filed with any
other self-regulatory organization in lieu of Rule 3070 reports pursuant to Rule
3070(e) and (iii) amendments to Dealer's Form BD.
e. Each party's obligations under these indemnification provisions shall
survive any termination of this Agreement.
10. Termination; Amendment
a. In addition to the automatic termination of this Agreement specified in
Section 1.c. of this Agreement, each party to this Agreement may unilaterally
cancel its participation in this Agreement by giving thirty (30) days prior
written notice to the other party. In addition, each party to this Agreement may
terminate this Agreement immediately by giving written notice to the other party
of that other party's material breach of this Agreement. Such notice shall be
deemed to have been given and to be effective on the date on which it was either
delivered personally to the other party or any officer or member thereof, or was
mailed postpaid or delivered to a telegraph office for transmission to the other
party's designated person at the addresses shown herein or in the most recent
NASD Manual.
A-8
<PAGE>
b. This Agreement shall terminate immediately upon the appointment of a
Trustee under the Securities Investor Protection Act or any other act of
insolvency by Dealer.
c. The termination of this Agreement by any of the foregoing means shall
have no effect upon transactions entered into prior to the effective date of
termination and shall not relieve Dealer of its obligations, duties and
indemnities specified in this Agreement. A trade placed by Dealer subsequent to
its voluntary termination of this Agreement will not serve to reinstate the
Agreement. Reinstatement, except in the case of a temporary suspension of
Dealer, will only be effective upon written notification by Distributor.
d. This Agreement is not assignable or transferable and will terminate
automatically in the event of its "assignment," as defined in the Investment
Company Act of 1940, as amended and the rules, regulations and interpretations
thereunder. The Distributor may, however, transfer any of its duties under this
Agreement to any entity that controls or is under common control with
Distributor.
e. This Agreement may be amended by Distributor at any time by written
notice to Dealer. Dealer's placing of an order or accepting payment of any kind
after the effective date and receipt of notice of such amendment shall
constitute Dealer's acceptance of such amendment.
11. Distributor's Representations and Warranties
Distributor represents and warrants that:
a. It is a limited liability company duly organized and existing and in
good standing under the laws of the state of Delaware and is duly registered or
exempt from registration as a broker-dealer in all states and jurisdictions in
which it provides services as principal underwriter and distributor for the
Funds.
b. It is a member in good standing of the NASD.
c. It is empowered under applicable laws and by Distributor's charter and
by-laws to enter into this Agreement and perform all activities and services of
the Distributor provided for herein and that there are no impediments, prior or
existing, regulatory, self-regulatory, administrative, civil or criminal matters
affecting Distributor's ability to perform under this Agreement.
d. All requisite actions have been taken to authorize Distributor to enter
into and perform this Agreement.
12. Additional Dealer Representations and Warranties
In addition to the representations and warranties found elsewhere in this
Agreement, Dealer represents and warrants that:
A-9
<PAGE>
a. It is duly organized and existing and in good standing under the laws of
the state, commonwealth or other jurisdiction in which Dealer is organized and
that Dealer will not offer Shares of any Fund for sale in any state or
jurisdiction where such Shares may not be legally sold or where Dealer is not
qualified to act as a broker-dealer.
b. It is empowered under applicable laws and by Dealer's organizational
documents to enter into this Agreement and perform all activities and services
of the Dealer provided for herein and that there are no impediments, prior or
existing, regulatory, self-regulatory, administrative, civil or criminal matters
affecting Dealer's ability to perform under this Agreement.
c. All requisite actions have been taken to authorize Dealer to enter into
and perform this Agreement.
d. It is not, at the time of the execution of this Agreement, subject to
any enforcement or other proceeding with respect to its activities under state
or federal securities laws, rules or regulations.
13. Setoff; Dispute Resolution; Governing Law
a. Should any of Dealer's concession accounts with Distributor have a debit
balance, Distributor shall be permitted to offset and recover the amount owed
from any other account Dealer has with Distributor, without notice or demand to
Dealer.
b. In the event of a dispute concerning any provision of this Agreement,
either party may require the dispute to be submitted to binding arbitration
under the commercial arbitration rules and procedures of the NASD. The parties
agree that, to the extent permitted under such arbitration rules and procedures,
the arbitrators selected shall be from the securities industry. Judgment upon
any arbitration award may be entered by any state or federal court having
jurisdiction.
c. This Agreement shall be governed and construed in accordance with the
laws of the state of New Jersey, not including any provision which would require
the general application of the law of another jurisdiction.
14. Investigations and Proceedings
The parties to this Agreement agree to cooperate fully in any securities
regulatory investigation or proceeding or judicial proceeding with respect to
each's activities under this Agreement and promptly to notify the other party of
any such investigation or proceeding.
15. Captions
All captions used in this Agreement are for convenience only, are not a
party hereof, and are not to be used in construing or interpreting any aspect
hereof.
16. Entire Understanding
A-10
<PAGE>
This Agreement contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and supersedes all previous
agreements. This Agreement shall be binding upon the parties hereto when signed
by Dealer and accepted by Distributor.
A-11
<PAGE>
17. Severability
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law. If, however, any
provision of this Agreement is held under applicable law to be invalid, illegal,
or unenforceable in any respect, such provision shall be ineffective only to the
extent of such invalidity, and the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected or impaired in any
way.
18. Entire Agreement
This Agreement contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and supersedes all previous
agreements and/or understandings of the parties. This Agreement shall be binding
upon the parties hereto when signed by Dealer and accepted by Distributor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year set forth below.
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
By: ________________________________
Name: ________________________________
Title: ________________________________
Date: ________________________________
DEALER: _______________________________
By: ___________________________________
(Signature)
Name: ______________________________
Title: ______________________________
Address: ______________________________
______________________________
______________________________
Telephone: ___________________________
NASD CRD # __________________________
Prudential Dealer # __________________
(Internal Use Only)
Date: _________________________________
A-12
PRUDENTIAL WORLD FUND, INC.
(Global Series)
Amended and Restated
Distribution and Service Plan
(Class A Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential World Fund, Inc. (the Fund) and by Prudential Investment
Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors of the Fund, including a majority of
those Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption and continuation 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
1
<PAGE>
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
Distributor's 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 Prudential
Securities Incorporated (Prudential Securities) and 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. 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
2
<PAGE>
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 Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions and trailer commissions paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
Distribution Activities, including central office and branch expenses;
3
<PAGE>
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class A shares of
the Fund, including sales commissions, 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 financial institutions (other than
Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class A shares
of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as the
Board shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and financial institutions
which have selected dealer agreements with the Distributor.
4
<PAGE>
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time, without the payment of any
penalty, by a majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding voting securities (as defined in the Investment Company Act) of
the Class A shares of the Fund, or by the Distributor, on sixty (60) days'
written notice to the other party. This Plan shall automatically terminate in
the event of its assignment.
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
5
<PAGE>
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 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: June 1, 1998
6
PRUDENTIAL WORLD FUND, INC.
(Global Series)
Amended and Restated
Distribution and Service Plan
(Class B Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential World Fund, Inc. (the Fund) and by Prudential Investment
Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class B shares issued by the Fund
(Class B shares). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class B shares.
A majority of the Board of Directors of the Fund, including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Directors), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption and
continuation of this Plan will benefit the Fund and its shareholders.
Expenditures under this Plan by the Fund for Distribution Activities (defined
below) are primarily intended to result in the sale of Class B shares of the
Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under
1
<PAGE>
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
Distributor's 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 Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class B
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class B
shares of the Fund
2
<PAGE>
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 Rule 2830 of the NASD Conduct Rules.
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. Payments hereunder will be applied to
distribution expenses in the order in which they are incurred, unless otherwise
determined by 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
3
<PAGE>
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or 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 Prudential Securities or 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 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
4
<PAGE>
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, without the payment of any
penalty, by a majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding voting securities (as defined in the Investment Company Act) of
the Class B shares of the Fund, or by the Distributor, on sixty (60) days'
written notice to the other party. This Plan shall automatically terminate in
the event of its assignment.
7. Amendments
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Fund. All
material amendments
5
<PAGE>
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: June 1, 1998
6
PRUDENTIAL WORLD FUND, INC.
(Global Series)
Amended and Restated
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 Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential World Fund, Inc. (the Fund) and by Prudential Investment
Management Services LLC, 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 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 and
continuation 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 C shares of the
Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under
1
<PAGE>
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
Distributor's 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 Prudential
Securities Incorporated (Prudential Securities) and 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. 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
2
<PAGE>
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 Rule 2830 of the NASD Conduct Rules.
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 classes will be subject
to the review of the Board of Directors. Payments hereunder will be applied to
distribution expenses in the order in which they are incurred, unless otherwise
determined by 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
3
<PAGE>
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or 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 Prudential Securities or 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 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
4
<PAGE>
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, without the payment of any
penalty, by a majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding voting securities (as defined in the Investment Company Act) of
the Class C shares of the Fund, or by the Distributor, on sixty (60) days'
written notice to the other party. This Plan shall automatically terminate in
the event of its assignment.
7. Amendments
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class C shares of the Fund. All
material amendments
5
<PAGE>
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: June 1, 1998
6
PRUDENTIAL WORLD FUND, INC.
(International Stock Series)
Amended and Restated
Distribution and Service Plan
(Class A Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential World Fund, Inc. (the Fund) and by Prudential Investment
Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors of the Fund, including a majority of
those Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption and continuation 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
1
<PAGE>
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
Distributor's 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 Prudential
Securities Incorporated (Prudential Securities) and 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. 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
2
<PAGE>
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 Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions and trailer commissions paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
Distribution Activities, including central office and branch expenses;
3
<PAGE>
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class A shares of
the Fund, including sales commissions, 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 financial institutions (other than
Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class A shares
of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as the
Board shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and financial institutions
which have selected dealer agreements with the Distributor.
4
<PAGE>
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time, without the payment of any
penalty, by a majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding voting securities (as defined in the Investment Company Act) of
the Class A shares of the Fund, or by the Distributor, on sixty (60) days'
written notice to the other party. This Plan shall automatically terminate in
the event of its assignment.
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
5
<PAGE>
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 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: June 1, 1998
6
PRUDENTIAL WORLD FUND, INC.
(International Stock Series)
Amended and Restated
Distribution and Service Plan
(Class B Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential World Fund, Inc. (the Fund) and by Prudential Investment
Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class B shares issued by the Fund
(Class B shares). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class B shares.
A majority of the Board of Directors of the Fund, including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Directors), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption and
continuation of this Plan will benefit the Fund and its shareholders.
Expenditures under this Plan by the Fund for Distribution Activities (defined
below) are primarily intended to result in the sale of Class B shares of the
Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under
1
<PAGE>
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
Distributor's 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 Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class B
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class B
shares of the Fund
2
<PAGE>
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 Rule 2830 of the NASD Conduct Rules.
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. Payments hereunder will be applied to
distribution expenses in the order in which they are incurred, unless otherwise
determined by 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
3
<PAGE>
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or 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 Prudential Securities or 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 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
4
<PAGE>
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, without the payment of any
penalty, by a majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding voting securities (as defined in the Investment Company Act) of
the Class B shares of the Fund, or by the Distributor, on sixty (60) days'
written notice to the other party. This Plan shall automatically terminate in
the event of its assignment.
7. Amendments
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Fund. All
material amendments
5
<PAGE>
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: June 1, 1998
6
PRUDENTIAL WORLD FUND, INC.
(International Stock Series)
Amended and Restated
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 Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential World Fund, Inc. (the Fund) and by Prudential Investment
Management Services LLC, 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 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 and
continuation 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 C shares of the
Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under
1
<PAGE>
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
Distributor's 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 Prudential
Securities Incorporated (Prudential Securities) and 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. 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
2
<PAGE>
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 Rule 2830 of the NASD Conduct Rules.
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 classes will be subject
to the review of the Board of Directors. Payments hereunder will be applied to
distribution expenses in the order in which they are incurred, unless otherwise
determined by 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
3
<PAGE>
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or 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 Prudential Securities or 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 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
4
<PAGE>
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, without the payment of any
penalty, by a majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding voting securities (as defined in the Investment Company Act) of
the Class C shares of the Fund, or by the Distributor, on sixty (60) days'
written notice to the other party. This Plan shall automatically terminate in
the event of its assignment.
7. Amendments
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class C shares of the Fund. All
material amendments
5
<PAGE>
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: June 1, 1998
6
PRUDENTIAL WORLD FUND, INC.
(the Fund)
AMENDED AND RESTATED PLAN PURSUANT TO RULE 18F-3
The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares in the Fund. Any
material amendment to this plan is subject to prior approval of the Board of
Directors, including a majority of the independent Directors.
CLASS CHARACTERISTICS
CLASS A SHARES: Class A shares are subject to a high initial sales charge and a
distribution and/or service fee pursuant to Rule 12b-1 under
the 1940 Act (Rule 12b-1 fee) not to exceed .30 of 1% per annum
of the average daily net assets of the class. The initial sales
charge is waived or reduced for certain eligible investors.
CLASS B SHARES: Class B shares are not subject to an initial sales charge but
are subject to a high contingent deferred sales charge
(declining from 5% to zero over a six-year period) which will
be imposed on certain redemptions and a Rule 12b-1 fee not to
exceed 1% per annum of the average daily net assets of the
class. The contingent deferred sales charge is waived for
certain eligible investors. Class B shares automatically
convert to Class A shares approximately seven years after
purchase.
CLASS C SHARES: Class C shares issued before November 2, 1998 are not subject
to an initial sales charge but are subject to a 1% contingent
deferred sales charge which will be imposed on certain
redemptions within the first 12 months after purchase and a
Rule 12b-1 fee not to exceed 1% per annum of the average daily
net assets of the class. Class C shares issued on or after
November 2, 1998 are subject to a low initial sales charge and
a 1% contingent deferred sales charge which will be imposed on
certain redemptions within the first 18 months after purchase
and a Rule 12b-1 fee not to exceed 1% per annum of the average
daily net assets of the class.
Class Z SHARES: Class Z shares are not subject to either an initial or
contingent deferred sales charge, nor are they subject to any
Rule 12b-1 fee.
<PAGE>
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses, and expenses
not allocated to a particular class of the Fund will be allocated to each
class of the Fund on the basis of the net asset value of that class in
relation to the net asset value of the Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by the Fund to each class of shares,
to the extent paid, will be paid on the same day and at the same time, and
will be determined in the same manner and will be in the same amount,
except that the amount of the dividends and other distributions declared
and paid by a particular class of the Fund may be different from that paid
by another class of the Fund because of Rule 12b-1 fees and other expenses
borne exclusively by that class.
EXCHANGE PRIVILEGE
Holders of Class A Shares, Class B Shares, Class C Shares and Class Z
Shares shall have such exchange privileges as set forth in the Fund's
current prospectus. Exchange privileges may vary among classes and among
holders of a Class.
CONVERSION FEATURES
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.
GENERAL
A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class.
B. On an ongoing basis, the Directors, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund
for the existence of any material conflicts among the interests of its
several classes. The Directors, including a majority of the independent
Directors, shall take such action as is reasonably necessary to eliminate
any such conflicts that may develop.
2
<PAGE>
Prudential Investments Fund Management LLC, the Fund's Manager, will be
responsible for reporting any potential or existing conflicts to the
Directors.
Approved: August 25, 1998
Effective: November 2, 1998
3
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<SHARES-COMMON-PRIOR> 37,523,227
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<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 8,828,942
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<DISTRIBUTIONS-OF-GAINS> (46,182,319)
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<PER-SHARE-NAV-END> 17.27
<EXPENSE-RATIO> 1.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 647,743,284
<DIVIDEND-INCOME> 8,828,942
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<GROSS-EXPENSE> 11,657,443
<AVERAGE-NET-ASSETS> 350,518,000
<PER-SHARE-NAV-BEGIN> 15.96
<PER-SHARE-NII> 1.76
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<EXPENSE-RATIO> 2.07
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<INTEREST-INCOME> 545,710
<OTHER-INCOME> 0
<EXPENSES-NET> 11,657,443
<NET-INVESTMENT-INCOME> (2,282,791)
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<PER-SHARE-DISTRIBUTIONS> (1)
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 329,381,383
<INVESTMENTS-AT-VALUE> 368,264,214
<RECEIVABLES> 7,071,785
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<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 1,063,098
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 800,314
<TOTAL-LIABILITIES> 1,863,412
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 323,781,234
<SHARES-COMMON-STOCK> 20,489,191
<SHARES-COMMON-PRIOR> 11,481,940
<ACCUMULATED-NII-CURRENT> 2,651,778
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 373,668,664
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<INTEREST-INCOME> 1,504,747
<OTHER-INCOME> 0
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