As filed with the Securities and Exchange Commission on January 7, 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. 23 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 24 [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)
-----------
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):
[x] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
-----------
Title of Securities Being Registered ........................
Shares of Common Stock, $.01 Par Value.
================================================================================
<PAGE>
<TABLE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------ --------
PART A
<S> <C> <C>
Item 1. Cover Page ..................................................... Cover Page
Item 2. Synopsis ....................................................... Series Expenses; Series Highlights
Item 3. Condensed Financial Information ................................ Series Expenses; Financial Highlights;
How the Fund Calculates Performance
Item 4. General Description of Registrant .............................. Cover Page; Series Highlights; How the Fund
Invests; General Information
Item 5. Management of Fund ............................................. Financial Highlights; How the Fund is Managed
Item 5A. Management's Discussion of Fund Performance .................... Financial Highlights
Item 6. Capital Stock and Other Securities ............................. Taxes, Dividends and Distributions; General
Information
Item 7. Purchase of Securities Being Offered ........................... Shareholder Guide; How the Fund Values Its
Shares
Item 8. Redemption or Repurchase ....................................... Shareholder Guide; How the Fund Values Its
Shares
Item 9. Pending Legal Proceedings ...................................... Not Applicable
PART B
Item 10. Cover Page ..................................................... Cover Page
Item 11. Table of Contents .............................................. Table of Contents
Item 12. General Information and History ................................ Not Applicable
Item 13. Investment Objectives and Policies ............................. Investment Objectives and Policies;
Investment Restrictions
Item 14. Management of the Fund ......................................... Directors and Officers; Manager; Distributor
Item 15. Control Persons and Principal Holders of Securities ............ Directors and Officers
Item 16. Investment Advisory and Other Services ......................... Manager; Distributor; Custodian, Transfer and
Dividend Disbursing Agent and Independent
Accountants
Item 17. Brokerage Allocation and Other Practices ....................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities ............................. Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Offered ... Purchase and Redemption of Series Shares;
Shareholder Investment Account; Net Asset Value
Item 20. Tax Status ..................................................... Taxes, Dividends and Distributions
Item 21. Underwriters ................................................... Distributor
Item 22. Calculation of Performance Data ................................ Performance Information
Item 23. Financial Statements............................................ Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C
to this Post-Effective Amendment to the Registration Statement.
</TABLE>
<PAGE>
PRUDENTIAL WORLD FUND, INC.
o GLOBAL SERIES
o INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
PROSPECTUS DATED JANUARY 7, 1998
- --------------------------------------------------------------------------------
Prudential World Fund, Inc. (the Fund) is an open-end, diversified management
investment company. The Fund consists of two series: Global Series and
International Stock Series (individually, a Series and collectively, the
Series).
THE GLOBAL SERIES' INVESTMENT OBJECTIVE IS TO SEEK LONG-TERM GROWTH OF CAPITAL,
WITH INCOME AS A SECONDARY OBJECTIVE. The Global Series seeks 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 common stock and equivalents (such as convertible debt
securities and warrants), preferred stock, bonds and other debt obligations,
including money market instruments, of foreign and domestic companies and
governments, governmental agencies and international organizations.
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 seeks 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.
Each Series also may engage in derivative transactions, such as those involving
stock options, options on debt securities, options on stock indices, and foreign
currency futures contracts and options thereon so as to hedge its portfolio and
to attempt to enhance return. There can be no assurance that either Series'
investment objective will be achieved. See "How the Fund Invests--Investment
Objectives and Policies." The Fund's address is Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, and its telephone number is
(800) 225-1852.
Either Series is not intended to constitute a complete investment program.
Because of its objective and policies, including its international orientation,
each Series may be considered of a speculative nature and subject to greater
investment risks than are assumed by certain other investment companies which
invest solely in domestic securities. See "How the Fund Invests--Risks and
Special Considerations."
This Prospectus sets forth concisely the information about each Series that a
prospective investor should know before investing. Additional information about
each Series has been filed with the Securities and Exchange Commission (the
Commission) in a Statement of Additional Information, dated January 7, 1998,
which information is incorporated herein by reference (is legally considered a
part of this Prospectus) and is available without charge upon request to the
Fund at the address or telephone number noted above. The Commission maintains a
web site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information regarding
the Fund.
- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
SERIES HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
- --------------------------------------------------------------------------------
WHAT ARE THE GLOBAL SERIES AND THE INTERNATIONAL STOCK SERIES?
Each Series is a mutual fund. A mutual fund pools the resources of
investors by selling its shares to the public and investing the proceeds of such
sale in a portfolio of securities designed to achieve its investment objective.
Technically, each Series is a series of Prudential World Fund, Inc., an
open-end, diversified management investment company.
WHAT ARE EACH SERIES' INVESTMENT OBJECTIVE?
GLOBAL SERIES: Global Series' investment objective is to seek long-term
growth of capital with income as a secondary objective. Global Series seeks to
achieve this objective through investment in a diversified portfolio of
marketable securities of U.S. and non-U.S. issuers. There can be no assurance
that Global Series' investment objective will be achieved. See "How the Fund
Invests--Investment Objectives and Policies" at page 15.
INTERNATIONAL STOCK SERIES: 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' seeks to achieve this objective primarily through investment in a
diversified portfolio of equity securities of foreign issuers. There can be no
assurance that International Stock Series' investment objective will be
achieved. See "How the Fund Invests--Investment Objectives and Policies" at
page 16.
WHAT ARE EACH SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?
GLOBAL SERIES: While the Global Series is not required to maintain any
particular geographic or currency mix of its investments, under normal
circumstances, Global Series intends to maintain investments in a minimum of
four countries, one of which may be the United States. Global Series may, from
time to time, invest up to 65% of its assets in companies and governments
located in any one country. Global Series may invest in all types of equity-
related securities and debt obligations, including money market instruments, of
foreign and domestic companies, governments, government agencies and
international organizations. See "How the Fund Invests--Investment Objectives
and Policies" at page 15. Investing in securities of foreign companies and
countries involves certain considerations and risks not typically associated
with investments in U.S. Government securities and securities of domestic
companies. See "How the Fund Invests--Risks and Special Considerations" at page
24. Global Series may also engage in hedging and return enhancement strategies,
including derivatives, the purchase and sale of put and call options, foreign
currency forward contracts, options and futures transactions and related
short-term trading. See "How the Fund Invests--Hedging and Return Enhancement
Strategies" at page 18. As with an investment in any mutual fund, an investment
in this Series can decrease in value and you can lose money.
INTERNATIONAL STOCK SERIES: While the International Stock Series' is not
required to maintain any particular geographic or currency mix of its
investments, under normal circumstances, International Stock Series' intends to
invest at least 65% 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. See "How the Fund Invests--Investment Objectives and
Policies" at page 16. Investing in securities of foreign companies and countries
involves certain considerations and risks not typically associated with
investments in U.S. Government securities and securities of domestic companies.
See "How the Fund Invests--Risks and Special Considerations" at page 24.
International Stock Series may also engage in hedging and return enhancement
strategies, including derivatives, the purchase and sale of put and call
options, foreign currency forward contracts, options and futures transactions
and related short-term trading. See "How the Fund Invests--Hedging and Return
Enhancement Strategies" at page 18. As with an investment in any mutual fund, an
investment in this Series can decrease in value and you can lose money.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
WHO MANAGES THE SERIES?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of .75
of 1% of Global Series average daily net assets and 1% of International Stock
Series average daily net assets. As of November 30, 1997, PIFM served as manager
or administrator to 64 investment companies, including 42 mutual funds, with
aggregate assets of approximately $60 billion. See "How the Fund is
Managed--Manager" at page 25. The Prudential Investment Corporation, which does
business under the name of Prudential Investments (PI, the Subadviser or the
Investment Adviser), furnishes investment advisory services in connection with
the management of Global Series under a Subadvisory Agreement with PIFM.
Mercator Asset Management, L.P. (Mercator or, together with PI, the Subadvisers
and individually, a Subadviser) furnishes investment advisory services in
connection with the management of International Stock Series under a Subadvisory
Agreement with PIFM. See "How the Fund is Managed--Subadvisers" at page 25.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or the
Distributor), a major securities underwriter and securities and commodities
broker, acts as the Distributor of the Fund's Class A, Class B, Class C and
Class Z shares and is paid an annual distribution and service fee which is
currently being charged at the rate of .25 of 1% of the average daily net assets
of the Class A shares, and at the annual rate of up to 1% of the average daily
net assets of each of the Class B and Class C shares. The Distributor incurs the
expense of distributing each Series' Class Z shares under a Distribution
Agreement with the Fund, none of which is reimbursed or paid for by the Series.
See "How the Fund is Managed--Distributor" at page 27.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. There is no minimum initial investment
requirement for investors who qualify to purchase Class Z shares. The minimum
subsequent investment is $100 for all classes, except for Class Z shares for
which there is no such minimum. There is no minimum investment requirement for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors and for purchases made in connection with the "Best Minds"
program sponsored by the Distributor. For purchases made through the Automatic
Savings Accumulation Plan the minimum initial and subsequent investment is $50.
See "Shareholder Guide--How to Buy Shares of the Fund" at page 33 and
"Shareholder Guide--Shareholder Services" at page 43.
HOW DO I PURCHASE SHARES?
You may purchase shares of a Series through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from each Series, through its
transfer agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent)
at the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities plus a sales
charge which may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). Class Z shares are
offered to a limited group of investors at net asset value without any sales
charge. See "How the Fund Values Its Shares" at page 29 and "Shareholder
Guide--How to Buy Shares of the Fund" at page 33.
WHAT ARE MY PURCHASE ALTERNATIVES?
Each Series offers four classes of shares:
o Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
o Class B Shares: Sold without an initial sales charge but are subject to
a contingent deferred sales charge or CDSC (declining
from 5% to zero of the lower of the amount invested or
the redemption proceeds) which will be imposed on
certain redemptions made within six years of purchase.
Although Class B shares are subject to higher ongoing
distribution-related expenses than Class A shares, Class
B shares will automatically convert to Class A shares
(which are subject to lower ongoing distribution-related
expenses) approximately seven years after purchase.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
o Class C Shares: Sold without an initial sales charge and, for
one year after purchase, are subject to a 1% CDSC on
redemptions. Like Class B shares, Class C shares are
subject to higher ongoing distribution-related expenses
than Class A shares but do not convert to another class.
o Class Z Shares: Sold without either an initial sales charge or CDSC to a
limited group of investors. Class Z shares are not
subject to any ongoing service or distribution-related
expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 34.
HOW DO I SELL MY SHARES?
You may redeem shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 37. Participants
in programs sponsored by Prudential Retirement Services should contact their
client representative for more information about selling their Class Z shares.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
Each Series expects to pay dividends of net investment income and make
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the
respective Series at NAV without a sales charge unless you request that they be
paid to you in cash. See "Taxes, Dividends and Distributions" at page 30.
- --------------------------------------------------------------------------------
4
<PAGE>
<TABLE>
FUND EXPENSES--GLOBAL SERIES
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SHAREHOLDER TRANSACTIONS EXPENSES+ CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............... 5% None None None
Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends ................... None None None None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds,
whichever is lower) ............................... None 5% during the first 1% on redemptions None
year, decreasing by made within one
1% annually to 1% in year of purchase
the fifth and sixth
years and 0% the
seventh year*
Redemption Fees ..................................... None None None None
Exchange Fees ....................................... None None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Management Fees ..................................... .75% .75% .75% .75%
12b-1 Fees (after reduction) ........................ .25%++ .93% 1.00% None
Other Expenses ...................................... .39% .39% .39% .39%
---- ---- ---- ----
Total Fund Operating Expenses (after reduction) ..... 1.39% 2.07% 2.14% 1.14%
==== ==== ==== ====
<CAPTION>
1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
---- ----- ----- -----
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<S> <C> <C> <C> <C>
Class A ........................................................................... $63 $92 $122 $209
Class B ........................................................................... $71 $95 $121 $214
Class C ........................................................................... $32 $67 $115 $247
Class Z ........................................................................... $12 $36 $ 63 $139
You would pay the following expenses on the same investment, assuming no redemption:
Class A ........................................................................... $63 $92 $122 $209
Class B ........................................................................... $21 $65 $111 $214
Class C ........................................................................... $22 $67 $115 $247
Class Z ........................................................................... $12 $36 $ 63 $139
The above example is based on data for the Global Series' fiscal year ended
October 31, 1997. The example should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Global Series will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Fund is Managed". "Other Expenses" includes operating
expenses of the Global Series such as Directors' and professional fees,
registration fees, reports to shareholders, transfer agency and custodian fees
and franchise taxes.
<FN>
- --------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion
Feature--Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Global Series may not exceed 6.25% of total
gross sales, subject to certain exclusions. This 6.25% limitation is
imposed on the Global Series rather than on a per shareholder basis.
Therefore long-term shareholders of the Global Series may pay more in total
sales charges than the economic equivalent of 6.25% of such shareholders'
investment in such shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Global
Series may pay up to an annual rate of .30 of 1% of the average daily net
assets of the Class A Shares, the Distributor has agreed to limit its
distribution fees with respect to Class A shares of the Fund to .25 of 1%
of the average daily net assets value of the Class A shares for the fiscal
year ending October 31, 1998. Total operating expenses without such
limitation would be 1.44%. See "How the Fund is Managed--Distributor."
</FN>
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</TABLE>
5
<PAGE>
<TABLE>
FUND EXPENSES--INTERNATIONAL STOCK SERIES
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SHAREHOLDER TRANSACTIONS EXPENSES+ CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............... 5% None None None
Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends ................... None None None None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds,
whichever is lower) ............................... None 5% during the first 1% on redemptions None
year, decreasing by made within one
1% annually to 1% in year of purchase
the fifth and sixth
years and 0% the
seventh year*
Redemption Fees ..................................... None None None None
Exchange Fees ....................................... None None None None
<CAPTION>
ANNUAL SERIES OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Management Fees ..................................... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (after reduction) ........................ .25%++ 1.00% 1.00% None
Other Expenses ...................................... .50% .50% .50% .50%
---- ---- ---- ----
Total Series Operating Expenses (after reduction) ... 1.75% 2.50% 2.50% 1.50%
==== ==== ==== ====
<CAPTION>
1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
---- ----- ----- -----
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<S> <C> <C> <C> <C>
Class A ........................................................................... $67 $102 $140 $246
Class B ........................................................................... $75 $108 $143 $257
Class C ........................................................................... $35 $ 78 $133 $284
Class Z ........................................................................... $15 $ 47 $ 82 $179
You would pay the following expenses on the same investment, assuming no redemption:
Class A ........................................................................... $67 $102 $140 $246
Class B ........................................................................... $25 $ 78 $133 $257
Class C ........................................................................... $25 $ 78 $133 $284
Class Z ........................................................................... $15 $ 47 $ 82 $179
The above example is based on data for the International Stock Series' fiscal
year ended October 31, 1997. The example should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in International Stock Series will bear,
whether directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Fund is Managed". "Other Expenses" includes
operating expenses of the International Stock Series, such as Directors' and
professional fees, registration fees, reports to shareholders, transfer agency
and custodian fees and franchise taxes.
<FN>
- -------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion
Feature--Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the International Stock Series may not exceed
6.25% of total gross sales, subject to certain exclusions. This 6.25%
limitation is imposed on the International Stock Series rather than on a
per shareholder basis. Therefore long-term shareholders of the
International Stock Series may pay more in total sales charges than the
economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides the Series may
pay a distribution fee of up to .30 of 1% per annum of the average daily
net assets of the Class A Shares, the Distributor has agreed to limit its
distribution fees with respect to Class A shares of the Series to no more
than .25 of 1% of the average daily net assets of the Class A shares for
the fiscal year ending October 31, 1998. Total operating expenses of the
Class A shares without such limitation would be 1.80%.
</FN>
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
FINANCIAL HIGHLIGHTS--GLOBAL SERIES
(for a share outstanding throughout each of the indicated periods)
(Class A Shares)
The following financial highlights for the fiscal year ended October 31,
1997 have been audited by Price Waterhouse LLP, independent accountants, and by
Deloitte & Touche LLP, independent auditors, for the six years ended October 31,
1996, and for the period from January 22, 1990 through October 31, 1990. Each of
the respective reports by Price Waterhouse LLP and Deloitte & Touche LLP on such
financial statements was unqualified. This information should be read in
conjunction with the financial statements and notes thereto, which appear in the
Statement of Additional Information. The following financial highlights contain
selected data for a Global Series Class A share of common stock outstanding,
respectively, total return, ratios to average net assets and other supplemental
data for the periods indicated. The information is based on data contained in
the financial statements. Further performance information is contained in the
annual report which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
----------------------------------------------------------------------------------------
January 22,
1990(d)
Year ended October 31, through
--------------------------------------------------------------------------- October 31,
1997 1996 1995(b) 1994(b) 1993(b) 1992(b) 1991(b) 1990(b)
-------- -------- -------- ------- ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ............................... $ 16.62 $ 15.52 $ 14.89 $ 13.17 $ 9.58 $ 10.08 $ 9.19 $ 10.38
-------- -------- -------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss) ........... (.01) -- .01 (.04) 0.02 0.03 0.07 0.12
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions ......................... 1.96 1.83 .81 1.76 3.57 (.53) 1.02 (1.31)
-------- -------- -------- ------- ------- ------- ------- -------
Total from investment operations ....... 1.95 1.83 .82 1.72 3.59 (.50) 1.09 (1.19)
-------- -------- -------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment
income ............................... -- -- -- -- -- -- (0.16) --
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) -- -- -- (0.04) --
-------- -------- -------- ------- ------- ------- ------- -------
Total distributions .................... (1.30) (.73) (.19) -- -- -- (0.20) --
-------- -------- -------- ------- ------- ------- ------- -------
Net asset value, end of period ......... $ 17.27 $ 16.62 $ 15.52 $ 14.89 $ 13.17 $ 9.58 $ 10.08 $ 9.19
======== ======== ======== ======= ======= ======= ======= =======
TOTAL RETURN(c) ........................ 12.42% 12.33% 5.74% 13.06% 37.47% (4.96)% 12.11% (11.46)%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period (000) ........ $258,080 $234,700 $222,002 $73,815 $42,021 $13,973 $14,154 $ 8,727
Average net assets (000) ............... $265,380 $222,948 $174,316 $58,455 $21,409 $14,758 $10,593 $ 7,151
Ratios to average net assets:
Expenses, including
distribution fees .................. 1.39% 1.45% 1.51% 1.55% 1.56% 1.71% 1.72% 1.57%(a)
Expenses, excluding
distribution fees .................. 1.14% 1.20% 1.26% 1.30% 1.36% 1.51% 1.52% 1.37%(a)
Net investment income
(loss) ............................. 0.01% (0.04)% .10% (0.29)% 0.20% 0.22% 0.65% 1.61%(a)
Portfolio turnover rate ................ 64% 52% 50% 49% 69% 58% 126% 35%
Average commission rate
per share ............................ $0.0264 $0.0366 N/A N/A N/A N/A N/A N/A
<FN>
- --------------
(a) Annualized.
(b) Based on average shares outstanding, by class.
(c) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day and a
sale on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a full
year are not annualized.
(d) Commencement of offering of Class A shares.
</FN>
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
FINANCIAL HIGHLIGHTS--GLOBAL SERIES
(for a share outstanding throughout each of the indicated periods)
(CLASS B SHARES)
The following financial highlights for the fiscal year ended October 31,
1997 have been audited by Price Waterhouse LLP, independent accountants, and by
Deloitte & Touche LLP, independent auditors, for the nine years ended October
31, 1996. Each of the respective reports by the Price Waterhouse LLP and
Deloitte & Touche LLP on such financial statements was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Global Series Class B
share of common stock outstanding, respectively, total return, ratios to average
net assets and other supplemental data for the periods indicated. The
information is based on data contained in the financial statements. Further
performance information is contained in the annual report which may be obtained
without charge. See "Shareholder Guide--Shareholder Services--Reports to
Shareholders."
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B
--------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------
<CAPTION>
1997 1996 1995(a) 1994(a) 1993(a) 1992(a)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of year ...... $ 15.96 $ 15.03 $ 14.53 $ 12.94 $ 9.47 $ 10.05
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ............ (.12) (.08) (.11) (.13) (0.04) (0.05)
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions .......................... 1.88 1.74 .80 1.72 3.51 (0.53)
-------- -------- -------- -------- -------- --------
Total from investment operations ........ 1.76 1.66 .69 1.59 3.47 (0.58)
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income .... -- -- -- -- -- --
Distributions in excess of net invest-
ment 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 year ............ $ 16.42 $ 15.96 $ 15.03 $ 14.53 $ 12.94 $ 9.47
======== ======== ======== ======== ======== ========
TOTAL RETURN(C) ......................... 11.70% 11.57% 4.98% 12.29% 36.64% (5.77)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ......... $335,007 $326,978 $268,498 $410,520 $251,133 $178,438
Average net assets (000) ................ $350,518 $294,230 $287,656 $345,771 $183,741 $210,464
Ratios to average net assets:
Expenses, including distribution fees . 2.07% 2.12% 2.19% 2.24% 2.24% 2.40%
Expenses, excluding distribution fees . 1.14% 1.20% 1.27% 1.31% 1.36% 1.51%
Net investment income (loss) .......... (0.68)% (.67)% (.84)% (0.97)% (0.39)% (0.47)%
Portfolio turnover rate ................. 64% 52% 50% 49% 69% 58%
Average commission rate per share ....... $ 0.0264 $ 0.0366 N/A N/A N/A N/A
<CAPTION>
1991(a) 1990(a) 1989(a) 1988(b)(a)
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of year ...... $ 9.14 $ 10.46 $ 10.09 $ 9.86
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ............ -- 0.05 0.15 0.17+
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions .......................... 1.02 (1.10) 0.53 1.11
-------- -------- -------- --------
Total from investment operations ........ 1.02 (1.05) 0.68 1.28
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income .... (0.07) (0.18) (0.19) (0.07)
Distributions in excess of net invest-
ment income ........................... -- -- -- --
Distributions paid to shareholders from
net realized gains on investment
and foreign currency transactions ..... (0.04) (0.09) (0.12) (0.98)
-------- -------- -------- --------
Total distributions ..................... (0.11) (0.27) (0.31) (1.05)
-------- -------- -------- --------
Net asset value, end of period .......... $ 10.05 $ 9.14 $10.46 $ 10.09
======== ======== ====== ========
TOTAL RETURN(c) ......................... 11.29% (10.43)% 6.92% 13.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ......... $249,582 $261,555 $385,578 $523,743
Average net assets (000) ................ $253,866 $328,467 $448,737 $571,420
Ratios to average net assets:
Expenses, including distribution fees . 2.44% 2.23% 1.82% 1.86%(d)
Expenses, excluding distribution fees . 1.53% 1.37% 1.34% 1.17%(d)
Net investment income (loss) .......... (0.01)% 0.51% 1.45% 1.71%(d)
Portfolio turnover rate ................. 126% 35% 60% 82%
Average commission rate per share ....... N/A N/A N/A N/A
<FN>
- --------------
(a) Based on average shares outstanding, by class.
(b) On March 1, 1988, Prudential Mutual Fund Management, Inc. succeeded
The Prudential Insurance Company of America as investment adviser and
since then has acted as manager of the Fund. See "Manager" in the
Statement of Additional Information.
(c) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions.
(d) Net of expense subsidy or reimbursement.
- ------------------------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
8
<PAGE>
FINANCIAL HIGHLIGHTS--GLOBAL SERIES
(for a share outstanding throughout each of the indicated periods)
(Class C Shares)
The following financial highlights for the fiscal year ended October 31,
1997 have been audited by Price Waterhouse LLP, independent accountants, and by
Deloitte & Touche LLP, independent auditors, for the two years ended October 31,
1996 and for the period from August 1, 1994 through October 31, 1994. Each of
the respective reports by the Price Waterhouse LLP and Deloitte & Touche LLP on
such financial statements was unqualified. This information should be read in
conjunction with the financial statements and notes thereto, which appear in the
Statement of Additional Information. The following financial highlights contain
selected data for a Global Series Class C share of common stock outstanding,
respectively, total return, ratios to average net assets and other supplemental
data for the period indicated. The information is based on data contained in the
financial statements. Further performance information is contained in the annual
report which may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------
AUGUST 1, 1994(d)
YEAR ENDED OCTOBER 31, THROUGH
1997 1996 1995(b) OCTOBER 31, 1994(b)
------- ------- ------- -------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............................. $ 15.96 $ 15.03 $14.53 $12.94
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)...................................... (0.11) (.05) (.11) (.03)
Net realized and unrealized gain on investment and foreign
currency transactions .......................................... 1.86 1.71 .80 1.62
------- ------- ------ ------
Total from investment operations ................................. 1.75 1.66 .69 1.59
------- ------- ------ ------
LESS DISTRIBUTIONS:
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 ................................... $ 16.41 $ 15.96 $15.03 $14.53
======= ======= ====== ======
TOTAL RETURN(c) .................................................. 11.63% 11.57% 4.98% 3.56%
RATIOS/SUPPLEMENTAL DATA:
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%(a)
Expenses, excluding distribution fees .......................... 1.14% 1.20% 1.25% 1.63%(a)
Net investment income (loss) ................................... (0.75)% (.72)% (.76)% (1.21)%(a)
Portfolio turnover rate .......................................... 64% 52% 50% 49%
Average commission rate per share ................................ $0.0264 $0.0366 N/A N/A
</TABLE>
- ----------
(a) Annualized.
(b) Based on average shares outstanding, by class.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of the period reported and includes reinvestment of dividends and
distributions. Total return for the period less than a full year is not
annualized.
(d) Commencement of offering of Class C shares.
9
<PAGE>
FINANCIAL HIGHLIGHTS--GLOBAL SERIES
(for a share outstanding throughout each of the indicated periods)
(CLASS Z SHARES)
The following financial highlights for the fiscal year ended October 31,
1997 have been audited by Price Waterhouse LLP, independent accountants, and by
Deloitte & Touche LLP, independent auditors, for the period from March 1, 1996
through October 31, 1996. Each of the respective reports by Price Waterhouse LLP
and Deloitte & Touche LLP on such financial statements was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Global Series Class Z
share of common stock outstanding, respectively, total return, ratios to average
net assets and other supplemental data for the period indicated. The information
is based on data contained in the financial statements. Further performance
information is contained in the annual report which may be obtained without
charge. See "Shareholder Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS Z
--------------------------------
YEAR ENDED MARCH 1, 1996(c)
OCTOBER 31, THROUGH
1997 OCTOBER 31, 1996
----------- -----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........................................... $ 16.65 $ 15.42
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss ............................................................ 0.04 .06
Net realized and unrealized gain on investment and foreign currency transactions 1.96 1.18
------- -------
Total from investment operations ............................................... 2.00 1.24
------- -------
LESS DISTRIBUTIONS:
Distributions in excess of net investment income ............................... (.05) --
Distributions paid to shareholders from net realized gains on investment
and foreign currency transactions ............................................. (1.25) (.01)
------- -------
Total distributions ............................................................ (1.30) (.01)
------- -------
Net asset value, end of period ................................................. $ 17.35 $ 16.65
======= =======
TOTAL RETURN(b) ................................................................ 12.72% 12.30%
RATIOS/SUPPLEMENTAL DATA:
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%(a)
Expenses, excluding distribution fees ........................................ 1.14% 1.20%(a)
Net investment income (loss) ................................................. 0.27% .55%(a)
Portfolio turnover rate ........................................................ 64% 52%
Average commission rate per share .............................................. $0.0264 $0.0366
</TABLE>
- ----------
(a) Annualized.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of the period reported and includes reinvestment of dividends and
distributions. Total return for the period less than a full year is not
annualized.
(c) Commencement of offering of Class Z shares.
10
<PAGE>
FINANCIAL HIGHLIGHTS--INTERNATIONAL STOCK SERIES
(for a share outstanding throughout each of the indicated periods)
(CLASS A SHARES)
The following financial highlights for the fiscal year ended October 31,
1997 have been audited by Price Waterhouse LLP, independent accountants, and by
Deloitte & Touche LLP, independent auditors, for the one month period ended
October 31, 1996 and for the period from September 23, 1996 through September
30, 1996. Each of the respective reports by Price Waterhouse LLP and Deloitte &
Touche LLP on such financial statements was unqualified. This information should
be read in conjunction with the financial statements and notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for an International Stock Series Class A share
of common stock outstanding, respectively, total return, ratios to average net
assets and other supplemental data for the periods indicated. The information is
based on data contained in the financial statements. Further performance
information is contained in the annual report which may be obtained without
charge. See "Shareholder Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
OCTOBER 1, SEPTEMBER 23,
YEAR 1996 1996(a)
ENDED THROUGH THROUGH
OCTOBER 31, OCTOBER 31, SEPTEMBER 30,
1997(f) 1996 1996(d)
----------- ----------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
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 and foreign currency
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
net realized gains on investment and
foreign currency transactions .............. (.20) -- --
------- ------- ------
Total distributions ......................... (.44) -- --
------- ------- ------
Net asset value, end of period ............... $ 18.24 $ 16.59 $16.48
======= ======= ======
TOTAL RETURN(c) .............................. 12.85% .67% (.36)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) .............. $36,184 $ 5,169(e) $ 199(e)
Average net assets (000) ..................... $18,779 $ 2,793(e) $ 199(e)
Ratios to average net assets:
Expenses, including distribution fees ....... 1.75% 2.05%(b) 2.46%(b)
Expenses, excluding distribution fees ....... 1.50% 1.80%(b) 2.21%(b)
Net investment income (loss) ................ 1.40% (1.03)%(b) .75%(b)
Portfolio turnover rate ...................... 9% 4% 15%
Average commission rate per share ............ $ .0281 $ .0256 $.0222
</TABLE>
- ----------
(a) Commencement of offering of Class A shares.
(b) Annualized.
(c) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods of
less than a full year are not annualized.
(d) 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.
(e) Figures are actual and are not rounded to the nearest thousand.
(f) Calculated based upon weighted average shares outstanding during the year.
11
<PAGE>
FINANCIAL HIGHLIGHTS--INTERNATIONAL STOCK SERIES
(for a share outstanding throughout each of the indicated periods)
(CLASS B SHARES)
The following financial highlights for the fiscal year ended October 31,
1997 have been audited by Price Waterhouse LLP, independent accountants, and by
Deloitte & Touche LLP, independent auditors, for the one month period ended
October 31, 1996 and for the period from September 23, 1996 through September
30, 1996. Each of the respective reports by Price Waterhouse LLP and Deloitte &
Touche LLP on such financial statements was unqualified. This information should
be read in conjunction with the financial statements and notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for an International Stock Series Class B share
of common stock outstanding, respectively, total return, ratios to average net
assets and other supplemental data for the periods indicated. The information is
based on data contained in the financial statements. Further performance
information is contained in the annual report which may be obtained without
charge. See "Shareholder Guide--Shareholder Services--Reports to Shareholders."
CLASS B
--------------------------------------
OCTOBER 1, SEPTEMBER 23,
YEAR 1996 1996(a)
ENDED THROUGH THROUGH
OCTOBER 31, OCTOBER 31, SEPTEMBER 30,
1997(f) 1996 1996(d)
----------- ----------- ------------
PER SHARE OPERATING PERFORMANCE:
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)
on investment and foreign currency
transactions ............................. 1.84 .12 (.07)
------- ------ ------
Total from investment operations .......... 1.96 .10 (.07)
------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ..... (.20) -- --
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions ........... (.20) -- --
Total distributions ....................... (.40) -- --
------- ------ ------
Net asset value, end of period ............ $ 18.13 $16.57 $16.47
======= ====== ======
TOTAL RETURN(c) ........................... 12.04% .61% (.42)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ........... $87,155 $1,922(e) $ 199(e)
Average net assets (000) .................. $47,584 $ 313(e) $ 199(e)
Ratios to average net assets:
Expenses, including distribution fees .... 2.50% 2.80%(b) 3.21%(b)
Expenses, excluding distribution fees .... 1.50% 1.80%(b) 2.21%(b)
Net investment income (loss) ............. .65% (1.78)%(b) 0%(b)
Portfolio turnover rate ................... 9% 4% 15%
Average commission rate per share ......... $.0281 $.0256 $.0222
- ---------------
(a) Commencement of offering of Class B shares.
(b) Annualized.
(c) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods of
less than a full year are not annualized.
(d) 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.
(e) Figures are actual and are not rounded to the nearest thousand.
(f) Calculated based upon weighted average shares outstanding during the year.
12
<PAGE>
FINANCIAL HIGHLIGHTS--INTERNATIONAL STOCK SERIES
(for a share outstanding throughout each of the indicated periods)
(Class C Shares)
The following financial highlights for the fiscal year ended October 31,
1997 have been audited by Price Waterhouse LLP, independent accountants, and by
Deloitte & Touche LLP, independent auditors, for the one month period ended
October 31, 1996 and for the period from September 23, 1996 through September
30, 1996. Each of the respective reports by Price Waterhouse LLP and Deloitte &
Touche LLP on such financial statements was unqualified. This information should
be read in conjunction with the financial statements and notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for an International Stock Series Class C share
of common stock outstanding, respectively, total return, ratios to average net
assets and other supplemental data for the period indicated. The information is
based on data contained in the financial statements. Further performance
information is contained in the annual report which may be obtained without
charge. See "Shareholder Guide--Shareholder Services--Reports to Shareholders."
CLASS C
------------------------------------
OCTOBER 1, SEPTEMBER 23,
YEAR 1996 1996(a)
ENDED THROUGH THROUGH
OCTOBER 31, OCTOBER 31, SEPTEMBER 30,
1997(f) 1996 1996(e)
---------- ---------- ---------
PER SHARE OPERATING PERFORMANCE:
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) on investment and foreign
currency transactions ................... 1.84 .12 (.07)
------- ------ ------
Total from investment operations .......... 1.96 .10 (.07)
------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ...... (.20) -- --
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions ........... (.20) -- --
------- ------ ------
Total distributions ....................... (.40) -- --
------- ------ ------
Net asset value, end of period ............ $ 18.13 $16.57 $16.47
======= ====== ======
TOTAL RETURN(c) ........................... 12.04% .61% (.42)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ........... $12,354 $ 200(d) $ 199(d)
Average net assets (000) .................. $ 7,473 $ 202(d) $ 199(d)
Ratios to average net assets:
Expenses, including distribution fees ... 2.50% 2.80%(b) 3.21%(b)
Expenses, excluding
distribution fees ..................... 1.50% 1.80%(b) 2.21%(b)
Net investment income (loss) ............ .65% (1.78)%(b) 0%(b)
Portfolio turnover rate ................... 9% 4% 15%
Average commission rate per share ......... $.0281 $.0256 $.0222
- ------------
(a) Commencement of offering of Class C shares.
(b) Annualized.
(c) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods of
less than a full year are not annualized.
(d) Figures are actual and are not rounded to the nearest thousand.
(e) 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.
(f) Calculated based upon weighted average shares outstanding during the year.
13
<PAGE>
FINANCIAL HIGHLIGHTS--INTERNATIONAL STOCK SERIES
(for a share outstanding throughout each of the indicated periods)
(CLASS Z SHARES)
The following financial highlights for the fiscal year ended October 31,
1997 have been audited by Price Waterhouse LLP, independent accountants, and by
Deloitte & Touche LLP, independent auditors, for the period ended October 30,
1996, for the three years ended September 30, 1996 and for the period from
November 5, 1992 through September 30, 1993. Each of the respective reports by
Price Waterhouse LLP and Deloitte Touche LLP on such financial statements was
unqualified. This information should be read in conjunction with the financial
statements and notes thereto, which appear in the Statement of Additional
Information. The following financial highlights contain selected data for an
International Stock Series Class Z share of common stock outstanding,
respectively, total return, ratios to average net assets and other supplemental
data for the period indicated. The information is based on data contained in the
financial statements. Further performance information is contained in the annual
report which may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS Z
---------------------------------------------------------------------------------
OCTOBER 1, NOVEMBER 5,
YEAR 1996 1992(a)
ENDED THROUGH YEAR ENDED SEPTEMBER 30, THROUGH
OCTOBER 31, OCTOBER 31, ------------------------------- SEPTEMBER 30,
1997(g) 1996 1996(e)(f) 1995(f) 1994(f) 1993(f)
----------- ------------- ---------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(B):
Net asset value, beginning of period $ 16.59 $ 16.48 $ 15.25 $ 14.84 $ 12.35 $ 10.00
-------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .31 (.01) .22 .18(b) .13(b) .16(b)
Net realized and unrealized gain
on investment and foreign
currency transactions 1.82 .12 1.20 .66 2.54 2.21
-------- -------- -------- -------- -------- -------
Total from investment operations 2.13 .11 1.42 .84 2.67 2.37
-------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income (.24) -- (.19) (.10) (.03) (.02)
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions (.20) -- -- (.33) (.15) --
-------- -------- -------- -------- -------- -------
Total distributions (.44) -- (.19) (.43) (.18) (.02)
-------- -------- -------- -------- -------- -------
Net asset value, end of period $ 18.28 $ 16.59 $ 16.48 $ 15.25 $ 14.84 $ 12.35
TOTAL RETURN(d) 13.13% .67% 9.44% 5.95% 21.71% 23.74%
======== ======== ======== ======== ======== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $237,976 $190,428 $188,386 $136,685 $102,824 $31,708
Average net assets (000) $219,419 $191,428 $161,356 $118,927 $ 68,476 $14,491
Ratios to average net assets:
Expenses, including distribution fees 1.50% 1.80%(c) 1.61%(b) 1.60%(b) 1.60%(b) 1.60%(b)/(c)
Expenses, excluding distribution fees 1.50% 1.80%(c) 1.61%(b) 1.60%(b) 1.60%(b) 1.60%(b)/(c)
Net investment income (loss) 1.65% (.78)%(c) 1.58%(b) 1.58%(b) 1.08%(b) 1.44%(b)/(c)
Portfolio turnover rate 9% 4% 15% 20% 21% 15%
Average commission rate per share $ .0281 $.0256 $ .0222 N/A N/A N/A
</TABLE>
- ---------------
(a) Commencement of investment operations. International Stock Fund, a Mercator
managed series of The Prudential Institutional Fund, commenced investment
operations on November 5, 1992. On September 20, 1996, the assets and
liabilities of that fund were transferred to the International Stock Series
in exchange solely for Class Z shares of the International Stock Series.
Immediately prior to the transfer, International Stock Series had no
assets. The investment objectives and policies of each of the funds were
substantially similar and Mercator served as investment adviser to each
fund. International Stock Fund serves as the accounting survivor of the
International Stock Series and, as such, financial data is shown from
November 5, 1992.
(b) Net of expense/recovery.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods of
less than a full year are not annualized. Total return includes the effect
of expense subsidiaries/recoveries, as applicable.
(e) 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.
(f) 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.
(g) Calculated based upon weighted average shares outstanding during the year.
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HOW THE FUND INVESTS
INVESTMENT OBJECTIVES AND POLICIES
GLOBAL SERIES
THE INVESTMENT OBJECTIVE OF 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 will consist of marketable securities of U.S. and non-U.S.
issuers. Marketable securities are those for which market quotations are readily
available. There can be no assurance that Global Series will achieve its
investment objective. See "Investment Objectives and Policies" in the Statement
of Additional Information.
Global Series' investment objective is a fundamental policy and, therefore,
may not be changed without the approval of the holders of a majority of Global
Series' outstanding voting securities as defined in the Investment Company Act
of 1940 (the Investment Company Act). Global Series' policies that are not
fundamental may be modified by the Fund's Board of Directors.
Global Series may invest in all types of equity-related securities (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, among others), bonds and other debt obligations
including money market instruments, of foreign and domestic companies and
governments, governmental agencies and international organizations. Global
Series may also engage in stock options, options on debt securities, options on
currencies, options on stock indices, stock index futures and options on stock
index futures, futures contracts on foreign currencies and options thereon and
forward foreign currency exchange contracts. See "Hedging and Return Enhancement
Strategies."
Although Global Series is not required to maintain any particular
geographic or currency mix of its investments, nor required to maintain any
particular proportion of stocks, bonds or other securities in its portfolio,
Global Series, in view of its investment objective, presently expects to invest
its assets primarily in common stocks of U.S. and non-U.S. issuers. Global
Series may, however, invest substantially or primarily in debt securities of
U.S. and non-U.S. issuers when it appears that the capital appreciation
available from investments in such securities will equal or exceed the capital
appreciation available from investments in equity securities, or when Global
Series is temporarily in a defensive position. Global Series will purchase
"investment grade" debt including convertible debt obligations. See "Fixed
Income Securities" below.
Global Series is intended to provide investors with the opportunity to
invest in a portfolio of securities of companies and governments located
throughout the world. In making the allocation of assets among the various
countries and geographic regions, Global Series' investment adviser ordinarily
considers such factors as prospects for relative economic growth between foreign
countries; expected levels of inflation and interest rates; government policies
influencing business conditions; the range of individual investment
opportunities available to international investors; and other pertinent
financial, tax, social, political and national factors--all in relation to the
prevailing prices of securities in each country or region.
Investments may be made in companies based in (or governments of or within)
the Pacific Basin (such as Japan, Australia, Singapore, Malaysia and Hong Kong)
and Western Europe (such as the United Kingdom, Germany, Switzerland, the
Netherlands, France, Belgium, Spain and Scandinavia), as well as the United
States, Canada and such other areas and countries as the investment adviser may
determine from time to time. The Fund intends to maintain investments in a
minimum of four countries, one of which may be the United States, but may, from
time to time, invest up to 65% of its assets in companies and governments
located in any one country. Moreover should extraordinary market conditions
warrant, Global Series may temporarily be invested primarily in securities of
U.S. issuers.
Global Series may invest in securities not listed on securities exchanges.
These securities will generally have an established market (such as the
over-the-counter market), the depth and liquidity of which may vary from time to
time and from security to security. In addition, Global Series may invest to a
limited extent in securities of companies which have been in existence for less
than three years, in securities for which market quotations are not readily
available and in securities of other registered investment companies. See
"Investment Restrictions" in the Statement of Additional Information.
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In analyzing companies for investment, the investment adviser ordinarily
looks for one or more of the following characteristics: prospects for
above-average earnings growth per share; high return on invested capital;
healthy balance sheet; sound financial and accounting policies and overall
financial strength; strong competitive advantages; effective research and
product development and marketing; efficient service; pricing flexibility;
strength of management; and general operating characteristics which will enable
the companies to compete successfully in their marketplace--all in relation to
the prevailing prices of the securities of such companies.
As with an investment in any mutual fund, an investment in this Series can
decrease in value and you can lose money.
* * * *
INTERNATIONAL STOCK SERIES
THE INVESTMENT OBJECTIVE OF THE INTERNATIONAL STOCK SERIES IS TO ACHIEVE
LONG-TERM GROWTH OF CAPITAL THROUGH INVESTMENT IN EQUITY SECURITIES OF FOREIGN
COMPANIES. INCOME IS A SECONDARY OBJECTIVE. There can be no assurance that
International Stock Series will achieve its investment objective. See
"Investment Objectives and Policies" in the Statement of Additional Information.
International Stock Series' investment objective is a fundamental policy
and, therefore, may not be changed without the approval of the holders of a
majority of International Stock Series' outstanding voting securities as defined
in the Investment Company Act. International Stock Series' policies that are not
fundamental may be modified by the Fund's Board of Directors.
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 will invest primarily in seasoned companies (i.e., companies with an
established operating record of 3 years or greater) that are incorporated,
organized, or that do business primarily outside the United States.
International Stock Series will invest in securities of such foreign issuers
through direct market purchases on foreign stock exchanges and established
over-the-counter markets as well as through the purchase of American Depository
Receipts (ADRs), European Depository Receipts (EDRs) or other similar
securities.
International Stock Series intends to broadly diversify its holdings among
issuers located in developed and developing countries having national financial
markets. Mercator, the Subadviser for International Stock Series, believes that
broad diversification provides a prudent means of reducing volatility while
permitting International Stock Series to take advantage of the potentially
different movements of major equity markets. While International Stock Series
may invest anywhere outside the United States, it expects that most of its
investments will be made in securities of issuers located in developed countries
in North America, Western Europe, and the Pacific Basin. In allocating
International Stock Series' investments among different countries and geographic
regions, Mercator will consider such factors as relative economic growth,
expected levels of inflation, government policies affecting business conditions,
and market trends throughout the world. In selecting companies within those
countries and geographic regions, Mercator seeks to identify those companies
that are best positioned and managed to benefit from the factors listed above.
International Stock Series does not currently expect to invest 25% or more
of its net assets in any one country. For temporary defensive purposes,
International Stock Series may invest up to 100% of its assets in common stock,
preferred stock and other equity-related securities of U.S. issuers.
International Stock Series may invest up to 35% of the value 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 (such as the
Asian Development Bank, the European Coal and Steel Community, the European
Economic Community, and the International Bank for Reconstruction and
Development (the "World Bank"); and (iv) high-grade foreign or domestic money
market instruments and short-term fixed income securities. International Stock
Series' use of money market instruments and short-term fixed income securities
generally will reflect the Subadviser's overall measure of optimism relating to
the global equity markets, and International Stock Series will use such
securities to reduce downside volatility during uncertain or declining market
conditions.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for hedging or return enhancement purposes, International Stock
Series may: (i) enter into repurchase agreements, when-issued, delayed-delivery
and forward
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commitment transactions; (ii) lend its portfolio securities; and (iii) purchase
and sell put and call options on any security in which it may invest and options
on any securities index based on securities in which International Stock Series
may invest. In order to attempt to reduce risks associated with currency
fluctuations, International Stock Series may (i) purchase and sell currency spot
contracts; (ii) purchase and sell currency futures contracts and currency
forward contracts; and (iii) purchase and sell put and call options on
currencies and on foreign currency futures contracts. See "Hedging and Return
Enhancement Strategies."
International Stock Series may hold a portion of its assets in money market
instruments in amounts designed to pay expenses, to meet anticipated
redemptions, pending investments or to margin its purchases and sales of futures
contracts in accordance with its objective and policies. These instruments may
be purchased on a forward commitment, when-issued or delayed-delivery basis. In
addition, International Stock Series may for temporary defensive purposes
invest, without limitation, in high-quality money market instruments.
International Stock Series may also purchase non-investment grade fixed income
securities and retain investments grade fixed income securities that have been
downgraded to non-improvement grade provided that no more than 5% of the
International Stock Series' net assets is invested in non-investment grade fixed
income securities, which are considered to be high risk securities, i.e. "junk"
bonds. See "Fixed Income Securities" below and "Investment Objectives and
Policies" in the Statement of Additional Information for a fuller description of
these securities.
As with an investment in any mutual fund, an investment in this Series can
decrease in value and you can lose money.
* * * *
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 ADRs.
ADRs are U.S. dollar-denominated certificates issued by a United States bank or
trust company and represent the right to receive securities of a foreign issuer
deposited in a domestic bank or foreign branch of a United States bank and
traded on a United States exchange or in an over-the-counter market. Generally,
ADRs are in registered form. There are no fees imposed on the purchase or sale
of ADRs when purchased from the issuing bank or trust company in the initial
underwriting, although the issuing bank or trust company may impose charges for
the collection of dividends and the conversion of ADRs into the underlying
securities. Investment in ADRs has certain advantages over direct investment in
the underlying foreign securities since: (i) ADRs are U.S. dollar-denominated
investments that are registered domestically, easily transferable, and for which
market quotations are readily available; and (ii) issuers whose securities are
represented by ADRs are usually subject to auditing, accounting, and financial
reporting standards comparable to those of domestic issuers.
FIXED INCOME SECURITIES. Each Series may purchase "investment grade" debt
including convertible debt obligations. Investment grade debt obligations are
bonds rated within the four highest quality grades as determined by Moody's
Investors Service (Moody's) (currently Aaa, Aa, A and Baa for bonds, MIGI, MIG2,
MIG3 and MIG4 for notes and P-1 for commercial paper), or Standard & Poor's
Ratings Group (S&P) (currently AAA, AA, A and BBB for bonds, SP-1 and SP-2 for
notes and A-1 for commercial paper), or by another nationally recognized
statistical rating organization (NRSRO) or in unrated securities of equivalent
quality. Securities rated Baa by Moody's or BBB by S&P, although considered to
be investment grade, lack outstanding investment characteristics and, in fact,
have speculative characteristics. Lower rated securities are subject to a
greater risk of loss of principal and interest. Debt securities may be subject
to price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market.
International Stock Series may purchase non-investment grade fixed income
securities and retain investment grade fixed income securities that have been
downgraded to non-investment grade provided that no more than 5% of
International Stock Series' net assets is invested in non-investment grade fixed
income securities. Non-investment grade securities are rated lower than BBB/Baa
(or an equivalent rating by any NRSRO) or, if not rated, are deemed by Mercator
to be of comparable investment quality and are commonly referred to as high risk
or high yield securities, i.e. "junk" bonds. High yield securities are generally
riskier than higher quality securities and are subject to more credit risk,
including risk of default, and are more volatile than higher quality securities.
In addition, such securities may have less liquidity and experience more price
fluctuation than higher quality securities. See the discussion of corporate bond
ratings in "Description of S&P, Moody's and Duff & Phelps Ratings" in the
Appendix to the Statement of Additional Information.
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The maturity of fixed income securities may be considered long (ten plus
years), intermediate (three to ten years) or short term (three years or less).
In general, the principal values of longer-term securities fluctuate more widely
in response to changes in interest rates than those of shorter-term securities,
providing greater opportunity for capital gain or risk of capital loss. A
decline in interest rates usually produces an increase in the value of debt
securities, while an increase in interest rates generally reduces their value.
U.S. GOVERNMENT SECURITIES. Each Series may invest in fixed income
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Obligations of the U.S. Government consist of various types
of marketable securities issued by the U.S. Treasury, i.e., bills, notes and
bonds, and are direct obligations of the U.S. Government. Obligations of
agencies and instrumentalities of the U.S. Government are not direct obligations
of the U.S. Government and are either: (i) guaranteed by the U.S. Treasury
(e.g., Government National Mortgage Association ("GNMA") mortgage-backed
securities); (ii) supported by the issuing agency's or instrumentality's right
to borrow from the U.S. Treasury at the discretion of the U.S. Treasury (e.g.,
Federal National Mortgage Association ("FNMA") Discount Notes); or (iii)
supported by only the issuing agency's or instrumentality's credit (e.g., each
of the Federal Home Loan Banks).
HEDGING AND RETURN ENHANCEMENT STRATEGIES
EACH SERIES MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING
DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS RESPECTIVE INVESTMENTS AND TO
ATTEMPT TO ENHANCE RETURN. EACH SERIES, AND THUS ITS INVESTORS, MAY LOSE MONEY
THROUGH THE UNSUCCESSFUL USE OF THESE STRATEGIES. These strategies include the
purchase and sale of put and call options on any security in which a Series may
invest and options on any securities index based on securities in which a Series
may invest. In order to reduce the risks associated with currency fluctuations,
a Series may (i) purchase and sell currency spot contracts, (ii) purchase and
sell currency futures contracts and currency forward contracts, and (iii)
purchase and sell put and call options on currencies and on foreign currency
contracts. Additionally, the Global Series may purchase and sell stock index
futures and options thereon. The Fund, and thus investors, may lose money
through any unsuccessful use of these strategies. The Subadvisers will use such
techniques as market conditions warrant. Each Series' ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations and there can be no assurance that any of these strategies will
succeed. See "Investment Objectives and Policies" and "Taxes, Dividends and
Distributions" in the Statement of Additional Information. New financial
products and risk management techniques continue to be developed and a Series
may use these new investments and techniques to the extent consistent with its
investment objective and policies.
OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES AND SECURITIES INDICES. 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.
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
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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. See "Investment
Objectives and Policies--Options on Securities and Securities Indices" in the
Statement of Additional Information.
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. Purchasing or selling
securities index options is subject to the risk that the value of its portfolio
securities may not change as much as or more than the index because such Series'
investments generally will not match the composition of the index. See
"Investment Objectives and Policies--Options on Securities and Securities
Indices" in the Statement of Additional Information.
OVER-THE-COUNTER OPTIONS. EACH SERIES MAY ALSO PURCHASE AND WRITE (I.E.,
SELL) 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. Thus, the
value of an OTC option is particularly dependent on the financial viability of
the OTC counterparty. A Series' ability to purchase and write OTC options may be
limited by market conditions, regulatory limits and tax considerations. There
are certain risks associated with investments in OTC options. See "Investment
Objectives and Policies--Special Risks of Purchasing OTC Options" in the
Statement of Additional Information.
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. Global Series may not
purchase or sell stock index futures if, immediately thereafter, more than
one-third of its net assets would be hedged. In addition, except in the case of
a call written and held on the same index, Global Series 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 options or futures 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. The 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 the Global
Series' existing futures positions and premiums paid for such options would
exceed 5% of the liquidation value of Global Series' total assets. Global
Series' may purchase and sell stock index futures, without limitation, for bona
fide hedging purposes.
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
UNDERLYING 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
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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. See "Investment Objectives and
Policies" in the Statement of Additional Information.
LIMITATIONS ON OPTIONS AND FUTURES CONTRACTS
GLOBAL SERIES WILL NOT (A) WRITE PUTS HAVING AGGREGATE EXERCISE PRICES
GREATER THAN 25% OF TOTAL ASSETS, OR (B) PURCHASE (I) PUT OPTIONS ON FOREIGN
CURRENCIES OR (II) CALL OPTIONS ON FOREIGN CURRENCIES IF, AFTER ANY SUCH
PURCHASE, THE AGGREGATE PREMIUMS PAID FOR SUCH OPTIONS WOULD EXCEED 10% OF THE
GLOBAL SERIES' TOTAL ASSETS. THERE ARE NO OTHER LIMITATIONS ON THE AMOUNT OF
FOREIGN CURRENCIES THAT MAY BE HEDGED, AND NO LIMITATIONS ON THE USE OF ASSETS
TO COVER OPTIONS, EXCEPT THAT THE AGGREGATE VALUE OF THE OBLIGATIONS UNDERLYING
PUT OPTIONS WILL NOT EXCEED 50% OF THE GLOBAL SERIES' ASSETS.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS INVOLVES INVESTMENT RISKS
AND TRANSACTION COSTS TO WHICH A SERIES WOULD NOT BE SUBJECT ABSENT THE USE OF
THESE STRATEGIES. A SERIES, AND THUS ITS INVESTORS, MAY LOSE MONEY THROUGH THE
UNSUCCESSFUL USE OF THESE STRATEGIES. If a Subadviser's prediction of movements
in the direction of the securities markets is inaccurate, the adverse
consequences to the Series managed by such Subadviser may leave such Series in a
worse position than if such strategies were not used. Risks inherent in the use
of options futures include (1) dependence on such Subadviser's ability to
predict correctly movements in the direction of specific securities being hedged
or the movement in stock indices; (2) imperfect correlation between the price of
options and futures and options thereon and movements in the prices of the
securities being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; and (6) the possible inability of a Series to purchase
or sell a portfolio security at a time that otherwise would be favorable for it
to do so, or the possible need for a Series to sell a portfolio security at a
disadvantageous time, due to the need for such Series to maintain "cover" or to
segregate securities in connection with hedging transactions. See "Investment
Objectives and Policies" and "Taxes, Dividends and Distributions" in the
Statement of Additional Information.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INVOLVES AN OBLIGATION TO
PURCHASE OR SELL A SPECIFIC CURRENCY AT A FUTURE DATE, WHICH MAY BE ANY FIXED
NUMBER OF DAYS FROM THE DATE OF THE CONTRACT AGREED UPON BY THE PARTIES, AT A
PRICE SET AT THE TIME OF THE CONTRACT. These contracts are traded in the
interbank market conducted directly between currency traders (typically large
commercial banks) and their customers. A forward contract generally has no
deposit requirements, and no commissions are charged for such trades. See
"Investment Objectives and Policies--Foreign Currency Forward Contracts, Options
and Futures Transactions" in the Statement of Additional Information.
When a Series invests in foreign securities, such Series may enter into
forward contracts in several circumstances to protect the value of its
portfolio. A Series may not use forward contracts to generate income, although
the use of such contracts may incidentally generate income. There is no
limitation on the value of forward contracts into which a Series may enter.
However, a Series' dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of a Series generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Series' expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency. A Series will not speculate in forward contracts. 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 held in its portfolio denominated
or quoted in, or currently convertible into, such currency.
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When a Series enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when a Series anticipates the receipt in a
foreign currency of dividends or interest payments on a security which it holds,
such Series may desire to "lock in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such dividend or interest payment, as the case may be.
By entering into a forward contract for a fixed amount of dollars for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, a Series will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when the Subadviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, a
Series may enter into a forward contract, for a fixed amount of dollars, to sell
the amount of foreign currency approximating the value of some or all of the
portfolio securities of such Series denominated in such foreign currency.
FUTURES CONTRACTS ON FOREIGN CURRENCIES AND OPTIONS ON FUTURES CONTRACTS
EACH SERIES MAY BUY AND SELL FUTURES CONTRACTS ON FOREIGN CURRENCIES AND
GROUPS OF FOREIGN CURRENCIES (FUTURES CONTRACTS) SUCH AS THE EUROPEAN CURRENCY
UNIT AND RELATED OPTIONS THEREON TO PROTECT AGAINST THE EFFECT OF ADVERSE
CHANGES ON FOREIGN CURRENCIES. 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 contractual obligation to deliver the specified amount of
foreign currency at a specified price in a specified future month. A "purchase"
of a futures contract means the assumption of a contractual obligation to
acquire the currency called for by the contract at a specified price in a
specified future month. At the time a futures contract is purchased or sold, 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, resulting 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."
EACH SERIES INTENDS TO ENGAGE IN FUTURES CONTRACTS ON FOREIGN CURRENCIES
AND OPTIONS ON THESE FUTURES TRANSACTIONS AS A HEDGE AGAINST CHANGES IN THE
VALUE OF THE CURRENCIES TO WHICH THE SERIES IS SUBJECT OR TO WHICH THE SERIES
EXPECTS TO BE SUBJECT IN CONNECTION WITH FUTURE PURCHASES, IN ACCORDANCE WITH
THE RULES AND REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION. EACH
SERIES ALSO INTENDS TO ENGAGE IN SUCH TRANSACTIONS WHEN THEY ARE ECONOMICALLY
APPROPRIATE FOR THE REDUCTION OF RISKS INHERENT IN ITS ONGOING MANAGEMENT. A
SERIES, HOWEVER AND THUS ITS INVESTORS, MAY LOSE MONEY THROUGH THE UNSUCCESSFUL
USE OF THESE STRATEGIES.
OPTIONS ON FOREIGN CURRENCIES
EACH SERIES MAY PURCHASE AND WRITE PUT AND CALL OPTIONS ON FOREIGN
CURRENCIES TRADED OVER-THE-COUNTER, ON SECURITIES EXCHANGES OR BOARDS OF TRADE
(FOREIGN AND DOMESTIC) FOR HEDGING PURPOSES IN A MANNER SIMILAR TO THAT IN WHICH
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND FUTURES CONTRACTS ON FOREIGN
CURRENCIES WILL BE EMPLOYED. Options on foreign currencies are similar to
options on stock, except that a Series has the right to take or make delivery of
a specified amount of foreign currency, rather than stock.
A SERIES MAY PURCHASE AND WRITE OPTIONS TO HEDGE SUCH SERIES' PORTFOLIO
SECURITIES DENOMINATED IN FOREIGN CURRENCIES. If there is a decline in the
dollar value of a foreign currency in which a Series' portfolio securities are
denominated, the dollar value of such securities will decline even though the
foreign currency value remains the same. To hedge against the decline of the
foreign currency, a Series may purchase put options on such foreign currency. If
the value of the foreign currency declines, the gain realized on the put option
would offset, in whole or in part, the adverse effect such decline would have on
the value of the portfolio securities. Alternatively, a Series may write a call
option on the foreign currency. If the value of the foreign currency declines,
the option would not be exercised and the decline in the value of the portfolio
securities denominated in such foreign currency would be offset in part by the
premium such Series received for the option.
If, on the other hand, a Subadviser anticipates purchasing a foreign
security and also anticipates a rise in the value of such foreign currency
(thereby increasing the cost of such security), the Series managed by it may
purchase call options on the foreign currency. The purchase of such options
could offset, at least partially, the effects of the adverse movements of the
exchange rates. Alternatively, a Series could write a put option on the currency
and, if the exchange rates move as anticipated, the option would expire
unexercised.
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RISKS OF INVESTING IN FOREIGN CURRENCY, FORWARD CONTRACTS, OPTIONS AND FUTURES
A SERIES' SUCCESSFUL USE OF FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS,
OPTIONS ON FOREIGN CURRENCIES, FUTURES CONTRACTS ON FOREIGN CURRENCIES AND
OPTIONS ON SUCH CONTRACTS DEPENDS UPON THE RESPECTIVE SUBADVISER'S ABILITY TO
PREDICT THE DIRECTION OF THE MARKET AND POLITICAL CONDITIONS, WHICH REQUIRES
DIFFERENT SKILLS AND TECHNIQUES THAN PREDICTING CHANGES IN THE SECURITIES
MARKETS GENERALLY. For instance, if the value of the securities being hedged
moves in a favorable direction, the advantage to a Series would be wholly or
partially offset by a loss in the forward contracts or futures contracts.
Further, if the value of the securities being hedged does not change, a Series'
net income would be less than if such Series had not hedged since there are
transactional costs associated with the use of these investment practices.
THESE PRACTICES ARE SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation
between movements in the price of options and futures contracts and the price of
the currencies being hedged is imperfect. The use of these instruments will
hedge only the currency risks associated with investments in foreign securities,
not market risks. In addition, if a Series purchases these instruments to hedge
against currency advances before it invests in securities denominated in such
currency and the currency market declines, such Series might incur a loss on the
futures contract. A Series' ability to establish and maintain positions will
depend on market liquidity. The ability of a Series to close out a futures
position or an option depends upon a liquid secondary market. There is no
assurance that liquid secondary markets will exist for any particular futures
contract or option at any particular time. See "Risks of Transactions in Stock
Options" and "Risks of Transactions in Futures Contracts" under "Investment
Objectives and Policies" in the Statement of Additional Information.
OTHER INVESTMENT PRACTICES
REPURCHASE AGREEMENTS
A 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' repurchase agreements will at all
times be fully collateralized in an amount at least equal to the resale price.
The instruments held as collateral are valued daily, and if the value of the
instruments declines, a Series will require additional collateral. In the event
of bankruptcy or default of certain sellers of repurchase agreements, a Series
could experience costs and delays in liquidating the underlying security held as
collateral and might incur a loss if such collateral declines in value during
this period. Each Series may participate in a joint repurchase account managed
by Prudential Investments Fund Management LLC pursuant to an order of the
Securities and Exchange Commission (SEC). See "Investment Objective and
Policies--Repurchase Agreements" in the Statement of Additional Information.
SEGREGATED AND FUTURES ACCOUNTS. Each Series will establish a segregated
account with State Street Bank and Trust Company (State Street or Custodian) in
which it will maintain cash and liquid assets equal in value to its obligations
in respect of potential leveraged transactions including, as applicable, forward
contracts, when-issued and delayed-delivery securities, repurchase and reverse
repurchase agreements, foward rolls, dollar rolls, and written options (unless
otherwise covered). The assets deposited in the segregated account will be
marked-to-market daily. Alternatively, each Series may place and maintain cash,
securities and similar investments with a futures commissions merchant in
amounts necessary to effect such Series' transactions in exchange-traded futures
contracts and options thereon, provided certain conditions are satisfied. Each
Series will utilize a segregated account with its Custodian to maintain cash and
liquid assets in connection with its futures contracts and options thereon.
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
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rolls." In dollar roll transactions, the mortgage-related securities that are
repurchased will bear the same coupon rate as those sold, but generally will be
collateralized by different pools of mortgages with different prepayment
histories than those sold. During the roll period, the 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 a cash equivalent security position which
matures on or before the forward settlement date of the dollar roll transaction.
Reverse repurchase agreements involve sales by the International Stock
Series of portfolio securities to a financial institution concurrently with an
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 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. See "Investment Objectives and Policies--Borrowings" in the
Statement of Additional Information.
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. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during the period between
purchase and settlement. At the time of delivery of the securities the value may
be more or less than the purchase price and an increase in the percentage of the
Series' assets committed to the purchase of securities on a when-issued or
delayed delivery basis may increase the volatility of the Series' net asset
value.
LIQUIDITY PUTS
The 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 "liquidity put" or a "tender option bond."
ILLIQUID SECURITIES
The Global Series and the 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,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act), and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation. A
Series' investment in Rule 144A securities could have the effect of increasing
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing Rule 144A securities. The Series' Subadvisers
will monitor the liquidity of such restricted securities under the supervision
of the Manager and the Board of Directors. Repurchase agreements subject to
demand are deemed to have a maturity equal to the applicable notice period.
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The staff of the SEC has taken the position, which each Series intends to
follow, that purchased OTC options and the assets used as "cover" for written
OTC options are illiquid securities unless the Series and the counterparty have
provided for the Series, at the Series' election, to unwind the over-the-counter
option. The exercise of such an option ordinarily would involve the payment by
the Series of an amount designed to reflect the counterparty's economic loss
from an early termination, but does allow the Series to treat the assets used as
"cover" as "liquid." The Series will also treat non-U.S. Government IOs and POs
as illiquid so long as the staff of the SEC maintains its position that such
securities are illiquid. See "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
SECURITIES LENDING
Each Series may lend its portfolio securities to brokers or dealers, banks,
or other recognized institutional borrowers of securities, provided that the
borrower at all times maintains collateral in an amount equal to at least 100%
of the market value of the securities loaned. During the time a Series'
securities are on loan, the borrower will pay such Series an amount equivalent
to any dividend or interest paid on such securities and such Series may invest
any cash collateral it receives and earn additional income, or it may receive an
agreed-upon amount of interest income from the borrower. In these transactions,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. Each
Series may lend up to 30% of the value of its total assets. Loans are subject to
termination at the option of a Series or the borrower. A Series may pay
reasonable finders', administrative and custodial fees in connection with a loan
of its securities and may share the interest earned on collateral with the
borrower. See "Investment Objective and Policies--Securities Lending" in the
Statement of Additional Information.
BORROWINGS
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.
If the Series borrows to invest in securities, any investment gains made on the
securities in excess of interest paid on the borrowing will cause the net asset
value of the shares to rise faster than would otherwise be the case. On the
other hand, if the investment performance of the additional securities purchased
fails to cover their cost (including any interest paid on the money borrowed) to
the Series, the net asset value of the Series shares will decrease faster than
would otherwise be the case. This is the speculative factor known as "leverage."
See "Investment Restrictions" in the Statement of Additional Information.
PORTFOLIO TURNOVER
Each Series anticipates that its annual portfolio turnover rate will not
exceed 100% in normal circumstances.
RISKS AND SPECIAL CONSIDERATIONS
INVESTING IN SECURITIES OF FOREIGN COMPANIES AND COUNTRIES INVOLVES CERTAIN
RISKS AND CONSIDERATIONS WHICH ARE NOT TYPICALLY ASSOCIATED WITH INVESTING IN
U.S. GOVERNMENT SECURITIES AND THOSE OF DOMESTIC COMPANIES. Foreign companies
are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to U.S. companies.
There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than exists in the United
States. Dividends paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on such investments as
compared to dividends and interest paid to each Series by the U.S. Government or
by domestic companies. In addition, there may be the possibility of
expropriations, confiscatory taxation, political, economic or social instability
or diplomatic developments which could affect assets of a Series held in foreign
countries.
There may be less publicly available information about foreign companies
and governments compared to reports and ratings published about U.S. companies.
Foreign securities markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Brokerage commissions and
other transaction costs on foreign securities exchanges are generally higher
than in the United States. In addition, foreign markets may have increased risks
associated with clearance and settlement. Delays in settlement could result in
periods of uninvested assets, missed investment opportunities or losses to a
Series.
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Shareholders should be aware that investing in the equity and fixed-income
markets of developing countries involves exposure to economies that are
generally less diverse and mature, and to political systems which can be
expected to have less stability than those of developed countries. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries. The risks associated with
investments in foreign securities, described above, may be greater with respect
to investments in developing countries.
INVESTMENT RESTRICTIONS
Each Series is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Such fundamental policies
cannot be changed without the approval of the holders of a majority of the
relevant Series' outstanding voting securities. See "Investment Restrictions" in
the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE SERIES' MANAGER, SUBADVISERS AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE SERIES' MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE SERIES. EACH SERIES' SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
GLOBAL SERIES: For the fiscal year ended October 31, 1997 the Series' total
expenses as a percentage of average net assets for the Series Class A, Class B,
Class C and Class Z shares were 1.39%, 2.07%, 2.14%, and 1.14%, respectively.
See "Financial Highlights."
INTERNATIONAL STOCK SERIES: For the fiscal year ended October 31, 1997 the
Series total expenses as a percentage of average net assets for the Series Class
A, Class B, Class C and Class Z shares were 1.75%, 2.50%, 2.50%, and 1.50%,
respectively. See "Financial Highlights."
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF EACH SERIES AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .75 OF
1% OF GLOBAL SERIES AVERAGE DAILY NET ASSETS AND 1% OF THE INTERNATIONAL STOCK
SERIES' AVERAGE DAILY NET ASSETS. PIFM is organized in New York as a limited
liability company. It is the successor of Prudential Mutual Fund Management,
Inc., which transferred its assets to PIFM in September 1996. For the fiscal
year ended October 31, 1997, Global Series and International Stock Series paid
management fees to PIFM of 0.75% and 1.00%, respectively, of the Series' average
net assets. See "Manager" in the Statement of Additional Information.
As of November 30, 1997, PIFM served as the manager of 42 open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator of 22 closed-end investment companies, with aggregate
assets of approximately $60 billion.
PIFM is a wholly-owned subsidiary of The Prudential Insurance Company of
America (Prudential), a major diversified insurance and financial services
company.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE CORPORATE AFFAIRS. SEE "MANAGER"
IN THE STATEMENT OF ADDITIONAL INFORMATION.
SUBADVISERS
GLOBAL SERIES: UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE
PRUDENTIAL INVESTMENT CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL
INVESTMENTS (PI, THE SUBADVISER OR THE INVESTMENT ADVISER), PI FURNISHES
INVESTMENT
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ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS
REIMBURSED BY PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING
SUCH SERVICES. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises PI's
performance of such services.
PI is an indirect, wholly-owned subsidiary of Prudential.
In October 1997, portfolio management for the Global Series was assumed by
Daniel J. Duane, Ingrid Holm and Michelle Picker, as co-managers.
Daniel J. Duane is a Managing Director and Chief Investment Officer for
Global Equity Investments of Prudential Mutual Fund Investment Management, a
unit of The Prudential Investment Corporation (PIC). Mr. Duane has been employed
by PIC as a portfolio manager since 1990. Mr. Duane is a Chartered Financial
Analyst. Mr. Duane has managed the Fund's Global Series since its inception and
has served as a co-manager of the Global Series since October 1997. He also
serves as co-manager of the Prudential Series Fund Global Equity Portfolio.
Ingrid Holm is a Vice President in PIC's global equity investments group.
Ms. Holm joined PIC in 1989, and has served as a portfolio manager since 1994.
Between 1990 and 1994, Ms. Holm was a member of PIC's high yield bond research
group. Ms. Holm is a Chartered Financial Analyst. She has served as a co-manager
of Prudential Series Fund Global Equity Portfolio and as a co-manager of the
Fund's Global Series since October 1997.
Michelle Picker is a Vice President in PIC's global equity investments
group. Ms. Picker joined PIC in 1992 as a research analyst concentrating on U.S.
stocks. Since 1994, she has served as a portfolio manager focusing on companies
in the Pacific Basin, outside of Japan. Prior to joining PIC, Ms. Picker was
employed as an accountant with Price Waterhouse. Ms. Picker is a Chartered
Financial Analyst. She has served as a co-manager of Prudential Series Fund
Global Equity Portfolio and as a co-manager of the Fund's Global Series since
October 1997.
INTERNATIONAL STOCK SERIES: UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND
MERCATOR ASSET MANAGEMENT, L.P. (MERCATOR OR, TOGETHER WITH PI, THE SUBADVISERS,
AND INDIVIDUALLY, A SUBADVISER), MERCATOR FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE SERIES AND IS COMPENSATED BY PIFM FOR
ITS SERVICES AT AN ANNUAL RATE OF .75 OF 1% OF INTERNATIONAL STOCK SERIES'
AVERAGE DAILY NET ASSETS UP TO AND INCLUDING $50 MILLION, .60 OF 1% OF
INTERNATIONAL STOCK SERIES' AVERAGE DAILY NET ASSETS IN EXCESS OF $50 MILLION
AND UP TO AND INCLUDING $300 MILLION AND .45 OF 1% OF INTERNATIONAL STOCK
SERIES' AVERAGE DAILY NET ASSETS IN EXCESS OF $300 MILLION. Pursuant to a
subadvisory agreement between PIFM and PI, PI provides investment advisory
services to the International Stock Series with respect to (i) the management of
short-term assets, including cash, money market instruments and repurchase
agreements and (ii) the lending of portfolio securities in connection with the
management of the International Stock Series. For these services, PIFM will
reimburse PI for reasonable costs and expenses incurred by PI determined in a
manner acceptable to PIFM.
Under the International Stock Series' Subadvisory Agreement, Mercator,
subject to the supervision of PIFM, is responsible for managing the assets of
International Stock Series in accordance with its investment objective,
investment program and policies. Mercator determines what securities and other
instruments are purchased and sold for International Stock Series and is
responsible for obtaining and evaluating financial data relevant to
International Stock Series.
Peter F. Spano is responsible for the day-to-day management of the
portfolio of International Stock Series. Mr. Spano has managed the portfolio of
International Stock Series since its inception in November 1992 and has been
employed as a portfolio manager with Mercator since its founding in 1984.
Mercator is a registered investment adviser and a Delaware limited
partnership with approximately $2.9 billion in assets under management as of
September 30, 1997. Mercator's general partners are three Florida corporations:
JZT Corp., PXS Corp. and MXW Corp. Mercator's limited partners are The
Prudential Asset Management Company, Inc., a wholly-owned indirect subsidiary of
Prudential, and KXB Corp. John G. Thompson, Peter F. Spano, and Michael A.
Williams are the sole shareholders of JZT Corp., PXS Corp. and MXW Corp.,
respectively. Kenneth B. Brown is the sole shareholder of KXB Corp. The address
of each of the general partners is 2400 East Commercial Blvd., Suite 810, Fort
Lauderdale, Florida 33308. Mercator serves as adviser to various institutional
investors and mutual funds.
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DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR
OF THE CLASS A, CLASS B, CLASS C AND CLASS Z SHARES OF THE FUND. IT IS AN
INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS
B PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED ON BEHALF OF EACH
SERIES UNDER RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION
AGREEMENT (THE DISTRIBUTION AGREEMENT), PRUDENTIAL SECURITIES (ALSO, THE
DISTRIBUTOR) INCURS THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND
CLASS C SHARES. The Distributor also incurs the expenses of distributing the
Fund's Class Z shares under the Distribution Agreement, none of which is
reimbursed or paid for by the Fund. These expenses include commissions and
account servicing fees paid to, or on account of, financial advisers of
Prudential Securities and representatives of Pruco Securities Corporation
(Prusec), an affiliated broker-dealer, commissions and account servicing fees
paid to, or on account of, other broker-dealers or financial institutions (other
than national banks) which have entered into agreements with the Distributor,
advertising expenses, the cost of printing and mailing prospectuses to potential
investors and indirect and overhead costs of Prudential Securities and Prusec
associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses.
Under the Plans, each Series is obligated to pay distribution and/or
service fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, a Series will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
UNDER THE CLASS A PLAN, EACH SERIES MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of up to .25 of 1%) may not exceed .30 of 1% of
the average daily net assets of the Class A shares.
UNDER THE CLASS B PLANS, GLOBAL SERIES PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B SHARES AT AN ANNUAL RATE
OF .75 OF 1% OF AVERAGE DAILY NET ASSETS OF THE CLASS B SHARES UP TO THE LEVEL
OF THE AVERAGE DAILY NET ASSETS OF THE GLOBAL SERIES AS OF FEBRUARY 26, 1986,
PLUS 1% OF AVERAGE DAILY NET ASSETS OF THE CLASS B SHARES IN EXCESS OF SUCH
LEVEL, AND INTERNATIONAL STOCK SERIES PAYS PRUDENTIAL SECURITIES FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B SHARES AT AN ANNUAL RATE
OF 1% OF AVERAGE DAILY NET ASSETS OF THE CLASS B SHARES. UNDER THE CLASS C PLAN,
EACH SERIES PAYS PRUDENTIAL SECURITIES FOR ITS DISTRIBUTION-RELATED ACTIVITIES
WITH RESPECT TO THE CLASS C SHARES AT AN ANNUAL RATE OF 1% OF AVERAGE DAILY NET
ASSETS OF CLASS C SHARES. The Global Series Class B Plan provides for the
payment to Prudential Securities of (i) an asset-based sales charge of .50 of 1%
of the average daily net assets of the Class B shares of such Series up to the
level of the average daily net assets of such Series on 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 and (ii) a service fee of .25 of 1% of the average daily
net assets of the Class B shares of such Series. International Stock Series'
Class B Plan and each Series' Class C Plans provide for the payment to
Prudential Securities of (i) an asset-based sales charge of .75 of 1% of the
average daily net assets of the Class B and Class C shares, respectively, and
(ii) a service fee of .25 of 1% of the average daily net assets of the Class B
and Class C shares, respectively. The service fee is used to pay for personal
service and/or the maintenance of shareholders' accounts. Prudential Securities
also receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."
For the fiscal year ended October 31, 1997, Global Series paid distribution
expenses of .25%, .93% and 1.00% and the International Stock Series paid
distribution expenses of .25%, 1.00% and 1.00% of the average net assets of the
Series' Class A, Class B and Class C shares, respectively. Each Series records
all payments made under the Plans as expenses in the calculation of net
investment income.
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Distribution expenses attributable to the sale of Class A, Class B or Class
C shares of a Series will be allocated to each such class based upon the ratio
of sales of each such class to the sales of Class A, Class B and Class C shares
of such Series other than expenses allocable to a particular class. The
distribution fee and sales charge of one class will not be used to subsidize the
sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors
or of a majority of the outstanding shares of the applicable class of the Series
to which the Plan relates. A Series will not be obligated to pay distribution
and service fees incurred under any Plan if it is terminated or not continued.
In addition to distribution and service fees paid by 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 (including Prudential
Securities) and other persons which distribute shares of the Fund (including
Class Z shares). Such payment may be calculated by reference to the net asset
value of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling (800) 225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
each Series' assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
FEE WAIVERS AND SUBSIDIES
PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of a Series. Fee waivers
and expense subsidies will increase a Series' total return.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant
for the Series provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage" in
the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for each Series. PMFS is a
wholly-owned subsidiary of PIFM. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
28
<PAGE>
HOW THE FUND VALUES ITS SHARES
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. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. THE BOARD OF DIRECTORS OF THE FUND HAS
FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF EACH SERIES' NET ASSET
VALUE TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available or if such quotations are deemed not representative of fair
value, at fair value as determined in good faith under procedures established by
the Funds' Board of Directors. See "Net Asset Value" in the Statement of
Additional Information.
Each Series will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by it or days on which changes in the value
of its portfolio securities do not materially affect the NAV.
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 of a Series will generally be higher than the NAV of the
other three classes of such Series because Class Z shares are not subject to any
distribution and/or service fees. It is expected, however, that the NAV of each
class of a Series will tend to converge immediately after the recording of
dividends of such Series, if any, which will differ by approximately the amount
of the distribution and/or service fee expense accrual differential among the
classes of such Series.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME A SERIES MAY ADVERTISE AVERAGE ANNUAL TOTAL RETURN,
AGGREGATE TOTAL RETURN AND YIELD IN ADVERTISEMENTS OR SALES LITERATURE. TOTAL
RETURN AND YIELD ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES. These figures are based on historical earnings and are not
intended to indicate future performance. The total return shows how much an
investment in a Series would have increased (decreased) over a specified period
of time (i.e., one, five or ten years or since inception of such Series)
assuming that all distributions and dividends by such Series were reinvested on
the reinvestment dates during the period and less all recurring fees. The
aggregate total return reflects actual performance over a stated period of time.
Average annual total return is a hypothetical rate of return that, if achieved
annually, would have produced the same aggregate total return if performance had
been constant over the entire period. Average annual total return smoothes out
variations in performance and takes into account any applicable initial or
contingent deferred sales charges. Neither average annual total return nor
aggregate total return takes into account any federal or state income taxes
which may be payable upon redemption. The yield refers to the income generated
by an investment in a Series over a one-month or 30-day period. This income is
then "annualized"; that is, the amount of income generated by the investment
during that 30-day period is assumed to be generated each 30-day period for
twelve periods and is shown as a percentage of the investment. The income earned
on the investment is also assumed to be reinvested at the end of the sixth
30-day period. A Series may also include comparative performance information in
advertising or marketing such Series' shares. Each Series may also from time to
time advertise its 30-day yield. Such performance information may include data
from Lipper Analytical Services, Inc., Morningstar Publications, Inc., other
industry publications, business periodicals, and market indices. See
"Performance Information" in the Statement of Additional Information. Further
performance information is contained in each Series' annual and semi-annual
reports to shareholders, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."
29
<PAGE>
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF A SERIES
EACH SERIES HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, EACH
SERIES WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME
AND CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
Each Series may, from time to time, invest in passive foreign investment
companies (PFICs). In general, PFICs are foreign corporations that own mostly
passive assets or that derive 75% or more of their income from passive sources.
A Series' investment in PFICs may subject such Series to federal income taxes
and a charge in the nature of interest with respect to certain gains and income
realized by such Series. For taxable years beginning after December 31, 1997, a
Series would be able to avoid such taxes and interest by electing to "mark to
market" its investments in PFICs, i.e., treat them as sold for fair market value
at the end of the year. See "Taxes, Dividends and Distributions" in the
Statement of Additional Information."
Under the Internal Revenue Code, special rules apply to the treatment of
certain options, futures and forward contracts (Section 1256 contracts). At the
end of each year, such investments held by each Series will be required to be
"marked to market" for federal income tax purposes, i.e., treated as having been
sold at market value. Sixty percent of any capital gain or loss recognized on
these "deemed sales" and on actual dispositions will be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxes" in the Statement of Additional Information.
TAXATION OF SHAREHOLDERS
Any dividends out of net taxable investment income, together with
distributions of net short-term capital gains (i.e., the excess of net
short-term capital gains over net long-term capital losses) distributed to
shareholders, will be taxable as ordinary income to the shareholder whether or
not reinvested. Any net long-term capital gains (i.e., the excess of net
long-term capital gains over net short-term capital losses) distributed to
shareholders and properly designated by the Series will be taxable as such to
the shareholders, whether or not reinvested and regardless of the length of time
a shareholder has owned his or her shares. Thus, subject to certain limitations,
distributions of capital gains received by individual shareholders may be
eligible for 20% or 28% capital gains rates of taxation.
Dividends paid by a Series will be eligible for the dividends-received
deduction for corporate shareholders to the extent that such Series' income is
derived from certain dividends received from domestic corporations. Capital
gains distributions are not eligible for the corporate dividends-received
deduction.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year and
otherwise as short-term capital gain or loss. The maximum long-term capital
gains rate for individual shareholders for securities held between 12 and 18
months currently is 28% and for securities held more than 18 months is 20%. The
maximum tax rate for individual shareholders for ordinary income is 39.6%. The
maximum long-term capital gains rate for corporate shareholders is currently the
same as the maximum tax rate for ordinary income. Any capital loss with respect
to shares held for six months or less will be treated as long-term capital loss
to the extent of any capital gain distributions received by the shareholder with
respect to such shares.
Any loss realized on a sale, redemption or exchange of shares of the Fund
by a shareholder will be disallowed to the extent the shares are replaced within
a 61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of a Series and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to take
into account certain sales charges incurred in acquiring such shares for
purposes of calculating gain or loss realized upon a sale or exchange of shares
of such Series.
30
<PAGE>
Distributions by a Series to a shareholder that is a qualified retirement
plan would generally not be taxable to participants in the plan. Distributions
from a qualified retirement plan (or non-qualified arrangement) to a participant
or beneficiary are subject to special rules. These rules vary greatly with
individual situations, and potential investors are therefore urged to consult
with their own tax advisers.
The Fund has obtained opinions of counsel to the effect that neither (i)
the conversion of Class B shares into Class A shares nor (ii) the exchange of
any class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes, Dividends
and Distributions" in the Statement of Additional Information.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, each Series is required to withhold and
remit to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds, on the accounts of certain shareholders who fail to furnish their
correct tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case
of certain foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. Dividends of net
investment income and net short-term capital gains to a foreign shareholder will
generally be subject to U.S. withholding tax at the rate of 30% (or lower treaty
rate).
Investment income received by a Series from sources within foreign
countries may be subject to foreign income taxes withheld at source. If a Series
should have more than 50% of the value of its assets invested in securities of
foreign corporations at the close of its taxable year, which is each Series'
present intention, such Series may elect to permit its shareholders to take,
either as a credit or as a deduction, their proportionate share of the foreign
income taxes paid, subject to generally applicable limitations. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
EACH SERIES EXPECTS TO DISTRIBUTE ANNUALLY TO ITS SHAREHOLDERS ALL OF ITS
NET INVESTMENT INCOME AND ANY NET CAPITAL GAINS. Dividends paid by a Series with
respect to each class of its shares, to the extent any dividends are paid, will
be calculated in the same manner, at the same time, on the same day and will be
in the same amount except that each class (other than Class Z) will bear its own
distribution charges, generally resulting in lower dividends for Class B and
Class C shares. Distribution of net capital gains, if any, will be paid in the
same amount per share for each class of shares. See "How the Fund Values its
Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL SHARES OF THE
RELEVANT SERIES BASED ON THE NAV OF EACH CLASS OF SUCH SERIES ON THE RECORD
DATE, OR SUCH OTHER DATE AS THE BOARD OF DIRECTORS MAY DETERMINE, UNLESS THE
SHAREHOLDER ELECTS IN WRITING NOT LESS THAN FIVE BUSINESS DAYS PRIOR TO THE
RECORD DATE TO RECEIVE SUCH DIVIDEND AND DISTRIBUTIONS IN CASH. Such election
should be submitted to Prudential Mutual Fund Services LLC, Attention: Account
Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015. The Fund will
notify each shareholder after the close of the Fund's taxable year both of the
dollar amount and the taxable status of that year's dividends and distributions
on a per share basis. If you hold shares through Prudential Securities, you
should contact your financial adviser to elect to receive dividends and
distributions in cash.
WHEN A SERIES GOES "EX-DIVIDEND," THE NAV OF EACH CLASS OF SUCH SERIES IS
REDUCED BY THE AMOUNT OF THE DIVIDEND OR DISTRIBUTION ALLOCABLE TO EACH CLASS.
IF YOU BUY SHARES JUST PRIOR TO THE EX-DIVIDEND DATE (WHICH GENERALLY OCCURS TWO
BUSINESS DAYS PRIOR TO THE RECORD DATE), THE PRICE YOU PAY WILL INCLUDE THE
DIVIDEND OR DISTRIBUTION AND A PORTION OF YOUR INVESTMENT WILL BE RETURNED TO
YOU AS A TAXABLE DISTRIBUTION. YOU SHOULD, THEREFORE, CONSIDER THE TIMING OF
DIVIDENDS AND DISTRIBUTIONS WHEN MAKING YOUR PURCHASES.
If you buy shares on or immediately prior to the record date (the date that
determines who receives the dividend), you will receive a portion of the money
you invested as a taxable dividend. Therefore, you should consider the timing of
dividends when buying shares of the Fund.
31
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
PRUDENTIAL WORLD FUND, INC. (THE FUND) WAS INCORPORATED IN MARYLAND ON
FEBRUARY 28, 1984. THE FUND IS AUTHORIZED TO ISSUE 1 BILLION SHARES OF COMMON
STOCK, $.01 PAR VALUE PER SHARE, WHICH ARE CURRENTLY DIVIDED INTO TWO PORTFOLIOS
OR SERIES, THE GLOBAL SERIES AND THE 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 COMMON
STOCK, EACH CONSISTING OF 125 MILLION AUTHORIZED SHARES. Each class of common
stock of each Series represents an interest in the same assets of the Series to
which such shares relate and is identical in all respects except that (i) each
class (with the exception of Class Z shares) is subject to different 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 arrangements and has separate voting rights on any
matter submitted to shareholders in which the interests of one class differ from
the interests of any other class, (iii) each class has a different exchange
privilege, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to a limited group of investors. See
"How the Fund is Managed--Distributor." In accordance with the Fund's Articles
of Incorporation, the Board of Directors may authorize the creation of
additional series and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Board of Directors
may determine.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of each Series, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of a Series under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock of a Series is equal as to
earnings, assets and voting privileges, except as noted above, and each class
(with the exception of Class Z shares which are not subject to any distribution
or service fees) bears the expenses related to the distribution of its shares.
Except for the conversion feature applicable to the Class B shares, there are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of a Series is entitled to its portion
of all of such Series' assets after all debt and expenses of such Series have
been paid. Since Class B and Class C shares of a Series generally bear higher
distribution expenses than Class A shares of such Series, the liquidation
proceeds to shareholders of those classes are likely to be lower than to Class A
shareholders of such Series and to Class Z shareholders of such Series whose
shares are not subject to any distribution and/or service fees. The Fund's
shares do not have cumulative voting rights for the election of Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD ANNUAL MEETINGS
OF SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.
32
<PAGE>
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF EITHER SERIES THROUGH PRUDENTIAL SECURITIES,
PRUSEC OR DIRECTLY FROM THE FUND THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL
FUND SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. Participants in programs
sponsored by Prudential Retirement Services should contact their client
representative for more information about Class Z shares. The purchase price per
share is the NAV next determined following receipt of an order in proper form by
the Transfer Agent or Prudential Securities plus a sales charge which, at your
option, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). Class Z shares are offered
to a limited group of investors at net asset value without any sales charge.
Payment may be made by wire, check or through your brokerage account. See
"Alternative Purchase Plan" below. See also "How the Fund Values its Shares."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates.
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares, except that the minimum initial investment
for Class C shares may be waived from time to time. There is no minimum initial
investment requirement for investors who qualify to purchase Class Z shares. The
minimum subsequent investment is $100 for all classes, except for Class Z shares
for which there is no such minimum. All minimum investment requirements are
waived for certain retirement and employee savings plans or custodial accounts
for the benefit of minors and for purchases made in connection with the "Best
Minds" program sponsored by the Distributor. For purchases through the Automatic
Savings Accumulation Plan, the minimum initial and subsequent investment is $50.
See "Shareholder Services" below.
Each Series reserves the right to reject any purchase order (including an
exchange into a Series) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to a Series. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Series' shares may be subject to postage and handling
charges imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of a Series by wire,
you must first telephone PMFS at (800) 225-1852 (toll-free) to receive an
account number. The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you to
your bank to transfer funds by wire to State Street Bank and Trust Company
(State Street), Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Prudential World Fund, Inc. (Global Series or International
Stock Series, as the case may be), 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 Series as of that day. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential World Fund, Inc.,
(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.
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<PAGE>
ALTERNATIVE PURCHASE PLAN
EACH SERIES OFFERS FOUR CLASSES OF SHARES (CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES) WHICH ALLOW YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE
STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE,
THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT
CIRCUMSTANCES (ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------------------- ------------------------ ------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% of .30 of 1% (Currently Initial sales charge waived or
the public offering price being charged at a rate reduced for certain purchases
of .25 of 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser 1% Shares do not convert to another
of the amount invested or the class
redemption proceeds on redemptions
made within one year of purchase
CLASS Z None None Sold to a limited group of investors
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Each class of shares of a Series represents an interest in the same
portfolio of investments 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 interest of any other class, (iii) each class has a
different exchange privilege, (iv) only Class B shares have a conversion feature
and (v) Class Z shares are offered exclusively for sale to a limited group of
investors. See "How to Exchange Your Shares" below. The income attributable to
each class and the dividends payable on the shares of each class will be reduced
by the amount of the distribution fee (if any) of each class. Class B and Class
C shares bear the expense of a higher distribution fee which will generally
cause them to have higher expense ratios and to pay lower dividends than the
Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of a Series will
receive different compensation for selling Class A, Class B, Class C and Class Z
shares and will generally receive more compensation initially for selling Class
A and Class B shares than for selling Class C or Class Z shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) that Class B shares automatically convert
to Class A shares approximately seven years after purchase (see "Conversion
Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Series:
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<PAGE>
If you intend to hold your investment in a 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 and Class C shares for the higher
cumulative annual distribution-related fee on those shares to exceed the initial
sales charge plus cumulative annual distribution-related fee on Class A shares.
This does not take into account the time value of money, which further reduces
the impact of the higher Class B or Class C distribution-related fee on the
investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions when the CDSC is applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES
UNLESS THE PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. SEE "REDUCTION AND
WAIVER OF INITIAL SALES CHARGES" AND "CLASS Z SHARES" BELOW.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested) as
shown in the following table:
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF NET AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------ --------------- ----------------- -----------------
$0 to $24,999 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
The Distributor may reallow the entire initial sales charge to dealers.
Selling dealers may be deemed to be underwriters, as that term is defined in the
Securities Act.
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisers and other persons which distribute shares a
finders' fee from its own resources based on a percentage of the net asset value
of shares sold by such persons.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Series and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Series
Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares" in the
Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of
an initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans
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under Sections 457 and 403(b)(7) of the Internal Revenue Code (collectively,
Benefit Plans), provided that the Benefit Plan has existing assets of at least
$1 million invested in shares of Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) or 250
eligible employees or participants. In the case of Benefit Plans whose accounts
are held directly with the Transfer Agent or Prudential Securities and for which
the Transfer Agent or Prudential Securities does individual account
recordkeeping (Direct Account Benefit Plans) and Benefit Plans sponsored by PSI
or its subsidiaries (PSI or Subsidiary Prototype Benefit Plans), Class A shares
may be purchased at NAV by participants who are repaying loans made from such
plans to the participant.
Prudential Retirement Programs. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or
non-qualified under the Internal Revenue Code, for which Prudential serves as
the plan administrator or recordkeeper, provided that (i) the plan has at least
$1 million in existing assets or 250 eligible employees and (ii) the Fund is an
available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code, deferred compensation and annuity plans under Sections 457 or
403(b)(7) of the Internal Revenue Code and plans that participate in the
Transfer Agent's PruArray and SmartPath Programs (benefit plan recordkeeping
services) (hereafter referred to as a PruArray or SmartPath Plan). All plans of
a company for which Prudential serves as plan administrator or recordkeeper are
aggregated in meeting the $1 million threshold. The term "existing assets" as
used herein includes stock issued by a plan sponsor, shares of Prudential Mutual
Funds and shares of certain unaffiliated mutual funds that participate in the
PruArray or SmartPath Program (Participating Funds). "Existing assets" also
include monies invested in The Guaranteed Interest Account (GIA), a group
annuity insurance product issued by Prudential, and units of The Stable Value
Fund (SVF), an unaffiliated bank collective fund. Class A shares may also be
purchased at NAV by plans that have monies invested in GIA and SVF, provided (i)
the purchase is made with the proceeds of a redemption from either GIA or SVF
and (ii) Class A shares are an investment option of the plan.
PruArray Association Benefit Plans. Class A shares are also offered at NAV
to Benefit Plans or non-qualified plans sponsored by employers which are members
of a common trade, professional or membership association (Association) that
participate in the PruArray Program provided that the Association enters into a
written agreement with Prudential. Such Benefit Plans or non-qualified plans may
purchase Class A shares at NAV without regard to the assets or number of
participants in the individual employer's qualified Plan(s) or non-qualified
plans so long as the employers in the Association (i) have retirement pIan
assets in the aggregate of at least $1 million or 250 participants in the
aggregate and (ii) maintain their accounts with the Transfer Agent.
PruArray Savings Program. Class A shares are also offered at NAV to
employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for purchase
at NAV by Individual Retirement Accounts and Savings Accumulation Plans of the
company's employees. The Program is available only to (i) employees who open an
IRA or Savings Accumulation Plan account with the Fund's Transfer Agent and (ii)
spouses of employees who open an IRA account with the Transfer Agent. The
Program is offered to companies that have at least 250 eligible employees.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray or SmartPath Plan qualifies to purchase Class A shares at NAV, all
subsequent purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers and current and former Directors/Trustees of the Prudential Mutual
Funds (including the Fund), (b) employees of Prudential Securities and 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 Prudential Securities provided that purchases at
NAV are permitted by 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
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client's broker on the previous purchases, 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.
You must notify the Transfer Agent either directly or through your dealer
that you are entitled to the reduction or waiver of the sales charge. The
reduction or waiver will be granted subject to confirmation of your entitlement.
No initial sales charges are imposed upon Class A shares acquired upon the
reinvestment of dividends and distributions. See "Purchase and Redemption of
Series Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares" in
the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order in proper form by the Transfer Agent or Prudential
Securities. Although there is no sales charge imposed at the time of purchase,
redemptions of Class B and Class C shares may be subject to a CDSC. See "How to
Sell Your Shares--Contingent Deferred Sales Charges" below. 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 from its own resources. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase. The Distributor anticipates that it will
recoup its payment of sales commissions from the combination of the CDSC and the
distribution fee. See "Distributor" in the Statement of Additional Information.
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 are currently available for purchase by the following
categories of investors: (i) pension, profit sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code, deferred
compensation plans and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code, and non-qualified plans for which the relevant Series is
an available option (collectively, Benefit Plans), provided such Benefit Plans
(in combination with other plans sponsored by the same employer or group of
related employers) have at least $50 million in defined contribution assets;
(ii) participants in any fee-based program or trust program sponsored by
Prudential Securities, The Prudential Savings Bank, F.S.B. or any affiliate
which includes mutual funds as investment options and for which the relevant
Series is an available option; (iii) certain participants in the MEDLEY Program
(group variable annuity contracts) sponsored by The Prudential Insurance Company
of America (Prudential) for whom Class Z shares of the Prudential Mutual Funds
are an available investment option; (iv) Benefit Plans for which Prudential
Retirement Services serves as record keeper and as of September 20, 1996, (a)
were Class Z shareholders of the Prudential Mutual Funds, or (b) executed a
letter of intent to purchase Class Z shares of the Prudential Mutual Funds; (v)
current and former Directors/Trustees of the Prudential Mutual Funds (including
the Fund); and (vi) employees of Prudential and/or Prudential Securities who
participate in a Prudential-sponsored employee savings plan.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other persons
which distribute shares a finders' fee from its own resources based on a
percentage of the net asset value of shares sold by such persons.
For more information about Class Z shares of either Series contact your
Prudential Securities financial adviser or Prusec representative or telephone
the Fund at (800) 225-1852. Participants in programs sponsored by Prudential
Retirement Services should contact their client representative for more
information about Class Z shares.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM SHARES OF A SERIES AT ANY TIME FOR CASH AT THE NAV NEXT
DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. See "How the Fund Values Its Shares."
In certain cases, however, redemption proceeds will be reduced by the amount of
any applicable contingent deferred sales charge, as described below. See
"Contingent Deferred Sales Charges" below.
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IF YOU HOLD SHARES OF A SERIES THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT YOUR PRUDENTIAL
SECURITIES FINANCIAL ADVISOR. IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A
WRITTEN REQUEST FOR REDEMPTION SIGNED BY YOU EXACTLY AS THE ACCOUNT IS
REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN
THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES, MUST BE RECEIVED BY THE
TRANSFER AGENT IN ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF
REDEMPTION IS REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY,
WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED
BEFORE SUCH REQUEST WILL BE ACCEPTED. All correspondence and documents
concerning redemptions should be sent to the Fund in care of its Transfer Agent,
Prudential Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Prudential Preferred Financial Services offices. 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 OF THE CERTIFICATE AND/OR WRITTEN
REQUEST EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH PRUDENTIAL
SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE CREDITED TO YOUR
PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by a Series of securities owned by it is not reasonably
practicable or it is not reasonably practicable for a Series fairly to determine
the value of its net assets, or (d) during any other period when the SEC, by
order, so permits; provided that applicable rules and regulations of the SEC
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE RELEVANT SERIES OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE
CHECK HAS BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE
PURCHASE CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING
SHARES BY WIRE OR BY CERTIFIED OR CASHIER'S CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of a Series to
make payment wholly or partly in cash, each Series may pay the redemption price
in whole or in part by a distribution in kind of securities from the investment
portfolio of each Series, in lieu of cash, in conformity with applicable rules
of the SEC. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. See "How Each Series Values Its Shares." If
your shares are redeemed in kind, you would incur transaction costs in
converting the assets into cash. Each Series, however, has elected to be
governed by Rule 18f-1 under the Investment Company Act, pursuant to 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 relevant Series during any 90-day period for any one
shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of a Series, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. A 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 of a Series 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 same Series at the
NAV next determined after the
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order is received, which must be within 90 days after the date of the
redemption. Any contingent deferred sales charge or CDSC paid in connection with
such redemption will be credited (in shares) to your account. (If less than a
full repurchase is made, the credit will be on a pro rata basis.) You must
notify the Series' Transfer Agent, either directly or through Prudential
Securities, at the time the repurchase privilege is exercised to adjust your
account for the CDSC you previously paid. Thereafter, any redemptions will be
subject to the CDSC applicable at the time of the redemption. See "Contingent
Deferred Sales Charge" below. Exercise of the repurchase privilege will
generally not affect federal tax treatment of any gain realized upon redemption.
However, if the redemption was made within a 30 day period of the repurchase and
if the redemption resulted in a loss, some or all of the loss, depending on the
amount reinvested, may not be allowed for federal income tax purposes. For more
information on the rule which disallows a loss on the sale or exchange of shares
of the Portfolio which are replaced, see "Taxes, Dividends and Distributions" in
the Statement of Additional Information.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid to
you. The CDSC will be imposed on any redemption by you which reduces the current
value of your Class B or Class C shares to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and one year, in the case of Class C shares. A CDSC will
be applied on the lesser of the original purchase price or the current value of
the shares being redeemed. Increases in the value of your shares or shares
acquired through reinvestment of dividends or distributions are not subject to a
CDSC. The amount of any contingent deferred sales charge will be paid to and
retained by the Distributor. See "How the Fund is Managed--Distributor" above
and "Waiver of the Contingent Deferred Sales Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of your shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The CDSC will be calculated from the first day of the month after
the initial purchase, excluding the time shares were held in a money market
fund. See "How to Exchange Your Shares" below.
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------ --------------------------
First .................................... 5.0%
Second ................................... 4.0%
Third .................................... 3.0%
Fourth ................................... 2.0%
Fifth .................................... 1.0%
Sixth .................................... 1.0%
Seventh .................................. None
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value above the total
amount of payments for the purchase of a 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.
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For example, assume you purchased 100 Class B shares of a Series at $10 per
share for a cost of $1,000. Subsequently, you acquired 5 additional Class B
shares of such Series through dividend reinvestment. During the second year
after the purchase you decided to redeem $500 of your investment. Assuming at
the time of the redemption the NAV had appreciated to $12 per share, the value
of your Class B shares would be $1,260 (105 shares at $12 per share). The CDSC
would not be applied to the value of the reinvested dividend shares and the
amount which represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 4% (the
applicable rate in the second year after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability of
a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), or a trust, at the time of death or initial
determination of disability, provided that the shares were purchased prior to
death or disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a
tax-deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59-1/2; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service (i.e.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
redemptions otherwise qualify for a waiver as described above.
In the case of Direct Account and PSI or Subsidiary Prototype Benefit
Plans, the CDSC will also be waived on the redemptions which represent
borrowings from such plans. Shares purchased with amounts used to repay a loan
from such plans on which a CDSC was not previously deducted will thereafter be
subject to a CDSC without regard to the time such amounts were previously
invested. In the case of a 401(k) plan, the CDSC will also be waived upon the
redemption of shares purchased with amounts used to repay loans made from the
account to the participant and from which a CDSC was previously deducted.
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. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% amount is reached.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to waiver
of the CDSC and provide the Transfer Agent with such supporting documentation as
it may deem appropriate. The waiver will be granted subject to confirmation of
your entitlement. See "Purchase and Redemption of Series Shares--Waiver of the
Contingent Deferred Sales Charge--Class B Shares" in the Statement of Additional
Information.
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 Transfer Agent's PruArray and SmartPath Programs.
CONVERSION FEATURE--CLASS B SHARES
Class B shares of a Series will automatically convert to Class A shares of
such Series 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.
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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 net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus, although
the aggregate dollar value will be the same, you may receive fewer Class A
shares than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase of
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 the conversions are suspended,
Class B shares of the Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF A SERIES YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET
FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENT OF SUCH FUNDS. CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B, CLASS
C AND CLASS Z SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE RELATIVE
NAV. No sales charge will be imposed at the time of the exchange. Any applicable
CDSC payable upon the redemption of shares exchanged will be calculated from the
first day of the month after the initial purchase, excluding the time shares
were held in a money market fund. Class B and Class C shares may not be
exchanged into money market funds other than Prudential Special Money Market
Fund, Inc. For purposes of calculating the seven-year holding period applicable
to the Class B conversion feature, the time period during which Class B shares
were held in a money market fund will be excluded. See "Conversion
Feature--Class B Shares" above. An exchange will be treated as a redemption and
purchase for tax purposes. See "Shareholder Investment Account--Exchange
Privilege" in the Statement of Additional Information.
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IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE THE TELEPHONE
EXCHANGE PRIVILEGE ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call
the Series at 1 (800) 225-1852 to execute a telephone exchange of shares on
weekdays, except holidays, between the hours of 8:00 a.m. and 6:00 p.m., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. NONE OF THE FUND, A SERIES OR THEIR AGENTS WILL BE LIABLE FOR
ANY LOSS, LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS
REASONABLY BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. (The Fund, a
Series or its agents could be subject to liability if they fail to employ
reasonable procedures.) All exchanges will be made on the basis of the relative
NAV of the funds next determined after the request is received in good order.
The Exchange Privilege is available only in states where the exchange may
legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES OR THROUGH A DEALER WHICH
HAS ENTERED INTO A SELECTED DEALER AGREEMENT WITH THE SERIES' DISTRIBUTOR, YOU
MUST EXCHANGE YOUR SHARES BY CONTACTING YOUR FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services 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 SHAREHOLDERS SHOULD MAKE EXCHANGES
BY MAIL BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS NOTED
ABOVE.
SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan -- Class A Shares -- Reduction and Waiver of Initial Sales
Charges" above) and to shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in the account of a shareholder who qualifies to
purchase Class A shares at NAV will be automatically exchanged for Class A
shares on a quarterly basis, unless the shareholder elects otherwise. Similarly,
shareholders who qualify to purchase Class Z shares will have their Class B and
Class C shares which are not subject to a CDSC and their Class A shares
exchanged for Class Z shares on a quarterly basis. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange. Amounts representing Class B or Class C shares which are not subject
to a CDSC include the following: (1) amounts representing Class B or Class C
shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C shares
and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities or Prusec that
they are eligible for this special exchange privilege.
Participants in any fee-based program for which the relevant 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
through participation in the program) will be exchanged for Class A shares at
net asset value. Similarly, participants in PSI's 401(k) Plan, an employee
benefit plan sponsored by Prudential Securities Incorporated (the PSI 401(k)
Plan), for which the Fund's Class Z shares are an available option and who wish
to transfer their Class Z shares out of the PSI 401(k) Plan following separation
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.
Each Series reserves the right to reject any exchange order including
exchanges (and market timing transactions) which are of a size and/or frequency
engaged in by one or more accounts acting in concert or otherwise, that have or
may have an adverse effect on the ability of a Subadviser to manage the relevant
portfolio. The determination that such exchanges or activity may have an adverse
effect and the determination to reject any exchange order shall be in the
discretion of the Manager and the relevant Subadviser.
42
<PAGE>
The Exchange Privilege is not a right and may be suspended, modified or
terminated on 60 days' written notice to shareholders.
FREQUENT TRADING. Each Series and the other Prudential Mutual Funds are
not intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, each Prudential Mutual Fund and each Series reserves the right to
refuse purchase orders and exchanges by any person, group or commonly controlled
accounts, if, in the Manager's sole judgment, such person, group or accounts
were following a market timing strategy or were otherwise engaging in excessive
trading ("Market Timers").
To implement this authority to protect each Series and its shareholders
from excessive trading, the Series will reject all exchanges and purchases from
a Market Timer unless the Market Timer has entered into a written agreement with
the Series or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading. The
Series may notify the Market Timer of rejection of an exchange or purchase order
subsequent to the day on which the order was placed.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in a Series, you
can take advantage of the following additional services and privileges:
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Series at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make regular
purchases of a Series' shares in amounts as little as $50 via an automatic debit
to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
BEST MINDS PROGRAM. The Distributor sponsors the Best Minds program
pursuant to which the total dollar amount of a client's investment in the
program will be allocated equally among shares of the Series and other
Prudential Mutual Funds. For more information about this program, you should
contact your Prudential Securities financial adviser or Prusec representative.
TAX DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Code are available
through the Distributor. These plans are for use by both self-employed
individuals and corporate employers. These plans permit either self-direction of
accounts by participants, or a pooled account arrangement. Information regarding
the establishment of these plans, the administration, custodial fees and other
details is available from Prudential Securities or the Transfer Agent. If you
are considering adopting such a plan, you should consult with your own legal or
tax adviser with respect to the establishment and maintenance of such a plan.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges above." See also "Shareholder
Investment Account--Systematic Withdrawal Plan" in the Statement of Additional
Information.
REPORTS TO SHAREHOLDERS. Global Series or International Stock Series, as
the case may be, will send you annual and semi-annual reports. The financial
statements appearing in annual reports are audited by independent accountants.
In order to reduce duplicate mailing and printing expenses each Series will
provide one annual report and semi-annual shareholder report and annual
prospectus per household. You may request additional copies of such reports by
calling (800) 225-1852 or by writing to the Series at Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077. In addition, monthly unaudited
financial data is available upon request from the Series.
SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or by
telephone at 1-800-225-1852 or, from outside the U.S.A., at 1-908-417-7555
(collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
43
<PAGE>
MERCATOR ASSET MANAGEMENT INTERNATIONAL COMPOSITE PERFORMANCE
PASTE UP CHART
ANNUALIZED TOTAL RETURNS
(after Investment advisory fees) as of 9/30/97
[GRAPHICAL REPRESENTATION]
Source: Mercator Asset Management, L.P., Subadviser to the International Stock
Series.
THE COMPOSITE PERFORMANCE RESULTS PRESENTED ABOVE ARE THOSE OF MERCATOR ASSET
MANAGEMENT (MERCATOR), NOT OF EITHER SERIES, AND SHOULD NOT BE INTERPRETED AS
INDICATIVE OF THE FUTURE PERFORMANCE OF EITHER SERIES. As of September 1997, the
Mercator Portfolio was comprised of 16 clients (including 2 mutual funds, one of
which is International Stock Series) having aggregate net assets of
approximately $2.9 billion. Mercator's clients' investment objectives, policies
and strategies are substantially similar to those of the International Stock
Series, although, unlike the International Stock Series, many of such clients
are not subject to certain investment Limitations, diversification requirements
and other restrictions imposed by law upon mutual funds, which, if applicable to
all Mercator clients, may have adversely affected composite performance.
Composite performance results reflect reinvestment of dividends and other
earnings and are stated after taking into account investment advisory fees and,
in the case of the two mutual funds only, other fund expenses. Performance
results of the non-mutual fund clients included in the composite do not reflect
the deduction of operating expenses of mutual funds, such as distribution (Rule
12b-1) fees, or any applicable sales charges. Performance shown represents the
time-weighted rate of return for all clients participating in the Mercator
Portfolio for at least one full calendar quarter and conforms to the standards
set by the Association for Investment Management and Research.
The Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged,
weighted market capitalization index that reflects stock market performance in
Europe, Australasia and the Far East. The index includes reinvestment of
dividends, net of withholding taxes. Investors can not buy or invest directly in
market indices or averages. Foreign investing involves special risks including
currency fluctuations and political, social and economic change.
A-1
<PAGE>
MERCATOR ASSET MANAGEMENT INTERNATIONAL COMPOSITE PERFORMANCE
PASTE UP CHART
TOTAL RETURNS
(after Investment advisory fees)
Source: Mercator Asset Management, L.P., Subadviser to the International Stock
Series.
THE COMPOSITE PERFORMANCE RESULTS PRESENTED ABOVE ARE THOSE OF MERCATOR ASSET
MANAGEMENT (MERCATOR), NOT OF EITHER SERIES, AND SHOULD NOT BE INTERPRETED AS
INDICATIVE OF THE FUTURE PERFORMANCE OF EITHER SERIES. As of September 1997, the
Mercator Portfolio was comprised of 16 clients (including 2 mutual funds, one of
which is International Stock Series) having aggregate net assets of
approximately $2.9 billion. Mercator's clients' investment objectives, policies
and strategies are substantially similar to those of the International Stock
Series, although, unlike the International Stock Series, many of such clients
are not subject to certain investment Limitations, diversification requirements
and other restrictions imposed by law upon mutual funds, which, if applicable to
all Mercator clients, may have adversely affected composite performance.
Composite performance results reflect reinvestment of dividends and other
earnings and are stated after taking into account investment advisory fees and,
in the case of the two mutual funds only, other fund expenses. Performance
results of the non-mutual fund clients included in the composite do not reflect
the deduction of operating expenses of mutual funds, such as distribution (Rule
12b-1) fees, or any applicable sales charges. Performance shown represents the
time-weighted rate of return for all clients participating in the Mercator
Portfolio for at least one full calendar quarter and conforms to the standards
set by the Association for Investment Management and Research.
The Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged,
weighted market capitalization index that reflects stock market performance in
Europe, Australasia and the Far East. The index includes reinvestment of
dividends, net of withholding taxes. Investors can not buy or invest directly in
market indices or averages. Foreign investing involves special risks including
currency fluctuations and political, social and economic change.
A-2
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential offers a broad range of mutual funds designed to meet your
individual needs. We welcome you to review the investment options available
through our family of funds. For more information on the Prudential Mutual
Funds, including charges and expenses, contact your Prudential Securities
financial adviser or Prusec representative or telephone the Fund at (800)
225-1852 for a free prospectus. Read the prospectus carefully before you invest
or send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential 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.
EQUITY FUNDS
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Active Balanced Fund
Prudential Small-Cap Index Fund
Prudential Bond Market Index Fund
Prudential Pacific Index Fund
Prudential Europe Index Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
o 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.
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
B-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
================================================================================
TABLE OF CONTENTS
Page
----
SERIES HIGHLIGHTS ....................................................... 2
What are each Series' Risk Factors and Special
Characteristics? ...................................................... 2
FUND EXPENSES ........................................................... 5
FINANCIAL HIGHLIGHTS .................................................... 7
HOW THE FUND INVESTS .................................................... 15
Investment Objectives and Policies ..................................... 15
Hedging and Return Enhancement Strategies .............................. 18
Other Investment Practices ............................................. 22
Risks and Special Considerations ....................................... 24
Investment Restrictions ................................................ 25
HOW THE FUND IS MANAGED ................................................. 25
Manager ................................................................ 25
Subadvisers ............................................................ 25
Distributor ............................................................ 27
Fee Waivers and Subsidy ................................................ 28
Portfolio Transactions ................................................. 28
Custodian and Transfer and Dividend Disbursing
Agent ................................................................. 28
HOW THE FUND VALUES ITS SHARES .......................................... 29
HOW THE FUND CALCULATES
PERFORMANCE ............................................................ 29
TAXES, DIVIDENDS AND DISTRIBUTIONS ...................................... 30
GENERAL INFORMATION ..................................................... 32
Description of Common Stock ............................................ 32
Additional Information ................................................. 32
SHAREHOLDER GUIDE ....................................................... 33
How to Buy Shares of the Fund .......................................... 33
Alternative Purchase Plan .............................................. 34
How to Sell Your Shares ................................................ 37
Conversion Feature--Class B Shares ..................................... 40
How to Exchange Your Shares ............................................ 41
Shareholder Services ................................................... 43
INFORMATION ABOUT MERCATOR
ASSET MANAGEMENT ....................................................... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY ....................................... B-1
================================================================================
MF115A
- --------------------------------------------------------------------------------
CUSIP NOS.:
-----------
GLOBAL SERIES INT'L STOCK SERIES
Class A . . . . . . 743969107 743969503
Class B . . . . . . 743969206 743969602
Class C . . . . . . 743969305 743969701
Class Z . . . . . . 743969404 743969800
Prudential
World
Fund, Inc.
o Global Series
- -----------------------------------
o International Stock Series
PROSPECTUS
January 7, 1998
www.prudential.com
[Prudential logo]
<PAGE>
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
Statement of Additional Information
January 7, 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 "Investment
Objectives and Policies."
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. See "Investment Objectives and
Policies."
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 January 7, 1998, a copy
of which may be obtained from the Fund at the address noted above.
TABLE OF CONTENTS
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- --------------
Investment Objectives and Policies .................... B-2 15
Investment Restrictions ............................... B-14 25
Directors and Officers ................................ B-16 25
Manager ............................................... B-20 25
Distributor ........................................... B-22 27
Net Asset Value ....................................... B-24 29
Portfolio Transactions and Brokerage .................. B-25 28
Purchase and Redemption of Series Shares .............. B-26 33
Shareholder Investment Account ........................ B-29 43
Performance Information ............................... B-33 29
Taxes, Dividends and Distributions .................... B-35 30
Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants ......................... B-37 28
Financial Statements--Global Series ................... B-38 --
Report of Independent Accountants ..................... B-52 --
Independent Auditors' Report .......................... B-54 --
Financial Statements--International Stock Series ...... B-55 --
Report of Independent Accountants ..................... B-67 --
Independent Auditors' Report .......................... B-69 --
Appendix--General Investment Information .............. App-1 --
Appendix--Historical Performance Data ................. App-2 --
Appendix--Information Relating to Prudential .......... App-6 --
Appendix--Description of S&P, Moody's and Duff &
Phelps Ratings ...................................... App-9 --
================================================================================
MF115B
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
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--Investment Objectives 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--Investment Objectives and
Policies" in the Prospectus.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government or one of its
agencies, authorities or instrumentalities in which each Series may invest
include debt obligations of varying maturities issued by the U.S. Treasury or
issued or guaranteed by an agency or instrumentality of the U.S. Government,
including the Federal Housing Administration, Farmers' Home Administration,
Export-Import Bank of the U.S. Small Business Administration, Government
National Mortgage Association ("GNMA"), General Services Administration, Central
Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit
Banks, Federal Land Banks, Federal National Mortgage Association ("FNMA"),
Maritime Administration, Tennessee Valley Authority, District of Columbia Armory
Board, Student Loan Marketing Association and Resolution Trust Corporation.
Direct obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. Because the
U.S. Government is not obligated by law to provide support to an instrumentality
that it sponsors, 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 AND REVERSE REPURCHASE AGREEMENTS
Each Series may enter into repurchase agreements, and International Stock
Series may enter into reverse 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 and reverse repurchase agreements involves
certain risks. For example, if the seller of securities under a repurchase
agreement defaults on its obligation to repurchase the underlying securities, as
a result of its bankruptcy or otherwise, 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
B-2
<PAGE>
in the underlying securities. To minimize this risk, the securities underlying
the agreement will be held by the Custodian at all times in an amount at least
equal to the repurchase price, including accrued interest. If the counterparty
fails to resell or repurchase the securities, a Series may suffer a loss to the
extent proceeds from the sale of the underlying collateral are less than the
repurchase price. Reverse repurchase agreements involve the risk that the market
value of the securities retained in lieu of sale by a Series may decline below
the price of the securities such Series has sold but is obligated to repurchase.
FIXED INCOME SECURITIES
In general, the ratings of Moody's Investors Service ("Moody's"), Standard
& Poor's Ratings Services ("S&P Ratings"), Duff and Phelps, Inc. ("Duff &
Phelps") and other nationally recognized statistical rating organizations
("NRSROs") represent the 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 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
To secure prices deemed advantageous at a particular time, each Series may
purchase securities on a when-issued or delayed delivery basis, in which case
delivery of the securities occurs beyond the normal settlement period; payment
for or delivery of the securities would be made at the same time or prior to the
reciprocal delivery or payment by the other party to the transaction. 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
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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 AND DOLLAR ROLLS
Forward roll and dollar roll transactions involve the risk that the market
value of the securities sold by International Stock Series may decline below the
repurchase price of those securities. At the time International Stock Series
enters into a forward roll transaction, it will place in a segregated account
with its Custodian cash and liquid assets having a value equal to the repurchase
price (including accrued interest). "Liquid Assets" as used in the Fund's
Prospectus and Statement of Additional Information, include U.S. Government
securities, equity securities, investment grade debt obligations or other liquid
unencumbered assets.
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
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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.
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.
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 from time to time, at its Subadviser's discretion,
to take advantage of investment opportunities, when yields on available
investments exceed interest rates and other expenses of related borrowing, or
when, in such
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Subadviser's opinion, unusual market conditions otherwise make it advantageous
for the Series to increase its investment capacity. A Series will only borrow
when there is an expectation that it will 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.
OPTIONS ON SECURITIES AND SECURITIES INDICES
A number of risk factors are associated with options transactions. There is
no assurance that a liquid secondary market on an options exchange will exist
for any particular option, at any particular time. If 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
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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 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
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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. The purchase of a call option would
entitle a Series, in return for the premium paid, to purchase specified
securities at a specified price, upon exercise of the option, during the option
period. 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"). The
purchase of a put option would entitle a Series, in exchange for the premium
paid, to sell specified securities at a specified price, upon exercise of the
option, during the option period. Gains and losses on the purchase of protective
puts would tend to be offset by countervailing changes in the value of
underlying Series' securities. 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.
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
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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 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.
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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 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 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
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.
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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.
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.
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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.
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. Risks include those described in the Prospectus under "How the
Fund Invests--Risks and Special Considerations," including government actions
affecting currency valuation and the movements of currencies from one
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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 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.
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
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absence of a readily available market or legal or contractual restrictions on
resale. Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended ("Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A of the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The 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."
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. Before entering into such
transactions or making any such investment, a Series will provide appropriate
disclosure in its Prospectus.
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 of the following limitations: (i) all
percentage limitations apply immediately after a purchase or initial investment;
and (ii) any
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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.
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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.
DIRECTORS AND OFFICERS
NAME, ADDRESS POSITION WITH PRINCIPAL OCCUPATION
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.
B-16
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE(1) FUND DURING PAST FIVE YEARS
- ----------------------- ------------- ----------------------
<S> <C> <C>
* Robert F. Gunia (51) Vice Vice President, Prudential Investments; since
President September 1997; Executive Vice President and
and Treasurer (since December 1996), Prudential
Director 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.
* 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 (54) President Employee of Prudential Investments, formerly
and Director 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.
</TABLE>
B-17
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE(1) FUND DURING PAST FIVE YEARS
- ------------------------ ------------- -----------------------
<S> <C> <C>
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;
member of the Board of Governors of the Horace
Rackham School of Graduate Studies of the
University of Michigan; Director (since July
1991) of Inland Steel Corporation; Director of
The High Yield Income Fund, Inc.
Thomas A. Early (42) Vice Vice President and General Counsel (since March
President 1997), PMF & A; Executive Vice President,
Secretary and General Counsel (since December
1996), PIFM; formerly Vice President and
General Counsel (March 1994-March 1997) of
Prudential Retirement Services and Associate
General Counsel and Chief Financial Services
Officer (1988-1994) of Frank Russell Company.
S. Jane Rose (51) 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 (38) Treasurer First Vice President (since December 1996) of
and PIFM; First Vice President (since March 1994)
Principal of Prudential Securities; formerly First Vice
Financial President (March 1994-September 1996),
and Prudential Mutual Fund Management, Inc.
Accounting and Vice President (July 1989-March
Officer 1994) of Bankers Trust Corporation.
Robert C. Rosselot (37) Assistant Assistant General Counsel (since September 1997)
Secretary 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 Assistant Tax Director (since March 1996) Prudential
(43) Treasurer Investments and the Private Asset Group of The
Prudential Insurance Company of America
(February 1993-September 1996); formerly First
Vice President, Prudential Mutual Fund
Management, Inc. and Senior Tax Manager
(1981-January 1993) Price Waterhouse LLP.
</TABLE>
- -------------
(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.
B-18
<PAGE>
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities.
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Fund pays each of its Directors who is not an "affiliated" person of 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.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended October 31, 1997 to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the Fund's board and that of all other funds managed by
Prudential Investments Fund Management LLC (Fund Complex) for the calendar year
ended December 31, 1996. Below are listed the Directors who have served the Fund
during its most recent fiscal year.
<TABLE>
<CAPTION>
COMPENSATION TABLE
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS(2)
- ------------------------------- ------------ ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Edward D. Beach--Director $5,625 None N/A $166,000(21/39)*
Stephen C. Eyre--Director 8,291 None N/A 34,250(4/5)*
Delayne D. Gold--Director 7,625 None N/A 175,308(21/42)*
Robert F. Gunia (1)--Director -- None N/A --
Don G. Hoff--Director 7,625 None N/A 50,042(5/7)*
Robert F. LaBlanc--Director 7,625 None N/A 34,542(4/4)*
Sidney R. Knafel--Former Director 2,000 None N/A 29,875(4/5)*
Mendel A. Melzer (1)--Director -- None N/A --
Thomas A. Owen--Former Director 2,000 None N/A 86,333(9/11)*
Richard A. Redeker (1)--Director -- None N/A --
Robin B. Smith--Director 5,625 None N/A 89,957(11/20)*
Stephen Stoneburn--Director 5,625 None N/A 30,375(4/6)*
Nancy H. Teeters--Director 5,625 None N/A 103,583(11/28)*
Clay T. Whitehead--Former Director 2,000 None N/A 38,292(5/7)*
</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, 1996, includes amounts deferred at the election of
Directors under the Funds' deferred compensation plans. Including accrued
interest, total compensation amounted to $109,294 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.
As of December 12 1997, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.
B-19
<PAGE>
As of December 12, 1997, 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
8,875,308 Class Z shares (or approximately 70% of the outstanding Class Z
shares); Prudential Trust Company, FBO Pru-DC Trust Accounts, Att. John Surdy,
30 Scranton Office Park, Moosic, Pennsylvania held 3,432,830 Class Z shares (or
approximately 27% of the outstanding Class Z shares).
As of December 12, 1997, with respect to the Global Series, Prudential
Securities was the record holder for other beneficial owners of 6,427,012 Class
A shares (or approximately 44% of the outstanding Class A shares), 12,336,795
Class B shares (or approximately 62% of the outstanding Class B shares), 397,615
Class C shares (or approximately 67% of the outstanding Class C shares) and
104,066 Class Z shares (or approximately 4.2% of the outstanding Class Z shares)
of the Series. As of December 12, 1997, with respect to International Stock
Series, Prudential Securities was the record holder for other beneficial owners
of 1,646,661 Class A shares (or approximately 83% of the outstanding Class A
shares), 4,570,771 Class B shares (or approximately 94% of the outstanding Class
B shares), 665,033 Class C shares (or approximately 94% of the outstanding Class
C shares); 361,413 Class Z shares (or approximately 3% of the outstanding Class
Z shares) of the Series.
MANAGER
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, 1997 PIFM managed and/or administered open-end and closed-end
management investment companies with assets of approximately $60 billion and,
according to the Investment Company Institute, as of August 31, 1997, the
Prudential Mutual Funds were the 17th 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 customer service, 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).
B-20
<PAGE>
(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 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, 1997, 1996 and 1995, PIFM received management fees of
$5,036,520, $4,118,594 and $3,481,921, respectively, from Global Series. For the
fiscal year ended October 31, 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 Internationl 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 year ended October 31, 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, 1997, Mercator had approximately $2.9 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.
B-21
<PAGE>
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.
DISTRIBUTOR
Prudential Securities Incorporated, One Seaport Plaza, New York, New York
10292 (Prudential Securities, PSI or the Distributor), acts as the distributor
of the shares of the Series.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively the Plans) adopted by the Fund
on behalf of each Series under Rule 12b-1 under the Investment Company Act and a
distribution agreement (the Distribution Agreement), Prudential Securities (the
Distributor) incurs the expenses of distributing the Fund's Class A, Class B and
Class C shares. Prudential Securities serves as the Distributor of the Class Z
shares and incurs the expenses of distributing the Series' Class Z shares under
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
B-22
<PAGE>
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
Prudential Securities to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933, as amended.
GLOBAL SERIES
CLASS A PLAN. For the fiscal year ended October 31, 1997, Prudential
Securities received payments of $663,451 under the Class A Plan. This amount
was 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, 1997, PSI also received
approximately $323,700 in initial sales charges.
CLASS B PLAN. For the fiscal year ended October 31, 1997, Prudential
Securities received $3,277,315 from the Series under the Class B Plan and spent
approximately $2,347,000 in distributing the Class B shares of the Series. It is
estimated that of the latter amount approximately $87,000 (3.7%) was spent on
printing and mailing of prospectuses to other than current shareholders;
$764,400 (32.6%) 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 $1,496,000 (63.7%) on the aggregate of
(i) payments of commissions and account servicing fees to its financial advisers
($742,400 or 31.6%) and (ii) an allocation on account of overhead and other
branch office distribution expenses ($753,600 or 32.1%). 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 Fund shares, including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) expenses of mutual fund sales coordinators to promote
the sale of Series shares and (d) other incidental expenses relating to branch
promotion of Series sales.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by holders of Class B shares upon certain redemptions of
Class B shares. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges" in the Prospectus. For the fiscal year ended October 31,
1997, Prudential Securities received approximately $690,800 in contingent
deferred sales charges.
CLASS C PLAN. For the fiscal year ended October 31, 1997, Prudential
Securities received $90,930 from the Series under the Class C Plan and spent
approximately $90,800 in distributing the Class C shares of the Series. It is
estimated that of the latter amount approximately $5,700 (6.2%) was spent on
printing and mailing of prospectuses to other than current shareholders;
$8,100 (9.0%) 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 $77,000 (84.8%) on the aggregate of
(i) payments of commissions and account servicing fees to its financial advisers
($62,300 or 68.6%) and (ii) an allocation on account of overhead and other
branch office distribution expenses ($14,700 or 16.2%).
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class C shares. See
"Shareholder Guide--How to See Your Shares--Contingent Deferred Sales Charges"
in the Prospectus. For the fiscal year ended October 31, 1997, Prudential
Securities received contingent deferred sales charges of approximately
$11,400.
INTERNATIONAL STOCK SERIES
CLASS A PLAN. For the fiscal year ended October 31, 1997, Prudential
Securities received payment of $46,947 under the Class A. Plan. This amount
was 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, 1997, PSI also received
approximately $774,000 in initial sales charges.
CLASS B PLAN. For the fiscal year ended October 31, 1997, Prudential
Securities received $475,842 from the Series under the Class B Plan and spent
approximately $2,739,900 in distributing the Class B shares of the Series. It is
estimated that of the latter amount approximately $118,400 (4.3%) was spent on
printing and mailing of prospectuses to other than current shareholders; $89,300
(3.3%) 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 $2,532,100 (92.4%) on the aggregate of (i) payments of commissions
and account servicing fees to its financial
B-23
<PAGE>
advisers ($904,800 or 33.0%) and (ii) an allocation on account of overhead and
other branch office distribution-related expenses ($1,627,400 or 59.3%). 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.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by holders of Class B shares upon certain redemptions of
Class B shares. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges" in the Prospectus. For the fiscal year ended October 31,
1997, Prudential Securities received approximately $69,000 in contingent
deferred sales charges.
CLASS C PLAN. For the fiscal year ended October 31, 1997, Prudential
Securities received $74,733 from the Series under the Class C Plan and spent
approximately $168,700 in distributing the Class C shares of the Series. It is
estimated that of the latter amount approximately $24,100 (14.3%) was spent on
printing and mailing of prospectuses to other than current shareholders;
$400 (.23%) 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 $144,200 (85.5%) on the aggregate of
(i) payments of commissions and account servicing fees to its financial advisers
($56,700 or 33.6%) and (ii) an allocation on account of overhead and other
branch office distribution expenses ($87,500 or 51.9%).
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class C shares. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges"
in the Prospectus. For the fiscal year ended October 31, 1997, Prudential
Securities received contingent deferred sales charges of approximately
$11,000.
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.
NET ASSET VALUE
Under the Investment Company Act, with respect to securities for which
market quotations are not readily available, the Board of Directors is
responsible for determining in good faith the fair value of securities of the
Fund. In accordance with procedures adopted by the Board of Directors, the value
of investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at the
last sales price on the day of valuation, or, if there was no sale on such day,
the mean between the last bid and asked prices on such day, as provided by a
pricing service. Corporate bonds (other than convertible debt securities) and
U.S. Government securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed to
be over-the-counter, are valued on the basis of valuations provided by a pricing
service which uses information with respect to transactions in bonds, quotations
from bond dealers, agency ratings, market transactions in comparable securities
and various relationships between securities in determining value. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued at the mean between the last reported bid and asked
prices provided by principal market makers or independent pricing agents. Other
securities will be valued at the mean of the most recently quoted bid and asked
prices in the over-the-counter market. Options on stock and stock indices traded
on an exchange are valued at the mean between the most recently quoted bid and
asked prices on the respective exchange and futures contracts and options
thereon are valued at their last sales prices as of the close of trading on the
applicable commodities exchange. 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
B-24
<PAGE>
of the Manager or Subadviser (or Valuation Committee or Board of Directors),
does not represent fair value, are valued by the Valuation Committee or Board in
consultation with the Manager and Subadviser under procedures established by the
Fund's Board of Directors. Short-term debt securities are valued at cost, with
interest accrued or discount amortized to the date of maturity, if their
original maturity was 60 days or less, unless this is determined by the Board of
Directors not to represent fair value. Short-term securities with remaining
maturities of more than 60 days, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or principal market maker. A 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 such
Series' shares have been received or days on which changes in the value of such
Series' portfolio securities do not affect NAV. In the event the New York Stock
Exchange closes early on any business day, the NAV of a Series' shares shall be
determined at a 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.
NAV is calculated separately for each class of each Series. The NAV of
Class B and Class C shares of a Series will generally be lower than the NAV of
Class A and Class Z shares of such Series 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 of each Series will generally be higher than the NAV of
Class A, Class B or Class C shares of such Series 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 per share of each class will tend to converge
immediately after the recording of dividends which will differ by approximately
the amount of the distribution expense accrual differential among the classes.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities,
options and futures contracts for the Series, the selection of brokers, dealers
and futures 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.
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 SEC. 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. Commis-
B-25
<PAGE>
sion 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.
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, 1997.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
-------------------------------------
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund ...... $2,048,227 $1,544,620 $1,246,558
Total brokerage commissions paid to
Prudential Securities ........................... $ 7,900 $ 40,100 $ 20,800
Percentage of total brokerage commissions
paid to Prudential Securities ................... .4% 2.6% 1.7%
Percentage of total dollar amount of transactions
involving commissions that were effected through
Prudential Securities........................... .3% 2.0% 1.2%
</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, 1997.
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
FISCAL YEAR ENDED OCTOBER 1, 1996 SEPTEMBER 30,
OCTOBER 31, THROUGH -------------------
1997 OCTOBER 31, 1996 1996 1995
----------------- ---------------- ------- -----
<S> <C> <C> <C> <C>
Total brokerage commissions paid
by the Fund ............................ $583,271 $45,000 $241,164 $232,505
Total brokerage commissions paid
to Prudential Securities ............... $ 0 $ 0 $ 0 $ 0
Percentage of total brokerage commissions
paid to Prudential Securities .......... 0% 0% 0% 0%
Percentage of total dollar amount of
transactions involving commissions that
were effected through Prudential
Securities............................. 0% 0% 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, 1997.
PURCHASE AND REDEMPTION OF SERIES 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
B-26
<PAGE>
(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. See "Distributor" and "Shareholder Investment
Account--Exchange Privilege."
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 and (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market.
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% and Class
B*, Class C* and Class Z shares are sold at net asset value. Using each Series'
net asset value at October 31, 1997, 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 ...... $17.27 $18.24
Maximum sales charge (5% of offering price) ................. .91 .96
------ ------
Offering price to public .................................... $18.18 $19.20
====== ======
CLASS B
Net asset value, offering price and redemption price
per Class B share* ........................................ $16.42 $18.13
====== ======
CLASS C
Net asset value, offering price and redemption price
per Class C share* ........................................ $16.41 $18.13
====== ======
CLASS Z
Net asset value, offering price and redemption price
per Class Z share ......................................... $17.35 $18.28
====== ======
</TABLE>
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of 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 "Shareholder
Guide--Alternative Purchase Plan--Class A Shares" 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;
B-27
<PAGE>
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act
account created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Series investors may include the
following: an employer (or group of related employers) and one or more
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed related to
that employer).
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investor's holdings. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants in any
retirement or group plans.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of the shares of
the Series and shares of other Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) to determine
the reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering price (NAV plus maximum sales charge) as of the
previous business day. See "How the Fund Values Its Shares" in the Prospectus.
The Distributor must be notified at the time of purchase that the investor is
entitled to a reduced sales charge. The reduced sales 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).
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 Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities.
A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number of
investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish 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 the sales charge otherwise applicable to
the purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the Distributor
will liquidate sufficient escrowed shares to obtain such difference. Investors
electing to purchase Class A shares of 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.
B-28
<PAGE>
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
The Contingent Deferred Sales Charge (CDSC) is waived under circumstances
described in the Prospectus. See "Shareholder Guide--How to Sell Your
Shares--Waiver of Contingent Deferred Sales Charges--Class B Shares" in the
Prospectus. In connection with these waivers, the Transfer Agent will require
you to submit the supporting documentation set forth below.
<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A copy of the shareholder's death certificate or,
in the case of a trust, a copy of the grantor's
death certificate, plus a copy of the trust
agreement identifying the grantor.
Disability--An individual will be 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.
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
Distribution from an IRA or 403(b) A copy of the distribution form from the
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 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.
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
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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.
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 be
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<PAGE>
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period. For purposes of calculating the seven year holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded.
At any time after acquiring shares of other funds participating in the
Class B and Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B and Class C
shares of 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.
Additional details about the Exchange Privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Series' Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on 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)
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
-------------------- -------- -------- -------- --------
25 Years $ 110 $ 165 $ 220 $ 275
20 Years 176 264 352 440
15 Years 296 444 592 740
10 Years 555 833 1,110 1,388
5 Years 1,371 2,057 2,742 3,428
See "Automatic Savings Accumulation Plan."
- ----------
(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
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the shareholder's account. Withdrawals of Class B or Class C shares may be
subject to a CDSC. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at 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 meets 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
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<PAGE>
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 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 theprogram, the standard minimum
investment requirements for the individual mutual funds will apply.
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. See "How the Fund
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
n
P(1+T) = 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, 1997 was 6.80%, 14.55% and 8.31%, respectively, with and without the
subsidy of expenses. 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, 1997 was 6.70%, 14.84% and 13.0%, respectively. The average annual total
return with respect to the Class B shares of Global Series for the ten year
period ended on October 31, 1997, would have been slightly lower without the
subsidy of expenses. See "How the Fund is Managed--Fee Waivers and Subsidy" in
the Prospectus. The average annual total return for Class C shares for the one
year and since-inception (August 1, 1994) periods ended October 31, 1997
was 10.63% and 9.78%, 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, 1997 was 12.72% and 12.56%, 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, 1997 was 12.85%,
12.04% and 12.04%, respectively. The average annual total return for Class A,
Class B and Class C shares for the since inception (September 22, 1997) period
ended October 31, 1997 was 11.98%, 11.13% and 11.13%, respectively. The average
annual total return for Class Z shares for the one year, three year and
since-inception (November 5, 1992) periods ended October 31, 1997 was 13.13%,
8.67% and 14.79%, respectively.
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:
[ 6 ]
|( a-b + 1 ) |
YIELD = 2 |( --- ) - 1|
[( cd ) ]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield fluctuates and an annualized yield quotation is not a representation
by the Series as to what an investment in the Series will actually yield for any
given period. Yields for 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.
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<PAGE>
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. See "How the Fund Calculates Performance" in the
Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Series and is computed according to the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1000.
ERV = ending redeemable value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical $1000
payment made at the beginning of the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
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, 1997 was 12.42%, 107.56% and 95.80%,
respectively, with and without the subsidy of expenses. 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, 1997 was 11.70%, 100.73% and 128.46%,
respectively. The aggregate total return with respect to the Class B shares of
Global Series for the ten year period ended on October 31, 1997, would have been
slightly lower without the subsidy of expenses. See "How the Fund is
Managed--Fee Waivers and Subsidy" in the Prospectus. The aggregate total return
for Class C shares for the one year and since-inception (August 1, 1994) periods
ended October 31, 1997 was 11.63% and 35.40%, 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, 1997 was 12.72% and 21.80%,
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, 1997 was 7.21% and
7.53%, 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, 1997 was 7.04% and 8.25%,
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, 1997 was 11.04% and 12.25%, respectively. The aggregate
total return for Class Z shares for the one year, three year and since-inception
(November 5, 1992) periods ended October 31, 1997 was 13.13%, 28.34% and 98.89%,
respectively.
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)
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.
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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
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<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 (iii) either
deduct their pro rata share of foreign income taxes in computing their taxable
income or, subject to certain limitations,
B-36
<PAGE>
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. See "Net Asset Value."
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.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND
INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for each Series' 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 each Series' foreign assets held outside the United
States. See "How the Fund is Managed--Custodian and Transfer and Dividend
Disbursing Agent" in the Prospectus.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of each
Series. Its mailing address is P.O. Box 15005, New Brunswick, New Jersey
08906-5005. PMFS is a wholly-owned subsidiary of PIFM. PMFS provides customary
transfer agency services to the Series, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions, and related
functions. For these services, PMFS receives an annual fee per shareholder
account, a new account set-up fee for each manually-established account and a
monthly inactive zero balance account fee per shareholder account. PMFS is also
reimbursed for its out-of-pocket expenses, including but not limited to postage,
stationery, printing, allocable communications expenses and other costs. For the
fiscal year ended October 31, 1997, Global Series incurred fees of approximately
$1,217,500 for the services of PMFS. For the fiscal year ended October 31, 1997,
International Series incurred fees of approximately $504,000 for the services of
PMFS.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Series' independent accountants, and in that capacity
audits each Series' annual financial statements.
B-37
<PAGE>
Portfolio of Investments as PRUDENTIAL WORLD FUND, INC.
of October 31, 1997 GLOBAL SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
------------------------------------------------------------
LONG-TERM INVESTMENTS--95.1%
COMMON STOCKS--94.2%
------------------------------------------------------------
Argentina--0.7%
485,250 Banco Frances del Rio de la Plata
SA (Banking) $ 4,005,636
53,300 Banco Rio De La Plata SA(a) (ADR)
(Banking) 559,650
-------------
4,565,286
- ------------------------------------------------------------
Australia--3.1%
415,000 Brambles Industries, Ltd. (Business
& Public Services) 7,947,374
3,000,000(b) Duke Group (Precious Metals) 0
1,565,400 Publishing & Broadcasting, Ltd.
(Broadcasting & Publishing) 9,045,994
929,256 Woolworths, Ltd. (Retail) 2,987,618
-------------
19,980,986
- ------------------------------------------------------------
Brazil--0.9%
307,900 Companhia Brasileira De
Distribuicao (ADR) (Retail) 5,696,150
- ------------------------------------------------------------
Federal Republic of Germany--4.1%
11,120 Linde AG (Machinery & Engineering) 6,698,213
48,600 SAP AG (Computer Software &
Services) 13,919,493
10,500 Volkswagen AG (Automobiles & Auto
Parts) 6,197,040
-------------
26,814,746
- ------------------------------------------------------------
Finland--2.4%
178,800 Nokia Corp. (Telecommunications
Equipment) 15,579,597
- ------------------------------------------------------------
France--4.7%
10,350 Carrefour SA (Retail) 5,383,173
47,500 France Telecom SA(a)
(Telecommunications) 1,791,756
21,396 Imetal SA (Misc. Materials &
Commodities) $ 2,292,217
38,400 Legrand SA (Electrical &
Electronics) 7,126,348
63,700 Total Francaise Petroleum, Ltd.
(Energy Sources) 7,044,512
102,500 Valeo SA (Automobiles & Auto Parts) 6,813,615
-------------
30,451,621
- ------------------------------------------------------------
Hong Kong--2.0%
1,281,000 Hutchison Whampoa, Ltd.
(Multi-Industry) 8,865,912
1,071,000 New World Development Co., Ltd.
(Property Development) 3,768,590
-------------
12,634,502
- ------------------------------------------------------------
Ireland--1.6%
796,200 Bank of Ireland (Finance) 10,071,642
- ------------------------------------------------------------
Italy--3.3%
3,283,500 Credito Italiano (Finance) 8,774,070
3,468,500 Telecom Italia Mobile SpA
(Telecommunications) 12,781,913
-------------
21,555,983
- ------------------------------------------------------------
Japan--10.6%
62,900 Aoki International Co., Ltd.
(Retail) 638,472
245,000 Aoyama Trading Co., Ltd. (Retail) 6,584,158
540,000 Daibiru Corp. (Property Investment) 5,795,823
641,000 Daito Trust Construction Co., Ltd.
(Property Investment) 5,706,548
1,197,000 Daiwa Securities Co., Ltd.
(Finance) 7,250,320
433,000 House Foods Corp. (Food & Household
Products) 7,457,442
151,700 Namco Ltd. (Recreation & Other
Consumer Goods) 5,086,538
196,000 Nippon Shokubai Co. (Chemicals) 1,205,125
80 Nissen Co., Ltd. (Retail) 183
659,000 Nomura Securities Co., Ltd.
(Finance) 7,676,179
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-38
<PAGE>
Portfolio of Investments as PRUDENTIAL WORLD FUND, INC.
of October 31, 1997 GLOBAL SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
------------------------------------------------------------
Japan (cont'd.)
1,488,000 Okumura Corp. (Building &
Construction) $ 7,056,827
315,000 Seino Transportation Co. (Trucking
& Shipping) 2,725,684
399,000 Senshukai Co. (Retail) 2,556,203
479,000 Shiseido Co., Ltd. (Consumer Goods) 6,535,985
162,000 Xebio Co., Ltd. (Retail) 2,614,860
-------------
68,890,347
- ------------------------------------------------------------
Mexico--4.2%
680,800 Apasco, SA (Building Materials &
Components) 4,140,823
929,500 Cifra, SA de CV (ADR) (Retail) 1,719,575
316,355 Cifra, SA de CV, Ser. A (Retail) 580,267
2,076,069 Cifra, SA de CV, Ser. B (Retail) 4,129,855
1,627,968 Fomento Economico Mexicano, SA de
CV (Beverages & Tobacco) 11,454,992
1,230,000 Kimberly-Clark de Mexico, SA de CV
(Forest Products & Paper) 5,398,211
-------------
27,423,723
- ------------------------------------------------------------
Netherlands--2.2%
196,700 Nutricia Verenigde Bedrijven NV(a)
(Food & Household Products) 5,603,557
159,900 Royal Dutch Petroleum Co. (Energy
Sources) 8,429,181
-------------
14,032,738
- ------------------------------------------------------------
Philippines--1.1%
286,800 Philippines Long Distance Telephone
Co. (ADR) (Telecommunications) 6,954,900
- ------------------------------------------------------------
Singapore--0.4%
939,250 Sembawang Maritime, Ltd. (Energy
Equipment & Services) 2,408,486
- ------------------------------------------------------------
Spain--2.2%
378,996 Banco Central Hispanoamericano SA
(Banking) 7,065,587
267,500 Telefonica de Espana SA
(Telecommunications) 7,278,787
-------------
14,344,374
- ------------------------------------------------------------
Sweden--4.7%
522,900 Allgon AB (Electronic Components) $ 8,359,712
246,000 Hennes & Mauritz AB (Retail) 10,045,164
182,400 Mo och Domsjo AB (Forest Products &
Paper) 4,933,014
660,600 Skandinaviska Enskilda Banken
(Banking) 7,128,777
-------------
30,466,667
- ------------------------------------------------------------
Switzerland--1.3%
5,500 Novartis AG (Medical Products) 8,600,000
- ------------------------------------------------------------
United Kingdom--10.4%
306,000 Barclays PLC (Banking) 7,654,422
753,400 Dixons Group PLC (Retail) 8,798,113
375,500 GKN PLC (Automobiles & Auto Parts) 8,411,482
730,800 Hays PLC (Business & Public
Services) 8,570,926
687,000 Johnson Matthey PLC (Precious
Metals) 6,722,035
676,250 Royal & Sun Alliance Insurance
Group PLC (Insurance) 6,475,222
390,300 Siebe PLC (Machinery & Engineering) 7,487,472
2,388,590 Vodafone Group PLC
(Telecommunications) 13,006,371
-------------
67,126,043
- ------------------------------------------------------------
United States--34.3%
98,000 3Com Corp.(a) (Computer Software &
Services) 4,060,875
187,700 Adaptec, Inc.(a) (Electronic
Components) 9,091,719
205,000 Adobe Systems, Inc. (Computer
Software & Services) 9,788,750
192,900 Baker Hughes, Inc. (Oil & Gas
Equipment & Services) 8,861,344
351,900 Circus Circus Enterprises, Inc.(a)
(Leisure & Tourism) 7,829,775
159,300 Cisco Systems, Inc.(a) (Computer
Software & Services) 13,067,578
86,800 Consolidated Stores Corp.(a)
(Retail) 3,461,150
107,300 Disney (Walt) Co. (Leisure &
Tourism) 8,825,425
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-39
<PAGE>
Portfolio of Investments as PRUDENTIAL WORLD FUND, INC.
of October 31, 1997 GLOBAL SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
-----------------------------------------------------------
<C> <S> <C>
United States (cont'd.)
265,500 Electronic Arts, Inc.(a) (Computer
Software & Services) $ 8,993,812
103,700 Intel Corp. (Computer Software &
Services) 7,984,900
75,000 J.D. Edwards & Co.(a) (Computer
Software & Services) 2,550,000
255,482 Mattel, Inc. (Recreation & Other
Consumer Goods) 9,931,863
103,800 Microsoft Corp.(a) (Computer
Software & Services) 13,494,000
322,000 Mirage Resorts, Inc.(a) (Leisure &
Tourism) 8,050,000
156,100 Mobil Corp. (Energy Sources) 11,366,031
76,700 Motorola, Inc. (Electronic
Components) 4,736,225
391,350 Oracle Systems Corp.(a) (Computer
Software & Services) 14,002,992
48,000 Progressive Corp. (Insurance) 5,004,000
219,000 Quorum Health Group, Inc. (Health
Services) 5,310,750
158,000 Safeway, Inc.(a) (Retail) 9,183,750
683 Siebel Systems, Inc.(a) (Computer
Software & Services) 27,587
230,500 Tenet Healthcare Corp.(a) (Health
Services) 7,044,656
82,300 Texas Instruments, Inc. (Electronic
Components) 8,780,381
363,000 The Limited, Inc. (Retail) 8,553,188
119,900 Tiffany & Co. (Retail) 4,736,050
144,600 Time Warner, Inc. (Broadcasting &
Publishing) 8,341,613
176,600 Transocean Offshore, Inc. (Energy
Sources) 9,536,400
33,800 Wells Fargo & Co. (Finance) 9,848,475
-------------
222,463,289
-------------
Total common stocks
(cost US$473,996,006) 610,061,080
-------------
PREFERRED STOCKS--0.9%
- ------------------------------------------------------------
Federal Republic of Germany--0.9%
8,300 Wella AG (Cosmetics)
(cost US$6,181,832) 5,763,922
Warrants Description Value (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
<CAPTION>
WARRANTS(a)
- ------------------------------------------------------------
<C> <S> <C>
Malaysia
199,625 Renong Berhad
expiring Nov. '00 @ MYR4.10
(Multi-Industry)
(cost US$53,821) $ 35,717
-------------
Total long-term investments
(cost US$480,231,659) 615,860,719
-------------
<CAPTION>
Principal
Amount
(000)
<C> <S> <C>
SHORT-TERM INVESTMENT--0.2%
- ------------------------------------------------------------
Repurchase Agreements
$1,440,000 Joint Repurchase Agreement Account,
5.70%, 11/3/97
(cost US$1,440,000; Note 5) 1,440,000
-------------
- ------------------------------------------------------------
Total Investments--95.3%
(cost US$481,671,659; Note 4) 617,300,719
Other assets in excess of
liabilities--4.7% 30,442,565
-------------
Net Assets--100% $ 647,743,284
-------------
-------------
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Issue in default.
ADR--American Depository Receipt
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-40
<PAGE>
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
Portfolio of Investments as of October 31, 1997
- ------------------------------------------------------------
The industry classification of portfolio holdings and other assets in
excess of liabilities shown as a percentage of net assets as of
October 31, 1997 was as follows:
Computer Software & Services.......................... 13.5%
Retail................................................ 11.9
Finance............................................... 6.7
Telecommunications.................................... 6.5
Electronic Components................................. 4.8
Energy Sources........................................ 4.1
Banking............................................... 4.1
Leisure & Tourism..................................... 3.8
Automobiles & Auto Parts.............................. 3.3
Broadcasting & Publishing............................. 2.7
Business and Public Services.......................... 2.6
Telecommunications Equipment.......................... 2.4
Recreation & Other Consumer Goods..................... 2.3
Machinery & Engineering............................... 2.2
Food & Household Products............................. 2.0
Health Services....................................... 1.9
Property Investment................................... 1.8
Insurance............................................. 1.8
Beverages & Tobacco................................... 1.8
Forest Products & Paper............................... 1.6
Oil & Gas Exploration/Products........................ 1.5
Multi-industry........................................ 1.4
Oil & Gas Equipment & Services........................ 1.4
Medical Products...................................... 1.3
Electrical & Electronics.............................. 1.1
Building & Construction............................... 1.1
Precious Metals....................................... 1.0
Consumer Goods........................................ 1.0
Cosmetics............................................. 0.9
Building Materials & Components....................... 0.6
Property Development.................................. 0.6
Trucking & Shipping................................... 0.4
Energy Equipment & Services........................... 0.4
Misc. Materials & Commodities......................... 0.4
Chemicals............................................. 0.2
Short-term investment................................. 0.2
-----
95.3%
Other assets in excess of liabilities................. 4.7
-----
100.0%
-----
-----
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-41
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Statement of Assets and Liabilities GLOBAL SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets October 31, 1997
<S> <C>
Investments, at value (cost US$481,671,659)............................................................... $617,300,719
Foreign currency, at value (cost US$735,155).............................................................. 721,794
Cash...................................................................................................... 172,508
Receivable for investments sold........................................................................... 39,060,561
Receivable for Series shares sold......................................................................... 4,216,791
Dividends and interest receivable......................................................................... 983,038
Deferred expenses and other assets........................................................................ 13,948
----------------
Total assets........................................................................................... 662,469,359
----------------
Liabilities
Payable for investments purchased......................................................................... 12,605,114
Payable for Series shares reacquired...................................................................... 1,016,668
Management fee payable.................................................................................... 444,978
Distribution fee payable.................................................................................. 355,016
Accrued expenses.......................................................................................... 175,964
Withholding taxes payable................................................................................. 73,046
Forward currency contracts - amount payable to counterparties............................................. 55,289
----------------
Total liabilities...................................................................................... 14,726,075
----------------
Net Assets................................................................................................ $647,743,284
----------------
----------------
Net assets were comprised of:
Common stock, at par................................................................................... $ 385,227
Paid-in capital in excess of par....................................................................... 448,620,728
----------------
449,005,955
Undistributed net investment income.................................................................... 2,071,347
Accumulated net realized gain on investments........................................................... 61,086,427
Net unrealized appreciation on investments and foreign currencies...................................... 135,579,555
----------------
Net assets, October 31, 1997.............................................................................. $647,743,284
----------------
----------------
Class A:
Net asset value and redemption price per share
($258,080,368 / 14,940,730 shares of common stock issued and outstanding)........................... $17.27
Maximum sales charge (5% of offering price)............................................................ .91
----------------
Maximum offering price to public....................................................................... $18.18
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($335,007,287 / 20,398,710 shares of common stock issued and outstanding)........................... $16.42
----------------
----------------
Class C:
Net asset value, offering price and redemption price per share
($10,243,929 / 624,199 shares of common stock issued and outstanding)............................... $16.41
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per share
($44,411,700 / 2,559,083 shares of common stock issued and outstanding)............................. $17.35
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-42
<PAGE>
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income October 31, 1997
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $950,748)............................ $ 8,828,942
Interest................................... 545,710
----------------
Total income............................ 9,374,652
----------------
Expenses
Management fee............................. 5,036,520
Distribution fee--Class A.................. 663,451
Distribution fee--Class B.................. 3,277,315
Distribution fee--Class C.................. 90,930
Transfer agent's fees and expenses......... 1,370,000
Custodian's fees and expenses.............. 550,000
Reports to shareholders.................... 240,000
Registration fees.......................... 68,000
Audit fee.................................. 35,000
Directors' fees and expenses............... 32,000
Legal fees and expenses.................... 25,000
Insurance expense.......................... 11,000
Miscellaneous.............................. 32,411
----------------
Total operating expenses................ 11,431,627
Loan interest expense...................... 225,816
----------------
Total expenses.......................... 11,657,443
----------------
Net investment loss........................... (2,282,791)
----------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain on:
Investment transactions.................... 64,927,621
Foreign currency transactions.............. 665,352
----------------
65,592,973
----------------
Net change in unrealized appreciation on:
Investments................................ 17,662,192
Foreign currencies......................... 36,468
----------------
17,698,660
----------------
Net gain on investments and foreign
currencies................................. 83,291,633
----------------
Net Increase in Net Assets
Resulting from Operations..................... $ 81,008,842
----------------
----------------
</TABLE>
<TABLE>
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<CAPTION>
Increase (Decrease) Year Ended October 31,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment loss......... $ (2,282,791) $ (1,962,492)
Net realized gain on
investment and foreign
currency transactions.... 65,592,973 49,830,090
Net change in unrealized
appreciation on
investments and foreign
currencies............... 17,698,660 15,866,192
---------------- -------------
Net increase in net assets
resulting from
operations............... 81,008,842 63,733,790
---------------- -------------
Dividends and distributions
(Note 1)
Distributions in excess of net
investment income
Class A..................... (672,140) --
Class B..................... (955,146) --
Class C..................... (22,662) --
Class Z..................... (115,267) --
---------------- -------------
(1,765,215) --
---------------- -------------
Distributions from net realized
capital gains
Class A..................... (17,584,834) (10,616,171)
Class B..................... (24,988,935) (12,843,895)
Class C..................... (592,898) (187,931)
Class Z..................... (3,015,652) (30,717)
---------------- -------------
(46,182,319) (23,678,714)
---------------- -------------
Series share transactions (net
of share conversions) (Note
7)
Proceeds from shares sold... 1,364,574,496 639,187,000
Net asset value of shares
issued in reinvestment of
distributions............ 45,634,720 22,475,256
Cost of shares reacquired... (1,405,314,341) (586,163,045)
---------------- -------------
Net increase in net assets from
Series share transactions... 4,894,875 75,499,211
---------------- -------------
Total increase................. 37,956,183 115,554,287
Net Assets
Beginning of year.............. 609,787,101 494,232,814
---------------- -------------
End of year.................... $ 647,743,284 $ 609,787,101
---------------- -------------
---------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-43
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Notes to Financial Statements GLOBAL SERIES
- --------------------------------------------------------------------------------
Prudential World Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as an open-end, diversified management investment company
and currently consists of two series: the Global Series (the "Series") and the
International Stock Series. The Global Series commenced investment operations in
May, 1984. The investment objective of the Series is to seek long-term capital
growth, with income as a secondary objective, by investing in a diversified
portfolio of securities consisting of marketable securities of U.S. and non-U.S.
issuers.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund and the Series in the preparation of its financial statements
Securities Valuation: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices.
Any security for which a reliable market quotation is unavailable is valued at
fair value considering factors determined in good faith by the investment
adviser under procedure established by and under the general supervision of the
Fund's Board of Directors.
Short-term securities which mature in more than 60 days are valued based upon
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
All securities are valued as of 4:15 p.m., New York time.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at the
closing daily rates of exchange;
(ii) purchases and sales of investment securities, income and expenses--at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the fiscal year, the Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities held at fiscal year end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term portfolio securities sold
during the fiscal year. Accordingly, these realized foreign currency gains
(losses) are included in the reported net realized gains (losses) on investment
transactions.
Net realized gains on foreign currency transactions represent net foreign
exchange gains or losses from holdings of foreign currencies, currency gains or
losses realized between the trade and settlement dates on security transactions,
and the difference between the amounts of dividends, interest and foreign taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts actually
received or paid. Net unrealized currency gains and losses from valuing foreign
currency denominated assets and liabilities (other than investments) at fiscal
year end exchange rates are reflected as a component of net unrealized
appreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
Forward Currency Contracts: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The Fund enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings or on specific receivables and payables denominated in a foreign
currency. The contracts are valued daily at current exchange rates and any
unrealized gain or loss is included in net unrealized appreciation or
depreciation on investments. Gain or loss is realized on the settlement date of
the contract equal to the difference between the settlement value of the
original and renegotiated forward contracts. This gain or loss, if any, is
included in net realized gain (loss) on foreign
- --------------------------------------------------------------------------------
B-44
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Notes to Financial Statements GLOBAL SERIES
- --------------------------------------------------------------------------------
currency transactions. Risks may arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
Options: The Fund may either purchase or write options in order to hedge against
adverse market movements or fluctuations in value caused by changes in
prevailing interest rates or foreign currency exchange rates with respect to
securities or currencies which the Fund currently owns or intends to purchase.
When the Fund purchases an option, it pays a premium and an amount equal to that
premium is recorded as an investment. When the Fund writes an option, it
receives a premium and an amount equal to that premium is recorded as a
liability. The investment or liability is adjusted daily to reflect the current
market value of the option. If an option expires unexercised, the Fund realizes
a gain or loss to the extent of the premium received or paid. If an option is
exercised, the premium received or paid is an adjustment to the proceeds from
the sale or the cost basis of the purchase in determining whether the Fund has
realized a gain or loss. The difference between the premium and the amount
received or paid on effecting a closing purchase or sale transaction is also
treated as a realized gain or loss. Gain or loss on purchased options is
included in net realized gain (loss) on investment transactions. Gain or loss on
written options is presented separately as net realized gain (loss) on written
option transactions.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from investment and
currency transactions are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date, and interest income is recorded on
an accrual basis. Expenses are recorded on the accrual basis which may require
the use of certain estimates by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares of the Fund based
upon the relative proportion of net assets of each class at the beginning of the
day.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to increase undistributed net investment income by
$4,426,584, decrease accumulated net realized gain on investments by $4,440,605
and increase paid-in capital in excess of par by $14,021 due to realized and
recognized currency gains and mark to market of passive foreign investment
companies for the year ended October 31, 1997. Net investment income, net
realized gains and net assets were not affected by this change.
Dividends and Distributions: The Fund expects to pay dividends of net investment
income and distributions of net realized capital and currency gains, if any,
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions.
Taxes: For federal income tax purposes, each series in the Fund is treated as a
separate taxpaying entity. It is the intent of the Series to continue to meet
the requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Fund's understanding of the applicable
country's tax rules and rates.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Series. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .75 of 1% of the average daily net assets of the Series.
The Fund has a distribution agreement with Prudential Securities Incorporated
("PSI"), which acts as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund. The Fund compensates PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution, (the "Class A, B and C Plans"), regardless of expenses actually
incurred by PSI. The distribution fees are accrued
- --------------------------------------------------------------------------------
B-45
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Notes to Financial Statements GLOBAL SERIES
- --------------------------------------------------------------------------------
daily and payable monthly. No distribution or service fees are paid to PSI as
distributor for the Class Z shares of the Fund.
Pursuant to the Class A Plan, the Fund compensates PSI with respect to Class A
shares, for distribution-related activities at an annual rate of up to .30 of 1%
of the average daily net assets of the Class A shares. Pursuant to the Class B
and C Plans, the Series compensates PSI for distribution-related activities at
the annual rate of .75 of 1% of the average daily net assets of Class B shares
up to the level of average daily net assets as of February 26, 1986, plus 1% of
the average daily net assets in excess of such level of the Class B shares and
1% of average daily net assets of Class C shares. Payments made pursuant to the
Plans were .25 of 1%, .93 of 1% and 1% of the average daily net assets of Class
A, B and C shares, respectively, for the year ended October 31, 1997.
PSI has advised the Series that it has received approximately $323,700 in
front-end sales charges resulting from sales of Class A shares during the year
ended October 31, 1997. From these fees, PSI paid such sales charges to
affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.
PSI has advised the Series that during the year ended October 31, 1997, it
received approximately $690,800 and $11,400 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.
PSI, PIFM and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the year ended October 31, 1997,
the Series incurred fees of approximately $1,217,500 for the services of PMFS.
As of October 31, 1997, approximately $106,300 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to non-affiliates.
For the year ended October 31, 1997, PSI and/or its foreign affiliates earned
approximately $7,900 in brokerage commissions from portfolio transactions
executed on behalf of the Series.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended October 31, 1997 were $409,107,858 and $453,005,677,
respectively.
The United States federal income tax basis of the Series' investments at October
31, 1997 was $487,572,777 and, accordingly, as of October 31, 1997 net
unrealized appreciation for federal income tax purposes was $129,727,942 (gross
unrealized appreciation--$152,266,965; gross unrealized
depreciation--$22,539,023).
At October 31, 1997, the Fund had outstanding forward currency contract, to sell
foreign currencies, as follows:
<TABLE>
<CAPTION>
Value at
Settlement
Foreign Currency Date Current
Sale Contract Receivable Value Depreciation
<S> <C> <C> <C>
- ------------------------ ---------- ---------- ------------
Hong Kong Dollar,
expiring 4/27/98....... $2,195,111 $2,250,400 $ (55,289)
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or Federal agency obligations. As of October 31, 1997, the
Series had a 0.2% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Series represents $1,440,000 in
principal amount. As of such date, each repurchase agreement in the joint
account and the value of the collateral therefor were as follows:
Bear Stearns & Co., Inc., 5.70%, in the principal amount of $236,000,000,
repurchase price $236,112,100, due 11/3/97. The value of the collateral
including accrued interest was $241,912,917.
Credit Suisse First Boston Corp., 5.72%, in the principal amount of
$237,440,000, repurchase price $237,553,180, due 11/3/97. The value of the
collateral including accrued interest was $246,134,363.
Deutsche Morgan Grenfell, Inc., 5.70%, in the principal amount of $236,000,000,
repurchase price $236,112,100, due 11/3/97. The value of the collateral
including accrued interest was $240,720,618.
- --------------------------------------------------------------------------------
B-46
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Notes to Financial Statements GLOBAL SERIES
- --------------------------------------------------------------------------------
SBC Warburg Dillon Read, Inc., 5.66%, in the principal amount of $92,714,000,
repurchase price $92,757,730, due 11/3/97. The value of the collateral including
accrued interest was $94,588,984.
- ------------------------------------------------------------
Note 6. Borrowings
The Fund, along with other affiliated registered investment companies, (the
"Funds"), entered into a credit agreement (the "Agreement") on December 31, 1996
with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Funds pay a commitment fee at an annual rate of .055 of 1% on the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro-rata basis by the Funds.
The Series utilized the line of credit during the year ended October 31, 1997.
The average daily balance the Series had outstanding during the year was
approximately $11,347,100 at a weighted average interest rate of approximately
6.00%.
- ------------------------------------------------------------
Note 7. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value. Class Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors.
There are 500 million authorized shares of common stock, $.01 par value per
share, divided equally into four classes, designated Class A, Class B, Class C
and Class Z common stock.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ----------- ---------------
<S> <C> <C>
Year ended October 31, 1997:
Shares sold...................... 56,776,730 $ 973,808,525
Shares issued in reinvestment of
distributions.................. 1,094,293 17,300,775
Shares reacquired................ (58,304,729) (1,006,429,177)
----------- ---------------
Net decrease in shares
outstanding before
conversion..................... (433,706) (15,319,877)
Shares issued upon conversion
from Class B................... 1,249,160 21,616,884
----------- ---------------
Net increase in shares
outstanding.................... 815,454 $ 6,297,007
----------- ---------------
----------- ---------------
Year ended October 31, 1996:
Shares sold...................... 26,335,607 $ 415,012,668
Shares issued in reinvestment of
distributions.................. 680,446 10,109,525
Shares reacquired................ (28,068,715) (443,294,595)
----------- ---------------
Net decrease in shares
outstanding before
conversion..................... (1,052,662) (18,172,402)
Shares issued upon conversion
from Class B................... 872,989 13,829,667
----------- ---------------
Net decrease in shares
outstanding.................... (179,673) $ (4,342,735)
----------- ---------------
----------- ---------------
<CAPTION>
- ---------------------------------
<S> <C> <C>
Year ended October 31, 1997:
Shares sold...................... 18,853,519 $ 309,413,543
Shares issued in reinvestment of
distributions.................. 1,627,339 24,605,095
Shares reacquired................ (19,260,790) (317,569,948)
----------- ---------------
Net increase in shares
outstanding before
conversion..................... 1,220,068 16,448,690
Shares reacquired upon conversion
into Class A................... (1,309,346) (21,616,884)
----------- ---------------
Net decrease in shares
outstanding.................... (89,278) $ (5,168,194)
----------- ---------------
----------- ---------------
<CAPTION>
<S> <C> <C>
Year ended October 31, 1996:
Shares sold...................... 10,835,882 $ 164,171,609
Shares issued in reinvestment of
distributions.................. 846,398 12,154,296
Shares reacquired................ (8,151,951) (123,589,487)
----------- ---------------
Net increase in shares
outstanding before
conversion..................... 3,530,329 52,736,418
Shares reacquired upon conversion
into Class A................... (906,072) (13,829,667)
----------- ---------------
Net increase in shares
outstanding.................... 2,624,257 $ 38,906,751
----------- ---------------
----------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
B-47
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Notes to Financial Statements GLOBAL SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- --------------------------------- ----------- ---------------
<S> <C> <C>
Year ended October 31, 1997:
Shares sold...................... 1,634,289 $ 28,057,761
Shares issued in reinvestment of
distributions.................. 39,547 597,939
Shares reacquired................ (1,531,715) (26,428,611)
----------- ---------------
Net increase in shares
outstanding.................... 142,121 $ 2,227,089
----------- ---------------
----------- ---------------
Year ended October 31, 1996:
Shares sold...................... 343,501 $ 5,317,184
Shares issued in reinvestment of
distributions.................. 12,592 180,902
Shares reacquired................ (122,368) (1,957,739)
----------- ---------------
Net increase in shares
outstanding.................... 233,725 $ 3,540,347
----------- ---------------
----------- ---------------
<CAPTION>
Class Z
- ---------------------------------
<S> <C> <C>
Year ended October 31, 1997:
Shares sold...................... 3,048,281 $ 53,294,667
Shares issued in reinvestment of
distributions.................. 197,534 3,130,911
Shares reacquired................ (3,114,617) (54,886,605)
----------- ---------------
Net increase in shares
outstanding.................... 131,198 $ 1,538,973
----------- ---------------
----------- ---------------
March 1, 1996(a) through
October 31, 1996:
Shares sold...................... 3,507,519 $ 54,685,539
Shares issued in reinvestment of
distributions.................. 1,895 30,533
Shares reacquired................ (1,081,529) (17,321,224)
----------- ---------------
Net increase in shares
outstanding.................... 2,427,885 $ 37,394,848
----------- ---------------
----------- ---------------
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
B-48
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Financial Highlights GLOBAL SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------
Year Ended October 31,
----------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................... $ 16.62 $ 15.52 $ 14.89 $ 13.17 $ 9.58
-------- -------- -------- ------- -------
Income from investment operations
Net investment income (loss)................................. (0.01) -- .01 (.04) .02
Net realized and unrealized gain on investment and foreign
currency transactions..................................... 1.96 1.83 .81 1.76 3.57
-------- -------- -------- ------- -------
Total from investment operations.......................... 1.95 1.83 .82 1.72 3.59
-------- -------- -------- ------- -------
Less distributions
Distributions in excess of net investment income............. (.05) -- -- -- --
Distributions from net realized capital gains................ (1.25) (.73) (.19) -- --
-------- -------- -------- ------- -------
Total distributions....................................... (1.30) (.73) (.19) -- --
-------- -------- -------- ------- -------
Net asset value, end of year................................. $ 17.27 $ 16.62 $ 15.52 $ 14.89 $ 13.17
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
TOTAL RETURN(b):............................................. 12.42% 12.33% 5.74% 13.06% 37.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $258,080 $234,700 $222,002 $73,815 $42,021
Average net assets (000)..................................... $265,380 $222,948 $174,316 $58,455 $21,409
Ratios to average net assets:
Expenses, including distribution fees..................... 1.39% 1.45% 1.51% 1.55% 1.56%
Expenses, excluding distribution fees..................... 1.14% 1.20% 1.26% 1.30% 1.36%
Net investment income (loss).............................. 0.01% (0.04)% .10% (0.29)% 0.20%
For Class A, B, C and Z shares:
Portfolio turnover rate...................................... 64% 52% 50% 49% 69%
Average commission rate paid per share....................... $ 0.0264 $ 0.0366 N/A N/A N/A
</TABLE>
- ---------------
(a) Based on average shares outstanding.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-49
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Financial Highlights GLOBAL SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------
Year Ended October 31,
-------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................... $ 15.96 $ 15.03 $ 14.53 $ 12.94 $ 9.47
-------- -------- -------- -------- --------
Income from investment operations
Net investment income (loss)................................. (0.12) (.08) (.11) (.13) (.04)
Net realized and unrealized gain on investment and foreign
currency transactions..................................... 1.88 1.74 .80 1.72 3.51
-------- -------- -------- -------- --------
Total from investment operations.......................... 1.76 1.66 .69 1.59 3.47
-------- -------- -------- -------- --------
Less distributions
Distributions in excess of net investment income............. (.05) -- -- -- --
Distributions from net realized capital gains................ (1.25) (.73) (.19) -- --
-------- -------- -------- -------- --------
Total distributions....................................... (1.30) (.73) (.19) -- --
-------- -------- -------- -------- --------
Net asset value, end of year................................. $ 16.42 $ 15.96 $ 15.03 $ 14.53 $ 12.94
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(b):............................................. 11.70% 11.57% 4.98% 12.29% 36.64%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $335,007 $326,978 $268,498 $410,520 $251,133
Average net assets (000)..................................... $350,518 $294,230 $287,656 $345,771 $183,741
Ratios to average net assets:
Expenses, including distribution fees..................... 2.07% 2.12% 2.19% 2.24% 2.24%
Expenses, excluding distribution fees..................... 1.14% 1.20% 1.27% 1.30% 1.36%
Net investment income (loss).............................. (0.68)% (.67)% (.84)% (0.97)% (0.39)%
</TABLE>
- ---------------
(a) Based on average shares outstanding.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-50
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Financial Highlights GLOBAL SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------------
August 1,
1994(c)
Year Ended October 31, Through
-------------------------------------------- October 31,
1997 1996 1995(a) 1994(a)
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 15.96 $ 15.03 $14.53 $14.03
---------- ------ ----- -----
Income from investment operations
Net investment income (loss)................................. (0.11) (.05) (.11) (.03)
Net realized and unrealized gain on investment and foreign
currency transactions..................................... 1.86 1.71 .80 .53
---------- ------ ----- -----
Total from investment operations.......................... 1.75 1.66 .69 .50
---------- ------ ----- -----
Less distributions
Distributions in excess of net investment income............. (.05) -- -- --
Distributions from net realized capital gains................ (1.25) (.73) (.19) --
---------- ------ ----- -----
Total distributions....................................... (1.30) (.73) (.19) --
---------- ------ ----- -----
Net asset value, end of period............................... $ 16.41 $ 15.96 $15.03 $14.53
---------- ------ ----- -----
---------- ------ ----- -----
TOTAL RETURN(b):............................................. 11.63% 11.57% 4.98% 3.56%
RATIOS/SUPPLEMENTAL DATA:
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%(e)
Expenses, excluding distribution fees..................... 1.14% 1.20% 1.25% 1.63%(e)
Net investment income (loss).............................. (0.75)% (.72)% (.76)% (1.21)%(e)
<CAPTION>
Class Z
-----------------------------
<S> <C> <C>
March 1,
1996(d)
Year Ended Through
October 31, October 31,
1997 1996
------------ ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 16.65 $ 15.42
------ ------
Income from investment operations
Net investment income (loss)................................. 0.04 .06
Net realized and unrealized gain on investment and foreign
currency transactions..................................... 1.96 1.18
------ ------
Total from investment operations.......................... 2.00 1.24
------ ------
Less distributions
Distributions in excess of net investment income............. (.05) --
Distributions from net realized capital gains................ (1.25) (.01)
------ ------
Total distributions....................................... (1.30) (.01)
------ ------
Net asset value, end of period............................... $ 17.35 $ 16.65
------ ------
------ ------
TOTAL RETURN(b):............................................. 12.72% 8.06%
RATIOS/SUPPLEMENTAL DATA:
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%(e)
Expenses, excluding distribution fees..................... 1.14% 1.20%(e)
Net investment income (loss).............................. 0.27% .55%(e)
</TABLE>
- ---------------
(a) Based on average shares outstanding.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Commencement of offering of Class C shares.
(d) Commencement of offering of Class Z shares.
(e) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-51
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Report of Independent Accountants GLOBAL SERIES
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
Prudential World Fund, Inc., Global Series
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential World Fund, Inc., Global
Series (the "Fund", one of the portfolios constituting Prudential World Fund,
Inc.) at October 31, 1997, and the results of its operations, the changes in its
net assets and the financial highlights for the year then ended, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at October 31, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedure where securities purchased had not been received, provides a
reasonable basis for the opinion expressed above. The accompanying statement of
changes in net assets for the year ended October 31, 1997 and the financial
highlights for each of the periods prior to the year ended October 31, 1997 were
audited by other independent accountants, whose opinion dated December 13, 1996
was unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
December 23, 1997
- --------------------------------------------------------------------------------
B-52
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Change of Auditors GLOBAL SERIES
- --------------------------------------------------------------------------------
Effective March 1, 1997, Deloitte & Touche LLP was terminated as the Fund's
auditors. For the years ended May 15, 1984 through October 31, 1996, Deloitte &
Touche LLP expressed an unqualified opinion on the Series' financial statements.
There were no disagreements between Fund management and Deloitte & Touche LLP
prior to their termination. The Board of Directors approved the termination of
Deloitte & Touche LLP and the appointment of Price Waterhouse LLP as the Fund's
independent accountants.
B-53
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Independent Auditors' Report GLOBAL SERIES
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
Prudential World Fund, Inc.--Global Series
We have audited the accompanying statement of assets and liabilities including
the portfolio of investments, of Prudential World Fund, Inc.--Global Series, as
of October 31, 1996, the related statements of operations for the year then
ended and of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential World
Fund, Inc.--Global Series as of October 31, 1996, the results of its operations,
the changes in its net assets, and its financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
December 13, 1996
B-54
<PAGE>
Portfolio of Investments as of PRUDENTIAL WORLD FUND, INC.
October 31, 1997 INTERNATIONAL STOCK SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------
LONG-TERM INVESTMENTS--93.6%
COMMON STOCKS
-----------------------------------------------------------
Argentina--3.2%
166,000 Telecom Argentina (ADR)
(Telecommunications) $ 4,201,875
240,000 YPF Sociedad Anonima (ADR)
(Energy Sources) 7,680,000
------------
11,881,875
- ------------------------------------------------------------
Australia--7.5%
2,100,000 CSR, Ltd. (Building Materials &
Components) 7,267,937
1,455,000 Mayne Nickless, Ltd.
(Multi-Industry) 6,624,504
600,000 National Australia Bank, Ltd.
(Commercial Banking) 8,174,250
2,300,000 Pioneer International Ltd.
(Building Materials &
Components) 6,057,490
------------
28,124,181
- ------------------------------------------------------------
Canada--4.9%
251,300 Alcan Aluminum, Ltd. (Metals-Non
Ferrous) 7,131,860
180,000 Bank of Nova Scotia (Commercial
Banking) 7,937,139
165,000 Canadian Tire Corp., Ltd., Class A
(Mechandising) 3,365,674
------------
18,434,673
- ------------------------------------------------------------
France--7.4%
60,300 Bouygues (Construction and Housing) 5,626,555
57,000 Christian Dior S.A. (Textiles &
Apparel) 6,303,567
65,000 Peugeot S.A. (Automobile
Manufacturing) 7,334,289
69,000 Societe Nationale Elf Aquitaine
(Energy Sources) 8,512,925
------------
27,777,336
Italy--5.7%
1,200,000 Banca Fideuram S.P.A. (Commercial
Banking) $ 4,563,679
275,000 Banca Popolare Di Bergamo Credito
Vaesino S.P.A. (Commercial
Banking) 4,329,304
551,200 Benetton Group S.P.A. (ADR)
(Textiles & Apparel) 8,011,250
3,046,000 Parmalat Finanziaria S.P.A. (Food &
Household Products) 4,220,578
------------
21,124,811
- ------------------------------------------------------------
Japan--5.9%
713,000 Hitachi, Ltd. (Electrical
Equipment) 5,487,353
382,000 Matsushita Electric Industrial Co.,
Ltd. (Electrical Equipment) 6,420,168
1,080,400 Nissan Motor Co., Ltd. (Automobile
Manufacturing) 5,762,014
54,000 Sony Corp. (Electronics) 4,488,393
------------
22,157,928
- ------------------------------------------------------------
South Korea--2.3%
270,000 Korea Electric Power Corp.
(Electrical Power) 3,833,160
160,953 Korea Long Term Credit Bank
(Commercial Banking) 1,294,296
98,000 Korea Zinc (Metals-Non Ferrous) 1,178,031
20,180 Pohang Iron & Steel Co., Ltd.
(Steel) 893,420
32,234 Samsung Electronics Co., Ltd.
(Electronics) 1,265,978
------------
8,464,885
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-55
<PAGE>
Portfolio of Investments as PRUDENTIAL WORLD FUND, INC.
of October 31, 1997 INTERNATIONAL STOCK SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
--------------------------------------------------------
Netherlands--11.1%
53,000 AKZO N.V. (Chemicals) $ 9,306,693
200,000 ING Groep N.V. (Financial Services) 8,366,697
235,000 KLM Royal Dutch Airlines
(Airlines/Military Technology) 7,937,070
225,000 Pakhoed Holdings N.V. (Energy
Equipment & Services) 7,345,242
200,000 Stork N.V. (Machinery &
Engineering) 8,623,345
------------
41,579,047
- ------------------------------------------------------------
New Zealand--4.4%
3,500,000 Carter Holt Harvey, Ltd. (Forestry
& Paper) 6,101,969
700,000 Fisher & Paykel Industries, Ltd.
(Consumer Durable Goods) 2,222,860
3,400,000 Lion Nathan Ltd. (Beverages &
Tobacco) 8,213,997
------------
16,538,826
- ------------------------------------------------------------
Norway--1.6%
70,000 Orkla A.S. (Multi-Industry) 5,748,403
- ------------------------------------------------------------
Spain--4.9%
240,000 Banco Bilbao Vizcaya S.A.
(Commercial Banking) 6,398,904
35,300 Banco de Andalucia S.A. (Commercial
Banking) 5,564,771
520,000 Iberdrola, S.A. (Utilities) 6,201,508
------------
18,165,183
- ------------------------------------------------------------
Sweden--9.8%
125,000 Electrolux AB (Appliances) 10,325,073
179,000 Pharmacia & Upjohn (Health &
Personal Care) 5,687,650
295,000 SKF International AB (Industrial
Components) $ 6,838,529
360,000 Svedala Industri AB (Machinery &
Engineering) 7,050,360
258,000 Volvo AB (Automobile Manufacturing) 6,737,011
------------
36,638,623
- ------------------------------------------------------------
Switzerland--9.8%
3,720 Novartis AG (Drugs & Health Care) 5,816,727
13,525 SMH-Swiss Corp. for
Microelectronics and Watchmaking
Industries Ltd. (Electronics) 7,531,569
11,000 Sulzer Brothers, Ltd. (Machinery &
Engineering) 8,031,373
30,000 Swiss Bank Corp. (Commercial
Banking) 8,053,476
33,000 Valora Holding AG (Merchandising) 7,058,823
------------
36,491,968
- ------------------------------------------------------------
United Kingdom--15.1%
1,100,000 Allied-Lyons PLC (Beverages &
Tobacco) 8,966,164
2,900,000 British Steel PLC (Steel) 7,676,907
1,300,000 British Telecom PLC
(Telecommunications) 9,866,718
2,500,000 Coats Viyella PLC (Textiles &
Apparel) 4,649,370
615,000 National Westminster Bank PLC
(Commercial Banking) 8,830,537
1,318,000 Rank Group PLC (Leisure & Tourism) 7,353,444
473,000 Takare PLC (Health Services) 1,133,257
1,000,000 Tesco PLC (Merchandising) 7,996,078
------------
56,472,475
------------
Total long-term investments
(cost $310,717,383) 349,600,214
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-56
<PAGE>
Portfolio of Investments as PRUDENTIAL WORLD FUND, INC.
of October 31, 1997 INTERNATIONAL STOCK SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
SHORT-TERM INVESTMENT--5.0%
- ------------------------------------------------------------
REPURCHASE AGREEMENT
$ 18,664 Joint Repurchase Agreement Account,
5.70%, 11/3/97
(cost $18,664,000; Note 5) $ 18,664,000
------------
- ------------------------------------------------------------
TOTAL INVESTMENTS--98.6%
(cost $329,381,383; Note 4) 368,264,214
Other assets in excess of
liabilities--1.4% 5,404,450
------------
Net Assets--100% $373,668,664
------------
------------
</TABLE>
- ---------------
ADR--American Depository Receipt.
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of October 31, 1997 was as
follows:
Commercial Banking.................................... 14.8%
Machinery & Engineering............................... 6.3
Auto Manufacturing.................................... 5.3
Textiles & Apparel.................................... 5.1
Merchandising......................................... 4.9
Beverages & Tobacco................................... 4.6
Energy Sources........................................ 4.3
Telecommunications.................................... 3.8
Building Materials & Components....................... 3.6
Electronics........................................... 3.6
Multi-Industry........................................ 3.3
Electrical Equipment.................................. 3.2
Appliances............................................ 2.8
Chemicals............................................. 2.5
Steel................................................. 2.3
Financial Services.................................... 2.2
Metals - Non Ferrous.................................. 2.2
Airlines/Military Technology.......................... 2.1
Energy Equipment & Services........................... 2.0
Leisure & Tourism..................................... 2.0
Industrial Components................................. 1.8
Utilities............................................. 1.7
Drugs & Healthcare.................................... 1.6
Forestry & Paper...................................... 1.6
Construction & Housing................................ 1.5
Health & Personal Care................................ 1.5
Food & Household Products............................. 1.1
Electrical Power...................................... 1.0
Consumer Durable Goods................................ 0.6
Health Services....................................... 0.3
Short-term investment................................. 5.0
-----
98.6%
Other assets in excess of liabilities................. 1.4
-----
100.0%
-----
-----
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-57
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Statement of Assets and Liabilities INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS October 31, 1997
----------------
<S> <C>
Investments, at value (cost $329,381,383)................................................................. $368,264,214
Foreign currency, at value (cost $191,067)................................................................ 190,640
Receivable for Series shares sold......................................................................... 6,379,797
Dividends and interest receivable......................................................................... 451,061
Receivable for investments sold........................................................................... 240,927
Deferred expenses and other assets........................................................................ 5,437
---------------
Total assets........................................................................................... 375,532,076
---------------
LIABILITIES
Payable for Series shares reacquired...................................................................... 1,063,098
Management fee payable.................................................................................... 343,145
Accrued expenses and other liabilities.................................................................... 264,141
Distribution fee payable.................................................................................. 101,444
Bank overdraft............................................................................................ 91,584
---------------
Total liabilities...................................................................................... 1,863,412
---------------
NET ASSETS................................................................................................ $373,668,664
---------------
---------------
Net assets were comprised of:
Common stock, at par................................................................................... $ 204,892
Paid-in capital in excess of par....................................................................... 323,576,342
---------------
323,781,234
Undistributed net investment income.................................................................... 2,651,778
Accumulated net realized gain on investments........................................................... 8,347,113
Net unrealized appreciation on investments and foreign currencies...................................... 38,888,539
---------------
Net assets, October 31, 1997.............................................................................. $373,668,664
---------------
---------------
Class A:
Net asset value and redemption price per share
($36,183,515 / 1,983,836 shares of common stock issued and outstanding)............................. $18.24
Maximum sales charge (5% of offering price)............................................................ .96
---------------
Maximum offering price to public....................................................................... $19.20
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($87,154,796 / 4,807,673 shares of common stock issued and outstanding)............................. $18.13
---------------
---------------
Class C:
Net asset value, offering price and redemption price per share
($12,354,284 / 681,501 shares of common stock issued and outstanding)............................... $18.13
---------------
---------------
Class Z:
Net asset value, offering price and redemption price per share
($237,976,069 / 13,016,181 shares of common stock issued and outstanding)........................... $18.28
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-58
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Statements of Operations INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
NET INVESTMENT INCOME October 31, 1997
----------------
<S> <C>
Income
Dividends (net of foreign withholding taxes of $1,152,542).............................................. $ 7,718,449
Interest................................................................................................ 1,504,747
---------------
Total income......................................................................................... 9,223,196
---------------
Expenses
Management fee.......................................................................................... 2,932,554
Distribution fee--Class A............................................................................... 46,947
Distribution fee--Class B............................................................................... 475,842
Distribution fee--Class C............................................................................... 74,733
Transfer agent's fees and expenses...................................................................... 504,000
Custodian's fees and expenses........................................................................... 391,000
Registration fees....................................................................................... 263,000
Reports to shareholders................................................................................. 190,000
Audit fee............................................................................................... 35,000
Legal fees and expenses................................................................................. 35,000
Directors' fees and expenses............................................................................ 32,000
Amortization of organization expenses................................................................... 13,384
Miscellaneous........................................................................................... 1,893
---------------
Total expenses....................................................................................... 4,995,353
---------------
Net investment income...................................................................................... 4,227,843
---------------
Realized and Unrealized Gain (Loss)
on Investment and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions................................................................................. 8,033,280
Foreign currency transactions........................................................................... (689,417)
---------------
7,343,863
---------------
Net change in unrealized appreciation on:
Investments............................................................................................. 13,628,134
Foreign currencies...................................................................................... 3,675
---------------
13,631,809
---------------
Net gain on investments and foreign currencies............................................................. 20,975,672
---------------
Net Increase in Net Assets
Resulting from Operations.................................................................................. $ 25,203,515
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-59
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Statements of Changes in Net Assets INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 1,
YEAR 1996 YEAR
ENDED THROUGH ENDED
INCREASE (DECREASE) OCTOBER 31, OCTOBER 31, SEPTEMBER 30,
IN NET ASSETS 1997 1996 1996
-------------- --------------- --------------
<S> <C> <C> <C>
Operations
Net investment income (loss)...................................... $ 4,227,843 $ (127,030) $ 2,552,778
Net realized gain on investment and foreign currency
transactions................................................... 7,343,863 814,988 4,753,897
Net change in unrealized appreciation of investments and foreign
currencies..................................................... 13,631,809 496,864 7,438,658
--------------- --------------- -------------
Net increase in net assets resulting from operations.............. 25,203,515 1,184,822 14,745,333
--------------- --------------- -------------
Dividends and distributions (Note 1)
Dividends from net investment income
Class A........................................................ (1,745) -- --
Class B........................................................ (23) -- --
Class C........................................................ (2) -- --
Class Z........................................................ (2,801,611) -- (1,739,771)
--------------- --------------- -------------
(2,803,381) -- (1,739,771)
--------------- --------------- -------------
Distributions from net realized capital gains
Class A........................................................ (1,514) -- --
Class B........................................................ (24) -- --
Class C........................................................ (2) -- --
Class Z........................................................ (2,381,370) -- --
--------------- --------------- -------------
(2,382,910) -- --
--------------- --------------- -------------
Series share transactions (net of conversions) (Note 6)
Net proceeds from shares sold..................................... 804,494,249 9,340,491 115,942,217
Net asset value of shares issued in reinvestment of dividends and
distributions.................................................. 5,185,220 -- 1,739,771
Cost of shares reacquired......................................... (646,463,274) (8,477,063) (78,985,777)
--------------- --------------- -------------
Net increase in net assets from Series share transactions......... 163,216,195 863,428 38,696,211
--------------- --------------- -------------
Total increase....................................................... 183,233,419 2,048,250 51,701,773
NET ASSETS
Beginning of year.................................................... 190,435,245 188,386,995 136,685,222
--------------- --------------- -------------
End of year.......................................................... $ 373,668,664 $ 190,435,245 $188,386,995
--------------- --------------- -------------
--------------- --------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-60
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Notes to Financial Statements INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
Prudential World Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as an open-end, diversified management investment company
and currently consists of two series: the International Stock Series and the
Global Series. The International Stock Series (the "Series") commenced
investment operations in November, 1992. Subsequent to September 30, 1996 (the
Series' prior fiscal year end) the Series' changed its fiscal year end to
October 31. The investment objective of the Series is to achieve long-term
growth of capital through investment in equity securities of foreign issuers.
Income is a secondary objective. The Series seeks to achieve its objective
primarily through investment in a diversified portfolio of securities which
consist of equity securities of foreign issuers.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund and the Series in the preparation of its financial statements.
Securities Valuation: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices.
Any security for which a reliable market quotation is unavailable is 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.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Series' policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying securities, the value of which exceeds the
principal amount of the repurchase transaction including accrued interest. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
All securities are valued as of 4:15 p.m., New York time.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities - at the
closing daily rates of exchange.
(ii) purchases and sales of investment securities, income and expenses - at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the fiscal year, the Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities held at the end of the year. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term portfolio securities sold
during the year. Accordingly, these realized foreign currency gains (losses) are
included in the reported net realized gains (losses) on investment transactions.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized currency gains or losses from
valuing foreign currency denominated assets and liabilities (other than
investments) at year end exchange rates are reflected as a component of net
unrealized appreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from investment and
currency transactions are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date; interest income is recorded on the
accrual basis. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management.
- --------------------------------------------------------------------------------
B-61
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Notes to Financial Statements INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
Net investment income (loss), other than distribution fees, and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Taxes: For federal income tax purposes, each series in the Fund is treated as a
separate taxpaying entity. It is the intent of the Series to continue to meet
the requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its net income to shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance with
the Fund's understanding of the applicable country's tax rules and rates.
Dividends and Distributions: The Fund expects to pay dividends of net investment
income and distributions of net realized capital and currency gains, if any,
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Reclassification of Capital Accounts: The Series accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to decrease undistributed net investment income by $678,080,
increase accumulated net realized gain on investments by $689,417 and decrease
paid in capital by $11,337 for the year ended October 31, 1997, due to realized
and recognized currency losses during the year and certain expenses not being
deductible for tax purposes. Net investment income, net realized gains and net
assets were not affected by this change.
Deferred Organization Expenses: Approximately $64,000 of costs were incurred in
connection with the organization and initial registration of the Series and are
being amortized ratably over the period of benefit not to exceed 60 months from
the date of the Series' commencement of investment operations.
- --------------------------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with Mercator Asset
Management, L.P. ('Mercator'); Mercator furnishes investment advisory services
in connection with the management of the Series. PIFM pays for the cost of the
subadviser's services, the compensation of officers and employees of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly at an annual
rate of 1% of the average daily net assets of the Series. PIFM pays Mercator at
an annual rate of .75 of 1% of the Series average daily net assets up to and
including $50 million, .60 of 1% of the Series' average daily net assets in
excess of $50 million up to and including $300 million and .45 of 1% of the
Series' average daily net assets in excess of $300 million.
The Fund has a distribution agreement with Prudential Securities Incorporated
('PSI') which acts as the distributor of the Class A, Class B, Class C and Class
Z shares of the Fund. The Fund compensates PSI for distributing and servicing
the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution, (the 'Class A, B and C plans'), regardless of expenses actually
incurred by PSI. The distribution fees for Class A, Class B and Class C shares,
are accrued daily and payable monthly. No distribution or service fees are paid
to PSI as distributor for Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Series compensates PSI for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B, and C shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, B and C shares respectively, for the year ended October
31, 1997.
PSI has advised the Series that it has received approximately $774,000 in
front-end sales charges resulting from sales of Class A shares during the year
ended October 31, 1997. From these fees, PSI paid such sales charges to
affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.
PSI has advised the Series that for the year ended October 31, 1997, it received
approximately $69,000 and $11,000 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders, respectively.
PSI and PIFM are indirect, wholly-owned subsidiaries of The Prudential Insurance
Company of America.
- --------------------------------------------------------------------------------
B-62
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Notes to Financial Statements INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
The Fund, along with other affiliated registered investment companies (the
"Funds"), entered into a credit agreement (the "Agreement") on December 31, 1996
with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Series has not borrowed any amounts pursuant to the Agreement as of October 31,
1997. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ("PMFS"), a wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended October 31, 1997, the
Series incurred fees of approximately $487,000 for the services of PMFS. As of
October 31, 1997 approximately $56,000 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to non-affiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the year ended October 31, 1997 were $175,262,911 and
$24,959,895, respectively.
The federal income tax basis of the Series' investments as of October 31, 1997
was substantially the same as for financial reporting purposes and accordingly,
net unrealized appreciation on investments for federal income tax purposes was
$38,882,831 (gross unrealized appreciation--$61,144,100, gross unrealized
depreciation--$22,261,269).
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of October 31, 1997, the
Series had a 2.33% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Series represents $18,664,000 in the
principal amount. As of such date, each repurchase agreement in the joint
account and the collateral therefor were as follows:
Bear, Stearns & Co., Inc., 5.70%, in the principal amount of $236,000,000,
repurchase price $236,112,100, due 11/3/97. The value of the collateral
including accrued interest was $241,912,917.
Credit Suisse First Boston Corp., 5.72%, in the principal amount of
$237,440,000, repurchase price $237,553,180, due 11/3/97. The value of the
collateral including accrued interest was $246,134,363.
Deutsche Morgan Grenfell Inc., 5.70%, in the principal amount of $236,000,000,
repurchase price $236,112,100, due 11/3/97. The value of the collateral
including accrued interest was $240,720,618.
SBC Warburg Dillon Read, Inc., 5.66%, in the principal amount of $92,714,000,
repurchase price $92,757,730, due 11/3/97. The value of the collateral including
accrued interest was $94,588,984.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares automatically
convert to Class A shares on a quarterly basis approximately seven years after
purchase. A special exchange privilege is also available for shareholders who
qualified to purchase Class A shares at net asset value. Class Z shares are not
subject to any sales or redemption charge and are offered exclusively for sale
to a limited group of investors.
There are 500 million authorized shares of $.01 par value common stock, divided
equally into four classes, designated Class A, Class B, Class C and Class Z
common stock.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------------- ----------- -------------
<S> <C> <C>
Year ended October 31, 1997:
Shares sold....................... 10,202,989 $ 196,064,399
Shares issued in reinvestment of
dividends and distributions..... 203 3,367
Shares reacquired................. (8,307,335) (161,996,245)
----------- -------------
Net increase in shares outstanding
before conversion............... 1,895,857 34,071,521
Shares issued upon conversion from
Class B......................... 87,667 1,665,704
----------- -------------
Net increase in shares
outstanding..................... 1,983,524 $ 35,737,225
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
B-63
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Notes to Financial Statements INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------------- ----------- -------------
October 1, 1996 through
October 31, 1996:
<S> <C> <C>
Shares sold....................... 300 $ 5,035
----------- -------------
----------- -------------
September 23, 1996(a) through
September 30, 1996:
Shares sold....................... 12 $ 200
----------- -------------
----------- -------------
<CAPTION>
Class B
- ----------------------------------
<S> <C> <C>
Year ended October 31, 1997:
Shares sold....................... 13,896,760 $ 263,039,826
Shares issued in reinvestment of
dividends and distributions..... 3 44
Shares reacquired................. (9,001,122) (174,661,409)
----------- -------------
Net increase in shares outstanding
before conversion............... 4,895,641 88,378,461
Shares reacquired upon conversion
into Class A.................... (88,084) (1,665,704)
----------- -------------
Net increase in shares
outstanding..................... 4,807,557 $ 86,712,757
----------- -------------
----------- -------------
October 1, 1996 through
October 31, 1996:
Shares sold....................... 104 $ 1,737
----------- -------------
----------- -------------
September 23, 1996(a) through
September 30, 1996:
Shares sold....................... 12 $ 200
----------- -------------
----------- -------------
Class C
- ----------------------------------
Year ended October 31, 1997:
Shares sold....................... 3,133,108 $ 59,754,209
Shares reacquired................. (2,451,619) (47,614,464)
----------- -------------
Net increase in shares
outstanding..................... 681,489 $ 12,139,745
----------- -------------
----------- -------------
September 23, 1996(a) through
September 30, 1996:
Shares sold....................... 12 $ 200
----------- -------------
----------- -------------
- ---------------
(a) Commencement of offering of Class A, Class B and Class C
shares.
<CAPTION>
Class Z Shares Amount
- ---------------------------------- ----------- -------------
<S> <C> <C>
Year ended October 31, 1997:
Shares sold....................... 15,399,799 $ 285,635,815
Shares issued in reinvestment of
dividends and distributions..... 312,157 5,181,809
Shares reacquired................. (14,177,275) (262,191,156)
----------- -------------
Net increase in shares
outstanding..................... 1,534,681 $ 28,626,468
----------- -------------
----------- -------------
October 1, 1996 through
October 31, 1996:
Shares sold....................... 558,189 $ 9,333,719
Shares reacquired................. (506,630) (8,477,063)
----------- -------------
Net increase in shares
outstanding..................... 51,559 $ 856,656
----------- -------------
----------- -------------
Year ended September 30, 1996:
Shares sold....................... 7,376,874 $ 115,941,617
Shares issued in reinvestment of
dividends....................... 116,607 1,739,771
Shares reacquired................. (5,027,997) (78,985,777)
----------- -------------
Net increase in shares
outstanding..................... 2,465,484 $ 38,695,611
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
B-64
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Financial Highlights INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------- --------------------------------------------
Year October 1, September 23, Year October 1, September 23,
Ended 1996 1996(c) Ended 1996 1996(c)
October Through Through October Through Through
31, October 31, September 30, 31, October 31, September 30,
1997(e) 1996 1996 1997(e) 1996 1996
---------- ----------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period......................... $ 16.59 $ 16.48 $ 16.54 $ 16.57 $ 16.47 $ 16.54
---------- ----- ----- ---------- ----- -----
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss)...... .24 (.01) -- .12 (.02) --
Net realized and unrealized gain
(loss) on investment and
foreign currency
transactions................... 1.85 .12 (.06) 1.84 .12 (.07)
---------- ----- ----- ---------- ----- -----
Total from investment
operations.................. 2.09 .11 (.06) 1.96 .10 (.07)
---------- ----- ----- ---------- ----- -----
LESS DISTRIBUTIONS:
Dividends from net investment
income......................... (.24) -- -- (.20) -- --
Distributions from net realized
capital gains.................. (.20) -- -- (.20) -- --
---------- ----- ----- ---------- ----- -----
Total distributions............ (.44) -- -- (.40) -- --
---------- ----- ----- ---------- ----- -----
Net asset value, end of period.... $ 18.24 $ 16.59 $ 16.48 $ 18.13 $ 16.57 $ 16.47
---------- ----- ----- ---------- ----- -----
---------- ----- ----- ---------- ----- -----
TOTAL RETURN(a)................... 12.85% .67% (.36)% 12.04% .61% (.42)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $ 36,184 $ 5,169(d) $ 199(d) $ 87,155 $ 1,922(d) $ 199(d)
Average net assets (000).......... $ 18,779 $ 2,793(d) $ 199(d) $ 47,584 $ 313(d) $ 199(d)
Ratios to average net assets:
Expenses, including
distribution fees........... 1.75% 2.05%(b) 2.46%(b) 2.50% 2.80%(b) 3.21%(b)
Expenses, excluding
distribution fees........... 1.50% 1.80%(b) 2.21%(b) 1.50% 1.80%(b) 2.21%(b)
Net investment income (loss)... 1.40% (1.03)%(b) .75%(b) .65% (1.78)%(b) 0%(b)
Portfolio turnover rate........... 9% 4% 15% 9% 4% 15%
Average commission rate paid per
share.......................... $ .0281 $ .0256 $ .0222 $ .0302 $ .0256 $ .0222
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions. Total return for periods of less than a full
year are not annualized.
(b) Annualized.
(c) Commencement of offering of Class A and Class B shares.
(d) Figures are actual and are not rounded to the nearest thousand.
(e) Calculated based upon weighted average shares outstanding during the year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-65
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Financial Highlights INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z
Class C -----------------------------------------
-------------------------------------------- Year
Year October 1, September 23, Year October 1, Ended
Ended 1996 1996(e) Ended 1996 September
October Through Through October Through 30,
31, October 31, September 30, 31, October 31, --------
1997(g) 1996 1996 1997(g) 1996 1996
---------- ----------- ------------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period......................... $ 16.57 $ 16.47 $ 16.54 $ 16.59 $ 16.48 $ 15.25
---------- ----- ----- ---------- ----------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss)...... .12 (.02) -- .31 (.01) .22
Net realized and unrealized gain
(loss) on investment and
foreign currency
transactions................... 1.84 .12 (.07) 1.82 .12 1.20
---------- ----- ----- ---------- ----------- --------
Total from investment
operations.................. 1.96 .10 (.07) 2.13 .11 1.42
---------- ----- ----- ---------- ----------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income......................... (.20) -- -- (.24) -- (.19)
Distributions from net realized
gains.......................... (.20) -- -- (.20) -- --
---------- ----- ----- ---------- ----------- --------
Total distributions............ (.40) -- -- (.44) -- (.19)
---------- ----- ----- ---------- ----------- --------
Net asset value, end of period.... $ 18.13 $ 16.57 $ 16.47 $ 18.28 $ 16.59 $ 16.48
---------- ----- ----- ---------- ----------- --------
---------- ----- ----- ---------- ----------- --------
TOTAL RETURN(a)................... 12.04% .61% (.42)% 13.13% .67% 9.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $ 12,354 $ 200(f) $ 199(f) $237,976 $ 190,428 $188,386
Average net assets (000).......... $ 7,473 $ 202(f) $ 199(f) $219,419 $ 191,228 $161,356
Ratios to average net assets:
Expenses, including
distribution fees........... 2.50% 2.80%(b) 3.21%(b) 1.50% 1.80%(b) 1.61%(c)
Expenses, excluding
distribution fees........... 1.50% 1.80%(b) 2.21%(b) 1.50% 1.80%(b) 1.61%(c)
Net investment income (loss)... .65% (1.78)%(b) 0%(b) 1.65% (.78)%(b) 1.58%(c)
Portfolio turnover rate........... 9% 4% 15% 9% 4% 15%
Average commission rate paid per
share.......................... $ .0281 $ .0256 $ .0222 $ .0302 $ .0256 $ .0222
<CAPTION>
November 5,
1992(d)
Through
September 30,
1995 1994 1993
-------- -------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period......................... $ 14.84 $ 12.35 $ 10.00
-------- -------- ------
Income from investment
operations:
Net investment income (loss)...... .18(c) .13(c) .16(c)
Net realized and unrealized gain
(loss) on investment and
foreign currency
transactions................... .66 2.54 2.21
-------- -------- ------
Total from investment
operations.................. .84 2.67 2.37
-------- -------- ------
Less distributions:
Dividends from net investment
income......................... (.10) (.03) (.02)
Distributions from net realized
gains.......................... (.33) (.15) --
-------- -------- ------
Total distributions............ (.43) (.18) (.02)
-------- -------- ------
Net asset value, end of period.... $ 15.25 $ 14.84 $ 12.35
-------- -------- ------
-------- -------- ------
TOTAL RETURN(a)................... 5.95% 21.71% 23.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $136,685 $102,824 $31,708
Average net assets (000).......... $118,927 $ 68,476 $14,491
Ratios to average net assets:
Expenses, including
distribution fees........... 1.60%(c) 1.60%(c) 1.60%(c b)
Expenses, excluding
distribution fees........... 1.60%(c) 1.60%(c) 1.60%(c b)
Net investment income (loss)... 1.58%(c) 1.08%(c) 1.44%(c b)
Portfolio turnover rate........... 20% 21% 15%
Average commission rate paid per
share.......................... N/A N/A N/A
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions. Total return for periods of less than a full
year are not annualized. Total return includes the effect of expense
subsidies/recoveries, as applicable.
(b) Annualized.
(c) Net of expense subsidy/recovery.
(d) Commencement of investment operations.
(e) Commencement of offering of Class C shares.
(f) Figures are actual and are not rounded to the nearest thousand.
(g) Calculated based upon weighted average shares outstanding during the year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-66
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Report of Independent Accountants INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential World Fund, Inc., International Stock Series
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential World Fund, Inc.,
International Stock Series (the "Fund", one of the portfolios two series
constituting Prudential World Fund, Inc.) at October 31, 1997, and the results
of its operations, the changes in its net assets and the financial highlights
for the year then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at October 31, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where securities purchased had not been received, provides a reasonable basis
for the opinion expressed above. The accompanying statement of changes in net
assets for the period October 1, 1996 through October 31, 1996 and the year
ended September 30, 1996 and the financial highlights for each of the periods
prior to the year ended October 31, 1997 were audited by other independent
accountants, whose opinion dated November 27, 1996 was unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
December 23, 1997
- --------------------------------------------------------------------------------
B-67
<PAGE>
PRUDENTIAL WORLD FUND, INC.
Change of Auditors INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
Effective March 1, 1997, Deloitte & Touche LLP was terminated as the Fund's
auditors. For the years ended September 30, 1993 through October 31, 1996,
Deloitte & Touche LLP expressed an unqualified opinion on the Series' financial
statements. There were no disagreements between Fund management and Deloitte &
Touche LLP prior to their termination. The Board of Directors approved the
termination of Deloitte & Touche LLP and the appointment of Price Waterhouse LLP
as the Fund's independent accountants.
B-68
<PAGE>
PRUDENTIAL WORLD FUND
Independent Auditors' Report INTERNATIONAL STOCK SERIES
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
Prudential World Fund, Inc., International Stock Series
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Prudential World Fund, Inc., International
Stock Series, as of October 31, 1996 and September 30, 1996, the related
statements of operations for the period October 1, 1996 through October 31, 1996
and the year ended September 30, 1996 and of changes in net assets and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
September 30, 1996 and October 31, 1996 by correspondence with the custodian and
brokers; where replies were not received from brokers we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential World
Fund, Inc., International Stock Series, as of September 30, 1996 and October 31,
1996, the results of its operations, the changes in its net assets, and its
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
November 27, 1996
B-69
<PAGE>
APPENDIX--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
App-1
<PAGE>
APPENDIX--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This chart shows the long-term performance of various asset classes and the
rate of inflation.
[GRAPHIC REPRESENTATION]
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
any gains. Bond returns are due mainly to reinvesting 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.
App-2
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1987 to
December 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.
<TABLE>
HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
- --------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Treasury Bonds(1) 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% -3.4% 18.4% 2.7%
U.S. Government
Mortgage
Securities(2) 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% -1.6% 16.8% 5.4%
U.S. Investment Grade
Corporate Bonds(3) 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% -3.9% 22.3% 3.3%
U.S. High Yield
Corporate Bonds(4) 5.0% 12.5% 0.8% -9.6% 46.2% 15.8% 17.1% -1.0% 19.2% 11.4%
World Government
Bonds(5) 35.2% 2.3% -3.4% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1%
Difference between
highest and lowest
returns percent 33.2% 10.2% 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7%
- --------------------------------------------------------------------------------------------------------
- -------------
(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.
</TABLE>
App-3
<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.
[GRAPHIC REPRESENTATION]
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.
[GRAPHIC REPRESENTATION]
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.
WORLD STOCK MARKET CAPITALIZATION BY REGION
WORLD TOTAL: 12.7 TRILLION
[GRAPHIC REPRESENTATION]
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 (MCSI) 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.
App-4
<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)
[GRAPHIC REPRESENTATION]
- ----------
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)*
[GRAPHIC REPRESENTATION]
- ----------
*Source: Prudential Investment Corporation based on data from Lipper Analytical
New Application (LANA). Past performance is not indicative of future results.
The S&P 500 Index is a weighted, unmanaged index comprised of 500 stocks which
provides a broad indication of stock price movements. The Morgan Stanley EAFE
Index is an unmanaged index comprised of 20 overseas stock markets in Europe,
Australia, New Zealand and the Far East. The Lehman Aggregate Index includes all
publicly-issued investment grade debt with maturities over one year, including
U.S. government and agency issues, 15 and 30 year fixed-rate government agency
mortgage securities, dollar denominated SEC registered corporate and government
securities, as well as asset-backed securities. Investors cannot invest directly
in stock or bond market indices.
App-5
<PAGE>
APPENDIX--INFORMATION RELATING TO 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 81,000 persons
worldwide, and maintains a sales force of approximately 11,500 agents and nearly
6,400 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 50 million people
worldwide. Long one of the largest issuers of individual life insurance, the
Prudential has 22 million life insurance policies in force today with a face
value of $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 approximately 1.6 million cars and insures approximately 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 $332 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part) manages over $190 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 4.6
million Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has over $1 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of August 31, 1997, Prudential Investments Fund Management is the
seventeenth 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. as the subadviser to
Prudential Jennison Series Fund, Inc. and Prudential Active Balance Fund a
portfolio of Prudential Dryden Fund and Mercator Asset Management, L.P. as
subadviser to International Stock Series, a portfolio of Prudential World
Fund, Inc., and BlackRock Financial Management, Inc. as subadviser to The
BlackRock Government Income Trust. There are multiple subadvisers for The
Target Portfolio Trust.
(2) As of December 31, 1996.
App-6
<PAGE>
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York Times, Barron's and USA Today.
Equity Funds. Forbes magazines listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison 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 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so other high yield bonds, which may be
considered for purchase.(3) Non-investment grade bonds, also known as junk bonds
or high yield bonds, are subject to a greater risk of loss of principal and
interest including default risk than higher-rated bonds. Prudential high yield
portfolio managers and analysts meet face-to-face with almost every bond issuer
in the High Yield Fund's portfolio annually, and have additional telephone
contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over
1,200 companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual 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.
App-7
<PAGE>
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,400 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI.(7)
Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities Financial Advisor
training programs received a grade of A- (compared to an industry average of
B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey. Five
Prudential Securities analysts were ranked as first-team finishers.(8)
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect(SM), a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
advisor or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ----------
(7) As of December 31, 1994.
(8) In 1995, Institutional Investor magazine surveyed more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in approximately 80 industry
sectors. Scores were produced by taking the number of votes awarded to an
individual analyst and weighting them based on the size of the voting
institution. In total, the magazine sent its survey to more than 2,000
institutions, including a group of European and Asian institutions. This
survey is conducted annually.
App-8
<PAGE>
DESCRIPTION OF S&P, MOODY'S AND DUFF & PHELPS RATINGS
DESCRIPTION OF S&P CORPORATE BOND RATINGS:
AAA - Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, or C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa - Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
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.
App-9
<PAGE>
DESCRIPTION OF DUFF & PHELPS BOND RATINGS:
AAA - Bonds rated AAA by Duff & Phelps are considered to be of the highest
credit quality. The risk factors are negligible, being only slightly more than
for risk-free U.S. Treasury debt.
AA+, AA, AA- - Bonds rated AA+, AA or AA- are considered to be of high
credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions.
A+, A, A- - Bonds rated A+, A or A- have protection factors which are
average but adequate; however, risk factors are more variable and greater in
periods of economic stress.
BBB+, BBB, BBB- - Bonds rated BBB+, BBB or BBB- have below average
protection factors but are still considered sufficient for prudent investment.
These bonds demonstrate considerable variability in risk during economic cycles.
BB+, BB, BB- - Bonds rated BB+, BB, or BB- are below investment grade but
are still deemed likely to meet obligations when due. Present or prospective
financial protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently within this
category.
B+, B, B- - Bonds rated B+, B, or B- are below investment grade and possess
the risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC - Bonds rated CCC are well below investment grade securities.
Considerable uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable company
developments.
DD - Bonds rated DD are defaulted debt obligations. The issuer failed to
meet scheduled principal and/or interest payments.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
DESCRIPTION OF DUFF & PHELPS COMMERCIAL PAPER RATING:
Duff & Phelps commercial paper ratings are divided into three categories,
ranging from "1" for the highest quality obligations to "3" for the lowest. No
ratings are issued for companies whose paper is not deemed investment grade.
Issues assigned the Duff 1 rating are considered top grade. This category is
further divided into three gradations as follows: Duff 1 plus -- highest
certainty of timely payment, short-term liquidity, including internal operating
factors and/or ready access to alternative sources of funds, is clearly
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations; Duff 1 -- very high certainty of timely payment, liquidity factors
are excellent and supported by strong fundamental protection factors, risk
factors are minor; Duff 1 minus-high certainty of timely payment, liquidity
factors are strong and supported by good fundamental protection factors, risk
factors are very small. Issues rated Duff 2 represent a good certainty of timely
payment; liquidity factors and company fundamentals are sound; although ongoing
internal funds needs may enlarge total financing requirements, access to capital
markets is good; risk factors are small. Duff 3 represents a satisfactory grade;
satisfactory liquidity and other protection factors qualify issue as to
investment grade; risk factors are larger and subject to more variation;
nevertheless timely payment is expected.
App-10
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
(1) The following financial statements are included in the Prospectus
constituting Part A of this Post-Effective Amendment to the Registration
Statement:
Financial Highlights--Global Series.
Financial Highlights--International Stock Series.
(2) The following financial statements are included in the Statement of
Additional Information constituting Part B of this Post-Effective Amendment to
the Registration Statement:
(a) With respect to Global Series:
Independent Auditors' Report.
Portfolio of Investments at October 31, 1997.
Statement of Assets and Liabilities at October 31, 1997.
Statement of Operations for the Year ended October 31, 1997.
Statement of Changes in Net Assets for the Years ended October 31, 1997
and 1996.
Notes to Financial Statements.
Financial Highlights for the Five Years ended October 31, 1997.
(b) With respect to International Stock Series:
Independent Auditors' Report.
Portfolio of Investments at October 31, 1997.
Statement of Assets and Liabilities at October 31, 1997.
Statement of Operations for the Year ended October 31, 1997.
Statement of Changes in Net Assets for the period ended October 31, 1997,
and the Years ended September 30, 1997 and 1996.
Notes to Financial Statements.
Financial Highlights for the period ended October 31, 1997, and the Years
ended September 30, 1997, 1996 and 1995, and the period ended September
30, 1994.
(B) EXHIBITS:
1. (a) Restated Articles of Incorporation. Incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 17 to the Registration Statement
filed on Form N-1A via EDGAR on January 3, 1995 (File No. 2-89725).
(b) Articles Supplementary. Incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A
(File No. 2-89725) filed via EDGAR on June 24, 1996.
(c) Amendment to Articles of Incorporation. Incorporated by reference to
Exhibit 1(c) to Post-Effective Amendment No. 20 to the Registration
Statement on Form N-1A (File No. 2-89725) filed via EDGAR on June 24, 1996.
2. Amended and Restated By-Laws of the Registrant, incorporated by reference
to Exhibit 2 to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A (File No. 2-89725) filed via EDGAR on May 6, 1994.
4. (a) Specimen Certificate for shares of Common Stock of the Registrant for
Class A Shares.*
(b) Specimen Certificate for shares of Common Stock of the Registrant for
Class B Shares.*
(c) Speciman Certificate for shares of Common Stock of the Registrant for
Class C Shares.*
(d) Speciman Certificate for shares of Common Stock of the Registrant for
Class Z Shares.*
(e) Instruments defining rights of shareholders.*
5. (a) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc.*
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation.*
(c) 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 on January 14, 1997.
C-1
<PAGE>
(d) Subadvisory Agreement between Mercator Asset Management, L.P. and
Prudential Mutual Fund Management, Inc. with respect to the International
Stock Series of the Registrant, 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 on January 14, 1997.
(e) 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 on January 14, 1997.
6. 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 on January 14,
1997.
8. (a) Custodian Agreement between the Registrant and State Street Bank and
Trust Company.*
(b) Form of Amendment to Custodian Agreement, incorporated by reference to
Exhibit No. 8(b) to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A (File No. 2-89725) filed via EDGAR on November 1,
1995.
9. Transfer Agency and Service Agreement between the Registrant and Prudential
Mutual Fund Services, Inc.*
10. Opinion of Sullivan & Cromwell.*
11. (a) Consent of Independent Accountants.*
(b) Consent of Deloitte & Touche LLP.*
13. Not Applicable.
15. (a) Amended and Restated Distribution and Service Plan for Class A shares
dated July 1, 1993.*
(b) Amended and Restated Distribution and Service Plan for Class B shares
dated July 1, 1993.*
(c) Distribution and Service Plan for Class A shares; incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 17 to the
Registration Statement filed on Form N-1A via EDGAR on January 3, 1995
(File No. 2-89725).
(d) Distribution and Service Plan for Class B shares; incorporated by
reference to Exhibit 6(d) to Post-Effective Amendment No. 17 to the
Registration Statement filed on Form N-1A via EDGAR on January 3, 1995
(File No. 2-89725).
(e) Distribution and Service Plan for Class C shares; incorporated by
reference to Exhibit 6(e) to Post-Effective Amendment No. 17 to the
Registration Statement filed on Form N-1A via EDGAR on January 3, 1995
(File No. 2-89725).
(f) Distribution and Service Plan for Class A Shares of International Stock
Series of the Registrant, 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).
(g) 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).
(h) 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).
16. Schedule of Computation of Performance Quotations.*
17. Financial data schedules filed for electronic purposes as Exhibit 27.*
18. Rule 18f-3 Plan, incorporated by reference to Exhibit No. 18 to
Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A
(File No. 2-89725) filed via EDGAR on November 1, 1995.
Other Exhibits.
- ----------
* Filed herewith.
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of December 12, 1997, there were 45,549, 62,786, 2,502 and 5,072 record
holders of Class A, Class B, Class C and Class Z common stock, $.01 par value
per share, of the Registrant's Global Series, respectively. As of December 12,
1997, there were 5,015, 11,598, 1,617 and 726 record holders of Class A, Class
B, Class C and Class Z common stock, $.01 par value per share of the
Registrant's International Stock Series.
ITEM 27. INDEMNIFICATION
As permitted by Section 17(h) and (i) of the Investment Company Act of
1940, as amended (the 1940 Act), and pursuant to Article VI of the Fund's
By-Laws (Exhibit 2 to the Registration Statement), officers, directors,
employees and agents of the Registrant will not be liable to the Registrant, any
stockholder, officer, director, employee, agent or other person for any action
or failure to act, except for bad faith, willful misfeasance, gross negligence
or reckless disregard of duties, and those individuals may be indemnified
against liabilities in connection with the Registrant, subject to the same
exceptions. Section 2-418 of Maryland General Corporation Law permits
indemnification of directors who acted in good faith and reasonably believed
that the conduct was in the best interests of the Registrant. As permitted by
Section 17(i) of the 1940 Act, pursuant to Section 10 of the Distribution
Agreement (Exhibit 6 to the Registration Statement), the Distributor of the
Registrant may be indemnified against liabilities which it may incur, except
liabilities arising from bad faith, gross negligence, willful misfeasance or
reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, 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 5(a) and 5(b) to the
Registration Statement) and Section 4 of the Subadvisory Agreements (Exhibits
5(b) and 5(d) to the Registration Statement) limit the liability of Prudential
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 28. 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 Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of 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.
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- ---------------- ------------------ ---------------------
Brian Storms Officer-in-Charge, President, Prudential Mutual Funds &
President, Chief Annuities (PMF&A); Officer-in-Charge,
Executive Officer President, Chief Executive Officer and
and Chief Chief Operating Officer, PIFM
Operating Officer
Thomas A. Early Executive Vice Vice President and General Counsel,
President, PMF&A; Executive Vice President,
Secretary and Secretary and General Counsel, PIFM
General Counsel
Robert F. Gunia Executive Vice Vice President, Prudential Investments;
President Executive Vice President and Treasurer,
and Treasurer PIFM; Senior Vice President, Prudential
Securities
Neil A. McGinness Executive Vice Executive Vice President and Director of
President Marketing, PMF&A; Executive Vice
President, PIFM
Robert J. Sullivan Executive Vice Executive Vice President, PMF&A;
President Executive Vice President, PIFM
(b) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person is Prudential Plaza, Newark, NJ 07101.
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
E. Michael Chairman of the Chief Executive Officer of Prudential
Caulfield Board, Investments of The Prudential Insurance
President and Company of America (Prudential)
Chief
Executive Officer
and Director
Jonathan M. Greene Senior Vice President-Investment Management of the
President and Prudential Investments of Prudential;
Director Senior Vice President and Director, PIC
John R. Strangfeld Vice President and President of Private Assets Management
Director Group of Prudential; Senior Vice
President, Prudential; Vice President
and Director, PIC
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Prudential Securities Incorporated
Prudential Securities is distributor for Command Government Fund, Command
Money Fund, Command Tax-Free Fund, Prudential Government Securities Trust,
Prudential MoneyMart Assets, Inc., Prudential Institutional Liquidity Portfolio,
Inc., Prudential Special Money Market Fund, Inc., Prudential Tax-Free Money
Fund, Inc., Prudential Jennison Series Fund, Inc., The Target Portfolio Trust,
Prudential Allocation Fund, Prudential California Municipal 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 International Bond Fund, Inc., Prudential Intermediate Global
Income Fund, Inc., Prudential Mortgage Income Fund, Inc., Prudential
Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal
Series Fund, Prudential National Municipals Fund, Inc., Prudential Pacific
Growth
C-4
<PAGE>
Fund, Inc., Prudential Small-Cap Quantum Fund, Inc., Prudential Small
Company Value Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential
Utility Fund, Inc., The Global Total Return Fund, Inc., Global Utility Fund,
Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund) and
The BlackRock Government Income Trust. Prudential Securities is also a depositor
for the following unit investment trusts:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(b) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below.
POSITIONS AND
POSITIONS AND OFFICES
OFFICES WITH WITH
NAME(1) UNDERWRITER REGISTRANT
- ------- ----------- ----------
Alan D. Hogan ........Executive Vice President and Director None
George A. Murray .....Executive Vice President and Director None
Leland B. Paton ......Executive Vice President and Director None
One New York Plaza
New York, NY
Martin Pfinsgraff ....Executive Vice President, Chief Financial None
Officer and Director
Vincent T. Pica, II ..Executive Vice President and Director None
One New York Plaza
New York, NY
Hardwick Simmons .....Chief Executive Officer, President and None
Director
Lee B. Spencer, Jr. ..Executive Vice President, Secretary, None
General Counsel and Director
Brian Storms .........Director None
751 Broad Street
Newark, NJ 07102
- ----------
(1) The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential Plaza,
745 Broad Street, Newark, New Jersey 07102, the Registrant, 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)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be
kept at Two Gateway Center, documents required by Rules 31a-1(b)(4) and (11) and
31a-1(d) at One Seaport Plaza and the remaining accounts, books and other
documents required by such other pertinent provisions of Section 31(a) and the
Rules promulgated thereunder will be kept by State Street Bank and Trust Company
and Prudential Mutual Fund Services LLC.
C-5
<PAGE>
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Fund is
Managed--Manager" and "How the Fund is Managed--Distributor" in the Prospectus
and the captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Newark, and
State of New Jersey, on the 6th day of January, 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 January 6, 1998
- -------------------------
EDWARD D. BEACH
/s/ Stephen C. Eyre Director January 6, 1998
- -------------------------
STEPHEN C. EYRE
/s/ Delayne D. Gold Director January 6, 1998
- -------------------------
DELAYNE D. GOLD
/s/ Robert F. Gunia Vice President and Director January 6, 1998
- -------------------------
ROBERT F. GUNIA
/s/ Don G. Hoff Director January 6, 1998
- -------------------------
DON G. HOFF
/s/ Robert E. LaBlanc Director January 6, 1998
- -------------------------
ROBERT E. LABLANC
/s/ Mendel A. Melzer Director January 6, 1998
- -------------------------
MENDEL A. MELZER
/s/ Richard A. Redeker President and Director January 6, 1998
- -------------------------
RICHARD A. REDEKER
/s/ Robin B. Smith Director January 6, 1998
- -------------------------
ROBIN B. SMITH
/s/ Stephen Stoneburn Director January 6, 1998
- -------------------------
STEPHEN STONEBURN
/s/ Nancy H. Teeters Director January 6, 1998
- -------------------------
NANCY H. TEETERS
/s/ Grace C. Torres Treasurer and Principal January 6, 1998
- -------------------------- Financial and
GRACE C. TORRES Accounting Officer
<PAGE>
EXHIBIT INDEX
1. (a) Restated Articles of Incorporation. Incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 17 to the Registration Statement
filed on Form N-1A via EDGAR on January 3, 1995 (File No. 2-89725).
(b) Articles Supplementary. Incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A
(file No. 2-89725) filed via EDGAR on June 24, 1996.
(c) Amendment to Articles of Incorporation. Incorporated by reference to
Exhibit 1(c) to Post-Effective Amendment No. 20 to the Registration
Statement on Form N-1A (file No. 2-89725) filed via EDGAR on June 24, 1996.
2. Amended and Restated By-Laws of the Registrant, incorporated by reference
to Exhibit 2 to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A (File No. 2-89725) filed via EDGAR on May 6, 1994.
4. (a) Specimen Certificate for shares of Common Stock of the Registrant for
Class A Shares.*
(b) Specimen Certificate for shares of Common Stock of the Registrant for
Class B Shares.*
(c) Specimen Certificate for Shares of Common Stock of the Registrant for
Class C Shares.*
(d) Specimen Certificate for Shares of Common Stock of the Registrant for
Class Z Shares.*
(e) Instruments defining rights of shareholders.*
5. (a) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc.*
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation.*
(c) 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 on January 14, 1997.
(d) Subadvisory Agreement between Mercator Asset Management, L.P. and
Prudential Mutual Fund Management, Inc. with respect to the International
Stock Series of the Registrant, 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 on January 14, 1997.
(e) 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 on January 14, 1997.
6. 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 on January 14, 1997.
8. (a) Custodian Agreement between the Registrant and State Street Bank and
Trust Company.*
(b) Form of Amendment to Custodian Agreement, incorporated by reference to
Exhibit No. 8(b) to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A (File No. 2-89725) filed via EDGAR on November 1,
1995.
9. Transfer Agency and Service Agreement between the Registrant and Prudential
Mutual Fund Services, Inc..*
10. (a) Opinion of Sullivan & Cromwell.*
11. (a) Consent of Independent Auditors.*
(b) Consent of Deloitte & Touche LLP.
13. Not applicable.
15. (a) Amended and Restated Distribution and Service Plan for Class A shares
dated July 1, 1993.*
(b) Amended and Restated Distribution and Service Plan for Class B shares
dated July 1, 1993.*
(c) Distribution and Service Plan for Class A shares. Incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 17 to the
Registration Statement filed on Form N-1A via EDGAR on January 3, 1995
(File No. 2-89725).
(d) Distribution and Service Plan for Class B shares; incorporated by
reference to Exhibit 6(d) to Post-Effective Amendment No. 17 to the
Registration Statement filed on Form N-1A via EDGAR on January 3, 1995
(File No. 2-89725).
(e) Distribution and Service Plan for Class C shares; incorporated by
reference to Exhibit 6(e) to Post-Effective Amendment No. 17 to the
Registration Statement filed on Form N-1A via EDGAR on January 3, 1995
(File No. 2-89725).
<PAGE>
(f) 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).
(g) 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).
(h) 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).
16. Schedule of Computation of Performance Quotations.*
17. Financial data schedules filed for electronic purposes as Exhibit 27.*
18. Rule 18f-3 Plan, incorporated by reference to Exhibit No. 18 to
Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A
(File No. 2-89725) filed via EDGAR on November 1, 1995.
- ----------
* Filed herewith.
- --------------------------------------------------------------------------------
CLASS A
NUMBER SHARES
PRUDENTIAL GLOBAL FUND, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
ACCOUNT No. ALPHA CODE
CUSIP 744332 10 7
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY that
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH
OF THE COMMON STOCK OF
--------------- PRUDENTIAL GLOBAL FUND, INC. ---------------
hereafter called the "Corporation", transferable on the books of the Corporation
by the owner in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be
held subject to the provisions of the Charter and By-Laws of the Corporation and
all amendments thereof, copies of which are on file at the office of the
Corporation, to all of which the holder, by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its Corporate
Seal.
[SEAL]
Dated:
/s/ S. Jane Rose /s/ Laurence C. McQuade
Secretary President
COUNTERSIGNED:
PRUDENTIAL MUTUAL FUND SERVICES, INC.
(NEW JERSEY)
TRANSFER AGENT,
BY
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
<PAGE>
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM --as tenants in common UNIF GIFT MIN ACT--........Custodian.......
TEN ENT --as tenants by the (Cust) (Minor)
entireties under Uniform Gifts
JT TEN --as joint tenants with to Minors Act
right of survivorship
and not as tenants in ...............
common State
Additional abbreviations may also be used though not in the above list.
For value received, ...................... hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------- .........................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
..........................................................................Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint .............................................
................................................................................
Attorney to transfer the said shares on the books of the within-named
Corporation with full power or substitution in the premises.
Dated, ......................
..................................................
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
- --------------------------------------------------------------------------------
CLASS B
NUMBER SHARES
PRUDENTIAL GLOBAL FUND, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
ACCOUNT No. ALPHA CODE
CUSIP 744332 20 6
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY that
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH
OF THE COMMON STOCK OF
--------------- PRUDENTIAL GLOBAL FUND, INC. ---------------
hereafter called the "Corporation", transferable on the books of the Corporation
by the owner in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be
held subject to the provisions of the Charter and By-Laws of the Corporation and
all amendments thereof, copies of which are on file at the office of the
Corporation, to all of which the holder, by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its Corporate
Seal.
[SEAL]
Dated:
/s/ S. Jane Rose /s/ Laurence C. McQuade
Secretary President
COUNTERSIGNED:
PRUDENTIAL MUTUAL FUND SERVICES, INC.
(NEW JERSEY)
TRANSFER AGENT,
BY
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
<PAGE>
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM --as tenants in common UNIF GIFT MIN ACT--........Custodian.......
TEN ENT --as tenants by the (Cust) (Minor)
entireties under Uniform Gifts
JT TEN --as joint tenants with to Minors Act
right of survivorship
and not as tenants in ...............
common State
Additional abbreviations may also be used though not in the above list.
For value received, ...................... hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------- .........................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
..........................................................................Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint .............................................
................................................................................
Attorney to transfer the said shares on the books of the within-named
Corporation with full power or substitution in the premises.
Dated, ......................
..................................................
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
- --------------------------------------------------------------------------------
CLASS C
NUMBER SHARES
PRUDENTIAL GLOBAL FUND, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
ACCOUNT No. ALPHA CODE
CUSIP 744332 30 5
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY that
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH
OF THE COMMON STOCK OF
--------------- PRUDENTIAL GLOBAL FUND, INC. ---------------
hereafter called the "Corporation", transferable on the books of the Corporation
by the owner in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be
held subject to the provisions of the Charter and By-Laws of the Corporation and
all amendments thereof, copies of which are on file at the office of the
Corporation, to all of which the holder, by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its Corporate
Seal.
[SEAL]
Dated:
/s/ S. Jane Rose /s/ Laurence C. McQuade
Secretary President
COUNTERSIGNED:
PRUDENTIAL MUTUAL FUND SERVICES, INC.
(NEW JERSEY)
TRANSFER AGENT,
BY
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
<PAGE>
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM --as tenants in common UNIF GIFT MIN ACT--........Custodian.......
TEN ENT --as tenants by the (Cust) (Minor)
entireties under Uniform Gifts
JT TEN --as joint tenants with to Minors Act
right of survivorship
and not as tenants in ...............
common State
Additional abbreviations may also be used though not in the above list.
For value received, ...................... hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------- .........................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
..........................................................................Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint .............................................
................................................................................
Attorney to transfer the said shares on the books of the within-named
Corporation with full power or substitution in the premises.
Dated, ......................
..................................................
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
- --------------------------------------------------------------------------------
CLASS Z
NUMBER SHARES
PRUDENTIAL GLOBAL FUND, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
ACCOUNT No. ALPHA CODE
CUSIP 743969 40 4
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY that
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH
OF THE COMMON STOCK OF
--------------- PRUDENTIAL GLOBAL FUND, INC. ---------------
hereafter called the "Corporation", transferable on the books of the Corporation
by the owner in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be
held subject to the provisions of the Charter and By-Laws of the Corporation and
all amendments thereof, copies of which are on file at the office of the
Corporation, to all of which the holder, by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its Corporate
Seal.
[SEAL]
Dated:
/s/ S. Jane Rose /s/ Laurence C. McQuade
Secretary President
COUNTERSIGNED:
PRUDENTIAL MUTUAL FUND SERVICES, INC.
(NEW JERSEY)
TRANSFER AGENT,
BY
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
<PAGE>
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM --as tenants in common UNIF GIFT MIN ACT--........Custodian.......
TEN ENT --as tenants by the (Cust) (Minor)
entireties under Uniform Gifts
JT TEN --as joint tenants with to Minors Act
right of survivorship
and not as tenants in ...............
common State
Additional abbreviations may also be used though not in the above list.
For value received, ...................... hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------- .........................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
..........................................................................Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint .............................................
................................................................................
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, ......................
..................................................
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
EXHIBIT 99.B4(e)
INSTRUMENTS DEFINING RIGHTS OF SHAREHOLDERS
The following is a list of the provisions of the Articles of Incorporation,
as amended, and By-Laws of Prudential Global Fund, Inc. setting forth the rights
of shareholders.
I. Relevant Provisions of Articles of Incorporation:
ARTICLE V-Common Stock
ARTICLE VII-Miscellaneous
ARTICLE VIII-Amendments
II. Relevant Provisions of By-Laws:
ARTICLE I-Stockholders
ARTICLE IV-Capital Stock
ARTICLE VII-Indemnification
ARTICLE IX-Amendment of By-Laws
EXHIBIT 99.B5(a)
PRUDENTIAL-BACHE GLOBAL FUND, INC.
MANAGEMENT AGREEMENT
Agreement, made this 28th day of February, 1988 between Prudential-Bache
Global Fund, Inc., a Maryland corporation (the "Fund"), and Prudential Mutual
Fund Management, Inc., a Delaware corporation (the "Manager").
WITNESSETH
WHEREAS, the Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund desires to retain the Manager to render or contract to
obtain as hereinafter provided investment advisory services to the Fund and the
Fund also desires to avail itself of the facilities available to the Manager
with respect to the administration of its day to day corporate affairs, and the
Manager is willing to render such investment advisory and administrative
services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of the Fund and
administrator of its corporate affairs for the period and on the terms set forth
in this Agreement. The Manager accepts such appointment and agrees to render the
services herein described, for the compensation herein provided. The Manager
will enter into an agreement, dated the date hereof, with The Prudential
Investment Corporation ("PIC") pursuant to which PIC shall furnish to the Fund
the investment advisory
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services specified therein in connection with the management of the Fund. Such
agreement in the form attached as Exhibit A is hereinafter referred to as the
"Subadvisory Agreement." The Manager will continue to have responsibility for
all investment advisory services furnished pursuant to the Subadvisory
Agreement.
2. Subject to the supervision of the Board of Directors of the Fund, the
Manager shall administer the Fund's corporate affairs and, in connection
therewith, shall furnish the Fund with office facilities and with clerical,
bookkeeping and recordkeeping services at such office facilities and, subject to
Section 1 hereof and the Subadvisory Agreement, the Manager shall manage the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof, in accordance with
the Fund's investment objectives, policies and restrictions as stated in the
Prospectus (hereinafter defined) and subject to the following understandings:
(a) The Manager shall provide supervision of the Fund's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or loaned by the Fund, and what portion of the
assets will be invested or held uninvested as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus (hereinafter defined) of the Fund and
with the instructions and directions of the Board of Directors of the Fund
and will conform to and comply with the requirements of the 1940 Act and
all other applicable federal and state laws and regulations.
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(c) The Manager shall determine the securities and futures contracts
to be purchased or sold by the Fund and will place orders pursuant to its
determinations with or through such persons, brokers, dealers or futures
commission merchants (including but not limited to Prudential-Bache
Securities Inc.) in conformity with the policy with respect to brokerage as
set forth in the Fund's Registration Statement and Prospectus (hereinafter
defined) or as the Board of Directors may direct from time to time. In
providing the Fund with investment supervision, it is recognized that the
Manager will give primary consideration to securing the most favorable
price and efficient execution. Consistent with this policy, the Manager may
consider the financial responsibility, research and investment information
and other services provided by brokers, dealers or futures commission
merchants who may effect or be a party to any such transaction or other
transactions to which other clients of the Manager may be a party. It is
understood that Prudential-Bache Securities Inc. may be used as principal
broker for securities transactions but that no formula has been adopted for
allocation of the Fund's investment transaction business. It is also
understood that it is desirable for the Fund that the Manager have access
to supplemental investment and market research and security and economic
analysis provided by brokers or futures commission merchants and that such
brokers may execute brokerage transactions at a higher cost to the Fund
than may result when allocating brokerage to other brokers or futures
commission merchants on the
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basis of seeking the most favorable price and efficient execution.
Therefore, the Manager is authorized to pay higher brokerage commissions
for the purchase and sale of securities and futures contracts for the Fund
to brokers or futures commission merchants who provide such research and
analysis, subject to review by the Fund's board of Directors from time to
time with respect to the extent and continuation of this practice. It is
understood that the services provided by such broker or futures commission
merchant may be useful to the Manager in connection with its services to
other clients.
On occasions when the Manager deems the purchase or sale of a security
or a futures contract to be in the best interest of the Fund as well as
other clients of the Manager or the Subadviser, the Manager, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities or futures contracts to be so sold
or purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the
securities or futures contracts so purchased or sold, as well as the
expenses incurred in the trasaction, will be made by the Manager in the
manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to such other clients.
(d) The Manager shall maintain all books and records with respect to
the Fund's portfolio transactions and shall render to the Fund's Board of
Directors such periodic and special reports as the Board may reasonably
request.
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(e) The Manager shall be responsible for the financial and accounting
records to be maintained by the Fund (including those being maintained by
the Fund's Custodian).
(f) The Manager shall provide the Fund's Custodian on each business
day with information relating to all transactions concerning the Fund's
assets.
(g) The investment management services of the Manager to the Fund
under this Agreement are not to be deemed exclusive, and the Manager shall
be free to render similar services to others.
3. The Fund has delivered to the Manager copies of each of the following
documents and will deliver to it all future amendments and supplements, if any:
(a) Articles of Incorporation of the Fund, as filed with the Secretary
of State of Maryland (such Articles of Incorporation, as in effect on the
date hereof and as amended from time to time, are herein called the
"Articles of Incoporation");
(b) By-Laws of the Fund (such By-Laws, as in effect on the date hereof
and as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Board of Directors of the Fund
authorizing the appointment of the Manager and approving the form of this
agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-1A (the "Registration Statement"), as filed
with the Securities and Exchange Commission (the "Commission") relating to
the Fund and shares of the Fund's Common Stock and all amendments thereto;
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(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus of the Fund (such Prospectus and Statement of
Additional Information, as currently in effect and as amended or
supplemented from time to time, being herein called the "Prospectus").
4. The Manager shall authorize and permit any of its directors, officers
and employees who may be elected as directors or officers of the Fund to serve
in the capacities in which they are elected. All services to be furnished by the
Manager under this Agreement may be furnished through the medium of any such
directors, officers or employees of the Manager.
5. The Manager shall keep the Fund's books and records required to be
maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the Fund are the property of the Fund and it will
surrender promptly to the Fund any such records upon the Fund's request,
provided however that the Manager may retain a copy of such records. The Manager
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act any such records as are required to be maintained by the Manager
pursuant to Paragraph 2 hereof.
6. During the term of this Agreement, the Manager shall pay the following
expenses:
(i) the salaries and expenses of all personnel of the Fund and the
Manager except the fees and expenses of directors who are not affiliated
persons of the Manager or the Fund's investment adviser,
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(ii) all expenses incurred by the Manager or by the Fund in connection
with managing the ordinary course of the Fund's business other than those
assumed by the Fund herein, and
(iii) the costs and expenses payable to PIC pursuant to the
Subadvisory Agreement.
The Fund assumes and will pay the expenses described below:
(a) the fees and expenses incurred by the Fund in connection with the
management of the investment and reinvestment of the Fund's assets,
(b) the fees and expenses of directors who are not affiliated persons
of the Manager or the Fund's investment adviser,
(c) the fees and expenses of the Custodian that relate to (i) the
custodial function and the recordkeeping connected therewith, (ii)
preparing and maintaining the general accounting records of the Fund and
the providing of any such records to the Manager useful to the Manager in
connection with the Manager's responsibility for the accounting records of
the Fund pursuant to Section 31 of the 1940 Act and the rules promulgated
thereunder, (iii) the pricing of the shares of the Fund, including the cost
of any pricing service or services which may be retained pursuant to the
authorization of the Board of Directors of the Fund, and (iv) for both mail
and wire orders, the cashiering function in connection with the issuance
and redemption of the Fund's securities,
(d) the fees and expenses of the Fund's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the
maintenance of each shareholder account,
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<PAGE>
(e) the charges and expenses of legal counsel and independent
accountants for the Fund,
(f) brokers' commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities and futures transactions,
(g) all taxes and corporate fees payable by the Fund to federal, state
or other governmental agencies,
(h) the fees of any trade associations of which the Fund may be a
member,
(i) the cost of stock certificates representing, and/or non-negotiable
share deposit receipts evidencing, shares of the Fund,
(j) the cost of fidelity, directors and officers and errors and
omissions insurance,
(k) the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the Securities and Exchange
Commission, registering the Fund as a broker or dealer and qualifying its
shares under state securities laws, including the preparation and printing
of the Fund's registration statements, prospectuses and statements of
additional information for filing under federal and state securities laws
for such purposes,
(l) allocable communications expenses with respect to investor
services and all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing reports to shareholders in the amount
necessary for distribution to the shareholders,
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(m) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
(n) any expenses assumed by the Fund pursuant to a Plan of
Distribution adopted in conformity with Rule 12b-1 under the 1940 Act.
7. In the event the expenses of the Fund for any fiscal year (including the
fees payable to the Manager but excluding interest, taxes, brokerage
commissions, distribution fees and litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business) exceed the lowest applicable annual expense limitation established and
enforced pursuant to the statute or regulations of any jurisdictions in which
shares of the Fund are then qualified for offer and sale, the compensation due
the Manager will be reduced by the amount of such excess, or, if such reduction
exceeds the compensation payable to the Manager, the Manager will pay to the
Fund the amount of such reduction which exceeds the amount of such compensation.
8. For the services provided and the expenses assumed pursuant to this
Agreement, the Fund will pay to the Manager as full compensation therefor a fee
at an annual rate of .75 of 1% of the Fund's average daily net assets. This fee
will be computed daily and will be paid to the Manager monthly. Any reduction in
the fee payable and any payment by the Manager to the Fund pursuant to paragraph
7 shall be made monthly. Any such reductions or payments are subject to
readjustment during the year.
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<PAGE>
9. The Manager shall not be liable for any error of judgment or for any
loss suffered by the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
10. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Directors of the Fund
or by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Fund, or by the Manager at any time, without the payment of any
penalty, on not more than 60 days' nor less than 30 days' written notice to the
other party. This Agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act).
11. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Manager who may also be a director, officer
or employee of the Fund to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.
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<PAGE>
12. Except as otherwise provided herein or authorized by the Board of
Directors of the Fund from time to time, the Manager shall for all purposes
herein be deemed to be an independent contractor and shall have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
13. During the term of this Agreement, the Fund agrees to furnish the
Manager at its principal office all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
shareholders of the Fund or the public, which refer in any way to the Manager,
prior to use thereof and not to use such material if the Manager reasonably
objects in writing within five business days (or such other time as may be
mutually agreed) after receipt thereof. In the event of termination of this
Agreement, the Fund will continue to furnish to the Manager copies of any of the
above mentioned materials which refer in any way to the Manager. Sales
literature may be furnished to the Manager hereunder by first-class or overnight
mail, facsimile transmission equipment or hand delivery. The Fund shall furnish
or otherwise make available to the Manager such other information relating to
the business affairs of the Fund as the Manager at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
14. This Agreement may be amended by mutual consent, but the consent of the
Fund must be obtained in conformity with the requirements of the 1940 Act.
15. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (1) to the Manager at One Seaport Plaza, New York, N.Y.
10292, Attention: Secretary; or (2) to the Fund at One Seaport Plaza, New York,
N.Y. 10292, Attention: President.
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<PAGE>
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
17. The Fund may use the name "Prudential-Bache Global Fund, Inc." or any
name including the words "Prudential" or "Bache" only for so long as this
Agreement or any extension, renewal or amendment hereof remains in effect,
including any similar agreement with any organization which shall have succeeded
to the Manager's business as Manager or any extension, renewal or amendment
thereof remain in effect. At such time as such an agreement shall no longer be
in effect, the Fund will (to the extent that it lawfully can) cease to use such
a name or any other name indicating that it is advised by, managed by or
otherwise connected with the Manager, or any organization which shall have so
succeeded to such businesses. In no event shall the Fund use the name
"Prudential-Bache Global Fund, Inc." or any name including the work "Prudential"
or "Bache" if the Manager's function is transferred or assigned to a company of
which The Prudential Insurance Company of America does not have control.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL-BACHE GLOBAL FUND, INC.
By /s/ ROBERT F. GUNIA
--------------------------------
Vice President
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By [Illegible}
--------------------------------
President
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EXHIBIT 99.B5(b)
PRUDENTIAL-BACHE GLOBAL FUND, INC
SUBADVISORY AGREEMENT
Agreement made as of this 28th day of February, 1988 between Prudential
Mutual Fund Management Inc., a Delaware Corporation ("PMF" or the "Manager"),
and The Prudential Investment Corporation, a New Jersey Corporation (the
"Subadviser").
WHEREAS, the Manager has entered into a Management Agreement, dated
February 28, 1988 (the "Management Agreement"), with Prudential-Bache Global
Fund, Inc. (the "Fund"), a Maryland corporation and a diversified open-end
management investment company registered under the Investment Company Act of
1940 (the "1940 Act"), pursuant to which PMF will act as Manager of the Fund.
WHEREAS, PMF desires to retain the Subadviser to provide investment
advisory services to the Fund in connection with the management of the Fund and
the Subadviser is willing to render such investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board of
Directors of the Fund, the Subadviser shall manage the investment
operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof, in accordance
with the Fund's investment objectives, policies and restrictions as stated
in the Prospectus, (such Prospectus and Statement of Additional Information
as currently in effect and as amended or supplemented from time to time,
being herein called the "Prospectus"), and subject to the following
understandings:
(i) The Subadviser shall provide supervision of the Fund's
investments and determine from time to time what investments and
securities will be purchased, retained, sold or loaned by the Fund,
and what portion of the assets will be invested or held uninvested as
cash.
(ii) In the performance of its duties and obligations under this
Agreement, the Subadviser shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus of the Fund and with the
instructions and directions of the Manager and of the Board of
Directors of the Fund and will conform to and comply with the
requirements of the 1940 Act, the Internal Revenue Code of 1986 and
all other applicable federal and state laws and regulations.
(iii) The Subadviser shall determine the securities and futures
contracts to be purchased or sold by the Fund and will place orders
with or through such persons, brokers, dealers or futures commission
merchants (including but not limited to Prudential-Bache Securities
Inc.) to carry out the policy with
<PAGE>
respect to brokerage as set forth in the Fund's Registration Statement
and Prospectus or as the Board of Directors may direct from time to
time. In providing the Fund with investment supervision, it is
recognized that the Subadviser will give primary consideration to
securing the most favorable price and efficient execution. Within the
framework of this policy, the Subadviser may consider the financial
responsibility, research and investment information and other services
provided by brokers, dealers or futures commission merchants who may
effect or be a party to any such transaction or other transactions to
which the Subadviser's other clients may be a party. It is understood
that Prudential-Bache Securities Inc. may be used as principal broker
for securities transactions but that no formula has been adopted for
allocation of the Fund's investment transaction business. It is also
understood that it is desirable for the Fund that the Subadviser have
access to supplemental investment and market research and security and
economic analysis provided by brokers or futures commission merchants
who may execute brokerage transactions at a higher cost to the Fund
than may result when allocating brokerage to other brokers on the
basis of seeking the most favorable price and efficient execution.
Therefore, the Subadviser is authorized to place orders for the
purchase and sale of securities and futures contracts for the Fund
with such brokers or futures commission merchants, subject to review
by the Fund's Board of Directors from time to time with respect to the
extent and continuation of this practice. It is understood that the
services provided by such brokers or futures commission merchants may
be useful to the Subadviser in connection with the Subadviser's
services to other clients.
On occasions when the Subadviser deems the purchase or sale of a
security or futures contract to be in the best interest of the Fund as
well as other clients of the Subadviser, the Subadviser, to the extent
permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities or futures contracts to be
sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event,
allocation of the securities or futures contracts so purchased or
sold, as well as the expenses incurred in the transaction, will be
made by the Subadviser in the manner the Subadviser considers to be
the most equitable and consistent with its fiduciary obligations to
the Fund and to such other clients.
(iv) The Subadviser shall maintain all books and records with
respect to the Fund's portfolio transactions required by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and
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<PAGE>
paragraph (f) of Rule 31a-1 under the 1940 Act and shall render to the
Fund's Trustees such periodic and special reports as the Trustees may
reasonably request.
(v) The Subadviser shall provide the fund's Custodian on each
business day with information relating to all transactions concerning
the Fund's assets and shall provide the Manager with such information
upon request of the Manager.
(vi) The investment management services provided by the
Subadviser hereunder are not to be deemed exclusive, and the
Subadviser shall be free to render similar services to others.
(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of the
Fund to serve in the capacities in which they are elected. Services to be
furnished by the Subadviser under this Agreement may be furnished through
the medium of any of such directors, officers or employees.
(c) The Subadviser shall keep the Fund's books and records required to
be maintained by the Subadviser pursuant to paragraph 1(a) hereof and shall
timely furnish to the Manager all information relating to the Subadviser's
services hereunder needed by the Manager to keep the other books and
records of the Fund required by Rule 31a-1 under the 1940 Act. The
Subadviser agrees that all records which it maintains for the Fund are the
property of the Fund and the Subadviser will surrender promptly to the Fund
any of such records upon the Fund's request, provided however that the
Subadviser may retain a copy of such records. The Subadviser further agrees
to preserve for the periods prescribed by Rule 31a-2 of the Commission
under the 1940 Act any such records as are required to be maintained by it
pursuant to paragraph 1(a) hereof.
2. The Manager shall continue to have responsibility for all services to be
provided to the Fund pursuant to the Management Agreement and shall oversee and
review the Subadviser's performance of its duties under this Agreement.
3. The Manager shall reimburse the Subadviser for reasonable costs and expenses
incurred by the Subadviser determined in a manner acceptable to the Manager in
furnishing the services described in paragraph 1 hereof.
4. The Subadviser shall not be liable for any error of judgment or for any loss
suffered by the Fund or the Manager in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the Subadviser's part in the performance of its duties or
from its reckless disregard of its obligations and duties under this Agreement.
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<PAGE>
5. This Agreement shall continue in effect for a period of more than two years
from the date hereof only so long as such continuance is specifically approved
at least annually in conformity with the requirements of the 1940 Act; provided,
however, that this Agreement may be terminated by the Fund at any time, without
the payment of any penalty, by the Board of Directors of the Fund or by vote of
a majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund, or by the Manager or the Subadviser at any time, without the payment
of any penalty, on not more than 60 days' nor less than 30 days' written notice
to the other party. This Agreement shall terminate automatically in the event of
its assignment (as defined in the 1940 Act) or upon the termination of the
Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any of the
Subadviser's directors, officers, or employees who may also be a director,
officer or employee of the Fund to engage in any other business or to devote his
or her time and attention in part to the management or other aspects of any
business, whether of a similar or a dissimilar nature, nor limit or restrict the
Subadviser's right to engage in any other business or to render services of any
kind to any other corporation, firm, individual or association.
7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements, reports
to stockholders, sales literature or other material prepared for distribution to
stockholders of the Fund or the public, which refer to the Subadviser in any
way, prior to use thereof and not to use material if the Subadviser reasonably
objects in writing five business days (or such other time as may be mutually
agreed) after receipt thereof. Sales literature may be furnished to the
Subadviser hereunder by first-class or overnight mail, facsimile transmission
equipment or hand delivery.
8. This Agreement may be amended by mutual consent, but the consent of the Fund
must be obtained in conformity with the requirement of the 1940 Act.
9. This Agreement shall be governed by the laws of the State of New York.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By [Illegible]
--------------------------------
President
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By [Illegible]
--------------------------------
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CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES INDICATED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
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1. Employment of Custodian and Property to be
Held By It ....................................................... 1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States .............. 2
2.1 Holding Securities ...................................... 2
2.2 Delivery of Securities .................................. 3
2.3 Registration of Securities .............................. 8
2.4 Bank Accounts ........................................... 8
2.5 Availability of Federal Funds ........................... 9
2.6 Collection of Income .................................... 10
2.7 Payment of Fund Monies .................................. 10
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased ......................... 13
2.9 Appointment of Agents ................................... 14
2.10 Deposit of Securities in Securities System .............. 14
2.l0A Fund Assets Held in the Custodian's Direct
Paper System ............................................ 17
2.11 Segregated Account ...................................... 19
2.12 Ownership Certificates for Tax Purposes ................. 20
2.13 Proxies ................................................. 20
2.14 Communications Relating to Fund
Portfolio Securities .................................... 20
2.l5 Reports to Fund by Independent Public
Accountants ............................................. 21
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States ....................... 22
3.1 Appointment of Foreign Sub-Custodians ................... 22
3.2 Assets to be Held ....................................... 22
3.3 Foreign Securities Depositories ......................... 23
3.4 Segregation of Securities ............................... 23
3.5 Agreements with Foreign Banking Institutions ............ 24
3.6 Access of Independent Accountants of the Fund ........... 24
3.7 Reports by Custodian .................................... 25
3.8 Transactions in Foreign Custody Account ................. 25
3.9 Liability of Foreign Sub-Custodians ..................... 26
3.10 Liability of Custodian .................................. 27
3.11 Reimbursement for Advances .............................. 28
3.l2 Monitoring Responsibilities ............................. 28
3.13 Branches of U.S. Banks .................................. 29
4. Payments for Repurchases or Redemptions and Sales
of Shares of the Fund ............................................ 29
S . Proper Instructions .............................................. 30
6. Actions Permitted Without Express Authority ...................... 32
7. Evidence of Authority ............................................ 32
<PAGE>
8. Duties of Custodian with Respect to the Books of
Account and Calculations of Net Asset Value and Net Income ....... 33
9. Records .......................................................... 33
10. Opinion of Fund's Independent Accountant ......................... 34
11. Compensation of Custodian ........................................ 34
12. Responsibility of Custodian ...................................... 34
13. Effective Period, Termination and Amendment ...................... 37
14. Successor Custodian .............................................. 38
15. Interpretive and Additional Provisions ........................... 40
16. Massachusetts Law to Apply ....................................... 40
17. Prior Contracts .................................................. 40
18. The Parties ...................................................... 40
19. Limitation of Liability .......................................... 41
<PAGE>
CUSTODIAN CONTRACT
This Contract between State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian", and each Fund
listed on Appendix A which evidences its agreement to be bound hereby by
executing a copy of this Contract (each such Fund individually hereinafter
referred to as the "Fund").
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation/Declaration of Trust. The Fund agrees to deliver to the Custodian
all securities and cash owned by it, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Fund from time to time, and the cash consideration received by it
for such new or treasury shares of capital stock, ("Shares" of the Fund as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to the
Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable vote by the
Board of Directors/Trustees of the Fund, and provided that the Custodian shall
have the same responsibility or liability to the Fund on account of any actions
or omissions of any sub-custodian so employed as any such sub-custodian has to
the Custodian, provided that the Custodian agreement with any such domestic
sub-custodian shall impose on such sub-custodian responsibilities and
liabilities similar in nature and scope to those imposed by this Agreement with
respect to the functions to be performed by such sub-custodian. The Custodian
may employ as sub-custodians for the Fund's securities and other assets the
foreign banking institutions and foreign securities depositories designated in
Schedule "A" hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of the Fund all non-cash property, to be held by it in the
United States, including all domestic securities owned by the Fund, other
than (a) securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a book-entry
system authorized by the U.S. Department of the Treasury,
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collectively referred to herein as "Securities System" and (b) commercial
paper of an issuer for which State Street Bank and Trust Company acts as
issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to Section
2.l0A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by the Fund held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper
book-entry system account ("Direct Paper System") only upon receipt of
Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or
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otherwise become payable; provided that, in any such case, the
cash or other consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1: or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are
to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except
as may arise from the
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Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Fund, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund,
which may be in the form of cash or obligations issued by the
United States government, its agencies or
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instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in
the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
for the delivery of securities owned by the Fund prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 (the "Exchange Act")
and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund,
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the Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the rules
of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding
account deposits in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the Fund's currently
effective prospectus and statement of additional information
("prospectus"), in satisfaction of requests by holders of Shares
for repurchase or redemption; and
15) For any other proper business purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors/Trustees or of the Executive
Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which such
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<PAGE>
delivery is to be made, declaring such purpose to be a proper
business purpose, and naming the person or persons to whom
deliverv of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the Fund
or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund, unless
the Fund has authorized in writing the appointment of a nominee to be used
in common with other registered investment companies having the same
investment adviser as the Fund, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted by
the Custodian on behalf of the Fund under the terms of this Contract shall
be in "street name" or other good delivery form. If, however, the Fund
directs the Custodian to maintain securities in "street name", the
Custodian shall utilize its best efforts to timely collect income due the
Fund on such securities and to notify the Fund on a best efforts basis of
relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in
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<PAGE>
the name of the Fund, subject only to draft or order by the Custodian
acting pursuant to the terms of this Contract, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by
it from or for the account of the Fund, other than cash maintained by the
Fund in a bank account established and used in accordance with Rule 17f-3
under the Investment Company Act of 1940. Funds held by the Custodian for
the Fund may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as it
may in its discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a custodian
under the Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust company
shall be approved by vote of a majority of the Board of Directors/Trustees
of the Fund. Such funds shall be deposited by the Custodian in its capacity
as Custodian and shall be withdrawable by the Custodian only in that
capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund and
the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
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<PAGE>
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered securities held hereunder to which the Fund
shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other payments
with respect to bearer securities if, on the date of payment by the issuer,
such securities are held by the Custodian or its agent thereof and shall
credit such income, as collected, to the Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when
due on securities held hereunder. Income due the Fund on securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the responsibility
of the Fund. The Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such information
or data as may be necessary to assist the Fund in arranging for the timely
delivery to the Custodian of the income to which the Fund is properly
entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
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1) Upon the purchase of securities held domestically, options,
futures contracts or options on futures contracts for the account
of the Fund but only (a) against the delivery of such securities,
or evidence of title to such options, futures contracts or
options on futures contracts, to the Custodian (or any bank,
banking firm or trust company doing business in the United States
or abroad which is qualified under the Investment Company Act of
1940, as amended, to act as a custodian and has been designated
by the Custodian as its agent for this purpose) registered in the
name of the Fund or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for transfer;
(b) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Section
2.10 hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.l0A; (d) in the case of repurchase agreements entered
into between the Fund and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery of
the securities either in certificate form or
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<PAGE>
through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against de1ivery of the
receipt evidencing purchase by the Fund of securities owned by
the Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Fund or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected prior
to receipt of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Fund as defined In
Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Fund as
set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the
account of the Fund: interest, taxes, management, accounting,
transfer agent and legal fees, and operating expenses of the
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Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Board of Directors/Trustees or of the Executive Committee
of the Fund signed by an officer of the Fund and certified by its
Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is
to be made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except
as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of securities for the account of the Fund is
made by the Custodian in advance of receipt of the securities purchased in
the absence of specific written
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<PAGE>
instructions from the Fund to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as if
the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in Securities Systems. The Custodian may deposit
and/or maintain domestic securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that
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<PAGE>
such securities are represented in an account ("Account") of the
Custodian in the Securities System which shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic securities
of the Fund which are maintained in a Securities System shall
identify by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased for the
account of the Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer domestic
securities sold for the account of the Fund upon (i) receipt of
advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Fund. Copies
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of all advices from the Securities System of transfers of
domestic securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Custodian and be
provided to the Fund at its request. Upon request, the Custodian
shall furnish the Fund confirmation of each transfer to or from
the account of the Fund in the form of a written advice or notice
and shall furnish promptly to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund.
4) The Custodian shall provide the Fund with any report obtained by
the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 13 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Securities System by reason of
any negligence,
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misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as
it may have against the Securities System; at the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the Securities System
or any other person which the Custodian may have as a consequence
of any such loss or damage if and to the extent that the Fund has
not been made whole for any such loss or damage.
2.l0A Fund Assets Held in the Custodian's Direct Paper System
The Custodian may deposit and/or maintain securities owned by the Fund in
the Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which
shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
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3) The records of the Custodian with respect to securities of the Fund
which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account of
the Fund upon the making of an entry on the records of the Custodian
to reflect such payment and transfer of securities to the account of
the Fund. The Custodian shall transfer securities sold for the account
of the Fund upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for the
account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each transfer to
or from the account of the Fund, in the form of a written advice or
notice, of Direct Paper on the next business day following such
transfer and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transaction in the Direct Paper System
for the account of the Fund;
6) The Custodian shall provide the Fund with any report on its system of
internal accounting
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control as the Fund may reasonably request from time to time;
2.11 Seggregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts
for and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered
under the Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Fund, (ii) for purposes of
segregating cash, government securities or liquid, high-grade debt
obligations in connection with options purchased, sold or written by
the Fund or commodity futures contracts or options thereon purchased
or sold by the Fund, (iii) for the purposes of compliance by the Fund
with the procedures required by Investment Company Act Release No.
10666, or any subsequent release or releases of the Securities and
Exchange Commission
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relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but
only, in the case of clause (iv), upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the Board of
Directors/Trustees or of the Executive Committee signed by an officer
of the Fund and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of the Fund held by it
and in connection with transfers of such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 Communications Relating to Fund Portfolio Securities
Subject to the provisions of Section 2.3, the Custodian
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shall transmit promptly to the Fund all written information
(including, without limitation, pendency of calls and maturities of
securities held domestically and expirations of rights in connection
therewith and notices of exercise of call and put options written by
the Fund and the maturity of futures contracts purchased or sold by
the Fund) received by the Custodian from issuers of the securities
being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to the Fund all written
information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Fund desires to take
action with respect to any tender offer, exchange offer or any other
similar transaction, the Fund shall notify the Custodian at least
three business days prior to the date on which the Custodian is to
take such action.
2.15 Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on
the accounting system, internal accounting control and procedures for
safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian
under this Contract; such reports shall be of sufficient scope and in
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sufficient detail, as may reasonably be required by the Fund to
provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies,
the reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets maintained
outside the United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in
Section 5 of this Contract, together with a certified resolution of
the Fund's Board of Directors/Trustees, the Custodian and the Fund may
agree to amend Schedule A hereto from time to time to designate
additional foreign banking institutions and foreign securities
depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for maintaining
custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities",
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as defined in paragraph (c)(l) of Rule 17f-5 under the Investment
Company Act of 1940, and (b) cash and cash equivalents in such amounts
as the Custodian or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the Fund
shall be maintained in foreign securities depositories only through
arrangements implemented by the foreign banking institutions serving
as sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 Segregation of Securities
The Custodian shall identify on its books as belonging to the Fund,
the foreign securities of the Fund held by each foreign sub-custodian.
Each agreement pursuant to which the Custodian employs a foreign
banking institution shall require that such institution establish a
custody account for the Custodian on behalf of the Fund and physically
segregate in that account, securities and other assets of the Fund,
and, in the event that such institution deposits the Fund's securities
in a foreign securities depository, that it shall identify on its
books as belonging to the Custodian, as agent for the Fund, the
securities so deposited.
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3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the Fund's
assets will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership of the Fund's
assets will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Fund;
(d) officers of or auditors employed by, or other representatives of
the Custodian, including to the extent permitted under applicable law
the independent public accountants for the Fund, will be given access
to the books and records of the foreign banking institution relating
to its actions under its agreement with the Custodian; and (e) assets
of the Fund held by the foreign sub-custodian will be subject only to
the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to
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the performance of such foreign banking institution under its
agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Fund's securities and other assets
and advices or notifications of any transfers of securities to or
from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of the Fund indicating, as to
securities acquired for the Fund, the identity of the entity having
physical possession of such securities.
3.8 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section 3.8,
the provision of Sections 2.2 and 2.7 of this Contract shall apply, in
their entirety to the foreign securities of the Fund held outside the
United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the
Fund may be effected in accordance with the customary established
securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction
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occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or
dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same
extent as set forth in Section 2.3 of this Contract, and the Fund
agrees to hold any such nominee harmless from any liability as a
holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and each Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
-26-
<PAGE>
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph 3.10, in
delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses
(excluding a bankruptcy or insolvency of State Street London Ltd. not
caused by political risk) due to Acts of God, nuclear incident or
other losses under circumstances where the Custodian and State Street
London Ltd. have exercised reasonable care.
-27-
<PAGE>
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase or
sale of foreign exchange or of contracts for foreign exchange, or in
the event that the Custodian or its nominee shall incur or be assessed
any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may
arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held
for the account of the Fund shall be security therefor and should the
Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Fund assets
to the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns
of a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive
order from the Securities
-28-
<PAGE>
and Exchange Commission is notified by such foreign sub-custodian that
there appears to be a substantial like1ihold that its shareholders'
equity will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 Branches of U.S. Banks
(a) Except as otherwise set forth in this Contract, the provisions of
Article 3 shall not apply where the custody of the Fund assets are
maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification set forth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained
in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation/Declaration of Trust and any
applicable votes of the Board of
-29-
<PAGE>
Directors/Trustees of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payament to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. Proper Instructions
Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the officers of the Fund shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of
-30-
<PAGE>
transaction involved, including a specific statement of the purpose for which
such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given
by a person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
It is understood and agreed that the Board of Directors/Directors/Trustees has
authorized (i) Prudential Mutual Fund Management, Inc., as Manager of the Fund,
and (ii) The Prudential Investment Corporation (or Prudential-Bache Securities
Inc.), as Subadviser to the Fund, to deliver proper instructions with respect to
all matters for which proper instructions are required by this Article 5. The
Custodian may rely upon the certificate of an officer of the Manager or
Subadviser, as the case may be, with respect to the person or persons authorized
on behalf of the Manager and Subadviser, respectively, to sign, initial or give
proper instructions for the purpose of this Article 5. Proper Instructions may
include communications effected directly between electro-mechanical or
electronic devices provided that the Fund and the Custodian are satisfied that
such procedures afford adequate safeguards for the Fund's assets. For purposes
of this Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a segregated
asset account in accordance with Section 2.11.
-31-
<PAGE>
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Fund except as otherwise directed by the Board of
Directors/Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors/Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors/Trustees pursuant to the Articles of
Incorporation/
-32-
<PAGE>
Declaration of Trust as described in such vote, and such vote may be considered
as in full force and effect until receipt by the Custodian of written notice to
the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors/Trustees of the Fund to
keep the books of account of the Fund and/or compute the net asset value per
share of the outstanding shares of the Fund or, if directed in writing to do so
by the Fund, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate daily
the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of the Fund shall be made at the time or
times described from time to time in the Fund's currently effective prospectus.
9. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to
-33-
<PAGE>
Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall
be the property of the Fund and shall at all times during the regular business
hours of the Custodian be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by the Fund and held by the Custodian and
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1A, Form N-2 (in the case of a closed
end Fund) and Form N-SAR or other periodic reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
12. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for
-34-
<PAGE>
the title, validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Contract and shall be held
harmless in acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options agreement. The
Custodian shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for
-35-
<PAGE>
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement provided, however that,
prior to disposing of Fund assets hereunder, the Custodian shall give the Fund
notice of its intention to dispose
-36-
<PAGE>
of assets identifying such assets and the Fund shall have one business day from
receipt of such notice to notify the Custodian if the Fund wishes the Custodian
to dispose of Fund assets of equal value other than those identified in such
notice.
13. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing; provided, however that the Custodian
shall not act under Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Directors/Trustees of the Fund has approved the initial use of a particular
Securities System and the receipt of an annual certificate of the Secretary or
an Assistant Secretary that the Board of Directors/Trustees has reviewed the use
by the Fund of such Securities System, as required in each case by Rule 17f-4
under the Investment Company Act of 1940, as amended and that the Custodian
shall not act under Section 2.l0A hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Directors/Trustees has approved the initial use of the Direct Paper System and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Directors/Trustees has reviewed the
-37-
<PAGE>
use by the Fund of the Direct Paper System; provided further, however, that the
Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Articles of
Incorporation/Declaration of Trust, and further provided, that the Fund may at
any time by action of its Board of Directors/Trustees (i) substitute another
bank or trust company for the Custodian by giving notice as described above to
the Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
14. Successor Custodian
If a successor custodian shall be appointed by the Board of
Directors/Trustees of the Fund, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities then held by it hereunder and shall
transfer to an account of the successor custodian all of the Fund's securities
held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors/Trustees of the Fund, deliver
-38-
<PAGE>
at the office of the Custodian and transfer such securities, funds and other
properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors/Trustees shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors/Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
the Custodian shall remain in full force and effect.
-39-
<PAGE>
l5. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation/Declaration of Trust of the Fund. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
16. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
17. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
18. The Parties
All references herein to the "Fund" are to each of the Funds listed on
Appendix A individually, as if this Contract were between such individual Fund
and the Custodian. With respect to any Fund listed on Appendix A which is
organized as a
-40-
<PAGE>
Massachusetts Business Trust, references to Board of Directors and Articles of
Incorporation shall be deemed a reference to Board of Directors/Trustees and
Articles of Incorporation/Declaration of Trust respectively and reference to
shares of capital stock shall be deemed a reference to shares of beneficial
interest.
19. Limitation of Liability
Each Fund listed on Appendix A that is referenced as a Massachusetts
Business Trust is the designation of the Directors/Trustees under a Articles of
Incorporation/Declaration of Trust, dated (see Appendix A) and all persons
dealing with the Fund must look solely to the property of the Fund for the
enforcement of any claims against the Fund as neither the Directors/Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the dates set forth on Appendix A.
ATTEST STATE STREET BANK AND TRUST COMPANY
[Illegible] By [Illegible]
- --------------------------------- ----------------------------------
Assistant Secretary Vice President
ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A
S. JANE ROSE By ROBERT F. GUNIA
- --------------------------------- ----------------------------------
Secretary Vice President
-41-
<PAGE>
<TABLE>
Appendix A
----------
<CAPTION>
Execution Date of
Full Name Date Declaration of Trust
- --------- --------- --------------------
(if applicable)
<S> <C> <C>
Command Government Fund July 1, 1990 August 19, 1981
Command Money Fund July 1, 1990 June 5, 1981
Command Tax-Free Money Fund July 1, 1990 June 5, 1981
The Global Yield Fund, Inc. September 5, 1990
Prudential-Bache California Municipal Fund August 1, 1990 May 18, 1984
Prudential-Bache Equity Fund, Inc. August 1, 1990
Prudential-Bache Global Fund, Inc. June 7, 1990
Prudential-Bache GNMA Fund, Inc. August 1, 1990
Prudential-Bache Government Plus Fund, Inc. July 31, 1990
Prudential-Bache Government Securities Trust July 26, 1990 September 22, 1981
Prudential-Bache Growth Opportunity Fund, Inc. July 26, 1990
Prudential-Bache High Yield Fund, Inc. July 26, 1990
Prudential-Bache IncomeVertible Plus Fund, Inc. June 6, 1990
Prudential-Bache MoneyMart Assets, Inc. July 25, 1990
Prudential-Bache Multi-Sector Fund, Inc. June 1, 1990
Prudential-Bache Municipal Series Fund August 1, 1990 May 18, 1984
Prudential-Bache National Municipals Fund, Inc. July 26, 1990
Prudential-Bache Option Growth Fund, Inc. July 31, 1990
Prudential-Bache Research Fund, Inc. July 25, 1990
Prudential-Bache Special Money Market Fund, Inc. January 12, 1990
Prudential-Bache Structured Maturity Fund, Inc. July 25, 1989
Prudential-Bache Tax-Free Money Fund, Inc. July 26, 1990
Prudential-Bache U. S. Government Fund June 7, 1990 September 22, 1986
Prudential-Bache Utility Fund, Inc. June 6, 1990
</TABLE>
<PAGE>
Schedule A
----------
The fol1owing foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors/Trustees of Each of
the Parties Indicated on Appendix A for use as sub-custodians for the Fund's
securities and other assets:
Prudential Global Fund, Inc.
Securities Depository
Country Bank Clearing Agency
- ------- ---- ---------------------
Australia The Australia and None
New Zealand Banking
Group Limited
Austria Girozentrale und Wertpapiersammelbank
Bank der bei der
oesterreichischen Oesterreichischen
Sparkassan AG Kontrollbank AG
Belgium Banque Bruxelles C.I.K.
Lambert
Canada Canada Trust The Canadian
Company Depository for
Securities, Ltd.
Denmark Den Danske Bank Vaerdipapircentralen
Finland Kansallis--Osake-- None
Pankki
France Credit Commercial SICOVAM
de France
Germany Berliner Frankfurter
Handels--und Kassenverein AG
Frankfurter (Frankfurt Central
Bank Depository)
Hong Kong Standard Chartered None
Bank
Ireland Bank of Ireland None
Italy Credito Italiano Monte Titoli--S.P.A.
Japan Sumitomo Trust & None
Banking Co. Ltd.
Korea Bank of Seoul None
<PAGE>
Securities Depository
Country Bank Clearing Agency
- ------- ---- ---------------------
Luxembourg Cedel
Malaysia Standard Chartered None
Bank
Mexico Citibank, Mexico INDEVAL
(Instituto Nacionel
de Valares)
Netherlands Bank Mees & Hope, NECIGEF
N.V.; subsidiary of (Netherlands Clearing
Algemene Bank Institute for Giro
Nederland, N.V. Securities Deliveries)
New Zealand Westpac Banking The Reserve Bank of
Corporation New Zealand
Norway Christiania Bank Og None
Kreditkasse
Singapore The Development None
Bank of Singapore
Ltd.
Spain Banco Hispano Junta Sindical
Americano, S.A.
Sweden Skandinaviska None
Enskila Banken
Switzerland Union Bank of SEGA
Switzerland
Thailand Standard Chartered None
Bank
United Kingdom State Street London
Limited; subsidiary
of State Street Boston
Corporation
Transnational The Euroclear System
Certified:
[Illegible]
- ----------------------------------
Fund's Authorized Officer
Date: 5/29/92
-------
EXHIBIT 99.B9
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PRUDENTIAL-BACHE GLOBAL FUND, INC.
and
PRUDENTIAL MUTUAL FUND SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
Article 1 Terms of Appointment; Duties of the Agent ................. 1
Article 2 Fees and Expenses ......................................... 4
Article 3 Representations and Warranties of the Agent ............... 5
Article 4 Representations of Warranties of the Fund ................. 5
Article 5 Duty of Care and Indemnification .......................... 6
Article 6 Documents and Covenants of the Fund and the Agent ......... 9
Article 7 Termination of Agreement .................................. 10
Article 8 Assignment ................................................ 11
Article 9 Affiliations .............................................. 11
Article 10 Amendment ................................................. 12
Article 11 Applicable Law ............................................ 12
Article 12 Miscellaneous ............................................. 12
Article 13 Merger of Agreement ....................................... 13
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the 1st day of January, 1988 by and between
PRUDENTIAL-BACHE GLOBAL FUND, INC., a Maryland corporation, having its principal
office and place of business at One Seaport Plaza, New York, New York 10292 (the
"FUND"), and PRUDENTIAL MUTUAL FUND SERVICES, INC., a New Jersey corporation,
having its principal office and place of business at Raritan Plaza I, Edison,
New Jersey 08818 (the "Agent" or "PMFS").
WHEREAS, the Fund desires to appoint PMFS as its transfer agent, dividend
disbursing agent and shareholder servicing agent in connection with certain
other activities, and PMFS desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of PMFS
1.01 subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints PMFS to act as, and PMFS agrees to act as, the
transfer agent for the authorized and issued shares of the common stock of each
series of the Fund, $.0l Par value ("Shares"), dividend disbursing agent and
shareholder servicing agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of the Fund or any series thereof
("Shareholders") and set out in the currently effective prospectus and statement
of additional information ("prospectus") of the Fund, irc1uding without
limitation any periodic investment plan or periodic withdrawal program.
-1-
<PAGE>
1.02 PMFS agrees that it will perform the fol1owing services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and PMFS, PMFS shall:
(i) Receive for acceptance, orders for the purchase of Shares, and promptly
deliver payment and appropriate documentation therefor to the Custodian of the
Fund authorized pursuant to the Articles of Incorporation of the Fund (the
"Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of Shares
and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption directions
and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it by
the Custodian with respect to any redemption, pay over or cause to be paid over
in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions declared
by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on purchases
and/or redemptions of Shares of the Fund as such charges may be reflected in the
in the prospectus;
(viii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
-2-
<PAGE>
(ix) Record the issuance of Shares of the Fund and maitain pursuant to Rule
17Ad-10(e) under the Securities Exchange Act of 1934 ("1934 Act") a record of
the total number of Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and Outstanding. PMFS shall also provide
to the Fund on a regular basis the total number of Shares which are authorized,
issued and outstanding and shall notify the Fund in case any proposed issue of
Shares by the Fund would result in an overissue. In case any issue of Shares
would result in an overissue, PMFS shall refuse to issue such Shares and shall
not countersign and issue any certificates requested for such Shares. When
recording the issuance of Shares, PMFS shall have no obligation to take
cognizance of any Blue Sky laws relating to the issue or sale of such Shares,
which functions shall be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the above
paragraph (a), PMFS shall: (i) perform all of the customary services of a
transfer agent, dividend disbursing agent and, as relevant, shareholder
servicing agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on non-resident alien accounts, preparing and
filing appropriate forms required with respect to dividends and distributions by
federal tax authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for Shareholders and
providing Shareholder account information and (ii) provide a system which will
-3-
<PAGE>
enable the Fund to monitor the total number of Shares sold in each state or
other jurisdiction.
(c) in addition, the Fund shall (i) identify to PMFS in writing those
transactions and assets to be treated as exempt from Blue Sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of PMFS for the Fund's registration status under the
Blue Sky or securities laws of any State or other jurisdiction is solely limited
to the initial establishment of transactions subject to Blue Sky compliance by
the Fund and the reporting of such transactions to the Fund as provided above
and as agreed from time to time by the Fund and PMFS.
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Fund and set forth in Schedule B hereto.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and PMFS.
Article 2 Fees and Expenses
2.01 For performance by PMFS pursuant to this Agreement, the Fund agrees to
pay PMFS an annual maintenance fee for each Shareholder account and certain
transactional fees as set out in the fee schedule attached hereto as Schedule A.
Such fees and out-of-pocket expenses and advances identified under Section 2.02
below may be changed from time to time subject to mutual written agreement
between the Fund and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the Fund agrees
to reimburse PMFS for out-of-pocket expenses or advances incurred by PMFS for
the items set out in Schedule A attached hereto. In addition, any other expenses
incurred by PMFS at the request or with the consent of the Fund will be
reimbursed by the Fund.
-4-
<PAGE>
2.03 The Fund agrees to pay all fees and reimbursable expenses within a
reasonable period of time following the mailing of the respective bil1ing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to PMFS by the Fund upon
request prior to the mailing date of such materials.
Article 3 Representations and Warranties of PMFS
PMFS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good standing
under the laws of New Jersey and it is duly qualified to carry on its
business in New Jersey.
3.02 It is and will remain registered with the U.S. Securities and Exchange
Commission ("SEC") as a Transfer Agent pursuant to the requirements of Section
17A of the 1934 Act.
3.03 It is empowered under applicable laws and by its charter and By-Laws
to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to PMFS that:
4.01 It is a corporation duly organized and existing and in good standing
under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
-5-
<PAGE>
4.03 All corporate proceedings required by said Articles of Incorporation
and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an investment company registered with the SEC under the
Investment Company Act of 1940, as amended (the "1940 Act").
4.05 A registration statement under the Securities Act of 1933 (the "1933
Act") is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Fund being offered for sale.
Article 5 Duty of Care and Indemnification
5.01 PMFS shall not be responsible for, and the Fund shall indemnify and
hold PMFS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of PMFS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, neg1igence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by PMFS or its agents or subcontractors of
information, records and documents which (i) are received by PMFS or its agents
or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or maintained by the Fund or any other person or firm on
behalf of the Fund.
-6-
<PAGE>
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities or Blue Sky laws of any
State or other jurisdiction that such Shares be registered in such State or
other jurisdiction or in violation of any stop order or other determination or
ruling by any federal agency or any state or other jurisdiction with respect to
the offer or sale of such Shares in such State or other jurisdiction.
5.02 PMFS shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by PMFS as a result of PMFS' lack of good faith, negligence or willful
misconduct.
5.03 At any time PMFS may apply to any officer of the Fund for
instructions, and may consult with legal counsel, with respect to any matter
arising in connection with the services to be performed by PMFS under this
Agreement, and PMFS and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. PMFS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to PMFS or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. PMFS, its agents and subcontractors shall also
-7-
<PAGE>
be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signature of the
officers of the Fund, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
5.06 In order that the indemnification provisions contained in this Article
5 shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
-8-
<PAGE>
Article 6 Documents and Covenants of the Fund and PMFS
6.0l The Fund shall promptly furnish to PMFS the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of PMFS and the execution and delivery of this
Agreement;
(b) A certified copy of the Articles of Incorporation and By-Laws of the
Fund and all amendments thereto;
(c) The current registration statement and any amendments and supplements
thereto filed with the SEC pursuant to the requirements of the 1933 Act and the
1940 Act;
(d) A specimen of the certificate for Shares of the Fund in the form
approved by the Board of Directors, with a certificate of the Secretary of the
Fund as to such approval;
(e) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan program or service offered or
to be offered by the Fund; and
(f) Such other certificates, documents or opinions as the Agent deems to be
appropriate or necessary for the proper performance of its duties.
6.02 PMFS hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices.
-9-
<PAGE>
6.03 PMFS shall prepare and keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, PMFS agrees that all such records prepared or maintained by PMFS
relating to the services to be performed by PMFS hereunder are the property of
the Fund and will be preserved, maintained and made available in accordance with
such Section 31 of the 1940 Act, and the Rules and Regulations thereunder, and
will be surrendered promptly to the Fund on and in accordance with its request.
6.04 PMFS and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential and shall not be voluntarily disclosed to any other person
except as may be required by law or with the prior consent of PMFS and the Fund.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, PMFS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. PMFS reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such person.
Article 7 Termination of Agreement
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Fund. Additionally, PMFS reserves the right to charge for any other
reasonable fees and expenses associated with such termination.
-10-
<PAGE>
Article 8 Assignment
8.01 Except as provided in Section 8.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
8.03 PMFS may, in its sole discretion and without further consent by the
Fund, subcontract, in whole or in part, for the performance of its obligations
and duties hereunder with any person or entity including but not limited to: (i)
Prudential-Bache Securities Inc. ("Prudential-Bache"), a registered
broker-dealer, (ii) The Prudential Insurance Company of America ("Prudential"),
(iii) Pruco Securities Corporation, a registered broker-dealer, (iv) any
Prudential-Bache or Prudential subsidiary or affiliate duly registered as a
broker-dealer and/or a transfer agent pursuant to the 1934 Act or (vi) any other
Prudential-Bache or Prudential affiliate or subsidiary; provided, however, that
PMFS shall be as fully responsible to the Fund for the acts and omissions of any
agent or subcontractor as it is for its own acts and omission.
Article 9 Affiliations
9.01 PMFS may now or hereafter, without the consent of or notice to the
Fund, function as Transfer Agent and/or Shareholder Servicing Agent for any
other investment company registered with the SEC under the 1940 Act, inc1uding
without limitation any investment company whose adviser, administrator, sponsor
or principal underwriter is or may become affiliated with Prudential-Bache
and/or Prudential or any of its or their direct or indirect subsidiaries or
affiliates.
-11-
<PAGE>
9.02 It is understood and agreed that the directors, officers, employees,
agents and Shareholders of the Fund, and the directors, officers, em1oyees,
agents and shareholders of the Fund's investment adviser and/or distributor, are
or may be interested in the Agent as directors, officers, employees, agents,
shareholders or otherwise, and that the directors, officers, employees, agents
or shareholders of the Agent may be interested in the Fund as directors,
officers, employees, agents, Shareholders or otherwise, or in the investment
adviser and/or distributor as officers, directors, employees, agents,
shareholders or otherwise.
Article 10 Amendment
10.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
Article 11 Applicable Law
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New Jersey.
Article 12 Miscellaneous
12.01 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, un1ess there
shall first be furnished to PMFS an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to PMFS and the Fund issued by a
surety company satisfactory to PMFS, except that PMFS may accept an affidavit of
loss and indemnity agreement executed by the registered holder (or legal
representative) without surety in such form as PMFS deems appropriate
indemnifying PMFS and the Fund for the issuance of a replacement certificate, in
cases where the alleged loss is in the amount of $1,000 or less.
-12-
<PAGE>
12.02 In the event that any check or other order for payment of money on
the account of any Shareholder or new investor is returned unpaid for any
reason, PMFS will (a) give prompt notification to the Fund's distributor
("Distributor") of such non-payment; and (b) take such other action, including
imposition of a reasonable processing or handling fee, as PMFS may, in its sole
discretion, deem appropriate or as the Fund and the Distributor may instruct
PMFS.
12.03 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to PMFS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Prudential-Bache Global Fund, Inc.
One Seaport Plaza
New York, NY 10292
Attention: President
To PMFS:
Prudential Mutual Fund Services, Inc.
Raritan Plaza I
Edison, NJ 08818
Attention: President
Article 13 Merger of Agreement
13.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names on their behalf under their seals by and through their
duly authorized officers, as of the day and year first above written.
PRUDENTIAL-BACHE GLOBAL FUND, INC.
By: ROBERT F. GUNIA
-------------------------
ATTEST:
S. JANE ROSE
- -------------------------
PRUDENTIAL MUTUAL FUND, SERVICES, INC.
By: ILLEGIBLE
-------------------------
ATTEST:
LYNDA M. PUGLISI
- -------------------------
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<PAGE>
SCHEDULE A
PRUDENTIAL MUTUAL FUND SERVICES, INC.
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
PRUDENTIAL-BACHE GLOBAL FUND, INC.
General - Fees are based on an annual per shareholder account charge for account
maintenance plus out-of-pocket expenses. The effective period of this fee
schedule is January 1, 1988 through December 31, 1988 and shall continue
thereafter from year to year, unless otherwise amended.
Annual Maintenance Charges - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
Basic Annual Per Account Fee $7.00
New Account Set-up Fee for Manually
Established Accounts $2.00
Out-of-Pocket Expenses - Out-of-pocket expenses include but are not limited to:
postage, stationery and printing, allocable communication costs, microfilm,
microfiche, and expenses incurred at the specific direction of the Fund.
Payment - An invoice will be presented to the Fund on a monthly basis assessing
the Fund the appropriate fee and out-of-pocket expenses.
PRUDENTIAL-BACHE PRUDENTIAL MUTUAL FUND
GLOBAL FUND, INC. SERVICES, INC.
NAME: SUSAN COTE NAME ILLEGIBLE
------------------- ---------------------
TITLE: Treasurer TITLE: President
------------------- ---------------------
DATE: January 1, 1988 DATE: January 1, 1988
------------------- ---------------------
<PAGE>
Schedule A
----------
Prudential Mutual Fund Services, Inc.
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
PRUDENTIAL-BACHE GLOBAL FUND, INC.
General--Fees are based on an annual per shareholder account charge for account
maintenance plus out-of-pocket expenses. The effective period of this fee
schedule is January 1, 1989 through December 31, 1989 and shall continue
thereafter from year to year, unless otherwise amended.
Annual Maintenance Charges--The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
Basic Annual Per Account Fee $9.00
New Account Set-up Fee for Manually
Established Accounts $2.00
Out-of-Pocket Expenses--Out-of-pocket expenses include but are not limited to:
postage, stationery and printing, allocable communication costs, microfilm,
microfiche, and expenses incurred at the specific direction of the Fund.
Payment--An invoice will be presented to the Fund on a monthly basis assessing
the Fund the appropriate fee and out-of-pocket expenses.
PRUDENTIAL-BACHE GLOBAL PRUDENTIAL MUTUAL FUND
FUND, INC. SERVICES, INC.
NAME: SUSAN COTE NAME: [Illegible]
--------------------------- -----------------------------
TITLE: Treasurer TITLE: President
--------------------------- -----------------------------
DATE: January 1, 1989 DATE: January 1, 1989
--------------------------- -----------------------------
<PAGE>
Schedule A
----------
Prudential Mutual Fund Services, Inc.
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
PRUDENTIAL-BACHE GLOBAL FUND, INC.
General--Fees are based on an annual per shareholder account charge for account
maintenance plus out-of-pocket expenses. The effective period of this fee
schedule is January 1, 1990 through December 31, 1990 and shall continue
thereafter from year to year, unless otherwise amended.
Annual Maintenance Charges--The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
Basic Annual Per Account Fee $9.00
New Account Set-up Fee for Manually
Established Accounts $2.00
Inactive Account Fee--$.20 per month. A monthly fee is charged for inactive
accounts with a zero balance.
Out-of-Pocket Expenses--Out-of-pocket expenses include but are not limited to:
postage, stationery and printing, allocable communication costs, microfilm,
microfiche, and expenses incurred at the specific direction of the Fund.
Payment--An invoice will be presented to the Fund on a monthly basis assessing
the Fund the appropriate fee and out-of-pocket expenses.
PRUDENTIAL-BACHE GLOBAL PRUDENTIAL MUTUAL FUND
FUND, INC. SERVICES, INC.
NAME: SUSAN COTE NAME: [Illegible]
--------------------------- -----------------------------
TITLE: Treasurer TITLE: President
--------------------------- -----------------------------
DATE: January 1, 1990 DATE: January 1, 1990
--------------------------- -----------------------------
EXHIBIT 99.B10
SULLIVAN & CROMWELL
LETTERHEAD
LETTERHEAD
March 29, 1984
Prudential-Bache Global Fund, Inc.,
100 Gold Street,
New York, New York 10292.
Dear Sirs:
With respect to the Registration Statement on Form N-1A (file No. 2-89725)
(the "Registration Statement") filed by prudential-Bache Global Fund, Inc., a
Maryland corporation (the "Company"), with the Securities and Exchange
Commission for the purpose of registering under the Securities Act of 1933, as
amended, an indefinite number of shares of Common Stock (par value $.01 per
share) (the "Common Stock"), we, as your counsel, have examined such corporate
records, certificates and other documents and reviewed such questions of law as
we have considered necessary or appropriate for the purposes of this opinion. On
the basis of such examination and review, we advise you that, in our opinion,
when shares of the Common Stock have been issued and sold in accordance with the
terms of the Distribution Agreement, referred to in the Registration Statement,
and as authorized
<PAGE>
-2-
Prudential-Bache Global Fund, Inc.
by the board of Directors of the Company, such shares will be validly issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended.
Very truly yours,
SULLIVAN & CROMWELL
EXHIBIT 99.B11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 23 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
December 23, 1997, relating to the financial statements and financial highlights
of Prudential World Fund, Inc., International Stock Series and Global Series,
which appear in such Statement of Additional Information, and to the
incorporation by reference of our reports into the Prospectus which constitutes
part of this Registration Statement. We also consent to the reference to us
under the heading "Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants" in such Statement of Additional Information and to the
reference to us under the heading "Financial Highlights" in such Prospectus.
/s/ Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
January 6, 1998
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 23 to Registration
Statement No. 2-8975 of Prudential World Fund, Inc., of our report dated
December 13, 1996, appearing in the Statement of Additional Information, which
is included in such Registration Statement, and to the references to us under
the heading "Financial Highlights" in the Prospectus which is also included in
such Registration Statement.
Deloitte & Touche LLP
New York, New York
January 7, 1998
EXHIBIT 99.B15(a)
PRUDENTIAL GLOBAL FUND, INC.
Distribution and Service Plan
(Class A Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Global Fund, Inc., (the Fund) and by
Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will employ the Distributor to distribute
Class A shares issued by the Fund (Class A shares). Under the Distribution
Agreement, the Distributor will be entitled to receive payments from investors
of front-end sales charges with respect to the sale of Class A shares. Under the
Plan, the Fund intends to reimburse the Distributor for costs incurred by the
Distributor in distributing Class A shares of the Fund and to pay the
Distributor a service fee for the maintenance of Class A shareholder accounts.
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
<PAGE>
direct or indirect financial interest in the operation of this Plan or any
agreements related to it (the Rule 12b-1 Directors), have determined by votes
cast in person at a meeting called for the purpose of voting on this Plan that
there is a reasonable likelihood that adoption of this Plan will benefit the
Fund and its shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) are primarily intended to result in the
sale of Class A shares of the Fund within the meaning of paragraph (a)(2) of
Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
distribution networks of Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities Corporation (Prusec), including sales personnel
and
2
<PAGE>
branch office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select.
Services provided and activities undertaken to distribute Class A shares of the
Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall reimburse the Distributor for costs incurred by it in
providing personal service and/or maintaining shareholder accounts at a rate not
to exceed .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
reimbursable 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. Costs of the Distributor subject to reimbursement hereunder include
account servicing fees and indirect and overhead costs associated with providing
personal service and/or maintaining shareholder accounts.
3. Payment for Distribution Activities
The Fund shall reimburse the Distributor for costs incurred by it in
performing Distribution Activities at a rate which, together with the service
fee (described in Section 2 hereof), shall not exceed .30% per annum of the
average daily net assets of the Class A shares of the Fund. The Fund shall
calculate and accrue daily amounts reimbursable by the Class A shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Directors may determine.
3
<PAGE>
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 the Class B
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. Payments hereunder will be applied to
distribution expenses in the order in which they are incurred, unless otherwise
determined by the Board of Directors.
Costs of the Distributor subject to reimbursement hereunder are costs of
performing Distribution Activities and may include, among others:
(a) amounts paid to Prudential Securities in reimbursement of costs
incurred by Prudential Securities in performing services under a
selected dealer agreement between Prudential Securities and the
Distributor for sale of Class A shares of the Fund, including
sales commissions and trailer commissions paid to, or on account
of, account executives and indirect and overhead costs associated
with Distribution Activities, including central office and branch
expenses;
(b) amounts paid to Prusec in reimbursement of costs incurred by
Prusec in performing services under a selected dealer agreement
between Prusec and the Distributor for sale of Class A shares of
the Fund, including sales commissions and trailer commissions
paid to, or on account of, agents and indirect and overhead costs
associated with Distribution Activities:
4
<PAGE>
(c) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than
current shareholders of the Fund; and
(d) sales commission (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other than
Prudential Securities and Prusec) which have entered into
selected dealer agreements with the Distributor with respect to
shares of the Fund.
4. 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
Board shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and financial institutions
which have selected dealer agreements with the Distributor.
5
<PAGE>
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class A shares of the Fund.
7. Amendments
The Plan may not be amended to change the distribution expenses to be paid
as provided for in Section 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, including the addition or deletion of categories of
6
<PAGE>
expenditures which are reimbursable hereunder, 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. Non-interested Directors
While the Plan is in effect, the selection and nomination of the Directors
who are not "interested persons" of the Fund (non-interested Directors) shall be
committed to the discretion of the non-interested 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 as of January 22, 1990 and
amended and restated as of July 1, 1993.
EXHIBIT 99.B15(b)
PRUDENTIAL GLOBAL FUND, INC.
Distribution and Service Plan
(Class B Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Global Fund, Inc., (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will continue to employ the Distributor to
distribute Class B shares issued by the Fund (Class B shares). Under the
Distribution Agreement, the Distributor will be entitled to receive payments
from investors of contingent deferred sales charges imposed with respect to
certain repurchases and redemptions of Class B shares. Under the Plan, the Fund
wishes to reimburse the Distributor for costs incurred by the Distributor in
distributing Class B shares of the Fund and to pay the Distributor a service fee
for maintenance of Class B shareholder accounts. 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
<PAGE>
direct or indirect financial interest in the operation of this Plan or any
agreements related to it (the Rule 12b-1 Directors), have determined by votes
cast in person at a meeting called for the purpose of voting on this Plan that
there is a reasonable likelihood that adoption of this Plan will benefit the
Fund and its shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) are primarily intended to result in the
sale of Class B shares of the Fund within the meaning of paragraph (a)(2) of
Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified
broker-dealers and
2
<PAGE>
financial institutions as the Distributor may select, including Pruco Securities
Corporation (Prusec). Services provided and activities undertaken to distribute
Class B shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall reimburse the Distributor for costs incurred by it in
providing personal service and/or maintaining shareholder accounts at a rate not
to exceed .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
reimbursable 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. Costs of the Distributor subject to reimbursement hereunder include
account servicing fees and indirect and overhead costs associated with providing
personal service and/or maintaining shareholder accounts.
3. Payment for Distribution Activities
The Fund shall reimburse the Distributor at a rate which, together with the
service fee (described in Section 2 hereof), shall not exceed 1% per annum of
the average daily net assets of the Class B shares of the Fund for costs
incurred by it in performing Distribution Activities. The Fund shall calculate
and accrue daily amounts reimbursable 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. Proceeds from contingent deferred sales
charges will be applied to reduce the
3
<PAGE>
costs incurred in performing Distribution Activities. The Fund shall carry
forward amounts reimbursable that are not paid because they exceed .75 of 1% per
annum of the average daily net assets of the Class B shares of the Fund (Carry
Forward Amounts) and shall pay such amounts with the .75 of 1% per annum payment
rate limitation so long as this Plan, including any amendments hereto, is in
effect, subject to the limitations of Article III, Section 26 of the NASD Rules
of Fair Practice. Although the Fund is not liable for unreimbursed distribution
expenses, in the event of termination or discontinuation of the Plan, the Board
of Directors may consider the appropriateness of having the Class B shares of
the Fund reimburse the Distributor for the then outstanding Carry Forward
Amounts plus interest thereon to the extent permitted by applicable law or
regulation from the effective date of the Plan.
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 the Class A
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.
4
<PAGE>
Costs of the Distributor subject to reimbursement hereunder are all costs
of performing Distribution Activities and include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of distribution activities including central office
and branch expenses;
(c) amounts paid to Prusec in reimbursement of all costs incurred by
Prusec in performing services under a selected dealer agreement
between Prusec and the Distributor for sale of Class B shares of
the Fund, including sales commissions and trailer commissions
paid to, or on account of, agents and indirect and overhead costs
associated with distribution activities:
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than
current shareholders of the Fund;
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions
(other than Prusec) which have entered into selected dealer
agreements with the Distributor with respect to shares of the
Fund;
(f) to the extent permitted by law, interest on unreimbursed Carry
Forward Amounts as defined in Section 3 at a rate equal to that
paid by Prudential Securities for bank borrowings as such rate
may vary from day to day, not to exceed that permitted under
Article III, Section 26, of the NASD Rules of Fair Practice; and
5
<PAGE>
(g) unreimbursed distribution expenses incurred with respect to the
sale of Class B shares which have been exchanged into 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 financial institutions
which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in
6
<PAGE>
full force and effect thereafter for so long as such continuance is specifically
approved at least annually by a majority of the Board of Directors of the Fund
and a majority of the Rule 12b-1 Directors by votes cast in person at a meeting
called for the purpose of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class B shares of the Fund.
7. Amendments
The Plan may not be amended to change the distribution expenses to be paid
as provided for in Section 3 hereof so as to increase materially the amounts
payable under this Plan unless such amendment shall be approved by the vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund. All material amendments of the
Plan, including the addition or deletion of categories of expenditures which are
reimbursable hereunder, 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. Non-interested Directors
While the Plan is in effect, the selection and nomination of the Directors
who are not "interested persons" of the Fund
7
<PAGE>
(non-interested Directors) shall be committed to the discretion of the
non-interested 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 as of January 22, 1990 and
amended and restated as of July 1, 1993.
EXHIBIT 99.B16
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
CLASS A
EXHIBIT 16
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
ERV = P * (1 + T)n
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
================================================================================
1 Year 5 Year Inception
--------- --------- ---------
P = $1,000.00 $1,000.00 $1,000.00
n = 1.000 5.000 7.778
ERV = $1,068.00 $1,972.31 $1,860.61
T = 6.80% 14.55% 8.31%
<PAGE>
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
CLASS B
EXHIBIT 16
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
ERV = P * (1 + T)n
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
================================================================================
1 Year 5 Year Inception
--------- --------- ---------
P = $1,000.00 $1,000.00 $1,000.00
n = 1.000 5.000 10.000
ERV = $1,067.00 $1,997.40 $2,288.22
T = 6.70% 14.84% 8.63%
================================================================================
SUBSIDY ADJUSTED 1 Year 5 Year Inception
--------- --------- ---------
$1,000.00 $1,000.00 $1,000.00
1.000 5.000 9.679
$1,067.00 $1,997.40 $2,224.33
6.70% 14.84% 8.61%
<PAGE>
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
CLASS C
EXHIBIT 16
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
ERV = P * (1 + T)n
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
================================================================================
1 Year Inception
--------- ---------
P = $1,000.00 $1,000.00
n = 1.000 3.252
ERV = $1,106.30 $1,354.51
T = 10.63% 9.78%
<PAGE>
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
CLASS Z
EXHIBIT 16
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
ERV = P * (1 + T)n
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
================================================================================
1 Year Inception
--------- ---------
P = $1,000.00 $1,000.00
n = 1.000 1.668
ERV = $1,127.20 $1,218.24
T = 12.72% 12.56%
<PAGE>
PRUDENTIAL WORLD FUND, INC.
INTERNATIONAL STOCK SERIES
CLASS A
EXHIBIT 16
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
ERV = P * (1 + T)n
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
================================================================================
1 Year Inception
--------- ---------
P = $1,000.00 $1,000.00
n = 1.000 1.104
ERV = $1,072.10 $1,076.01
T = 7.21% 6.86%
<PAGE>
PRUDENTIAL WORLD FUND, INC.
INTERNATIONAL STOCK SERIES
CLASS B
EXHIBIT 16
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
ERV = P * (1 + T)n
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
================================================================================
1 Year Inception
--------- ---------
P = $1,000.00 $1,000.00
n = 1.000 1.104
ERV = $1,070.40 $1,083.24
T = 7.04% 7.51%
<PAGE>
PRUDENTIAL WORLD FUND, INC.
INTERNATIONAL STOCK SERIES
CLASS C
EXHIBIT 16
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
ERV = P * (1 + T)n
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
================================================================================
1 Year Inception
--------- ---------
P = $1,000.00 $1,000.00
n = 1.000 1.104
ERV = $1,110.40 $1,123.58
T = 11.04% 11.13%
<PAGE>
PRUDENTIAL WORLD FUND, INC.
INTERNATIONAL STOCK SERIES
CLASS Z
EXHIBIT 16
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
ERV = P * (1 + T)n
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
================================================================================
1 Year Inception
--------- ---------
P = $1,000.00 $1,000.00
n = 1.000 4.989
ERV = $1,131.30 $1,990.05
T = 13.13% 14.79%
================================================================================
SUBSIDY ADJUSTED 1 Year Inception
--------- ---------
P = $1,000.00 $1,000.00
n = 1.000 4.989
ERV = $1,131.30 $1,987.46
T = 13.13% 14.76%
[ARTICLE] 6
[CIK] 0000741350
[NAME] PRUDENTIAL WORLD FUND, INC. GLOBAL SERIES
[SERIES]
[NUMBER] 001
[NAME] PRUDENTIAL WORLD FUND, INC. GLOBAL SERIES (CLASS A)
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 481,671,659
[INVESTMENTS-AT-VALUE] 617,300,719
[RECEIVABLES] 44,260,390
[ASSETS-OTHER] 908,250
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 662,469,359
[PAYABLE-FOR-SECURITIES] 12,605,114
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 2,120,961
[TOTAL-LIABILITIES] 14,726,075
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 449,005,955
[SHARES-COMMON-STOCK] 38,522,722
[SHARES-COMMON-PRIOR] 37,523,227
[ACCUMULATED-NII-CURRENT] 2,071,347
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 61,086,427
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 135,579,555
[NET-ASSETS] 647,743,284
[DIVIDEND-INCOME] 8,828,942
[INTEREST-INCOME] 545,710
[OTHER-INCOME] 0
[EXPENSES-NET] 11,657,443
[NET-INVESTMENT-INCOME] (2,282,791)
[REALIZED-GAINS-CURRENT] 65,592,973
[APPREC-INCREASE-CURRENT] 17,698,660
[NET-CHANGE-FROM-OPS] 81,008,842
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (46,182,319)
[DISTRIBUTIONS-OTHER] (1,765,215)
[NUMBER-OF-SHARES-SOLD] 1,364,574,496
[NUMBER-OF-SHARES-REDEEMED] (1,405,314,341)
[SHARES-REINVESTED] 45,634,720
[NET-CHANGE-IN-ASSETS] 37,956,183
[ACCUMULATED-NII-PRIOR] 1,692,789
[ACCUMULATED-GAINS-PRIOR] 46,116,378
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 5,036,520
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 11,657,443
[AVERAGE-NET-ASSETS] 265,380,000
[PER-SHARE-NAV-BEGIN] 16.62
[PER-SHARE-NII] 1.95
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] 0.00
[PER-SHARE-DISTRIBUTIONS] (1.30)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 17.27
[EXPENSE-RATIO] 1.39
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000741350
[NAME] PRUDENTIAL WORLD FUND, INC. GLOBAL SERIES
[SERIES]
[NUMBER] 002
[NAME] PRUDENTIAL WORLD FUND, INC. GLOBAL SERIES (CLASS B)
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 481,671,659
[INVESTMENTS-AT-VALUE] 617,300,719
[RECEIVABLES] 44,260,390
[ASSETS-OTHER] 908,250
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 662,469,359
[PAYABLE-FOR-SECURITIES] 12,605,114
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 2,120,961
[TOTAL-LIABILITIES] 14,726,075
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 449,005,955
[SHARES-COMMON-STOCK] 38,522,722
[SHARES-COMMON-PRIOR] 37,523,227
[ACCUMULATED-NII-CURRENT] 2,071,347
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 61,086,427
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 135,579,555
[NET-ASSETS] 647,743,284
[DIVIDEND-INCOME] 8,828,942
[INTEREST-INCOME] 545,710
[OTHER-INCOME] 0
[EXPENSES-NET] 11,657,443
[NET-INVESTMENT-INCOME] (2,282,791)
[REALIZED-GAINS-CURRENT] 65,592,973
[APPREC-INCREASE-CURRENT] 17,698,660
[NET-CHANGE-FROM-OPS] 81,008,842
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (46,182,319)
[DISTRIBUTIONS-OTHER] (1,765,215)
[NUMBER-OF-SHARES-SOLD] 1,364,574,496
[NUMBER-OF-SHARES-REDEEMED] (1,405,314,341)
[SHARES-REINVESTED] 45,634,720
[NET-CHANGE-IN-ASSETS] 37,956,183
[ACCUMULATED-NII-PRIOR] 1,692,789
[ACCUMULATED-GAINS-PRIOR] 46,116,378
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 5,036,520
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 11,657,443
[AVERAGE-NET-ASSETS] 350,518,000
[PER-SHARE-NAV-BEGIN] 15.96
[PER-SHARE-NII] 1.76
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] 0.00
[PER-SHARE-DISTRIBUTIONS] (1.30)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 16.42
[EXPENSE-RATIO] 2.07
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000741350
[NAME] PRUDENTIAL WORLD FUND, INC. GLOBAL SERIES
[SERIES]
[NUMBER] 003
[NAME] PRUDENTIAL WORLD FUND, INC. GLOBAL SERIES (CLASS C)
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 481,671,659
[INVESTMENTS-AT-VALUE] 617,300,719
[RECEIVABLES] 44,260,390
[ASSETS-OTHER] 908,250
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 662,469,359
[PAYABLE-FOR-SECURITIES] 12,605,114
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 2,120,961
[TOTAL-LIABILITIES] 14,726,075
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 449,005,955
[SHARES-COMMON-STOCK] 38,522,722
[SHARES-COMMON-PRIOR] 37,523,227
[ACCUMULATED-NII-CURRENT] 2,071,347
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 61,086,427
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 135,579,555
[NET-ASSETS] 647,743,284
[DIVIDEND-INCOME] 8,828,942
[INTEREST-INCOME] 545,710
[OTHER-INCOME] 0
[EXPENSES-NET] 11,657,443
[NET-INVESTMENT-INCOME] (2,282,791)
[REALIZED-GAINS-CURRENT] 65,592,973
[APPREC-INCREASE-CURRENT] 17,698,660
[NET-CHANGE-FROM-OPS] 81,008,842
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (46,182,319)
[DISTRIBUTIONS-OTHER] (1,765,215)
[NUMBER-OF-SHARES-SOLD] 1,364,574,496
[NUMBER-OF-SHARES-REDEEMED] (1,405,314,341)
[SHARES-REINVESTED] 45,634,720
[NET-CHANGE-IN-ASSETS] 37,956,183
[ACCUMULATED-NII-PRIOR] 1,692,789
[ACCUMULATED-GAINS-PRIOR] 46,116,378
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 5,036,520
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 11,657,443
[AVERAGE-NET-ASSETS] 9,093,000
[PER-SHARE-NAV-BEGIN] 15.96
[PER-SHARE-NII] 1.75
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] 0.00
[PER-SHARE-DISTRIBUTIONS] (1.30)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 16.41
[EXPENSE-RATIO] 2.14
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000741350
[NAME] PRUDENTIAL WORLD FUND, INC. GLOBAL SERIES
[SERIES]
[NUMBER] 004
[NAME] PRUDENTIAL WORLD FUND, INC. GLOBAL SERIES (CLASS Z)
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 481,671,659
[INVESTMENTS-AT-VALUE] 617,300,719
[RECEIVABLES] 44,260,390
[ASSETS-OTHER] 908,250
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 662,469,359
[PAYABLE-FOR-SECURITIES] 12,605,114
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 2,120,961
[TOTAL-LIABILITIES] 14,726,075
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 449,005,955
[SHARES-COMMON-STOCK] 38,522,722
[SHARES-COMMON-PRIOR] 37,523,227
[ACCUMULATED-NII-CURRENT] 2,071,347
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 61,086,427
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 135,579,555
[NET-ASSETS] 647,743,284
[DIVIDEND-INCOME] 8,828,942
[INTEREST-INCOME] 545,710
[OTHER-INCOME] 0
[EXPENSES-NET] 11,657,443
[NET-INVESTMENT-INCOME] (2,282,791)
[REALIZED-GAINS-CURRENT] 65,592,973
[APPREC-INCREASE-CURRENT] 17,698,660
[NET-CHANGE-FROM-OPS] 81,008,842
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (46,182,319)
[DISTRIBUTIONS-OTHER] (1,765,215)
[NUMBER-OF-SHARES-SOLD] 1,364,574,496
[NUMBER-OF-SHARES-REDEEMED] (1,405,314,341)
[SHARES-REINVESTED] 45,634,720
[NET-CHANGE-IN-ASSETS] 37,956,183
[ACCUMULATED-NII-PRIOR] 1,692,789
[ACCUMULATED-GAINS-PRIOR] 46,116,378
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 5,036,520
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 11,657,443
[AVERAGE-NET-ASSETS] 46,545,000
[PER-SHARE-NAV-BEGIN] 17
[PER-SHARE-NII] 2
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (1)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 17
[EXPENSE-RATIO] 1
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000741350
[NAME] PRUDENTIAL WORLD FUND INTERNATIONAL STOCK SERIES
[SERIES]
[NUMBER] 001
[NAME] PRUDENTIAL WORLD FUND INTERNATIONAL STOCK SERIES (CLASS A)
<TABLE>
<S> <C>
[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
[ASSETS-OTHER] 196,077
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 375,532,076
[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
[ACCUMULATED-NET-GAINS] 8,347,113
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 38,888,539
[NET-ASSETS] 373,668,664
[DIVIDEND-INCOME] 7,718,449
[INTEREST-INCOME] 1,504,747
[OTHER-INCOME] 0
[EXPENSES-NET] 4,995,353
[NET-INVESTMENT-INCOME] 4,227,843
[REALIZED-GAINS-CURRENT] 7,343,863
[APPREC-INCREASE-CURRENT] 13,631,809
[NET-CHANGE-FROM-OPS] 25,203,515
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (2,382,910)
[DISTRIBUTIONS-OTHER] (2,803,381)
[NUMBER-OF-SHARES-SOLD] 804,494,249
[NUMBER-OF-SHARES-REDEEMED] (646,463,274)
[SHARES-REINVESTED] 5,185,220
[NET-CHANGE-IN-ASSETS] 183,233,419
[ACCUMULATED-NII-PRIOR] 1,905,396
[ACCUMULATED-GAINS-PRIOR] 2,696,743
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,932,554
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 4,995,353
[AVERAGE-NET-ASSETS] 18,779,000
[PER-SHARE-NAV-BEGIN] 16.59
[PER-SHARE-NII] 2.09
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] 0.00
[PER-SHARE-DISTRIBUTIONS] (0.44)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 18.24
[EXPENSE-RATIO] 1.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000741350
[NAME] PRUDENTIAL WORLD FUND INTERNATIONAL STOCK SERIES
[SERIES]
[NUMBER] 002
[NAME] PRUDENTIAL WORLD FUND INTERNATIONAL STOCK SERIES (CLASS B)
<TABLE>
<S> <C>
[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
[ASSETS-OTHER] 196,077
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 375,532,076
[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
[ACCUMULATED-NET-GAINS] 8,347,113
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 38,888,539
[NET-ASSETS] 373,668,664
[DIVIDEND-INCOME] 7,718,449
[INTEREST-INCOME] 1,504,747
[OTHER-INCOME] 0
[EXPENSES-NET] 4,995,353
[NET-INVESTMENT-INCOME] 4,227,843
[REALIZED-GAINS-CURRENT] 7,343,863
[APPREC-INCREASE-CURRENT] 13,631,809
[NET-CHANGE-FROM-OPS] 25,203,515
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (2,382,910)
[DISTRIBUTIONS-OTHER] (2,803,381)
[NUMBER-OF-SHARES-SOLD] 804,494,249
[NUMBER-OF-SHARES-REDEEMED] (646,463,274)
[SHARES-REINVESTED] 5,185,220
[NET-CHANGE-IN-ASSETS] 183,233,419
[ACCUMULATED-NII-PRIOR] 1,905,396
[ACCUMULATED-GAINS-PRIOR] 2,696,743
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,932,554
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 4,995,353
[AVERAGE-NET-ASSETS] 47,584,000
[PER-SHARE-NAV-BEGIN] 16.57
[PER-SHARE-NII] 1.96
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] 0.00
[PER-SHARE-DISTRIBUTIONS] (0.40)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 18.13
[EXPENSE-RATIO] 2.50
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000741350
[NAME] PRUDENTIAL WORLD FUND INTERNATIONAL STOCK SERIES
[SERIES]
[NUMBER] 003
[NAME] PRUDENTIAL WORLD FUND INTERNATIONAL STOCK SERIES (CLASS C)
<TABLE>
<S> <C>
[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
[ASSETS-OTHER] 196,077
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 375,532,076
[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
[ACCUMULATED-NET-GAINS] 8,347,113
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 38,888,539
[NET-ASSETS] 373,668,664
[DIVIDEND-INCOME] 7,718,449
[INTEREST-INCOME] 1,504,747
[OTHER-INCOME] 0
[EXPENSES-NET] 4,995,353
[NET-INVESTMENT-INCOME] 4,227,843
[REALIZED-GAINS-CURRENT] 7,343,863
[APPREC-INCREASE-CURRENT] 13,631,809
[NET-CHANGE-FROM-OPS] 25,203,515
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (2,382,910)
[DISTRIBUTIONS-OTHER] (2,803,381)
[NUMBER-OF-SHARES-SOLD] 804,494,249
[NUMBER-OF-SHARES-REDEEMED] (646,463,274)
[SHARES-REINVESTED] 5,185,220
[NET-CHANGE-IN-ASSETS] 183,233,419
[ACCUMULATED-NII-PRIOR] 1,905,396
[ACCUMULATED-GAINS-PRIOR] 2,696,743
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,932,554
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 4,995,353
[AVERAGE-NET-ASSETS] 7,473,000
[PER-SHARE-NAV-BEGIN] 16.57
[PER-SHARE-NII] 1.96
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] 0.00
[PER-SHARE-DISTRIBUTIONS] (0.40)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 18.13
[EXPENSE-RATIO] 2.50
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000741350
[NAME] PRUDENTIAL WORLD FUND INTERNATIONAL STOCK SERIES
[SERIES]
[NUMBER] 004
[NAME] PRUDENTIAL WORLD FUND INTERNATIONAL STOCK SERIES (CLASS Z)
<TABLE>
<S> <C>
[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
[ASSETS-OTHER] 196,077
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 375,532,076
[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
[ACCUMULATED-NET-GAINS] 8,347,113
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 38,888,539
[NET-ASSETS] 373,668,664
[DIVIDEND-INCOME] 7,718,449
[INTEREST-INCOME] 1,504,747
[OTHER-INCOME] 0
[EXPENSES-NET] 4,995,353
[NET-INVESTMENT-INCOME] 4,227,843
[REALIZED-GAINS-CURRENT] 7,343,863
[APPREC-INCREASE-CURRENT] 13,631,809
[NET-CHANGE-FROM-OPS] 25,203,515
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (2,382,910)
[DISTRIBUTIONS-OTHER] (2,803,381)
[NUMBER-OF-SHARES-SOLD] 804,494,249
[NUMBER-OF-SHARES-REDEEMED] (646,463,274)
[SHARES-REINVESTED] 5,185,220
[NET-CHANGE-IN-ASSETS] 183,233,419
[ACCUMULATED-NII-PRIOR] 1,905,396
[ACCUMULATED-GAINS-PRIOR] 2,696,743
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,932,554
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 4,995,353
[AVERAGE-NET-ASSETS] 219,419,000
[PER-SHARE-NAV-BEGIN] 17
[PER-SHARE-NII] 2
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 18
[EXPENSE-RATIO] 2
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
