As filed with the Securities and Exchange Commission on November 3, 1995
Securities Act File No. 33-
Investment Company Act File No. 811-4661
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 [x]
(Check appropriate box or boxes)
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THE GLOBAL TOTAL RETURN FUND, INC.
(Formerly, The Global Yield Fund, Inc.)
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
------------
Registrant's Telephone Number, Including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza, New York, New York 10292
(Name and Address of Agent for Service of Process)
Approximate date of proposed public offering:
As soon as practicable after the effective date of the Registration Statement.
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Registrant hereby elects, pursuant to Rule 24f-2 under the Investment
Company Act of 1940, to register an indefinite number of shares by this
Registration Statement. In accordance with Rule 24f-2, a registration fee, in
the amount of $500, is being paid herewith.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933.
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<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
- ------------- --------
Part A
<S> <C> <C>
Item 1. Cover Page ........................................................ Cover Page
Item 2. Synopsis .......................................................... Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information ................................... Fund Expenses; Financial Highlights;
How the Fund Calculates
Performance
Item 4. General Description of Registrant ................................. Cover Page; Fund Highlights;
How the Fund Invests; General
Information
Item 5. Management of the Fund ............................................ Financial Highlights; How the Fund is
Managed
Item 5A. Management's Discussion of Fund Performance ....................... Not Applicable
Item 6. Capital Stock and Other Securities ................................ Taxes, Dividends, and Distributions;
General Information
Item 7. Purchase of Securities Being Offered .............................. Shareholder Guide; How the Fund
Values its Shares
Item 8. Redemption or Repurchase .......................................... Shareholder Guide; How the Fund
Values its Shares; General
Information
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 ................................... General Information
Item 13. Investment Objectives and Policies ................................ Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund ............................................ Directors and Officers; Manager;
Distributor
Item 15. Control Persons and Principal Holders of Securities ............... Not Applicable
Item 16. Investment Advisory and Other Services ............................ Manager; Distributor; Custodian,
Transfer and Dividend Disbursing
Agent and Independent Accountants
Item 17. Brokerage Allocation and Other Practices .......................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities ................................ Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Offered ...... Purchase and Redemption of Fund
Shares; Shareholder Investment
Account; Net Asset Value
Item 20. Tax Status ........................................................ Taxes
Item 21. Underwriters ...................................................... Distributor
Item 22. Calculation of Performance Data ................................... Performance Information
Item 23. Financial Statements .............................................. Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
The Global
Total Return Fund, Inc.
- --------------------------------------------------------------------------------
Prospectus dated December , 1995
- --------------------------------------------------------------------------------
The Global Total Return Fund, Inc. (the Fund) is an open-end, non-diversified,
management investment company whose investment objective is to seek total
return, the components of which are current income and capital appreciation.
There is no assurance that the Fund will achieve its investment objective. The
Fund seeks to achieve its objective by investing, under normal circumstances, at
least 65% of its total assets in governmental (including supranational),
semi-governmental or government agency securities or in short-term bank
securities or deposits in the United States and in foreign countries denominated
in U.S. dollars or in foreign currencies. The remainder is generally invested in
corporate securities or longer term bank securities. The Fund may also purchase
and sell certain derivatives, including put and call options on securities and
foreign currencies and engage in transactions involving futures contracts and
options on such futures to hedge its portfolio and to attempt to enhance return.
See "How the Fund Invests--Investment Objective and Policies." The Fund is
non-diversified and may invest more than 5% of its total assets in the
securities of one or more issuers. Investment in a non-diversified portfolio
involves greater risk than investment in a diversified portfolio. In addition,
the Fund may invest up to 10% of its total assets in non-investment grade
securities, which may entail additional risks. There can be no assurance that
the Fund's investment objective will be achieved. Investing in Foreign
Government securities, options contracts and futures contracts and options
thereon involves considerations and possible risks which are different from
those ordinarily associated with investing in U.S. Government securities. See
"How the Fund Invests--Risk Factors." The Fund's address is One Seaport Plaza,
New York, New York 10292, and its telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated December , 1995, 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.
- --------------------------------------------------------------------------------
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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
What Is The Global Total Return Fund, Inc.?
The Global Total Return Fund, Inc. 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, the Fund is an open-end, non-diversified,
management investment company.
What Is the Fund's Investment Objective?
The Fund's investment objective is to seek total return, the components of
which are current income and capital appreciation. It seeks to achieve this
objective by investing, under normal circumstances, at least 65% of its total
assets in governmental (including supranational), semi-governmental or
government agency securities or in short-term bank securities or deposits in the
United States and in foreign countries denominated in U.S. dollars or in foreign
currencies. The remainder is generally invested in corporate securities or
longer term bank securities. There can be no assurance that the Fund's objective
will be achieved. See "How the Fund Invests--Investment Objective and Policies"
at page 7.
Risk Factors and Special Characteristics
Investing in securities issued by foreign governments involves
considerations and risks not typically associated with investing in obligations
issued by the U.S. Government and domestic corporations. See "How the Fund
Invests--Risk Factors--Risk Factors Relating to Foreign Investments" at page 11.
The Fund may also engage in various hedging and return enhancement strategies,
including derivatives, which may be considered speculative and may result in
higher risks and costs to the Fund. See "How the Fund Invests--Hedging and
Income Enhancement Strategies--Risks of Hedging and Return Enhancement
Strategies" at page 13. In addition, the Fund may invest up to 10% of its total
assets in securities rated below investment grade, but with a minimum rating of
B, as determined by Moody's Investors Service (Moody's), Standard & Poor's
Ratings Group (Standard & Poor's) or by another nationally recognized
statistical ratings organization (NRSRO), or if unrated, deemed to be of
equivalent quality by the investment adviser. Lower-rated securities are subject
to a greater risk of loss of principal and interest. See "How the Fund
Invests--Risk Factors--Medium and Lower-Rated Securities" at page 12. The amount
of income available for distribution to shareholders will be affected by any
foreign currency gains or losses generated by the Fund upon the disposition of
debt securities denominated in a foreign currency and by certain hedging
activities of the Fund. Gains and losses on security and currency transactions
cannot be predicted. This fact coupled with the different tax and accounting
treatment of certain currency gains and losses increases the likelihood of
distributions in whole or in part constituting a return of capital to
shareholders. See "Taxes, Dividends and Distributions" at page 22.
Who Manages the Fund?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .75 of 1%
of the Fund's average daily net assets up to $500 million, .70 of 1% of such
assets between $500 million and $1 billion and .65 of 1% of such assets in
excess of $1 billion. As of November 30, 1995, PMF served as manager or
administrator to 64 investment companies, including 37 mutual funds, with
aggregate assets of approximately $50 billion. The Prudential Investment
Corporation (PIC or the Subadviser) furnishes investment advisory services in
connection with the management of the Fund under a Subadvisory Agreement with
PMF. See "How the Fund is Managed--Manager" at page 18.
2
<PAGE>
Who Distributes the Fund's Shares?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class A, Class B and Class C shares and is paid an
annual distribution and service fee with respect to Class A shares which is
currently being charged at the rate of .15 of 1% of the average daily net assets
of the Class A shares and an annual distribution and service fee with respect to
Class B and Class C shares which is curently being charged at the rate of .75 of
1% of the average daily net assets of the Class B and Class C shares,
respectively.
See "How the Fund is Managed--Distributor" at page 18.
What Is the Minimum Investment?
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. 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 24 and "Shareholder Guide--Shareholder Services"
at page 33.
How Do I Purchase Shares?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent) at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). See "How the Fund Values Its Shares"
at page 21 and "Shareholder Guide--How to Buy Shares of the Fund" at page 24.
What Are My Purchase Alternatives?
The Fund offers three classes of shares:
o Class A Shares: Sold with an initial sales charge of up to 4% of
the offering price.
o Class B Shares: Sold without an initial sales charge but are
subject to a contingent deferred sales charge or
CDSC (declining from 5% to zero of the lower of
the amount invested or the redemption proceeds)
which will be imposed on certain redemptions made
within six years of purchase. Although Class B
shares are subject to higher ongoing
distribution-related expenses than Class A shares,
Class B shares will automatically convert to Class
A shares (which are subject to lower ongoing
distribution-related expenses) approximately seven
years after purchase.
o Class C Shares: Sold without an initial sales charge and, for one
year after purchase, are subject to a 1% CDSC on
redemptions. Like Class B shares, Class C shares
are subject to higher ongoing distribution-related
expenses than Class A shares but do not convert to
another class.
See "Shareholder Guide--Alternative Purchase Plan" at page 26.
3
<PAGE>
How Do I Sell My Shares?
You may redeem shares of the Fund 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 28.
How Are Dividends and Distributions Paid?
The Fund expects to declare [daily and pay monthly] 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 Fund at NAV without a sales charge unless you request
that they be paid to you in cash. The amount of income available for
distribution to shareholders will be affected by any foreign currency gains or
losses generated by the Fund upon the disposition of debt securities denominated
in a foreign currency and by certain hedging activities of the Fund. See "Taxes,
Dividends and Distributions" at page 22.
4
<PAGE>
<TABLE>
<CAPTION>
FUND EXPENSES
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses<F1>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) .................... 4% None None
Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends ........................ None None None
Deferred Sales Load (as a percentage of original 5% during the first year,
purchase price or redemption price, whichever decreasing by 1% annually 1% on
is lower) .............................................. None to 1% in the fifth year and redemptions
1% in the sixth year and made within one
0% in the seventh year* year of purchase
Redemption Fees ........................................ None None None
Exchange Fees .......................................... None None None
Annual Fund Operating Expenses** Class A Shares Class B Shares Class C Shares
(as a percentage of average net assets) -------------- -------------- --------------
Management Fees ........................................ .74% .74% .74%
12b-1 Fees<F1> (After Reduction) ....................... .15%<F2> .75%<F2> .75%<F2>
Other Expenses ......................................... .44% .44% .44%
Total Fund Operating Expenses .......................... 1.33% 1.93% 1.93%
Example** 1 year 3 years 5 years 10 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: Class A ................................ $53 $80 $110 $194
Class B ................................ $70 $91 $114 $203
Class C ................................ $30 $61 $104 $225
You would pay the following expenses on the same investment,
assuming no redemption: Class A ................................ $53 $80 $110 $194
Class B ................................ $20 $61 $104 $203
Class C ................................ $20 $61 $104 $225
The above example is based on restated data for the Fund's fiscal year ended
December 31, 1994 and expenses expected to have been incurred if the Fund
operated as an open-end investment company during the entire fiscal year ended
December 31, 1994. The Fund operated as a closed-end fund prior to December __,
1995. 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 Fund 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 an estimate of
operating expenses of the Fund, such as directors' and professional fees,
registration fees, reports to shareholders and transfer agency and custodian
(domestic and foreign) fees.
- ------------
<FN>
* Class B shares will automatically convert to Class A shares
approximately seven years after purchase. See "Shareholder Guide
--Conversion Feature--Class B Shares."
** Estimated based on expenses expected to have been incurred if the Fund
operated as an open-end investment company during the entire fiscal year
ended December 31, 1994. The Fund operated as a closed-end Fund prior to
December __, 1995.
<F1> 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 Fund may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation
is imposed on each class of the Fund rather than on a per shareholder
basis. Therefore, long-term shareholders of the Fund 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."
<F2> Although the Class A, Class B and Class C Distribution and Service Plans
provide that the Fund may pay up to an annual rate of .30 of 1%, 1% and
1% of average daily net assets of the Class A, Class B and Class C
shares, respectively, the Distributor has agreed to limit its
distribution fee with respect to Class A, Class B and Class C shares of
the Fund to no more than .15 of 1%, .75 of 1% and .75 of 1% of the
average daily net assets of the Class A, Class B and Class C shares,
respectively, for the fiscal year ending December 31, 1996. Total
operating expenses without such limitation would be 1.48% for Class A
shares, 2.18% for Class B shares and 2.18% for Class C shares. See "How
the Fund is Managed--Distributor."
</FN>
</TABLE>
5
<PAGE>
FINANCIAL HIGHLIGHTS
Class A Shares
(for a share outstanding throughout each of the indicated periods)
The following financial highlights with respect to the five-year period
ended December 31, 1994 have been audited by Deloitte & Touche LLP, independent
accountants, whose report thereon 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 Class A share of common stock
outstanding, 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. No Class B or Class C shares were outstanding during
these periods. The Fund operated as a closed-end investment company prior to
December __, 1995.
<TABLE>
<CAPTION>
Six Months July 7, 1986*
Ended Year Ended December 31, through
June 30, -------------------------------------------------------------------------- December 31,
1995<F1> 1994<F1> 1993<F1> 1992<F1> 1991<F1> 1990<F1> 1989<F1> 1988<F1> 1987<F1> 1986<F1>
----------- -------- -------- -------- -------- -------- -------- -------- -------- --------------
(unaudited)
PER SHARE OPERATING
PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .. $ 7.46 $ 8.76 $ 8.10 $ 8.99 $ 8.96 $ 8.57 $ 9.41 $ 9.95 $ 9.58 $ 9.29<F2>
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
investment operations
Net investment income . .25 .52 .64 .81 .84 .89 .94 .99 1.11 .45
Net realized and
unrealized gain (loss)
on investment and
foreign currency
transactions ......... .92 (1.22) .74 (.90) (.19) .36 (.70) .08 1.21 .25
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment operations 1.17 (.70) 1.38 (.09) .65 1.25 .24 1.07 2.32 .70
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions
Dividends from net
investment income .... (.24) (.17) (.30) (.75) (.62) (.88) (.94) (.99) (1.16) (.41)
Distributions from net
capital gains ........ -- (.13) (.23) (.05) -- -- -- (.59) (.79) --
Distributions in excess
of net capital gains . -- -- (.19) -- -- -- -- -- -- --
Tax return of capital
distributions ........ -- (.30) -- -- -- -- (.14) -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions .. (.24) (.60) (.72) (.80) (.62) (.88) (1.08) (1.58) (1.95) (0.41)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Capital charge resulting
from the issuance of
Fund shares .......... -- -- -- -- -- .02 -- (.03) -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value,
end of period ........ $ 8.39 $ 7.46 $ 8.76 $ 8.10 $ 8.99 $ 8.96 $ 8.57 $ 9.41 $ 9.95 $ 9.58
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Market price per share
end of period ........ $ 6.75 $ 6.13 $ 8.00 $ 7.50 $ 8.13 $ 8.00 $ 7.88 $ 9.38 $ 9.75 $ 8.75
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN#: ........ 14.12% (16.12)% 16.50% 1.75% 9.42% 12.89% (5.06)% 13.15% 35.37% (1.68)%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL
DATA:
Net assets,
end of period (000) .. $555,572 $493,645 $579,942 $535,647 $593,376 $591,339 $595,824 $638,200 $652,461 $627,899
Average net assets
(000) ................ $533,816 $536,230 $567,128 $570,812 $571,767 $596,824 $613,520 $669,379 $671,954 $613,909
Ratios to average
net assets:
Expenses ............. 1.00%** 1.04% 1.02% 1.01% .99% 1.03% 1.07% 1.01% 0.96% 1.01%**
Net investment
income .............. 6.28%** 6.45% 7.67% 9.39% 9.69% 10.03% 10.63% 10.00% 10.87% 10.03%**
Portfolio turnover
rate ................. 191% 583% 370% 192% 141% 221% 734% 371% 132% 0%
- ------------
<FN>
* Commencement of investment operations.
** Annualized.
<F1> During these periods, the Fund operated as a closed-end investment company.
Effective December __, 1995, the Fund commenced operations as an open-end
investment company. Accordingly, historical expenses and ratios of expenses
to average net assets are not necessarily indicative of future expenses and
related ratios.
<F2> Net of underwriting discount (.70) and offering costs (.01).
# Total return does not consider the effect 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.
</FN>
</TABLE>
6
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek total return, the components of
which are current income and capital appreciation. There is no assurance that
the Fund will achieve its investment objective.
The Fund's investment objective is a fundamental policy of the Fund.
Fundamental policies may not be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities as defined in the
Investment Company Act of 1940, as amended (the Investment Company Act). Fund
policies that are not fundamental may be modified by the Board of Directors.
The Fund attempts to achieve its objective by investing, under normal
circumstances, at least 65% of its total assets in governmental (including
supranational), semi-governmental or government agency securities or in
short-term bank securities or deposits in the United States and in foreign
countries denominated in U.S. dollars or in foreign currencies, including
securities issued or guaranteed by the U.S. Government and foreign governments,
their agencies, authorities or instrumentalities (U.S. Government Securities and
Foreign Government Securities, respectively). The remainder is generally
invested in corporate securities or longer term bank securities. See "Investment
Objective and Policies" in the Statement of Additional Information.
The Fund will invest primarily in investment grade securities (i.e., those
rated in one of the four highest rating categories by Moody's, Standard & Poor's
or another nationally recognized statistical rating organization (NRSRO), or in
non-rated securities determined by the Fund's investment adviser to be of
equivalent quality. The Fund may invest up to 10% of its total assets in debt
securities rated below investment grade, with a minimum rating of B, by either
Standard & Poor's or Moody's or by another NRSRO, or, if unrated, deemed to be
of equivalent quality by the investment adviser. See "Medium and Lower-Rated
Securities" below. Under normal circumstances, the Fund intends to maintain
investments in at least three countries (including the United States). The Fund
will not normally invest in securities denominated in a particular currency,
including U.S. dollars, if immediately thereafter securities denominated in such
currency would exceed 40% of the Fund's total assets. For temporary defensive
purposes, the Fund may invest without limit in U.S. Treasury or other dollar
denominated securities or high-quality money market instruments, including
commercial paper of domestic and foreign corporations, certificates of deposit,
bankers' acceptances and other obligations of domestic and foreign banks and
short-term obligations issued or guaranteed by the U.S. Government, its
instrumentalities or agencies.
The Fund may invest up to 35% of its total assets in corporate securities
and other non-government securities and (subject to the Fund's maturity
limitations) in intermediate-term and long-term bank deposits in the United
States and in foreign countries denominated in U.S. dollars or in foreign
currencies. See "How the Fund Invests--Corporate and Other Non-Government Debt
Securities" below. The Fund may also engage in various strategies using
derivatives, including the use of options on securities and currencies and
futures contracts and options thereon. See "How the Fund Invests--Hedging and
Return Enhancement Strategies" below.
The Fund will maintain an average maturity of not more than ten years and,
in general, will not invest in securities with remaining maturities greater than
ten years. The average maturity of the Fund's portfolio will be actively managed
in light of market conditions and trends. Generally, when the investment adviser
expects interest rates to rise, the average maturity of the Fund's portfolio
will be shortened. Conversely, when the investment adviser expects interest
rates to fall, the average maturity of the Fund's portfolio will be lengthened.
The Fund is a "non-diversified" investment company and may invest more than
5% of its total assets in the securities of one or more issuers. However, the
Fund intends to limit its investments in the securities of any one
7
<PAGE>
issuer, except for securities issued or guaranteed as to payment of principal
and interest by any one government, supranational issuer, semi-government or
government agency, authority or instrumentality, to 5% of its total assets at
the time of purchase. Except for securities issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities, the Fund will not
invest 25% or more of its total assets at the time of purchase in the securities
of a central government or a supranational issuer and not more than 10% of its
total assets in securities of a semi-government or government agency, authority
or instrumentality. Investment in a non-diversified investment company involves
greater risk than investment in a diversified investment company because a loss
resulting from the default of a single issuer may represent a greater portion of
the total assets of a non-diversified portfolio.
U.S. Government Securities
The U.S. Government securities in which the Fund may invest include U.S.
Treasury securities, securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and mortgage-related securities issued by U.S.
Government agencies or instrumentalities.
U.S. Treasury Securities
The Fund may invest in U.S. Treasury securities, including Bills, Notes,
Bonds and other debt securities issued by the U.S. Treasury. These instruments
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. They differ primarily in their
interest rates, the lengths of their maturities and the dates of their
issuances.
Securities Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities
The Fund may invest in securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government, including, but not limited to,
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)
securities. Obligations of GNMA, the Farmers Home Administration and the
Export-Import Bank are backed by the "full faith and credit" of the United
States. In the case of securities not backed by the "full faith and credit" of
the United States, the Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment. Such securities include
obligations issued by the Student Loan Marketing Association (SLMA), FNMA and
FHLMC, each of which may borrow from the U.S. Treasury to meet its obligations,
although the U.S. Treasury is under no obligation to lend to such entities.
The Fund may invest in component parts of U.S. Government securities,
namely either the corpus (principal) of such obligations or one or more of the
interest payments scheduled to be paid on such obligations. These obligations
may take the form of (i) obligations from which the interest coupons have been
stripped; (ii) the interest coupons that are stripped; (iii) book-entries at a
Federal Reserve member bank representing ownership of obligation components; or
(iv) receipts evidencing the component parts (corpus or coupons) of U.S.
Government obligations that have not actually been stripped. Such receipts
evidence ownership of component parts of U.S. Government obligations (corpus or
coupons) purchased by a third party (typically an investment banking firm) and
held on behalf of the third party in physical or book-entry form by a major
commercial bank or trust company pursuant to a custody agreement with the third
party. The Fund may also invest in custodial receipts held by a third party that
are not U.S. Government securities. See "Investment Objectives and
Policies--Corporate and Other Non-Government Debt Securities" in the Statement
of Additional Information.
Mortgage-Related Securities Issued or Guaranteed by U.S. Government
Agencies and Instrumentalities
The Fund may invest in mortgage-backed securities and other derivative
mortgage products, including those representing an undivided ownership interest
in a pool of mortgages, e.g., GNMA, FNMA and FHLMC Certificates
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where the U.S. Government or its agencies or instrumentalities guarantees the
payment of interest and principal of these securities. However, these guarantees
do not extend to the securities' yield or value, which are likely to vary
inversely with fluctuations in interest rates, nor do these guarantees extend to
the yield or value of the Fund's shares. See "Investment Objective and
Policies--U.S. Government Securities" in the Statement of Additional
Information. These certificates are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal payments
from the mortgages underlying the certificate, net of certain fees.
In addition to GNMA, FNMA or FHLMC certificates through which the holder
receives a share of all interest and principal payments from the mortgages
underlying the certificate, the Fund may also invest in certain mortgage
pass-through securities issued by the U.S. Government or its agencies and
instrumentalities commonly referred to as mortgage-backed security strips or MBS
strips. MBS strips are usually structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of stripped mortgage security will have one class
receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yields to
maturity on IOs and POs are sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and principal
payments may have a material effect on yield to maturity. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may not fully recoup its initial investment in IOs. Conversely, if the
underlying mortgage assets experience less than anticipated prepayments of
principal, the yield on POs could be materially adversely affected.
The Fund will invest in both Adjustable Rate Mortgage Securities, which are
pass-through mortgage securities collateralized by adjustable rate mortgages,
and Fixed-Rate Mortgage Securities, which are collateralized by fixed-rate
mortgages. See "Investment Objective and Policies" in the Statement of
Additional Information. For purposes of the Fund's maturity limitation, the
maturity of a mortgage-backed security will be deemed to be equal to its
remaining maturity (i.e., the average maturity of the mortgages underlying such
security determined by the investment adviser on the basis of assumed prepayment
rates with respect to such mortgages).
Foreign Government Securities
"Foreign Government securities" include debt securities issued or
guaranteed, as to payment of principal and interest, by governments,
semi-governmental entities, governmental agencies, supranational entities and
other governmental entities (collectively, Government Entities). The Fund may
invest in the Foreign Government securities of developed countries and
developing or emerging market countries that the investment adviser believes to
be stable. Foreign Government securities may be denominated in U.S. dollars or
in foreign currencies.
A "supranational entity" is an entity constituted by the national
governments of several countries to promote economic development. Examples of
such supranational entities include, among others, the World Bank (International
Bank for Reconstruction and Development), the European Investment Bank and the
Asian Development Bank. Debt securities of "semi-governmental entities" are
issued by entities owned by a national, state, or equivalent government or are
obligations of a political unit that are not backed by the national government's
"full faith and credit" and general taxing powers. Examples of semi-government
issuers include, among others, the Province of Ontario and the City of
Stockholm. "Foreign Government securities" shall also include debt securities of
Government Entities denominated in European Currency Units. A European Currency
Unit represents specified amounts of the currencies of certain of the twelve
member states of the European Community. Foreign Government securities shall
also include mortgage-backed securities issued or guaranteed by foreign
Government Entities including semi-governmental entities and Brady Bonds, which
are long-term bonds issued by Government Entities in developing countries as
part of a restructuring of their commercial loans. See "Investment Objective and
Policies--Foreign Securities" in the Statement of Additional Information.
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Returns available from foreign currency denominated debt instruments can be
adversely affected by changes in exchange rates. The Fund's investment adviser
believes that the use of foreign currency hedging techniques, including
"cross-currency hedges" may assist, under certain conditions, in helping to
protect against declines in the U.S. dollar value of income available for
distribution to shareholders and declines in the net asset value of the Fund's
shares resulting from adverse changes in currency exchange rates. For example,
the return available from securities denominated in a particular foreign
currency would diminish in the event the value of the U.S. dollar increased
against such currency. Such a decline could be partially or completely offset by
an increase in value of a cross-currency hedge involving a forward exchange
contract to sell a different foreign currency, where such contract is available
on terms more advantageous to the Fund than a contract to sell the currency in
which the position being hedged is denominated. Cross-currency hedges can,
therefore, under certain conditions, provide protection of net asset value in
the event of a general rise in the U.S. dollar against foreign currencies.
However, there can be no assurance that the Fund will be able to engage in
cross-currency hedging or that foreign exchange rate relationships will be
sufficiently predictable to enable the investment adviser to employ
cross-currency hedging techniques successfully. A cross-currency hedge cannot
protect against exchange rate risks perfectly, and if the investment adviser is
incorrect in its judgment of future exchange rate relationships, the Fund could
be in a less advantageous position than if such a hedge had not been
established.
The Fund may invest without limitation in commercial paper and other
instruments which are indexed to certain specific foreign currency exchange
rates. The terms of such instruments provide that its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the exchange rate between two currencies while the obligation is
outstanding. The Fund will purchase such instruments with the currency in which
it is denominated and, at maturity, will receive interest and principal payments
thereon in that currency, but the amount of principal payable by the issuer at
maturity will change in proportion to the change (if any) in the exchange rate
between the two specified currencies between the date the instrument is issued
and the date the instrument matures. The Fund will establish a segregated
account with respect to its investments in this type of instrument and maintain
in such account cash or liquid high quality debt securities having a value at
least equal to the aggregate principal amount of outstanding instruments of this
type. While such instruments entail the risk of loss of principal, the potential
for realizing gains as a result of changes in foreign currency exchange rates
enables the Fund to hedge (or cross-hedge) against a decline in the U.S. dollar
value of investments denominated in foreign currencies while providing an
attractive money market rate of return.
Corporate and Other Non-Government Debt Securities
The Fund may invest in corporate and other non-government debt obligations
of domestic and foreign issuers including convertible securities and (subject to
the Fund's maturity limitations) in intermediate-term and long-term bank
deposits in the United States and in foreign countries denominated in U.S.
dollars or in foreign currencies. Issuers are not limited to the corporate form
of organization. Bonds and other debt securities are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest and must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest but are purchased at a
discount from their face values. The discount approximates the total amount of
interest the security will accrue and compound over the period until maturity or
the particular interest payment date at a rate of interest reflecting the market
rate of the security at the time of issuance.
Zero coupon securities do not require the periodic payment of interest.
These investments benefit the issuer by mitigating its need for cash to meet
debt service, but also require a higher rate of return to attract investors who
are willing to defer receipt of cash. These investments may experience greater
volatility in market value than securities that make regular payments of
interest. The Fund accrues income on these investments for tax and accounting
purposes, which is distributable to shareholders and which, because no cash is
received at the time of accrual, may require the
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liquidation of other portfolio securities to satisfy the Fund's distribution
obligations, in which case the Fund will forego the purchase of additional
income producing assets with these funds. Zero coupon securities include both
corporate and U.S. and foreign government securities. Pay-in-kind securities
have their interest payable upon maturity by delivery of additional securities.
Deferred payment securities are securities that remain a zero coupon security
until a predetermined date, at which time the stated coupon rate becomes
effective and interest payable at regular intervals. Certain debt securities are
subject to call provisions. Zero coupon, pay-in-kind and deferred payment
securities may be subject to greater fluctuation in value and lesser liquidity
in the event of adverse market conditions than comparable rated securities
paying cash interest at regular interest payment periods. See "Investment
Objective and Policies--Corporate and Other Non-Government Debt Securities" in
the Statement of Additional Information.
The Fund is permitted to invest in adjustable rate or floating rate debt
securities, including corporate securities and securities issued by U.S.
Government agencies, whose interest rate is calculated by reference to a
specified index such as the constant maturity Treasury rate, the T-bill rate or
LIBOR (London Interbank Offered Rate) and is reset periodically. Adjustable rate
securities allow the Fund to participate in increases in interest rates through
these periodic adjustments. The value of adjustable or floating rate securities
will, like other debt securities, generally vary inversely with changes in
prevailing interest rates. The value of adjustable or floating rate securities
is unlikely to rise in periods of declining interest rates to the same extent as
fixed rate instruments of similar maturities. In periods of rising interest
rates, changes in the coupon will lag behind changes in the market rate
resulting in a lower net asset value until the coupon resets to market rates.
RISK FACTORS
Risk Factors Relating to Foreign Investments
Investing in securities issued by foreign governments involves
considerations and possible risks not typically associated with investing in
obligations issued by the U.S. Government and domestic corporations. The values
of foreign investments are affected by changes in currency rates or exchange
control regulations, application of foreign tax laws, including withholding
taxes, changes in governmental administration or economic or monetary policy (in
this country or abroad) or changed circumstances in dealings between nations.
Costs are incurred in connection with conversions between various currencies. In
addition, foreign brokerage commissions are generally higher than in the United
States, and foreign securities markets may be less liquid, more volatile and
less subject to governmental supervision than in the United States. Investments
in foreign countries could be affected by other factors not present in the
United States, including expropriation, confiscatory taxation, lack of uniform
accounting and auditing standards and potential difficulties in enforcing
contractual obligations and could be subject to extended settlement periods.
The Fund will invest in Foreign Government securities denominated in
foreign currencies. A change in the value of any such currency against the U.S.
dollar will result in a corresponding change in the U.S. dollar value of the
Fund's assets denominated in that currency. These changes will also affect the
Fund's return, income and distributions to shareholders. In addition, although
the Fund will receive income in such currencies, the Fund will be required to
compute and distribute its income in U.S. dollars. Therefore, if the exchange
rate for any such currency decreases after the Fund's income has been accrued
and translated into U.S. dollars, the Fund could be required to liquidate
portfolio securities to make such distributions. Similarly, if an exchange rate
for any such currency decreases between the time the Fund incurs expenses in
U.S. dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars in order to pay such expenses in U.S.
dollars will be greater than the equivalent amount of such currency at the time
such expenses were incurred. Under the Internal Revenue Code of 1986, as amended
(the Internal Revenue Code), changes in an exchange rate which occur between the
time the Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities will result in foreign
exchange gains or losses that increase or decrease distributable net investment
income. Similarly, dispositions of certain debt securities (by sale, at
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maturity or otherwise) at a U.S. dollar amount that is higher or lower than the
Fund's original U.S. dollar cost may result in foreign exchange gains or losses,
which will increase or decrease distributable net investment income. The Fund
will invest only in foreign currency denominated Foreign Government securities
that are freely convertible into U.S. dollars without legal restriction at the
time of investment. Gains and losses on security and currency transactions
cannot be predicted. This fact coupled with the different tax and accounting
treatment of certain currency gains and losses increases the likelihood of
distributions in whole or in part constituting a return of capital to
shareholders.
The Fund's interest income from Foreign Government securities issued in
local markets may, in some cases, be subject to applicable withholding taxes
imposed by governments in such markets. The Fund may sell a foreign security it
owns prior to maturity in order to avoid foreign withholding taxes on dividend
and interest income and buy back the same security for a future settlement date.
Interest on Foreign Government securities is not generally subject to foreign
withholding taxes. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information.
Investing in the fixed-income markets of emerging market 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.
Medium and Lower-Rated Securities
The Fund may invest in medium grade securities (i.e., rated Baa by Moody's,
BBB by Standard & Poor's or by another NRSRO) and up to 10% of its total assets
in lower-rated securities (i.e., rated lower than Baa by Moody's, lower than BBB
by Standard & Poor's or by another NRSRO) or, in either case if unrated, deemed
to be of equivalent quality by the investment adviser. However, the Fund will
not purchase a security rated lower than B by Moody's or Standard & Poor's.
Securities rated Baa by Moody's or BBB by Standard & Poor's, although considered
investment grade, possess speculative characteristics, and changes in economic
or other conditions are more likely to impair the ability of issuers of these
securities to make interest and principal payments than is the case with respect
to issuers of higher-grade bonds.
Generally, lower-rated securities and unrated securities of comparable
quality, commonly referred to as junk bonds (i.e., securities rated lower than
Baa by Moody's or BBB by Standard & Poor's), offer a higher current yield than
is offered by higher-rated securities, but also (i) will likely have some
quality and protective characteristics that, in the judgment of the rating
organizations, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (ii) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. The market values of certain of these securities also
tend to be more sensitive to individual issuer developments and changes in
economic conditions than higher-quality bonds. In addition, medium and
lower-rated securities and comparable unrated securities generally present a
higher degree of credit risk. The risk of loss due to default by these issuers
is significantly greater because medium and lower-rated securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. The investment
adviser, under the supervision of the Manager and the Directors, in evaluating
the creditworthiness of an issuer whether rated or unrated, takes various
factors into consideration, which may include, as applicable, the issuer's
financial resources, its sensitivity to economic conditions and trends and
regulatory matters.
In addition, the market value of securities in lower-rated categories is
more volatile than that of higher-quality securities, and the markets in which
medium and lower-rated or unrated securities are traded are more limited than
those in which higher-rated securities are traded. The existence of limited
markets may make it more difficult for the Fund 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 securities for the Fund to purchase and may also have the effect
of limiting the ability of the Fund to sell securities at their fair value
either to meet redemption requests or to respond to changes in the economy or
the financial markets.
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Lower-rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower-yielding security, resulting in a
decreased return for investors. Also, as the principal value of bonds moves
inversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by the Fund may decline proportionately
more than a portfolio consisting of higher-rated securities. If the Fund
experiences unexpected net redemptions, it may be forced to sell its
higher-rated bonds, resulting in a decline in the overall credit quality of the
securities held by the Fund and increasing the exposure of the Fund to the risks
of lower-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.
Subsequent to its purchase by a Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require sale of these securities by the Fund, but
the investment adviser will consider this event in its determination of whether
the Fund should continue to hold the securities.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
The Fund may engage in various portfolio strategies, including derivatives,
to reduce certain risks of its investments and to attempt to enhance return, but
not for speculation. These strategies currently include the use of options,
forward currency exchange contracts and futures contracts and options thereon
(including interest rate futures contracts and currency futures contracts and
options thereon). The Fund's ability to use these strategies may be limited by
market conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed. See "Investment Objective
and Policies--Additional Investment Policies" in the Statement of Additional
Information. New financial products and risk management techniques continue to
be developed and the Fund may use these new investments and techniques to the
extent consistent with its investment objective and policies.
Options Transactions
The Fund may purchase and write (i.e., sell) put and call options on
securities and currencies that are traded on U.S. and foreign securities
exchanges or in the over-the-counter market to enhance return or to hedge its
portfolio investments. These options will be on debt securities, aggregates of
debt securities, financial indices, U.S. Government securities (listed on an
exchange and over-the-counter, i.e., purchased or sold through U.S. Government
securities dealers), Foreign Government securities and foreign currencies. The
Fund may write covered put and call options to generate additional income
through the receipt of premiums, purchase put options in an effort to protect
the value of a security that it owns against a decline in market value and
purchase call options in an effort to protect against an increase in price of
securities (or currencies) it intends to purchase. The Fund may also purchase
put and call options to offset previously written put and call options of the
same type. See "Additional Investment Policies--Options on Securities" in the
Statement of Additional Information.
A call option gives the purchaser, in exchange for a premium paid, the
right for a specified period of time to purchase the securities or currency
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 or a specified amount of cash to the
purchaser upon receipt of the exercise price. When the Fund writes a call
option, it gives up the potential for gain on the underlying securities or
currency in excess of the exercise price of the option during the period that
the option is open.
A put option gives the purchaser, in return for a premium, the right, for a
specified period of time, to sell the securities or currency 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 or currency underlying the option at the
exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
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The Fund will write only "covered" options. An option is covered if, so
long as the Fund is obligated under the option, it owns an offsetting position
in the underlying security or currency or maintains cash, U.S. Government
securities or other liquid high-grade debt obligations with a value sufficient
at all times to cover its obligations. See "Investment Objective and
Policies--Additional Investment Policies--Options on Securities--Additional
Risks of Options, Futures Contracts, Options on Futures Contracts and Forward
Contracts" in the Statement of Additional Information.
There is no limitation on the amount of covered call options the Fund may
write. The Fund may only write covered put options to the extent that cover for
such options does not exceed 25% of its net assets. The Fund will not purchase
put or call options on securities or currencies if, as a result thereof, their
value would exceed 5% of the Fund's net assets. The Fund will not purchase an
option if, as a result of such purchase, more than 20% of its total assets would
be invested in premiums for options and options on futures.
Forward Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts to
protect the value of its portfolio against future changes in the level of
currency exchange rates. The Fund may enter into such contracts on a spot, i.e.,
cash, basis at the rate then prevailing in the currency exchange market or on a
forward basis, by entering into a forward contract to purchase or sell currency.
A forward contract on foreign currency is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days agreed
upon by the parties from the date of the contract at a price set on the date of
the contract.
The Fund's dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in or convertible into that currency or in a different currency (cross
hedge). The Fund may also cross hedge its currency exposure under circumstances
where the investment adviser believes that the currency in which a security is
denominated may deteriorate against the dollar and that the possible loss in
value can be hedged, return can be enhanced and risks can be managed by entering
into forward contracts to sell the deteriorating currency and buy a currency
that is expected to appreciate in relation to the dollar. Although there are no
limits on the number of forward contracts which the Fund may enter into, the
Fund 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 forward currency) of the securities held in its portfolio denominated or
quoted in, or currently convertible into, such currency. If the Fund enters into
a position hedging transaction, the Fund's custodian or subcustodian will place
cash or U.S. Government securities or other high-grade debt obligations in a
segregated account of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of the given forward contract. If the
value of the securities placed in the segregated account declines, additional
cash or securities will be placed in the account so that the value of the
account will, at all times, equal the amount of the Fund's commitment with
respect to the forward contract. See "Investment Objective and
Policies--Additional Investment Policies--Forward Currency Exchange Contracts"
in the Statement of Additional Information.
The Fund will not enter into forward contracts to purchase or sell
currency if, as a result thereof, the cost of closing all such contracts exceeds
5% of the Fund's net assets.
Futures Contracts and Options Thereon
The Fund may purchase and sell financial futures contracts and options
thereon which are traded on a commodities exchange or board of trade for certain
hedging, return enhancement and risk management purposes in accordance with
regulations of the Commodity Futures Trading Commission. These futures contracts
and related
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options will be on debt securities, aggregates of debt securities, financial
indices, U.S. Government securities, Foreign Government securities, foreign
currencies and composite foreign currencies. A financial futures contract is an
agreement to purchase or sell an agreed amount of securities or currencies at a
set price for delivery in the future.
The Fund may not purchase or sell futures contracts and related options for
return enhancement or risk management purposes, if immediately thereafter the
sum of the amount of initial margin deposits on the Fund's existing futures and
options on futures and premiums paid for such related options would exceed 5% of
the market value of the Fund's total assets. The Fund may purchase and sell
futures contracts and related options without limitation, for bona fide hedging
purposes. The value of all futures contracts sold will not exceed the total
market value of the Fund's investments.
The Fund's successful use of futures contracts and related options depends
upon the investment adviser's ability to predict the direction of the market and
is subject to various additional risks. The correlation between movements in the
price of a futures contract 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 a specified futures contract,
resulting in losses to the Fund. 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 Fund's ability to purchase
or sell certain futures contracts or related options on any particular day.
The Fund's ability to enter into futures contracts and options thereon is
limited by the requirements of the Internal Revenue Code for qualification as a
regulated investment company. See "Investment Objective and Policies--Additional
Investment Policies--Futures Contracts--Options on Futures Contracts" and
"Taxes, Dividends and Distributions" in the Statement of Additional Information.
Risks of Hedging and Return Enhancement Strategies
Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transaction costs to which the Fund
would not be subject absent the use of these strategies. If the investment
adviser's prediction of movements in the direction of the securities, foreign
currency and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategies were not
used. Risks inherent in the use of options, foreign currency and futures
contracts and options on futures contracts and foreign currencies include
(1) dependence on the investment adviser's ability to predict correctly
movements in the direction of interest rates, securities prices and currency
markets; (2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; and (6) the possible inability of the Fund to purchase
or sell a portfolio security at a time that otherwise would be favorable for it
to do so, or the possible need for the Fund to sell a security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging techniques. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
Money Market Instruments
The Fund may invest in high quality money market instruments, including
commercial paper of a U.S. or non-U.S. company, foreign government securities,
certificates of deposit, bankers' acceptances and time deposits of domestic
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and foreign banks, and obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities. These obligations will be U.S. dollar
denominated or denominated in a foreign currency. Money market instruments
typically have a maturity of one year or less as measured from the date of
purchase.
Repurchase Agreements
The Fund will enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
Fund does not currently intend to invest in repurchase agreements whose maturity
exceed one year. The Fund's repurchase agreements will at all times be fully
collateralized in an amount at least equal to the purchase price of the
underlying securities (including accrued interest earned thereon). In the event
of a default or bankruptcy by a seller, the Fund will promptly seek to liquidate
the collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the Fund will suffer a loss. The Fund participates in a joint repurchase
account with other investment companies managed by Prudential Mutual Fund
Management, Inc. pursuant to an order of the SEC. See "Investment Objective and
Policies--Repurchase Agreements" in the Statement of Additional Information.
Illiquid Securities
The Fund may invest up to 15% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act), and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
The Fund intends to comply with any applicable state blue sky laws restricting
the Fund's investments in illiquid securities. See "Investment Restrictions" in
the Statement of Additional Information. The investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. Repurchase agreements subject to demand are deemed to have a maturity
equal to the applicable notice period.
The staff of the SEC has taken the position that purchased OTC options and
the assets used as "cover" for written OTC options are illiquid securities
unless the Fund and the counterparty have provided for the Fund, at its
election, to unwind the OTC option. The exercise of such an option ordinarily
would involve the payment by the Fund of an amount designed to reflect the
counterparty's economic loss from an early termination but does allow the Fund
to treat the assets used as "cover" as liquid. See "Investment Objective and
Policies--Illiquid Securities" in the Statement of Additional Information.
The Fund 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.
When-Issued and Delayed Delivery Securities
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place a month or more in the future in order to secure what is considered to be
an advantageous price and yield to the Fund at the time of entering into the
transaction. While the Fund will only purchase securities on a when-issued or
delayed delivery basis with the intention of acquiring the securities, the Fund
may sell the securities before the settlement date, if it is deemed advisable.
At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in determining the net
asset value of the Fund. At the time of delivery of the securities, the value
may be more or less than
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the purchase price. The Fund's custodian will maintain, in a segregated account
of the Fund, cash, U.S. Government securities or other liquid high-grade debt
obligations having a value equal to or greater than the Fund's purchase
commitments; the Custodian will likewise segregate securities sold on a delayed
delivery basis. Subject to this requirement, the Fund may purchase securities on
such basis without limit. See "Investment Objective and Policies--When-Issued
and Delayed Delivery Securities" in the Statement of Additional Information.
Borrowing
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated at the time of the borrowing) from banks for temporary,
extraordinary or emergency purposes, for the clearance of transactions or for
investment purposes. The Fund may pledge up to 20% of its total assets to secure
these borrowings. If the Fund's asset coverage for borrowing falls below 300%,
the Fund will take prompt action to reduce its borrowings. If the 300% asset
coverage should decline as a result of market fluctuations or other reasons, the
Fund may be required to sell portfolio securities to reduce the debt and restore
the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. Such liquidations could
cause the Fund to realize gains on securities held for less than three months.
Because no more than 30% of the Fund's gross income may be derived from the sale
or disposition of securities held for less than three months to maintain the
Fund's status as a regulated investment company under the Internal Revenue Code,
such gains would limit the ability of the Fund to sell other securities held for
less than three months that the Fund might wish to sell. See "Taxes, Dividends
and Distributions" in the Statement of Additional Information.
Borrowing for investment purposes is generally known as "leveraging."
Leveraging exaggerates the effect on net asset value of any increase or decrease
in the market value of the Fund's portfolio. Money borrowed for leveraging will
be subject to interest costs which may or may not be recovered by appreciation
of the securities purchased and may exceed the income from the securities
purchased. In addition, the Fund may be required to maintain minimum average
balances in connection with such borrowing or pay a commitment fee to maintain a
line of credit, which would increase the cost of borrowing over the stated
interest rate.
Portfolio Turnover
As a result of the Fund's investment policies, its portfolio turnover rate
may exceed 100%, although the rate is not expected to exceed 250%. High
portfolio turnover (over 100%) may involve correspondingly greater brokerage
commissions (or mark-ups) and other transaction rates, which will be borne
directly by the Fund. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information. In addition, high portfolio turnover may
result in increased short-term capital gains, which, when distributed to
shareholders, are treated as ordinary income. See "Taxes, Dividends and
Distributions."
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
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HOW THE FUND IS MANAGED
The Fund has a Board of Directors which, in addition to overseeing the
actions of the Fund's Manager, Subadviser and Distributor, as set forth below,
decide upon matters of general policy. The Fund's Manager conducts and
supervises the daily business operations of the Fund. The Fund's Subadviser
furnishes daily investment advisory services.
For the fiscal year ended December 31, 1994, the Fund's total expenses as a
percentage of average net assets was 1.04%. See "Financial Highlights." During
this period the Fund operated as a closed-end investment company.
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, is the Manager of the Fund and is compensated
for its services at an annual rate of .75 of 1% of the Fund's average daily net
assets up to $500 million, .70 of 1% of such assets between $500 million and $1
billion and .65 of 1% of such assets in excess of $1 billion. It was
incorporated in May 1987 under the laws of the State of Delaware. For the fiscal
year ended December 31, 1994, the Fund paid management fees to PMF of .74% of
the Fund's average net assets. See "Manager" in the Statement of Additional
Information.
As of November 30, 1995, PMF served as the manager of [37] open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator to [27] closed-end investment companies. These
companies have aggregate assets of approximately $[50] billion.
Under the Management Agreement with the Fund, PMF manages the investment
operations of the Fund and also administers the Fund's corporate affairs. See
"Manager" in the Statement of Additional Information.
Under a Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), a wholly-owned subsidiary of Prudential,
PIC furnishes investment advisory services in connection with the management of
the Fund and is reimbursed by PMF for its reasonable costs and expenses incurred
in providing such services. PMF continues to have responsibility for all
investment advisory services pursuant to the Management Agreement and supervises
PIC's performance of such services.
The Fund is managed by J. Gabriel Irwin and Simon Wells, who head a Global
Fixed Income Group of PIC. As a team, they have responsibility for the
day-to-day management of the Funds' portfolios. Messrs. Irwin and Wells have
been employed by PIC and Prudential-Bache Securities (U.K.) Inc. since April
1995. Messrs. Irwin and Wells were previously employed by Smith Barney Global
Capital Management Inc., where they worked together as Directors and senior
members of the Investment Policy Committee and managed approximately $1.5
billion in institutional and mutual fund assets. Messrs. Irwin and Wells also
serve as the portfolio managers of Prudential Intermediate Global Income Fund,
Inc. and The Global Government Plus Fund, Inc.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, is a corporation organized under the
laws of the State of Delaware and serves as the distributor of the Fund's
shares. It is an indirect, wholly-owned subsidiary of Prudential.
Under separate Distribution and Service Plans the Class A Plan, the Class B
Plan and the Class C Plan, (collectively, the Plans) adopted by the Fund under
Rule 12b-1 under the Investment Company Act and a distribution
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<PAGE>
agreement (the Distribution Agreement), Prudential Securities (the Distributor)
incurs the expenses of distributing the Fund's Class A, Class B and Class C
shares. 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. The State of Texas requires that shares of the Fund may be sold in
that state only by dealers or other financial institutions which are registered
there as broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
Under the Class A Plan, the Fund may pay Prudential Securities for its
distribution-related activities with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net asset value 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. Prudential Securities has
agreed to limit its distribution related fees payable under the Class A Plan to
.15 of 1% of the average daily net assets of the Class A shares for the fiscal
year ending December 31, 1996.
Under the Class B and Class C Plans, the Fund may pay Prudential Securities
for its distribution-related activities with respect to Class B and Class C
shares at an annual rate of up to 1% of the average daily net assets of the
Class B and Class C shares, respectively. The Class B and Class C Plans provide
for the payment to Prudential Securities of (i) an asset-based sales charge of
up to .75 of 1% of the average daily net assets of the Class B and Class C
shares, and (ii) a service fee of up to .25 of 1% of the average daily net
assets of the Class B and Class C shares; provided that the total
distribution-related fee does not exceed .75 of 1%. The service fee is used to
pay for personal service and/or the maintenance of shareholder accounts.
Prudential Securities has agreed to limit its distribution-related fees payable
under the Class B and Class C Plans to .75 of 1% of the average daily net assets
of the Class C shares for the fiscal year ending December 31, 1996. Prudential
Securities also receives contingent deferred sales charges from certain
redeeming shareholders. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges."
The Fund records all payments made under the Plans as expenses in the
calculation of net investment income. See "Distributor" in the Statement of
Additional Information.
Distribution expenses attributable to the sale of shares of the Fund will
be allocated to each class based upon the ratio of sales of each class to the
sales of all shares of the Fund other than expenses allocable to a particular
class. The distribution fee and initial 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 Fund.
The Fund will not be obligated to pay expenses incurred under any plan if it is
terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to dealers and other persons which
distribute
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<PAGE>
shares of the Fund. Such payments 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. (the NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the allegations
asserted against it, PSI consented to the entry of an SEC Administrative Order
which stated that PSI's conduct violated the federal securities laws, directed
PSI to cease and desist from violating the federal securities laws, pay civil
penalties, and adopt certain remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The 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
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker and/or futures commission
merchant for the Fund 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.
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<PAGE>
Prudential Mutual Fund Services, Inc., (PMFS) Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
The Fund's net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. The
Board of Directors has fixed the specific time of day for the computation of the
Fund's NAV to be as of 4:15 P.M., New York time.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
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. As long as the Fund declares dividends daily, the net asset
value of Class A, Class B and Class C shares will generally be the same. It is
expected, however, that the dividends will differ by approximately the amount of
the distribution-related expense accrual differential among the classes.
HOW THE FUND CALCULATES PERFORMANCE
From time to time the Fund may advertise its "yield" and "total return"
(including "average annual" total return and "aggregate" total return) in
advertisements or sales literature. Yield and total return are calculated
separately for Class A, Class B and Class C shares. These figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" refers to the income generated by an investment in the Fund over a
one-month or 30-day period. This income is then "annualized" that is, the amount
of income generated by the investment during that 30-day period is assumed to be
generated each 30-day period for twelve periods and is shown as a percentage of
the investment. The income earned on the investment is also assumed to be
reinvested at the end of the sixth 30-day period. The "total return" shows how
much an investment in the Fund would have increased (decreased) over a specified
period of time (i.e., one, five or ten years or since inception of the Fund)
assuming that all distributions and dividends by the Fund 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 smooths 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 Fund also may
include
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<PAGE>
comparative performance information in advertising or marketing the Fund's
shares. Such performance information may include data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., other industry publications,
business periodicals and market indices. See "Performance Information" in the
Statement of Additional Information. The Fund will include performance data for
each class of shares of the Fund in any advertisement or information including
performance data for the Fund. Further performance information is contained in
the Fund's annual and semi-annual reports to shareholders, which may be obtained
without charge. See "Shareholder Guide--Shareholder Services--Reports to
Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
Taxation of the Fund
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code. Accordingly, the
Fund will not be subject to federal income taxes on its net investment income
and capital gains, if any, that it distributes to its shareholders.
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition also are
treated as ordinary gain or loss. These gains or losses increase or decrease the
amount of the Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If currency losses exceed
other investment company taxable income during a taxable year, distributions
made by the Fund during the year would be a return of capital to you, reducing
your basis in your Fund shares.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. Certain of these taxes may be credited to shareholders. The
Fund may be permitted to "pass through" to shareholders the right to take
credits against federal income taxes or deductions in respect of foreign taxes
paid by the Fund. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information.
In addition, under the Internal Revenue Code, special rules apply to the
treatment of certain options and futures contracts (Section 1256 contracts). At
the end of each fiscal year and at October 31 of such fiscal year, such
investments held by the Fund will be required to be "marked to market" for
federal income tax purposes; that is, treated as having been sold at market
value. Sixty percent of any gain or loss recognized on these "deemed sales" and
on actual dispositions may be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
Taxation of Shareholders. Any dividends out of net taxable investment
income, together with distributions of short-term 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. Certain gains or losses from fluctuations in exchange rates
(Section 988 gains or losses) will affect the amount of ordinary income the Fund
will be able to pay as dividends. See "Taxes, Dividends and Distributions" in
the Statement of Additional Information. Any net capital gains (i.e., the excess
of net long-term capital gains over net short-term capital losses) distributed
to shareholders will be taxable as long-term capital gains to the shareholders,
whether or not reinvested and regardless of the length of time a shareholder has
owned his or her shares.
The Fund has obtained opinions of counsel to the effect that neither (i)
the conversion of Class B shares into Class A shares nor (ii) the exchange of
Class B or Class C shares for Class A shares constitutes a taxable event for
federal income tax purposes. However, such opinions are not binding on the
Internal Revenue Service.
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<PAGE>
Withholding Taxes. Under U.S. Treasury Regulations, the Fund is required to
withhold and remit to the U.S. Treasury 31% of taxable dividends, capital gain
income and redemption proceeds on the accounts of those shareholders who fail to
furnish their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the
case of certain foreign shareholders) with the required certifications regarding
the shareholder's status under the federal income tax law. However, dividends of
net investment income and 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).
Dividends and Distributions
The Fund expects to declare daily and pay monthly dividends of net
investment income and make distributions at least annually of any net capital
and currency gains. The per share dividends on Class B and Class C shares will
be lower than the per share dividends on Class A shares as a result of the
higher distribution fee applicable with respect to Class B and Class C shares.
Distributions of capital gains will be in the same amount for each class of
shares. See "How the Fund Values Its Shares."
Dividends and distributions will be paid in additional Fund shares, based
on the NAV of each class on the payment date and 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 payment date to receive
such dividends and distributions in cash. Such election should be submitted to
Prudential Mutual Fund Services, Inc., Attention: Account Maintenance, P.O. Box
15015, New Brunswick, New Jersey 08906-5015. The Fund will notify each
shareholder after the close of the Fund's taxable year of both 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. To
the extent that, in a given year, distributions to shareholders exceed
recognized net investment income and recognized short-term and long-term capital
gains for the year, shareholders will receive a return of capital in respect of
such year and, in an annual statement, will be notified of the amount of any
return of capital for such year.
As of December 31, 1994, the Fund had a capital loss carryforward for
federal income tax purposes of approximately $32,431,000. Accordingly, no
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of such carryforward amount.
When the Fund goes "ex-dividend," its NAV is reduced by the amount of the
dividend or distribution. If you buy shares just prior to the ex-dividend date
(which generally occurs two business days prior to the record date) for a
capital gain distribution, the price you pay will include the distribution. Such
distributions, although in effect a return of invested principal, are subject to
federal income taxes. Accordingly, prior to purchasing shares of the Fund, an
investor should carefully consider the impact of capital gains distributions
which are expected to be or have been announced.
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.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on May 6, 1986 under the name "The
Global Yield Fund, Inc." as a closed-end, non-diversified, management investment
company. The Fund operated as a closed-end fund prior to
23
<PAGE>
December , 1995. On December 6, 1995, shareholders approved open-ending the
Fund and the Fund has operated as an open-end fund since December , 1995.
The Fund is authorized to issue 2 billion shares of common stock, $.01 par value
per share, divided into three classes, designated Class A, Class B and Class C
common stock, consisting of 1 billion Class A shares, 500 million Class B shares
and 500 million Class C shares. Each class of common stock represents an
interest in the same assets of the Fund and is identical in all respects
except that (i) each class bears different distribution expenses, (ii) each
class has exclusive voting rights with respect to its distribution and service
plan (except that the Fund has agreed with the SEC in connection with the
offering of a conversion feature on Class B shares to submit any amendment of
the Class A Plan to both Class A and Class B shareholders), (iii) each class has
a different exchange privilege and (iv) only Class B shares have a conversion
feature. See "How the Fund is Managed--Distributor." The Fund has received an
order from the SEC permitting the issuance and sale of multiple classes of
common stock. Currently, the Fund is offering three classes designated as Class
A, Class B and Class C shares. In accordance with the Fund's Articles of
Incorporation, the Board of Directors may authorize the creation of additional
series of common stock and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Board of Directors
may determine.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class 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 the Fund
is entitled to its portion of all of the Fund's assets after all debt and
expenses of the Fund have been paid. Since Class B and Class C shares generally
bear higher distribution expenses than Class A shares, the liquidation proceeds
to shareholders of those classes are likely to be lower than to Class A
shareholders. 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 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 of the Fund 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 of 1933. 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.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
You may purchase shares of the Fund through Prudential Securities, Prusec
or directly from the Fund, through its Transfer Agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), Attention: Investment
24
<PAGE>
Services, P.O. Box 15020, New Brunswick, New Jersey 08906-5020. In addition,
Class A shares may be purchased through a dealer which has entered into a
selected dealer agreement with the Fund's Distributor. The minimum initial
investment for Class A and Class B shares is $1,000 per class and $5,000 for
Class C shares. The minimum subsequent investment is $100 for all classes. All
minimum investment requirements are waived for certain retirement and employee
savings plans or custodial accounts for the benefit of minors. For purchases
made through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment is $50. The minimum initial investment requirement is
waived for purchases of Class A shares effected through an exchange of Class B
shares of The BlackRock Government Income Trust. See "Shareholder Services"
below.
The purchase price is the NAV next determined following receipt of an order
by the Transfer Agent or Prudential Securities plus a sales charge which, at
your option, may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). See "Alternative
Purchase Plan" and "How the Fund Values its Shares."
Application forms can be obtained from PMFS, Prudential Securities, Prusec
or a selected dealer (Class A only). 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 share certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
Purchase by Wire. For an initial purchase of shares of the Fund 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, 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, Boston,
Massachusetts, Custody and Shareholder Services Division, Attention: The Global
Total Return Fund, Inc., specifying on the wire the account number assigned by
PMFS and your name and identifying the sales charge alternative (Class A, Class
B or Class C shares).
If you arrange for receipt by State Street Bank and Trust Company of
Federal Funds prior to 4:15 P.M., New York time, on a business day, you may
purchase shares of the Fund as of that day.
In making a subsequent purchase order by wire, you should wire State Street
Bank and Trust Company directly and should be sure that the wire specifies The
Global Total Return Fund, Inc., Class A, Class B or Class C shares and your name
and individual account number. It is not necessary to call PMFS to make
subsequent purchase orders utilizing Federal Funds. The minimum amount which may
be invested by wire is $1,000.
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<PAGE>
ALTERNATIVE PURCHASE PLAN
The Fund offers three classes of shares (Class A, Class B and Class C
shares) which allows 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 4% .30 of 1% (currently Initial sales charge waived or reduced
of the public offering price being charged at a rate for certain purchases
of .15 of 1%)
Class B Maximum contingent deferred sales 1% (currently being Shares convert to Class A shares
charge or CDSC of 5% of the lesser charged at a rate of approximately seven years after
of the amount invested or the .75 of 1%) purchase
redemption proceeds; declines to
zero after six years
Class C Maximum CDSC of 1% of the lesser 1% (currently being Shares do not convert to another class
of the amount invested or the charged at a rate of
redemption proceeds on .75 of 1%)
redemptions made within one
year of purchase
</TABLE>
The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except as
noted under the heading "General Information--Description of Common Stock"), and
(iii) only Class B shares have a conversion feature. The three classes also have
separate exchange privileges. 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 of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C 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) the fact 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 Fund:
If you intend to hold your investment in the Fund 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 4% 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.
26
<PAGE>
If you intend to hold your investment for more than 6 years, you should
consider purchasing Class A shares over either Class B or Class C shares
regardless of whether or not you qualify for a reduced sales charge on Class A
shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fees on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fee on
the investment, fluctuations in net asset value, the effect of the return on the
investment over the period of time or redemptions during which the CDSC is
applicable.
All purchases of $1 million or more, either as part of a single investment
or under Rights of Accumulation or Letters of Intent, must be for Class A
shares. See "Reduction and Waiver of Initial Sales Charges" below.
Class A Shares
The offering price is the NAV per share next determined following receipt
of an order by the Transfer Agent or Prudential Securities plus a sales charge
(expressed as a percentage of the offering price and of the amount invested) as
shown in the following table:
<TABLE>
<CAPTION>
Sales Charge as Sales Charge as Dealer Concession as
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- ------------------ ---------------- --------------- --------------------
<S> <C> <C> <C>
Less than $50,000 4.00% 4.17% 3.75%
$50,000 to $99,999 3.50% 3.63% 3.25%
$100,000 to $249,999 2.75% 2.83% 2.50%
$250,000 to $499,999 2.00% 2.04% 1.90%
$500,000 to $999,999 1.50% 1.52% 1.40%
$1,000,000 and above None None None
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is defined
under the Federal securities laws.
Reduction and Waiver of Initial Sales Charges. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund 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 Fund
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 under Sections 457 and 403(b)(7) of the Internal
Revenue Code (Benefit Plans), provided that the 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
1,000 eligible employees or participants. In the case of Benefit Plans whose
accounts are held directly with the Transfer Agent or Prudential
27
<PAGE>
Securities and for which the Transfer Agent or Prudential Securities does
individual account record keeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by PSI or its subsidiaries (PSI or Subsidiary Prototype Benefit
Plans), Class A shares may be purchased at NAV by participants who are repaying
loans made from such plans to the participant.
PruArray Plans. Class A shares may be purchased at NAV by certain
retirement and deferred compensation plans, qualified or non-qualified under the
Internal Revenue Code of 1986, as amended, (the Code), including pension,
profit-sharing, stock-bonus or other employee benefit plans under Section 401 of
the Code and deferred compensation and annuity plans under Sections 457 and
403(b)(7) of the Code that participate in the Transfer Agent's PruArray Program
(a benefit plan record keeping service) (hereafter referred to as a PruArray
Plan); provided (i) that the plan has at least $1 million in existing assets or
1,000 eligible employees or participants and (ii) that Prudential Mutual Funds
constitute at least one-half of the plan's investment options. The term
"existing assets" for this purpose includes stock issued by a PruArray Plan
sponsor and shares of non-money market Prudential Mutual Funds and shares of
certain unaffiliated non-money market mutual funds that participate in the
PruArray Program (Participating Funds). "Existing assets" also include shares of
money market funds acquired by exchange from a Participating Fund.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or a
PruArray 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) Directors and officers of the Fund and other Prudential Mutual Funds,
(b)employees of Prudential Securities and PMF and their subsidiaries and members
of the families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees and special agents of
Prudential and its subsidiaries and all persons who have retired directly from
active service with Prudential or one of its subsidiaries, (d) registered
representatives and employees of dealers who have entered into a selected dealer
agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer and (e) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares of
any open-end, non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or service fee
of .25 of 1% or less) and (iii) the financial adviser served as the client's
broker on the previous purchases.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Fund 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 alternatives is the NAV next determined following receipt
of an order by the Transfer Agent or Prudential Securities. Although there is no
sales charge imposed at the time of purchase, redemptions of Class B and Class C
shares may be subject to a CDSC. See "How to Sell Your Shares--Contingent
Deferred Sales Charges."
HOW TO SELL YOUR SHARES
You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form by the Transfer Agent or
Prudential Securities. See "How the Fund Values Its Shares." In
28
<PAGE>
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.
A 2% redemption fee will be imposed on redemptions of Class A shares
acquired prior to December , 1995 (including shares thereafter acquired
pursuant to the automatic reinvestment of dividends and distributions with
respect to those shares) until June , 1996. The redemption fee will be
retained by the Fund.
If you hold shares of the Fund through Prudential Securities, you must
redeem your shares by contacting your Prudential Securities financial adviser.
If you hold shares in non-certificate form, a written request for redemption
signed by you exactly as the account is registered is required. If you hold
certificates, the certificates, signed in the name(s) shown on the face of the
certificates, must be received by the Transfer Agent in order for the redemption
request to be processed. If redemption is requested by a corporation,
partnership, trust or fiduciary, written evidence of authority acceptable to the
Transfer Agent must be submitted before such request will be accepted. All
correspondence and documents concerning redemptions should be sent to the Fund
in care of its Transfer Agent, Prudential Mutual Fund Services, Inc., Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves this right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Prudential Preferred Financial Services Offices.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent of the certificate and/or written
request, except as indicated below. If you hold shares through Prudential
Securities, payment for shares presented for redemption will be credited to your
Prudential Securities account, unless you indicate otherwise. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays,
(b) when trading on such Exchange is restricted, (c) when an emergency exists as
a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or (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 Fund or its Transfer Agent has been advised that the purchase check has been
honored, up to 10 calendar days from the time of receipt of the purchase check
by the Transfer Agent. Such delay may be avoided by purchasing shares by wire or
by certified or official bank checks.
Redemption In Kind. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable (i.e., U.S. Government securities
or securities listed on a national exchange) and will be valued in the same
manner as in a regular redemption. See "How the Fund Values its Shares." If your
shares are redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Fund, however, has elected to be governed by Rule 18f-1
under the Investment Company Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for any one shareholder.
29
<PAGE>
Involuntary Redemption. In order to reduce expenses of the Fund, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No contingent deferred sales charge
will be imposed on any such involuntary redemption.
90-day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. No sales charge will apply to such repurchases. You will
receive pro rata credit for any CDSC paid in connection with the redemption of
Class B or Class C shares. You must notify the Fund's Transfer Agent, either
directly or through Prudential Securities or Prusec, at the time the repurchase
privilege is exercised that you are entitled to credit for the CDSC previously
paid. Exercise of the repurchase privilege will generally not affect federal tax
treatment of any gain realized upon redemption. If the redemption resulted in a
loss, some or all of the loss, depending on the amount reinvested, will
generally not be allowed for federal income tax purposes.
Contingent Deferred Sales Charges
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid to
you. The CDSC will be imposed on any redemption by you which reduces the current
value of your 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 CDSC will be paid to and retained by the Distributor. See "How the Fund
is Managed--Distributor" 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 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." The following table sets forth the rates of the CDSC
applicable to redemptions of Class B shares:
Contingent Deferred Sales Charge
Year Since Purchase as a Percentage of Dollars Invested
Payment Made or 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
30
<PAGE>
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 Fund shares made during the preceding six years; then of
amounts representing the cost of shares held beyond the applicable CDSC period;
and finally, of amounts representing the cost of shares held for the longest
period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the net
asset value 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 be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC was
not previously deducted will thereafter be subject to a CDSC without regard to
the time such amounts were previously invested. In the case of a 401(k) plan,
the CDSC will also be waived upon the redemption of shares purchased with
amounts used to repay loans made from the account to the participant and from
which a CDSC was previously deducted.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
You must notify the Fund's 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
Fund Shares--Waiver of the Contingent Deferred Sales Charge--Class B Shares" in
the Statement of Additional Information.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
Since the Fund 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
31
<PAGE>
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 then 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 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, and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code and
(ii) that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
As a shareholder of the Fund you have an exchange privilege with certain
other Prudential Mutual Funds, including one or more specified money market
funds, subject to the minimum investment requirements of such funds. Class A,
Class B and Class C shares may be exchanged for Class A, Class B and Class C
shares, respectively, of another fund on the basis of the relative NAV, except
that Class A shares acquired prior to December __, 1995 (including shares
thereafter acquired pursuant to the automatic reinvestment of dividends and
distributions with respect to those shares) may not be exchanged for Class A
shares of other Prudential Mutual Funds until June __, 1996, when the redemption
fee period expires. See "How to Sell Your Shares" above. No sales charge will be
imposed at the time of the exchange. Any applicable CDSC payable upon the
redemption of shares exchanged will be that imposed by the Fund in which shares
were initially purchased and 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
32
<PAGE>
exchanged into money market funds other than Prudential Special Money Market
Fund. For purposes of calculating the holding period applicable to the Class B
conversion feature, the time period during which Class B shares were held in a
money market fund will be excluded. See "Conversion Feature--Class B Shares"
above. An exchange will be treated as a redemption and purchase for tax
purposes. See "Shareholder Investment Account--Exchange Privilege" in the
Statement of Additional Information.
In order to exchange shares by telephone, you must authorize the telephone
exchange privilege on your initial application form or by written notice to the
Transfer Agent and hold shares in non-certificate form. Thereafter, you may call
the Fund at (800) 225-1852 to execute a telephone exchange of shares, on
weekdays, except holidays, between the hours of 8:00 a.m. and 6:00 p.m., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. Neither the Fund nor its agents will be liable for any loss,
liability or cost which results from acting upon instructions reasonably
believed to be genuine under the foregoing procedures. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after the
request is received in good order. The exchange privilege is available only in
states where the exchange may legally be made.
If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.
If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates, must be returned in order for the shares to be
exchanged. See "How to Sell Your Shares" above.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange
of shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services, Inc., at the address noted above.
Special Exchange Privilege. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. See "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above. Under this exchange privilege, amounts representing any Class B and Class
C shares (which are not subject to a CDSC) held in such a shareholder's account
will be automatically exchanged for Class A shares on a quarterly basis, unless
the shareholder elects otherwise. 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.
The exchange privilege may be modified or terminated at any time on 60
days' notice to shareholders.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you
can take advantage of the following additional services and privileges.
o Automatic Reinvestment of Dividends and/or Distributions Without a Sales
Charge. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund 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
33
<PAGE>
subsequent dividends and/or distributions sent in cash rather than reinvested.
If you hold shares through Prudential Securities you should contact your
financial adviser.
o Automatic Savings Accumulation Plan (ASAP). Under ASAP you may make
regular purchases of the Fund's 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.
o 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 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 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.
o 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."
o Reports to Shareholders. The Fund will send to you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual 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 Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
are available upon request from the Fund.
o Shareholder Inquiries. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
34
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITY RATINGS
Moody's lnvestors Service
Aaa: Bonds which are rated Aaa are judged to be of 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 such issues.
Aa: Bonds which are 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 Aaa 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 which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are 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 which are 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 which are 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.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company 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 company ranks in the
lower end of its generic rating category.
Caa: Bonds which are 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 which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are 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.
Short-Term Debt Ratings
Moody's Short-Term Debt Ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year.
P-1: Issues rated "Prime-1" or "P-1" (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
P-2: Issues rated "Prime-2" or "P-2" (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations.
A-1
<PAGE>
Standard & Poor's Ratings Group
Debt Ratings
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits 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
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC: Debt rated BB, B, CCC and CC is 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 indicates the least
degree of speculation and CC the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties of major risk exposures to adverse conditions.
Commercial Paper Ratings
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debt considered short-term in the relevant
market.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with the designation A-2 is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-2
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fund at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential Government Income Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global Funds
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Global Assets Portfolio
Limited Maturity Portfolio
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Global Utility Fund, Inc.
Equity Funds
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential Jennison Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
o Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
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
[Liquid Assets 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
----
FUND HIGHLIGHTS ........................................................... 2
Risk Factors and Special Characteristics ................................. 2
FUND EXPENSES ............................................................. 5
FINANCIAL HIGHLIGHTS ...................................................... 6
HOW THE FUND INVESTS ...................................................... 7
Investment Objective and Policies ........................................ 7
Risk Factors ............................................................. 11
Hedging and Return Enhancement Strategies ................................ 13
Other Investments and Policies ........................................... 15
Investment Restrictions .................................................. 17
HOW THE FUND IS MANAGED ................................................... 18
Manager .................................................................. 18
Distributor .............................................................. 18
Portfolio Transactions ................................................... 20
Custodian and Transfer and
Dividend Disbursing Agent ............................................... 20
HOW THE FUND VALUES ITS SHARES ............................................ 21
HOW THE FUND CALCULATES PERFORMANCE ....................................... 21
TAXES, DIVIDENDS AND DISTRIBUTIONS ........................................ 22
GENERAL INFORMATION ....................................................... 23
Description of Common Stock .............................................. 23
Additional Information ................................................... 24
SHAREHOLDER GUIDE ......................................................... 24
How to Buy Shares of the Fund ............................................ 24
Alternative Purchase Plan ................................................ 26
How to Sell Your Shares .................................................. 28
Conversion Feature--Class B Shares ....................................... 31
How to Exchange Your Shares .............................................. 32
Shareholder Services ..................................................... 33
DESCRIPTION OF SECURITY RATINGS ........................................... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY ......................................... B-1
- --------------------------------------------------------------------------------
MF A
- --------------------------------------------------------------------------------
CUSIP Nos.: Class A:
Class B:
Class C:
- --------------------------------------------------------------------------------
The Global
Total Return
Fund, Inc.
-------------------------
Prudential Mutual Funds
BUILDING YOUR FUTURE [logo]
ON OUR STRENGTH(SM)
P
R
O
S
P
E
C
T
U
S
December , 1995
<PAGE>
THE GLOBAL TOTAL RETURN FUND, INC.
Statement of Additional Information
dated December , 1995
The Global Total Return Fund, Inc. (the Fund) is an open-end,
non-diversified management investment company, or a mutual fund, whose
investment objective is to seek total return, the components of which are
current income and capital appreciation. The Fund will seek to achieve this
objective by investing, under normal circumstances, at least 65% of its total
assets in governmental (including supranational), semi-governmental or
government agency securities or in short-term bank securities or deposits in the
United States and in foreign countries denominated in U.S. dollars or in foreign
currencies. The remainder is generally invested in corporate securities or
longer term bank securities. The Fund may also purchase and sell certain
derivatives, including put and call options on U.S. Government securities and
Foreign Government securities and engage in transactions involving futures
contracts and options on such futures with respect to U.S. Government securities
and Foreign Government securities. There can be no assurance that the Fund's
investment objective will be achieved. Investing in Foreign Government
securities, options and futures contracts involves considerations and possible
risks which are different from those ordinarily associated with investing in
U.S. Government securities.
The Fund's investment objective and policies are described in the Fund's
Prospectus. This statement contains additional information about those policies.
The Fund is also subject to certain investment restrictions. See "Investment
Restrictions" below.
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should
only be read in conjunction with the Fund's Prospectus, dated December , 1995, 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
---- ---------------
General Information ................................. B-2 23
Investment Objective and Policies ................... B-2 7
Additional Investment Policies ...................... B-5 9
Investment Restrictions ............................. B-15 17
Directors and Officers .............................. B-17 18
Manager ............................................. B-19 18
Distributor ......................................... B-21 18
Portfolio Transactions and Brokerage ................ B-23 20
Purchase and Redemption of Fund Shares .............. B-24 24
Shareholder Investment Account ...................... B-26 33
Net Asset Value ..................................... B-30 21
Performance Information ............................. B-30 21
Taxes, Dividends and Distributions .................. B-32 22
Custodian, Transfer and Dividend Disbursing .........
Agent and Independent Accountants ................. B-34 20
Financial Statements ................................ B-35 --
Report of Independent Accountants ................... B-54 --
Appendix A--General Investment Information .......... A-1 --
Appendix B--Historical Performance Data ............. B-1 --
MF B
<PAGE>
GENERAL INFORMATION
The Fund was incorporated in Maryland on May 6, 1986 under the name "The
Global Yield Fund, Inc." as a closed-end, non-diversified management investment
company. In connection with a change in the Fund's investment objective approved
by shareholders in November, 1994, shareholders approved a change in the name of
the Fund to The Global Total Return Fund, Inc. The Fund operated as a closed-end
fund prior to December , 1995. On December 6, 1995, shareholders approved
open-ending the Fund, and since December , 1995, the Fund has operated as an
open-end fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek total return, the components of
which are current income and capital appreciation. The Fund will seek to achieve
this objective by investing, under normal circumstances, at least 65% of its
total assets in governmental (including supranational), semi-governmental or
government agency securities or in short-term bank securities or deposits in the
United States and in foreign countries denominated in U.S. dollars or in foreign
currencies. The remainder is generally invested in corporate securities or
longer term bank securities. The Fund may also purchase and sell put and call
options on U.S. Government securities, Foreign Government securities and foreign
currencies and engage in transactions involving futures contracts and options on
such futures with respect to U.S. Government securities, Foreign Government
securities and foreign currencies. There can be no assurance that the Fund's
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies" in the Prospectus.
U.S. Government Securities
Mortgage-Related Securities Issued by U.S. Government Instrumentalities.
Mortgages backing the securities purchased by the Fund include conventional
thirty year fixed rate mortgages, graduated payment mortgages, fifteen year
mortgages and adjustable rate mortgages. All of these mortgages can be used to
create pass-through securities. A pass-through security is formed when mortgages
are pooled together and undivided interests in the pool or pools are sold. The
cash flow from the mortgages is passed through to the holders of the securities
in the form of periodic payments of interest, principal and prepayments (net of
a service fee). Prepayments occur when the holder of an individual mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would indicate. The remaining
expected average life of a pool of mortgage loans underlying a mortgage-backed
security is a prediction of when the mortgage loans will be repaid and is based
upon a variety of factors, such as the demographic and geographic
characteristics of the borrowers and the mortgaged properties, the length of
time that each of the mortgage loans has been outstanding, the interest rates
payable on the mortgage loans and the current interest rate environment.
During periods of declining interest rates, prepayments of mortgages
underlying mortgage-backed securities can be expected to accelerate. When
mortgage obligations are prepaid, the Fund reinvests the prepaid amounts in
securities, the yields of which reflect interest rates prevailing at that time.
Therefore, the Fund's ability to maintain a portfolio of high-yielding
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium generally will result in capital
losses.
GNMA Certificates. Certificates of the Government National Mortgage
Association (GNMA Certificates) are mortgage-backed securities, which evidence
an undivided interest in a pool or pools of mortgages. GNMA Certificates that
the Fund purchases are the "modified pass-through" type, which entitle the
holder to receive timely payment of all interest and principal payments due on
the mortgage pool, net of fees paid to the "issuer" and GNMA, regardless of
whether or not the mortgagor actually makes the payment.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration (FHA) or the Farmers'
Home Administration (FMHA), or guaranteed by the Veterans Administration (VA).
The GNMA guarantee is backed by the full faith and credit of the United States.
The GNMA is also empowered to borrow without limitation from the U.S. Treasury
if necessary to make any payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA Certificate is likely
to be substantially shorter than the original maturity of the mortgages
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before the maturity of the mortgages in the pool. Foreclosures
impose no risk to principal investment because of the GNMA guarantee, except to
the extent that the Fund has purchased the certificates above par in the
secondary market.
B-2
<PAGE>
FHLMC Securities. The Federal Home Loan Mortgage Corporation (FHLMC) was
created in 1970 through enactment of Title III of the Emergency Home Finance Act
of 1970. Its purpose is to promote development of a nationwide secondary market
in conventional residential mortgages.
The FHLMC presently issues two types of mortgage pass-through securities,
mortgage participation certificates (PCs) and guaranteed mortgage certificates
(GMCs). The Fund does not intend to invest in GMCs. PCs resemble GNMA
Certificates in that each PC represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. The FHLMC guarantees
timely monthly payment of interest on PCs and the stated principal amount.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years.
FNMA Securities. The Federal National Mortgage Association (FNMA) was
established in 1938 to create a secondary market in mortgages insured by the
FHA.
FNMA issues guaranteed mortgage pass-through certificates (FNMA
Certificates). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
and principal on FNMA Certificates.
Adjustable Rate Mortgage Securities. Generally, Adjustable Rate Mortgage
securities (ARMs) have a specified maturity date and amortize principal over
their life. In periods of declining interest rates, there is a reasonable
likelihood that ARMs will experience increased rates of prepayment of principal.
However, the major difference between ARMs and Fixed Rate Mortgage Securities
(FRMs) is that the interest rate and the rate of amortization of principal of
ARMs can and do change in accordance with movements in a particular,
pre-specified, published interest rate index. The amount of interest on an ARM
is calculated by adding a specified amount, the "margin," to the index,
subject to limitations on the maximum and minimum interest that is charged
during the life of the mortgage or to maximum and minimum changes to that
interest rate during a given period. Because the interest rate on ARMs generally
moves in the same direction as market interest rates, the market value of ARMs
tends to be more stable than that of long-term fixed-rate securities.
Fixed-Rate Mortgage Securities. The Fund anticipates investing in
high-coupon fixed-rate mortgage securities. Such securities are collateralized
by fixed-rate mortgages and tend to have high prepayment rates when the level of
prevailing interest rates declines significantly below the interest rates on the
mortgages. Thus, under those circumstances, the securities are generally less
sensitive to interest rate movements than lower coupon FRMs.
Characteristics of Mortgage-Backed Securities. The interest rates paid on
the ARMs in which the Fund invests generally are readjusted at intervals of one
year or less to an increment over some predetermined interest rate index. There
are two main categories of indices: those based on U.S. Treasury securities and
those derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Commonly utilized indices include the one-year
and five-year constant maturity Treasury Note rates, the three-month Treasury
Bill rate, the 180-day Treasury Bill rate, rates on longer-term Treasury
securities, the 11th District Federal Home Loan Bank Cost of Funds, the National
Median Cost of Funds, the one-month or three-month London Interbank Offered Rate
(LIBOR), the prime rate of a specific bank, or commercial paper rates. Some
indices, such as the one-year constant maturity Treasury Note rate, closely
mirror changes in market interest rate levels. Others, such as the 11th District
Home Loan Bank Cost of Funds index (often related to ARMs issued by FNMA), tend
to lag changes in market rate levels and tend to be somewhat less volatile.
The underlying mortgages which collateralize the ARMs, collateralized
mortgage obligations and Real Estate Mortgage Investment Conduits in which the
Fund invests will frequently have caps and floors which limit the maximum amount
by which the loan rate to the residential borrower may change up or down (1) per
reset or adjustment interval and (2) over the life of the loan. Some residential
mortgage loans restrict periodic adjustments by limiting changes in the
borrower's monthly principal and interest payments rather than limiting interest
rate changes. These payment caps may result in negative amortization.
The market value of mortgage securities, like other U.S. Government
securities, will generally vary inversely with changes in market interest rates,
declining when interest rates rise and rising when interest rates decline.
However, mortgage securities, while having comparable risk of decline during
periods of rising rates, usually have less potential for capital appreciation
than other investments of comparable maturities due to the likelihood of
increased prepayments of mortgages as interest rates decline. In addition, to
the extent such mortgage securities are purchased at a premium, mortgage
foreclosures and unscheduled principal prepayments generally will result in some
loss of the holders' principal to the extent of the premium paid. On the other
hand, if such mortgage securities are purchased at a discount, an unscheduled
prepayment of principal will increase current and total returns and will
accelerate the recognition of income which when distributed to shareholders will
be taxable as ordinary income.
B-3
<PAGE>
Foreign Securities
Foreign securities in which the Fund will invest will generally be
denominated in foreign currencies, will be traded on foreign markets and will be
affected by changes in currency exchange rates and in exchange control
regulations. A change in the value of a foreign currency against the U.S. dollar
will result in a corresponding change in the U.S. dollar value of the Fund's
assets denominated in that currency. These changes will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the value of the U.S. dollar
strengthens against a foreign currency after the Fund's income has been accrued
and translated into U.S. dollars, the Fund would experience a foreign currency
loss. Similarly, if the U.S. dollar value weakens against a foreign currency
between the time the Fund incurs expenses and the time such expenses are paid,
the amount of such currency required to be converted into U.S. dollars in order
to pay such expenses in U.S. dollars will be greater than the equivalent amount
of such currency at the time such expenses were incurred. Under the Internal
Revenue Code of 1986, as amended (the Internal Revenue Code), changes in an
exchange rate which occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities will result in foreign currency gains or losses that increase or
decrease an investment company's taxable income. Similarly, dispositions of
certain debt securities (by sale, at maturity or otherwise) at a U.S. dollar
value that is higher or lower than the Fund's original U.S. dollar cost may
result in foreign exchange gains or losses which will increase or decrease
investment company taxable income. The exchange rates between the U.S. dollar
and other currencies can be volatile and are determined by such factors as
supply and demand in the currency exchange markets, international balances of
payments, government intervention, speculation and other economic and political
conditions.
Foreign securities include securities of any foreign country the investment
adviser considers appropriate for investment by the Fund. Foreign securities may
also include securities of foreign issuers that are traded in U.S. dollars in
the United States although the underlying security is usually denominated in a
foreign currency. These securities include but are not limited to securities
traded in the form of American Depositary Receipts.
The costs attributable to foreign investing are higher than the costs of
domestic investing. For example, the cost of maintaining custody of foreign
securities generally exceeds custodian costs for domestic securities, and
transaction and settlement costs of foreign investing are frequently higher than
those attributable to domestic investing. Foreign investment income may be
subject to foreign withholding or other government taxes that could reduce the
return to the Fund on those securities. Tax treaties between the United States
and certain foreign countries may, however, reduce or eliminate the amount of
foreign tax to which the Fund would be subject.
In the event of a default of foreign debt obligations, it may be difficult
for the Fund to obtain or enforce a judgment against the issuer of the
securities.
Corporate and Other Non-Government Debt Securities
Zero Coupon, Pay-in-Kind or Deferred Payment Securities
The Fund may also invest in zero coupon, pay-in-kind or deferred payment
securities. Zero coupon securities are securities that are sold at a discount to
par value and on which interest payments are not made during the life of the
security. Upon maturity, the holder is entitled to receive the par value of the
security. While interest payments are not made on such securities, holders of
such securities are deemed to have received annually "phantom income." The
Fund accrues income with respect to these securities prior to the receipt of
cash payments. Pay-in-kind securities are securities that have interest payable
by delivery of additional securities. Upon maturity, the holder is entitled to
receive the aggregate par value of the securities. Deferred payment securities
are securities that remain a zero coupon security until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular intervals.
Custodial Receipts
Obligations issued or guaranteed as to principal and interest by the United
States Government may be acquired by the Fund in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or both
on certain United States Treasury notes or bonds. Such notes and bonds are held
in custody by a bank on behalf of the owners. These custodial receipts are known
by various names, including "Treasury Receipts," "Treasury Investment Growth
Receipts" (TIGRs) and "Certificates of Accrual on Treasury Securities" (CATS).
The Fund will not invest more than 5% of its assets in such custodial receipts.
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ADDITIONAL INVESTMENT POLICIES
In seeking to protect against the effect of changes in interest rates or
currency exchange rates that are adverse to the present or prospective position
of the Fund and to enhance returns, the Fund may employ certain hedging, return
enhancement and risk management techniques including the purchase and sale of
options, futures and options on futures on debt securities, aggregates of debt
securities, financial indices, U.S. and foreign government debt securities and
foreign currencies and forward contracts on foreign currencies. The Fund's
ability to engage in these practices may be limited by tax considerations and
certain other legal considerations. See "Taxes, Dividends and Distributions."
Options On Securities
The Fund may purchase put and call options and write covered put and call
options on debt securities, aggregates of debt securities or indices of prices
thereof, other financial indices and U.S. and foreign government debt
securities. These may include options traded on U.S. or foreign exchanges and
options traded on U.S. or foreign over-the-counter markets (OTC Options).
When the Fund writes an option, it receives a premium which it retains
whether or not the option is exercised. The Fund's principal objective in
writing options is to realize, through the receipt of premiums, a greater return
than would be realized on the underlying securities alone.
The purchaser of a call option has the right, for a specified period of
time, to purchase the securities subject to the option at a specified price (the
exercise price). By writing a call option, the Fund becomes obligated during the
term of the option, upon exercise of the option, to sell, depending upon the
terms of the option contract, the underlying securities or a specified amount of
cash to the purchaser against receipt of the exercise price.
Conversely, the purchaser of a put option has the right, for a specified
period of time, to sell the securities subject to the option to the writer of
the put at a specified exercise price. By writing a put option, the Fund becomes
obligated during the term of the option to purchase the securities underlying
the option at the exercise price, upon exercise of the option.
The Fund may write only "covered" options. This means that so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option or an option to purchase the same underlying
securities, having an exercise price equal to or less than the exercise price of
the "covered" option, or will establish and maintain with its Custodian for
the term of the option a segregated account consisting of cash, U.S. Government
securities or other liquid high-grade debt obligations having a value at least
equal to the fluctuating market value of the optioned securities. A put option
written by the Fund will be considered "covered" if, so long as the Fund is
obligated as the writer of the option, it owns an option to sell the underlying
securities subject to the option having an exercise price equal to or greater
than the exercise price of the "covered" option, or it deposits and maintains
with its Custodian in a segregated account cash, U.S. Government securities or
other liquid high-grade debt obligations having a value equal to or greater than
the exercise price of the option. There is no limitation to the amount of call
options the Fund may write. However, the Fund may only write covered put options
to the extent that cover for such options does not exceed 25% of the Fund's net
assets.
The Fund may also buy and write straddles (i.e., a combination of a call
and a put written on the same security at the same strike price where the same
segregated collateral is considered "cover" for both the put and the call). In
such cases, the Fund will also deposit in a segregated account with its
Custodian cash, U.S. Government securities or other liquid high-grade debt
obligations equivalent to the amount, if any, by which the put is
"in-the-money," i.e., the amount by which the exercise price of the put
exceeds the current market value of the underlying security. It is contemplated
that the Fund's use of straddles will be limited to 5% of the Fund's net assets
(meaning that the securities used for cover or segregated as described above
will not exceed 5% of the Fund's net assets at the time the straddle is
written). The writing of a call and a put on the same security at the same stock
price where the call and put are covered by different securities is not
considered a straddle for the purposes of this limit.
The Fund may write both American style options and European style options.
An American style option is an option which may be exercised by the holder at
any time prior to its expiration. A European style option may only be exercised
as of the expiration of the option. The writer of an American style option has
no control over when the underlying securities must be sold, in the case of a
call option, or purchased, in the case of a put option, since such options may
be exercised by the holder at any time prior to the expiration of the option.
Whether or not an option expires unexercised, the writer retains the amount of
the premium. This amount may be offset or exceeded, in the case of a covered
call option, by a decline and, in the case of a covered put option, by an
increase in the market value of the underlying security during the option
period. If a call option is exercised, the writer must fulfill the obligation to
sell the underlying security at the exercise price, which will usually be lower
than the then market value of the underlying security. If a put option is
exercised, the writer must fulfill the obligation to purchase the underlying
security at the exercise price, which will usually exceed the then market value
of the underlying security.
Prior to being notified of exercise of the option, the writer of an
exchange-traded option that wishes to terminate its obligation may effect a
"closing purchase transaction" by buying an option of the same series as the
option previously written.
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(Options of the same series are options with respect to the same underlying
security, having the same expiration date and the same strike price.) The effect
of the purchase is that the writer's position will be cancelled by the
exchange's affiliated clearing organization. However, the writer of an option
may not effect a closing purchase transaction after being notified of the
exercise of the option. Likewise, the holder of an option may liquidate a
position by effecting a "closing sale transaction" by selling an option of the
same series as the option previously purchased. There is no guarantee that
either a closing purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option, will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss in closing out a call option is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.
An exchange-traded option position may be closed out only where there
exists a secondary market for an option of the same series. If a secondary
market does not exist, the Fund might not be able to effect a closing sale
transaction in a particular option it has purchased with the result that the
Fund would have to exercise the option in order to realize any profit. If the
Fund is unable to effect a closing purchase transaction in an option the Fund
has written, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise or it
otherwise covers its position. Reasons for the absence of a liquid secondary
market include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by a securities exchange
(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 or underlying securities; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an Exchange; (v)
the facilities of an Exchange or clearing organization 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 that class or series
of options) would cease to exist, although outstanding options would continue to
be exercisable in accordance with their terms.
Exchange-traded options in the U.S. are issued by a clearing organization
affiliated with the Exchange on which the option is listed which, in effect,
gives its guarantee to every exchange-traded option transaction. In contrast,
OTC Options are contracts between the Fund and its contra-party with no clearing
organization guarantee. Thus, when the Fund purchases an OTC Option, it relies
on the dealer from which it has purchased the OTC Option to make or take
delivery of the securities underlying the option. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well as the loss of
the expected benefit of the transaction. The Board of Directors will evaluate
the creditworthiness of any dealer from which the Fund proposes to purchase OTC
Options.
Exchange-traded options generally have a continuous liquid market while OTC
Options may not. Consequently, the Fund will generally be able to realize the
value of an OTC Option it has purchased only by exercising it or reselling it to
the dealer who issued it. Similarly, when the Fund 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 which originally
purchased the OTC Option. While the Fund will enter into OTC Options only with
dealers which agree to, and which are expected to be capable of, entering into
closing transactions with the Fund, there can be no assurance that the Fund will
be able to liquidate an OTC Option at a favorable price at any time prior to
expiration. Until the Fund is able to effect a closing purchase transaction in a
covered OTC call option the Fund 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. In the event of insolvency of the contra-party, the Fund
may be unable to liquidate an OTC Option. With respect to options written by the
Fund, the inability to enter into a closing purchase transaction could result in
material losses to the Fund.
The Fund may write options in connection with buy-and-write transactions;
that is, the Fund may purchase a security and concurrently write a call option
against that security. The exercise price of the call the Fund determines to
write will depend upon the expected price movement of the underlying security.
The exercise price of a call option may be below (in-the-money), equal to
(at-the-money) or above (out-of-the-money) the current value of the underlying
security at the time the option is written. Buy-and-write transactions using
in-the-money call options may be used when it is expected that the price of the
underlying
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security will remain flat or decline moderately during the option period.
Buy-and-write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. A buy-and-write transaction using
out-of-the-money call options may be used when it is expected that the premium
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call option
is exercised in such a transaction, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upwards or downwards by the
difference between the Fund's purchase price of the security and the exercise
price of the option. If the option is not exercised and the price of the
underlying security declines, the amount of such decline will be offset in part,
or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close out the position or
take delivery of the underlying security at the exercise price. The Fund's
return will be the premium received from the put options minus the amount by
which the market price of the security is below the exercise price.
Out-of-the-money, at-the-money and in-the-money put options may be used by the
Fund in the same market environments in which call options are used in
equivalent buy-and-write transactions.
The Fund may purchase call options on debt securities it intends to acquire
in order to hedge against an anticipated market appreciation in the price of the
underlying securities at limited risk and with a limited cash outlay. If the
market price does rise as anticipated, the Fund will benefit from that rise but
only to the extent that the rise exceeds the premiums paid. If the anticipated
rise does not occur or if it does not exceed the premium, the Fund will bear the
expense of the option premiums and transaction costs without gaining an
offsetting benefit.
The Fund may purchase put options on debt securities to hedge against a
decline in the value of its portfolio. If the market price of the Fund's
portfolio should increase, however, the profit which the Fund might otherwise
have realized will be reduced by the amount of the premium paid for the put
option and by transaction costs. The Fund may purchase call options on debt
securities to hedge against an anticipated rise in the price it will have to pay
for debt securities it intends to buy in the future. If the market price of the
debt securities should fall instead of rise, however, the benefit the Fund
obtains from purchasing the securities at a lower price will be reduced by the
amount of the premium paid for the call options and by transaction costs.
However, if the market price of the security increases, the profit the Fund
realizes on the sale of the security will be reduced by the premium paid for,
and the commissions paid in connection with, the put option.
The Fund may purchase put options if the Fund believes that a defensive
posture is warranted for all or a portion of its portfolio. Protection is
provided during the life of the put because the put gives the Fund the right to
sell the underlying security at the put exercise price, regardless of a decline
in the underlying security's market price below the exercise price. This right
limits the Fund's losses from the security's possible decline in value below the
strike price of the option to the premium paid for the put option and related
transaction costs.
The Fund may wish to protect certain portfolio securities against a decline
in market value through purchase of put options on other carefully selected
securities, which the investment adviser believes may move in the same direction
as those portfolio securities. If the investment adviser's judgment is correct,
changes in the value of the put options should generally offset changes in the
value of the portfolio securities being hedged. If the investment adviser's
judgment is not correct, the value of the securities underlying the put option
may decrease less than the value of the Fund's portfolio securities and
therefore the put option may not provide complete protection against a decline
in the value of the Fund's portfolio securities below the level sought to be
protected by the put option.
The Fund may similarly wish to hedge against appreciation in the value of
debt securities that it intends to acquire through purchase of call options on
other carefully selected debt securities, which the investment adviser believes
may move in the same direction as those portfolio securities. In such
circumstances the Fund will be subject to risks analogous to those summarized
above in the event that the correlation between the value of a call option so
purchased and the value of the securities intended to be acquired by the Fund is
not as close as anticipated and the value of the securities underlying the call
option increases less than the value of the securities to be acquired by the
Fund.
Special Considerations Applicable to Options
On Treasury Bonds and Notes. Because trading interest in Treasury Bonds and
Notes tends to center on the most recently auctioned issues, the Exchanges will
not indefinitely continue to introduce new series of options with expirations to
replace expiring options on particular issues. Instead, the expirations
introduced at the commencement of options trading on a particular issue will be
allowed to run their course, with the possible addition of a limited number of
new expirations as the original ones
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expire. Options trading on each series of Bonds or Notes will thus be
phased out as new options are listed on the more recent issues, and a full range
of expiration dates will not ordinarily be available for every series on which
options are traded.
On Treasury Bills. Because the deliverable Treasury Bill changes from week
to week, writers of Treasury Bill call options cannot provide in advance for
their potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
Bills with a principal amount corresponding to the option contract size, the
Fund may be hedged from a risk standpoint. In addition, the Fund will maintain
in a segregated account with its Custodian Treasury Bills maturing no later than
those which would be deliverable in the event of an assignment of an exercise
notice to ensure that it can meet its open option obligations.
On GNMA Certificates. The Fund may to purchase and write options on GNMA
Certificates in the over-the-counter market and, to the extent available, on any
Exchange.
Since the remaining principal balance of GNMA Certificates declines each
month as a result of mortgage payments, the Fund, as a writer of a covered GNMA
call option holding GNMA Certificates as "cover" to satisfy its delivery
obligation in the event of assignment of an exercise notice, may find that its
GNMA Certificates no longer have sufficient remaining principal balance for this
purpose. Should this occur, the Fund will enter into a closing purchase
transaction or will purchase additional GNMA Certificates from the same pool (if
obtainable) or replacement GNMA Certificates in the cash market in order to
remain covered or substitute cover.
A GNMA Certificate held by the Fund cover a call option the Fund has
written in any but the nearest expiration month may cease to represent cover for
the option in the event of a decline in the GNMA coupon rate at which new pools
are originated under the FHA/VA loan ceiling in effect at any given time. Should
this occur, the Fund will no longer be covered, and the Fund will either enter
into a closing purchase transaction or replace the Certificate with a
Certificate which represents cover. When the Fund closes its option position or
replaces the Certificate, it may realize an unanticipated loss and incur
transaction costs.
Futures Contracts
The Fund will enter into futures contracts only for certain bona fide
hedging, return enhancement and risk management purposes. The Fund may enter
into futures contracts for the purchase or sale of debt securities, aggregates
of debt securities or indices of prices thereof, other financial indices, U.S.
Government securities, corporate debt securities and certain foreign government
debt securities (collectively, interest rate futures contracts). It may also
enter into futures contracts for the purchase or sale of foreign currencies or
composite foreign currencies (such as the European Currency Unit) in which
securities held or to be acquired by the Fund are denominated, or the value of
which have a high degree of positive correlation to the value of such currencies
as to constitute an appropriate vehicle for hedging. The Fund may enter into
such futures contracts both on U.S. and foreign exchanges.
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time. A
"purchase" of a futures contract (or a "long" futures position) means the
assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price at a specified future time. Certain
futures contracts are settled on a net cash payment basis rather than by the
sale and delivery of the securities or currency underlying the futures contract.
U.S. futures contracts have been designed by exchanges that have been designated
as "contract markets" by the Commodity Futures Trading Commission (the CFTC), an
agency of the U.S. Government, and must be executed through a futures commission
merchant (i.e., a brokerage firm) which is a member of the relevant contract
market. Futures contracts trade on these contract markets and the exchange's
affiliated clearing organization guarantees performance of the contracts as
between the clearing members of the exchange.
At the time a futures contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment (initial margin). It is expected that
the initial margin on U.S. exchanges will vary from one-half of 1% to 4% of the
face value of the contract. Under certain circumstances, however, such as during
periods of high volatility, the Fund may be required by an exchange to increase
the level of its initial margin payment. Thereafter, the futures contract is
valued daily and the payment in cash of "variation margin" may be required, a
process known as "mark-to-the-market." Each day the Fund is required to provide
or is entitled to receive variation margin in an amount equal to any change in
the value of the contract since the preceding day.
Although futures contracts by their terms may call for the actual delivery
or acquisition of underlying assets, in most cases the contractual obligation is
extinguished by offset before the expiration of the contract. The offsetting of
a contractual obligation is accomplished by buying (to offset an earlier sale)
or selling (to offset an earlier purchase) an identical futures contract calling
for delivery in the same month. Such a transaction cancels the obligation to
make or take delivery of the underlying commodity. When the Fund purchases or
sells futures contracts, the Fund will incur brokerage fees and related
transaction costs.
The ordinary spreads between values in the cash and futures markets, due to
differences in the character of those markets, are subject to distortions. In
addition, futures contracts entail risks. First, all participants in the futures
market are subject to initial
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<PAGE>
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing price distortions. Third,
from the point of view of speculators, the margin deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Increased participation by speculators in the futures market may cause
temporary price distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the investment adviser may still not
result in a successful transaction.
If the Fund seeks to hedge against a decline in the value of its portfolio
securities and sells futures contracts on other securities which historically
have had a high degree of positive correlation to the value of the portfolio
securities, the value of its portfolio securities might decline more rapidly
than the value of a poorly correlated futures contract rises. In that case, the
hedge will be less effective than if the correlation had been greater. In a
similar but more extreme situation, the value of the futures position might in
fact decline while the value of the portfolio securities holds steady or rises.
This would result in a loss that would not have occurred but for the attempt to
hedge.
Options on Futures Contracts
The Fund will also enter into options on futures contracts for certain bona
fide hedging, return enhancement and risk management purposes. The Fund may
purchase put and call options and write (i.e., sell) "covered" put and call
options on futures contracts that are traded on U.S. and foreign exchanges. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, 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 a short futures position (if the
option is a call) or a long futures 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.
The Fund may only write (i.e., sell) covered put and call options on
futures contracts. The Fund will be considered "covered" with respect to a call
option it writes on a futures contract if the Fund owns the securities or
currency which is deliverable under the futures contract or an option to
purchase that futures contract having a strike price equal to or less than the
strike price of the "covered" option and having an expiration date not earlier
than the expiration date of the "covered" option, or if it segregates and
maintains with its Custodian for the term of the option cash, U.S. Government
securities or other liquid high-grade debt obligations equal to the fluctuating
value of the optioned futures. The Fund will be considered "covered" with
respect to a put option it writes on a futures contract if it owns an option to
sell that futures contract having a strike price equal to or greater than the
strike price of the "covered" option and having an expiration date not earlier
than the expiration date of the "covered" option, or if it segregates and
maintains with its Custodian for the term of the option cash, U.S. Government
securities or other liquid high-grade debt obligations at all times equal in
value to the exercise price of the put (less any initial margin deposited by the
Fund with its Custodian with respect to such put option). There is no limitation
on the amount of the Fund's assets which can be placed in the segregated
account.
Writing a put option on a futures contract serves as a partial hedge
against an increase in the value of debt securities the Fund intends to acquire.
If the futures price at expiration of the option is above the exercise price,
the Fund will retain the full amount of the option premium which provides a
partial hedge against any increase that may have occurred in the price of the
debt securities the Fund intends to acquire. If the market price of the
underlying futures contract is below the exercise price when the option is
exercised, the Fund will incur a loss, which may be wholly or partially offset
by the decrease in the value of the securities the Fund intends to acquire.
Writing a call option on a futures contract serves as a partial hedge
against a decrease in the value of the Fund's portfolio securities. If the
market price of the underlying futures contract at expiration of a written call
option is below the exercise price, the Fund will retain the full amount of the
option premium, thereby partially hedging against any decline that may have
occurred in the Fund's holdings of debt securities. If the futures price when
the option is exercised is above the exercise price, however, the Fund will
incur a loss, which may be wholly or partially offset by the increase in the
value of the securities in the Fund's portfolio which were being hedged.
The Fund will purchase put options on futures contracts to hedge its
portfolio against the risk of a decline in the value of the debt securities it
owns as a result of rising interest rates or fluctuating currency exchange
rates. The Fund will also purchase call options on futures contracts as a hedge
against an increase in the value of securities the Fund intends to acquire as a
result of
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declining interest rates or fluctuating currency exchange rates. If the
futures price at expiration of a written call option is below the exercise
price, the Fund will retain the full amount of the option premium, thereby
partially hedging against any decline that may have occurred in the Fund's
holdings of debt securities. If the futures price when the option is exercised
is above the exercise price, however, the Fund will incur a loss, which may be
wholly or partially offset by the increase of the value of the securities in the
Fund's portfolio which were being hedged.
If the investment adviser wishes to shorten the effective average maturity
of the Fund, the Fund may sell a futures contract or a call option thereon, or
purchase a put option on that futures contract. If the investment adviser wishes
to lengthen the effective average maturity of the Fund, the Fund may buy a
futures contract or a call option thereon or sell a put option.
Interest Rate Futures Contracts and Options Thereon
The Fund will purchase or sell interest rate futures contracts to take
advantage of or to protect the Fund against fluctuations in interest rates
affecting the value of debt securities which the Fund holds or intends to
acquire. For example, if interest rates are expected to increase, the Fund might
sell futures contracts on debt securities, the values of which historically have
a high degree of positive correlation to the values of the Fund's portfolio
securities. Such a sale would have an effect similar to selling an equivalent
value of the Fund's portfolio securities. If interest rates increase, the value
of the Fund's portfolio securities will decline, but the value of the futures
contracts to the Fund will increase at approximately an equivalent rate thereby
keeping the net asset value of the Fund from declining as much as it otherwise
would have. The Fund could accomplish similar results by selling debt securities
with longer maturities and investing in debt securities with shorter maturities
when interest rates are expected to increase. However, since the futures market
may be more liquid than the cash market, the use of futures contracts as a risk
management technique allows the Fund to maintain a defensive position without
having to sell its portfolio securities.
Similarly, the Fund may purchase interest rate futures contracts when it is
expected that interest rates may decline. The purchase of futures contracts for
this purpose constitutes a hedge against increases in the price of debt
securities (caused by declining interest rates) which the Fund intends to
acquire. Since fluctuations in the value of appropriately selected futures
contracts should approximate that of the debt securities that will be purchased,
the Fund can take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Fund can make the
intended purchase of the debt securities in the cash market and currently
liquidate its futures position. To the extent the Fund enters into futures
contracts for this purpose, it will maintain a segregated asset account with the
Fund's Custodian sufficient to cover the Fund's obligations with respect to such
futures contracts, which will consist of cash, U.S. Government securities or
other liquid high-grade debt obligations from its portfolio in an amount equal
to the difference between the fluctuating market value of such futures contracts
and the aggregate value of the initial margin deposited by the Fund with its
Custodian with respect to such futures contracts.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities. As with the purchase of futures contracts, when the
Fund is not fully invested it may purchase a call option on a futures contract
to hedge against a market advance due to declining interest rates.
The purchase of a put option on a futures contract is similar to the
purchase of protective put options on portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates and consequent reduction in the value
of portfolio securities.
The amount of risk the Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
securities which are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of debt securities which the Fund
intends to purchase. If a put or call option the Fund has written is exercised,
the Fund will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Fund's losses from options on futures it has written may to some extent be
reduced or increased by changes in the value of its portfolio securities.
At the time of delivery of securities pursuant to an interest rate futures
contract, adjustments are made to recognize differences in value arising from
the delivery of securities with a different interest rate from that specified in
the contract. In some
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(but not many) cases, securities called for by a futures contract may have
a shorter term than the term of the futures contract and, consequently, may not
in fact have been issued when the futures contract was entered.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the character of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Increased participation by speculators in the futures market may cause temporary
price distortions. Due to the possibility of distortion, a correct forecast of
general interest rate trends by the investment adviser may still not result in a
successful transaction.
In addition, futures contracts entail risks. Although the Fund believes
that use of such contracts will benefit the Fund, if the investment adviser's
investment judgment about the general direction of interest rates is incorrect,
the Fund's overall performance would be poorer than if it had not entered into
any such contracts. For example, if the Fund has hedged against the possibility
of an increase in interest rates which would adversely affect the price of bonds
held in its portfolio and interest rates decrease instead, the Fund will lose
part or all of the benefit of the increased value of its bonds which it has
hedged because it will have offsetting losses in its futures positions. In
addition, particularly in such situations, if the Fund has insufficient cash, it
may have to sell bonds from its portfolio to meet daily variation margin
requirements. Such sales of bonds may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
Currency Futures and Options Thereon
Generally, foreign currency futures contracts and options thereon are
similar to the interest rate futures contracts and options thereon discussed
previously. By entering into currency futures and options thereon on U.S. and
foreign exchanges, the Fund will seek to establish the rate at which it will be
entitled to exchange U.S. dollars for another currency at a future time. By
selling currency futures, the Fund will seek to establish the number of dollars
it will receive at delivery for a certain amount of a foreign currency. In this
way, whenever the Fund anticipates a decline in the value of a foreign currency
against the U.S. dollar, the Fund can attempt to "lock in" the U.S. dollar value
of some or all of the securities held in its portfolio that are denominated in
that currency. By purchasing currency futures, the Fund can establish the number
of dollars it will be required to pay for a specified amount of a foreign
currency in a future month. Thus if the Fund intends to buy securities in the
future and expects the U.S. dollar to decline against the relevant foreign
currency during the period before the purchase is effected, the Fund can attempt
to "lock in" the price in U.S. dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund, for the
price of the premium and related transaction costs it must pay for the option,
to decide whether or not to buy (in the case of a call option) or to sell (in
the case of a put option) a futures contract at a specified price at any time
during the period before the option expires. If the investment adviser, in
purchasing an option, has been correct in its judgment concerning the direction
in which the price of a foreign currency would move as against the U.S. dollar,
the Fund may exercise the option and thereby take a futures position to hedge
against the risk it had correctly anticipated or close out the option position
at a gain that will offset, to some extent, currency exchange losses otherwise
suffered by the Fund. If exchange rates move in a way the Fund did not
anticipate, however, the Fund will have incurred the expense of the option
without obtaining the expected benefit; any such movement in exchange rates may
also thereby reduce rather than enhance the Fund's profits on its underlying
securities transactions.
Options on Currencies
Instead of purchasing or selling futures or forward currency exchange
contracts, the Fund may attempt to accomplish similar objectives by purchasing
put or call options on currencies or by writing put options or covered call
options on currencies either on exchanges or in over-the-counter markets. A put
option gives the Fund the right to sell a currency at the exercise price until
the option expires. A call option gives the Fund the right to purchase a
currency at the exercise price until the option expires. Both options serve to
insure against adverse currency price movements in the underlying portfolio
assets designated in a given currency. The Fund's use of options on currencies
will be subject to the same limitations as its use of options or securities,
described above. Currency options may be subject to position limits which may
limit the ability of the Fund to fully hedge its positions by purchasing the
options. Over-the-counter options differ from traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller and do not have as much market liquidity as exchange-traded options. The
Fund will not purchase put or call options if, as a result thereof, their value
would exceed 5% of the Fund's net assets.
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As in the case of interest rate futures contracts and options thereon, the
Fund may hedge against the risk of a decrease or increase in the U.S. dollar
value of a foreign currency denominated debt security which the Fund owns or
intends to acquire by purchasing or selling options contracts, futures contracts
or options thereon with respect to a foreign currency other than the foreign
currency in which such debt security is denominated, where the values of such
different currencies (vis-a-vis the U.S. dollar) historically have a high degree
of positive correlation.
Forward Currency Exchange Contracts
The Fund may engage in currency transactions otherwise than on futures
exchanges to protect against future changes in the level of future currency
exchange rates. The Fund will conduct such currency exchange transactions either
on a spot, i.e., cash, basis at the rate then prevailing in the currency
exchange market or on a forward basis, by entering into forward contracts to
purchase or sell currency. A forward contract on foreign currency involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days agreed upon by the parties from the date of the
contract, at a price set on the date of the contract. The risk of shifting of a
forward currency contract will be substantially the same as a futures contract
having similar terms. The Fund's dealing in forward currency exchange will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward currency with
respect to specific receivables or payables of the Fund generally arising in
connection with the purchase or sale of its portfolio securities and accruals of
interest receivable and Fund expenses. Position hedging is the forward sale of
currency with respect to portfolio security positions denominated or quoted in
or convertible into that currency or in a different currency (cross hedge). The
Fund may also cross hedge its currency exposure under circumstances where the
investment adviser believes that the currency in which a security is denominated
may deteriorate against the dollar and that the possible loss in value can be
hedged, return can be enhanced and risks can be managed by entering into forward
contracts to sell the deteriorating currency and buy a currency that is expected
to appreciate in relation to the dollar.
The Fund 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 forward currency) of the securities held in its portfolio
denominated or quoted in, or currently convertible into, such currency. If the
Fund enters into a position-hedging transaction, the Fund's Custodian or
subcustodian will place cash or U.S. Government securities or other high-grade
debt obligations in a segregated account of the Fund in an amount equal to the
value of the Fund's total assets committed to the consummation of the given
forward contract. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account so
that the value of the account will, at all times, equal the amount of the Fund's
commitment with respect to the forward contract.
At or before the maturity of a forward sale contract, the Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and offset its contractual obligations to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
contract prices. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of a currency and the date
it enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
purchase is less than the price of the currency it has agreed to sell. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Closing out forward purchase contracts involves similar
offsetting transactions.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward transactions in currency
exchange are usually conducted on a principal basis, no fees or commissions are
involved. The use of foreign currency contracts does not eliminate fluctuations
in the underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. In addition, although forward
currency contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result if the
value of the currency increases.
If a decline in any currency is generally anticipated by the investment
adviser, the Fund may not be able to contract to sell the currency at a price
above the level to which the currency is anticipated to decline.
Additional Risks of Options, Futures Contracts, Options on Futures Contracts and
Forward Contracts
Options, futures contracts and options thereon and forward contracts on
securities and currencies may be traded on foreign exchanges. Such transactions
may not be regulated as effectively as similar transactions in the U.S., may not
involve a clearing mechanism and related guarantees, and are subject to the risk
of governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by (i)
other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability
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to act upon economic events occurring in the foreign markets during
non-business hours in the U.S., (iv) the imposition of different exercise and
settlement terms and procedures and margin requirements than in the U.S. and (v)
lesser trading volume.
Exchanges on which options, futures and options on futures are traded may
impose limits on the positions that the Fund may take in certain circumstances.
In addition, the hours of trading of financial futures contracts and options
thereon may not conform to the hours during which the Fund may trade the
underlying securities. To the extent 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.
Special Risk Considerations Relating to Futures and Options Thereon
Certain risks are inherent in the Fund's use of futures contracts and
options on futures. One such risk arises because the correlation between
movements in the price of futures contracts or options on futures and movements
in the price of the securities hedged or used for cover will not be perfect.
Another risk is that the price of futures contracts or options on futures may
not move inversely with changes in interest rates. If the Fund has sold futures
contracts to hedge securities held by the Fund and the value of the futures
position declines more than the price of such securities increases, the Fund
will realize a loss on the futures contracts which is not completely offset by
the appreciation in the price of the hedged securities. Similarly, if the Fund
has written a call on a futures contract and the value of the call increases by
more than the increase in the value of the securities held as cover, the Fund
may realize a loss on the call which is not completely offset by the
appreciation in the price of the securities held as cover and the premium
received for writing the call.
The Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the development
and maintenance of liquid markets. Although the Fund generally will purchase or
sell only those futures contracts and options thereon for which there appears to
be a liquid market, there is no assurance that a liquid market on an exchange
will exist for any particular futures contract or option thereon at any
particular time. In the event no liquid market exists for a particular futures
contract or option thereon in which the Fund maintains a position, it will not
be possible to effect a closing transaction in that contract or to do so at a
satisfactory price and the Fund would have to either make or take delivery under
the futures contract or, in the case of a written option, wait to sell the
underlying securities until the option expires or is exercised or, in the case
of a purchased option, exercise the option. In the case of a futures contract or
an option on a futures contract which the Fund has written and which the Fund is
unable to close, the Fund would be required to maintain margin deposits on the
futures contract or option and to make variation margin payments until the
contract is closed.
Successful use of futures contracts and options thereon and forward
contracts by the Fund is subject to the ability of the investment adviser to
predict correctly movements in the direction of interest and foreign currency
rates. If the investment adviser's expectations are not met, the Fund would be
in a worse position than if a hedging strategy had not been pursued. For
example, if the Fund has hedged against the possibility of an increase in
interest rates which would adversely affect the price of securities in its
portfolio and the price of such securities increases instead, the Fund will lose
part or all of the benefit of the increased value of its securities because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash to meet daily variation margin
requirements, it may have to sell securities to meet the requirements. These
sales may, but will not necessarily, be at increased prices which reflect the
rising market. The Fund may have to sell securities at a time when it is
disadvantageous to do so.
Pursuant to the requirements of the Commodity Exchange Act, as amended, all
U.S. futures contracts and options thereon must be traded on an exchange. Since
a clearing corporation effectively acts as the counterparty on every futures
contract and option thereon, the counterparty risk depends on the strength of
the clearing or settlement corporation associated with the exchange.
Additionally, although the exchanges provide a means of closing out a position
previously established, there can be no assurance that a liquid market will
exist for a particular contract at a particular time. In the case of options on
futures, if such a market does not exist, the Fund, as the holder of an option
on futures contracts, would have to exercise the option and comply with the
margin requirements for the underlying futures contract to realize any profit,
and if the Fund were the writer of the option, its obligation would not
terminate until the option expired or the Fund was assigned an exercise notice.
Limitations on the Purchase and Sale of Futures Contracts and Options on
Futures Contracts
The Fund will engage in transactions in futures contracts and options
thereon only for bona fide hedging, return enhancement and risk management
purposes, in each case in accordance with the rules and regulations of the CFTC,
and not for speculation.
In accordance with CFTC regulations, the Fund may not purchase or sell
futures contracts or options thereon for return enhancement or risk management
purposes if immediately thereafter the sum of the amounts of initial margin
deposits on the Fund's existing futures and premiums paid for options on futures
would exceed 5% of the liquidation value of the Fund's total assets after taking
into account unrealized profits and unrealized losses on any such contracts;
provided, however, that in the case
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of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The above
restriction does not apply to the purchase and sale of futures contracts and
options thereon for bona fide hedging purposes. In instances involving the
purchase of futures contracts or call options thereon or the writing of put
options thereon by the Fund, an amount of liquid assets equal to the market
value of the futures contracts and options thereon (less any related margin
deposits), will be deposited in a segregated account with the Fund's Custodian
to cover the position, or alternative cover will be employed, thereby insuring
that the use of such instruments is unleveraged.
The Fund's purchase and sale of futures contracts and purchase and writing
of options on futures contracts will be for the purpose of protecting its
portfolio against anticipated future changes in interest rates or foreign
currency exchange which might otherwise either adversely affect the value of the
Fund's portfolio securities or adversely affect the prices of securities that
the Fund intends to purchase at a later date, to change the effective duration
of the Fund's portfolio and to enhance the Fund's return. The Fund expects that
in 75% of the transactions involving an anticipating hedge it will purchase
securities for its portfolio when it closes out its earlier purchase of futures
or call options thereon or put options it has written thereon. Under unusual
market conditions, however, the Fund may terminate any of such positions without
a corresponding purchase of securities. As an alternative to bona fide hedging
as defined by the CFTC, the Fund may comply with a different standard
established by CFTC rules with respect to futures contracts and options thereon
purchased by the Fund incidental to the Fund's activities in the securities
markets, under which the value of the assets underlying such positions will not
exceed the sum of (i) cash set aside in an identifiable manner or short-term
U.S. Government or other U.S. dollar denominated high-grade short-term debt
securities segregated for this purpose, (ii) cash proceeds on existing
investments due within thirty days and (iii) accrued profits on the particular
futures contract or option thereon.
In addition, CFTC regulations may impose limitations on the Fund's ability
to engage in certain return enhancement and risk management strategies. There
are no limitations on the Fund's use of futures contracts and options on futures
contracts beyond the restrictions set forth above.
Although the Fund intends to purchase or sell futures and options on
futures only on exchanges where there appears to be an active market, there is
no guarantee that an active market will exist for any particular contract or at
any particular time. If there is not a liquid market at a particular time, it
may not be possible to close a futures position at such time, and, in the event
of adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, when futures positions are used to
hedge portfolio securities, such securities will not be sold until the futures
positions can be liquidated. In such circumstances, an increase in the price of
securities, if any, may partially or completely offset losses on the futures
contracts.
Illiquid Securities
The Fund may not invest more than 15% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market (either within or outside of the United States) 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, convertible 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 under 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 investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this
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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 National Association of
Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). With respect to 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 nationally
recognized statistical rating organizations (NRSRO), or if only one NRSRO rates
the securities, by that NRSRO, or, if unrated, be of comparable quality in the
view of the investment adviser; 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.
Repurchase Agreements
The Fund may enter into repurchase agreements, wherein the seller agrees to
repurchase a security from the Fund 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 Fund does not currently
intend to invest in repurchase agreements whose maturity exceeds one year. The
resale price is in excess of the purchase price, reflecting an agreed-upon rate
of return effective for the period of time the Fund's money is invested in the
security. The Fund's repurchase agreements will at all times be fully
collateralized in an amount at least equal to the purchase price including
accrued interest earned on the underlying securities. The instruments held as
collateral are valued daily, and as the value of instruments declines, the Fund
will require additional collateral. If the seller defaults and the value of the
collateral securing the repurchase agreement declines, the Fund may incur a
loss.
The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. (PMF) pursuant to
an order of the Securities and Exchange Commission. On a daily basis, any
uninvested cash balances of the Fund may be aggregated with such of other
investment companies and invested in one or more repurchase agreements. Each
fund participates in the income earned or accrued in the joint account based on
the percentage of its investment.
Portfolio Turnover
The Fund has no fixed policy with respect to portfolio turnover; however,
as a result of the Fund's investment policies, its annual portfolio turnover
rate may exceed 100% although the rate is not expected to exceed 250%. The
portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of portfolio securities by the average monthly value of the Fund's
portfolio securities, excluding securities having a maturity at the date of
purchase of one year or less. High portfolio turnover may involve
correspondingly greater brokerage commissions and other transaction costs which
will be borne directly by the Fund. The Fund's portfolio turnover rate was 583%
and 370% for the fiscal years ended December 31, 1994 and 1993, respectively.
The Fund's portfolio turnover rate for the fiscal year ended December 31, 1994
was high as a result of the Subadviser's attempt to minimize impact of rising
yields in the global bond market on principal.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (i) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (ii) more than 50% of the outstanding voting
shares.
The Fund may not:
1. Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of transactions; provided that the
deposit or payment by the Fund 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 the Fund may borrow from banks up to 20% of the value of its total
assets (calculated when the loan is made) for temporary, extraordinary or
emergency purposes, for the clearance of transactions or for investment
purposes. The Fund may pledge up to 20% of the value of its total assets to
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secure such borrowings. For purposes of this restriction, the purchase
or sale of securities on a when-issued or delayed delivery basis, forward
foreign currency exchange contracts and collateral arrangements relating
thereto, and collateral arrangements with respect to interest rate swap
transactions, reverse repurchase agreements, dollar roll transactions,
options, futures contracts and options thereon and obligations of the Fund
to Directors pursuant to deferred compensation arrangements are not deemed
to be pledge of assets or the issuance of a senior security.
4. Buy or sell commodities, commodity contracts, real estate or
interests in real estate. Transactions in foreign currencies, financial
futures contracts and forward contracts and any related options thereon are
not considered by the Fund to be transactions in commodities or commodity
contracts.
5. Make loans, except through (i) repurchase agreements and (ii) the
purchase of debt obligations and bank deposits.
6. Make investments for the purpose of exercising control or
management.
7. Act as an underwriter (except to the extent the Fund may be deemed
to be an underwriter in connection with the sale of securities in the
Fund's investment portfolio).
8. Except for securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, invest 25% or more of its total assets
at the time of purchase in any one industry or in the securities of any
central government or supranational issuer.
In order to comply with certain state "blue sky" restrictions, the Fund
will not as a matter of operating policy:
1. Invest in oil, gas and mineral leases.
2. Invest in securities of any issuer if any officer or director of
the Fund or the Fund's Manager or Subadviser owns more than 1/2 of 1% of
the outstanding securities of such issuer, and such officers and directors
who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
3. Purchase warrants if as a result the Fund would then have more than
5% of its assets (determined at the time of investment) invested in
warrants. Warrants will be valued at the lower of cost or market and
investment in warrants which are not listed on the New York Stock Exchange
or American Stock Exchange or a major foreign exchange will be limited to
2% of the Fund's net assets (determined at the time of investment). For
purposes of this limitation, warrants acquired in units or attached to
securities are deemed to be without value.
4. Purchase more than 10% of the outstanding voting securities of any
issuer.
5. 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 5% of its total assets
(taken at current value) would be invested in such securities, or except as
part of a merger, consolidation or other acquisition.]
6. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or
securities of issuers which are restricted as to disposition, if more than
15% of its total assets would be invested in such securities. This
restriction shall not apply to mortgage-backed securities, asset-backed
securities or obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
7. Purchase or sell real property (including limited partnership
interests), excluding readily available interests in real estate investment
trusts or readily marketable securities of companies which invest in real
estate.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
B-16
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
Position Principal Occupations and
Name, Address and Age with Fund Other Affiliations
- --------------------- --------- -------------------------
<S> <C> <C>
Edward D. Beach (71) Director President and Director of BMC Fund, Inc., a closed-end investment
800 Golfview Park company; prior thereto, Vice Chairman of Broyhill Furniture
Lenoir, NC 28645 Industries, Inc.; Certified Public Accountant; Secretary and
Treasurer of Broyhill Family Foundation Inc.; President, Director and
Treasurer of First Financial Fund, Inc. and The High Yield Plus Fund,
Inc.; Director/Trustee of 20 investment companies managed by PMF.
*Harry A. Jacobs, Jr. (74) Director Senior Director (since January 1986) of Prudential Securities;
One Seaport Plaza formerly Interim Chairman and Chief Executive Officer of PMF
New York, NY (June-September 1993); Chairman of the Board of Prudential Securities
(1982-1985) and Chairman of the Board and Chief Executive Officer of
Bache Group Inc. (1977-1982); Director of The First Australia Fund,
Inc. and The First Australia Prime Income Fund, Inc.; Trustee of the
Trudeau Institute; Director/Trustee of 24 investment companies
managed by PMF.
Thomas T. Mooney (54) Director President of the Greater Rochester Metro Chamber of Commerce; former
55 St. Paul Street Rochester City Manager; Trustee for Center for Governmental Research,
Rochester, NY Inc.; Director of Blue Cross of Rochester, Monroe County Water
Authority, Rochester Jobs Inc., Northeast-Midwest Institute, The
Business Council of New York State, Executive Service Corps of
Rochester, Monroe County Industrial Development Corporation, First
Financial Fund, Inc. and The High Yield Plus Fund, Inc.;
Director/Trustee of 15 investment companies managed by PMF.
*Richard A. Redeker (52) Director President, Chief Executive Officer and Director (since October 1993),
One Seaport Plaza PMF; Executive Vice President, Director and Member of the Operating
New York, NY Committee (since October 1993), Prudential Securities; Director
(since October 1993) of Prudential Securities Group, Inc. (PSG);
Executive Vice President, The Prudential Investment Corporation (PIC)
(since July 1994); Director (since January 1994) of Prudential Mutual
Fund Distributors, Inc. (PMFD) and Prudential Mutual Fund Services,
Inc. (PMFS); formerly Senior Executive Vice President and Director of
Kemper Financial Services, Inc. (September 1978-September 1993);
Director of The Global Yield Fund, Inc., The Global Government Plus
Fund, Inc., The Global Total Return Fund, Inc. and The High Yield
Income Fund, Inc.--President and Director of 38 investment companies
managed by PMF.
Sir Michael Sandberg (68) Director Chairman, Broadstreet Inc.; Director of International Totalizer
11 St. James Square Systems; Chairman and Director of PRICOA Worldwide Investors
London, SW1Y4LB Portfolio; Former Chairman of Hong Kong and Shanghai Banking
England Corporation and British Bank of the Middle East (1977-1986); Director
of 2 investment companies managed by PMF.
Robin B. Smith (56) Director President (since September 1981) and Chief Executive Officer (since
382 Channel Drive January 1988) of Publishers Clearing House; Director of BellSouth
Port Washington, NY Corporation, The Omnicon Group, Inc., Texaco Inc., Springs Industries
Inc., First Financial Fund, Inc. and The High Yield Plus Fund, Inc.;
Director/Trustee of 6 investment companies managed
by PMF.
</TABLE>
- ------------------------
* "Interested" Director, as defined in the Investment Company Act, by
reason of his affiliation with Prudential Securities or PMF.
B-17
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupations and
Name, Address and Age with Fund Other Affiliations
- --------------------- --------- -------------------------
<S> <C> <C>
Nancy H. Teeters (65) Director Economist; formerly Vice President and Chief Economist (March
c/o Prudential Mutual Fund 1986-June 1990) of International Business Machines Corporation;
Management, Inc. Member of the Board of Governors of the Horace H. Rackham School of
One Seaport Plaza Graduate Studies of the University of Michigan; Director of Inland
New York, NY Steel Industries (since July 1991); Director of First Financial Fund,
Inc.; Director/Trustee of 12 investment companies managed by PMF.
Robert F. Gunia (49) Vice Chief Administrative Officer (since July 1990), Director (since
One Seaport Plaza President January 1989) and Executive Vice President, Treasurer and Chief
New York, NY Financial Officer of PMF; Senior Vice President (since March 1987) of
Prudential Securities; Executive Vice President, Treasurer,
Comptroller and Director (since March 1991) of PMFD; Director (since
June 1987) of PMFS; Vice President and Director of The
Asia Pacific Fund, Inc. (since May 1989).
Eugene S. Stark (37) Treasurer First Vice President (since January 1990) of PMF.
One Seaport Plaza and Principal
New York, NY Financial and
Accounting
Officer
Stephen M. Ungerman (42) Assistant First Vice President of Prudential Mutual Fund Management, Inc.
One Seaport Plaza Treasurer (since February 1993). Prior thereto, Senior Tax Manager at Price
New York, NY Waterhouse (since 1981).
S. Jane Rose (49) Secretary Senior Vice President (since January 1991) and Senior Counsel and
One Seaport Plaza First Vice President (June 1987-December 1990) of PMF; Senior
New York, NY Vice President and Senior Counsel of Prudential Securities (since
July 1992) formerly Vice President and Associate General Counsel of
Prudential Securities.
Ronald Amblard (37) Assistant First Vice President (since January 1994), and Associate General
One Seaport Plaza Secretary Counsel (since January 1992) of PMF; Vice President and Associate
New York, NY General Counsel of Prudential Securities (since January 1992);
formerly, Assistant General Counsel (August 1988-December 1991),
Associate Vice President (January 1989-December 1990) and Vice
President (January 1991-December 1993) of PMF.
</TABLE>
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 or Prudential Mutual Fund Distributors, Inc. (PMFD).
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 the
investment adviser annual compensation of $8,000, plus $1,500 for attendance in
person per meeting of The Board of Directors in addition to certain
out-of-pocket expenses. Directors received $4,800 in out-of-pocket expenses for
the fiscal year ended December 31, 1994. Directors may receive their Directors'
fees pursuant to a deferred fee agreement with the Fund. Under the terms of the
agreement, the Fund accrues daily the amount of such 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. 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 Board of
Directors' fees, together with interest thereon, is a general obligation of the
Fund.
B-18
<PAGE>
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 Jacobs 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
to the Directors who are not affiliated with the Manager for the fiscal year
ended December 31, 1994 and the aggregate compensation paid to such Directors
for service on the Fund's board and that of all other investment companies
registered under the Investment Company Act of 1940 managed by Prudential Mutual
Fund Management, Inc. (Fund Complex) for the calendar year ended December 31,
1994.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement Estimated From Fund
Aggregate Benefits Accrued Annual And Fund
Compensation As Part of Fund Benefits Upon Complex Paid
Name and Position From Fund Expenses Retirement to Directors
----------------- ------------ ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Edward D. Beach, Director $14,000 None N/A $159,000(20/39)**
Thomas T. Mooney, Director $14,000 None N/A $126,000(15/36)**
Sir Michael Sandberg, Director $14,000 None N/A $ 22,000(2/2)**
Robin B. Smith, Director $14,000 None N/A $ 55,000*(6/15)**
Nancy Teeters, Director $14,000 None N/A $ 95,000(12/28)**
</TABLE>
- ------------------
* All compensation for the year ended December 31, 1994 represents deferred
compensation. Aggregate compensation from the Fund for the fiscal year
ended December 31, 1994, including accrued interest, amounted to
approximately $14,226. Aggregate compensation from all of the funds in the
Fund Complex for the calendar year ended December 31, 1994, including
accrued interest, amounted to approximately $57,417.
** Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.
As of September 29, 1995, the Directors and officers of the Fund as a group
owned less than 1% of the outstanding common stock of the Fund.
As of September 29,1995, Prudential Securities was record holder of
10,233,842 shares (or 15.5% of the outstanding shares), of the Fund. In the
event of any meetings of shareholders, Prudential Securities will forward, or
cause the forwarding of, proxy materials to the beneficial owners for which it
is the record holder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to all of the other investment companies that, together with the Fund, comprise
the "Prudential Mutual Funds." See "How the Fund is Managed" in the Prospectus.
As of November 30, 1995, PMF managed and/or administered open-end and closed-end
management investment companies with assets of approximately $50 billion and
according to the Investment Company Institute as of April 30, 1994, the
Prudential Mutual Funds were the 12th largest family of mutual funds in the
United States.
PMF is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management, Inc. PMFS serves as the transfer agent for the Prudential
Mutual Funds and in addition, provides customer service, recordkeeping and
management and administration services to qualified plans.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, PMF is obligated to keep certain books and records of the Fund. PMF
also administers the Fund's corporate affairs and, in connection therewith,
furnishes the Fund 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 Transfer Agent. The management services
of PMF for the Fund are not exclusive under the terms of the Management
Agreement and PMF is free to, and does, render management services to others.
B-19
<PAGE>
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .75 of 1% of the Fund's average daily net assets up to $500
million, .70 of 1% of such assets between $500 million and $1 billion and .65 of
1% of such assets in excess of $1 billion. The fee is computed daily and payable
monthly. The Management Agreement also provides that, in the event the expenses
of the Fund (including the fees of PMF, but excluding interest, taxes, brokerage
commissions, distribution fees and litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdiction in which the Fund's shares are qualified for offer and sale,
the compensation due to PMF will be reduced by the amount of such excess.
Reductions in excess of the total compensation payable to PMF will be paid by
PMF to the Fund. Currently, the Fund believes that the most restrictive expense
limitation of state securities commissions is 2 1/2% of the Fund's average daily
net assets up to $30 million, 2% of the next $70 million of such assets and
1 1/2% of such assets in excess of $100 million.
In connection with its management of the business affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel
except the fees and expenses of members of the Board of Directors who are
not affiliated persons of PMF or the Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those
assumed by the Fund as described below; and
(c) the costs and expenses payable to PIC pursuant to the subadvisory
agreement between PMF and PIC (the Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated persons of the Manager
or the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer Agent, including the cost of providing records to the
Manager in connection with its obligation of maintaining required records of the
Fund and of pricing the Fund's shares, (d) the charges and expenses of legal
counsel and independent accountants for the Fund, (e) brokerage commissions and
any issue or transfer taxes chargeable to the Fund in connection with its
securities transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade associations of which the Fund
may be a member, (h) the cost of stock certificates representing shares of the
Fund, (i) the cost of fidelity and liability insurance, (j) certain organization
expenses of the Fund and 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 and qualifying its shares under state
securities laws, including the preparation and printing of the Fund's
registration statements and prospectuses for such purposes, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Board of Directors' meetings and of preparing, printing and
mailing reports, proxy statements and prospectuses to shareholders in the amount
necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act. The Management Agreement
was last approved by the Board of Directors of the Fund, including a majority of
the Directors who are not parties to the contract or interested persons of any
such party as defined in the Investment Company Act, on May 4, 1995 and by
shareholders of the Fund on September 29, 1988.
PMF earned management fees of $3,968,777, $4,201,489 and $4,267,090 for the
fiscal years ended December 31, 1994, 1993 and 1992, respectively.
PMF has entered into the Subadvisory Agreement with PIC (the Subadviser), a
wholly-owned subsidiary of Prudential Insurance. The Subadvisory Agreement
provides that PIC will furnish investment advisory services in connection with
the management of the Fund. In connection therewith, PIC is obligated to keep
certain books and records of the Fund; PMF continues to have responsibility for
all investment advisory services pursuant to the Management Agreement and
supervises PIC's performance of such services. PIC is reimbursed by PMF for the
reasonable costs and expenses incurred by PIC in furnishing services to PMF.
B-20
<PAGE>
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Board of Directors who are not parties to the
contract or interested persons of any such party as defined in the Investment
Company Act, on May 4, 1995 and was approved by shareholders of the Fund on
September 29, 1988.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days' nor less than 3O
days' written notice. The Subadvisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved at least annually in accordance with
the requirements of the Investment Company Act.
Prudential 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, 1994. Its primary business is to
offer a full range of products and services in three areas: insurance,
investments and home ownership for individuals and families; health-care
management and other benefit programs for employees of companies and members of
groups; and asset management for institutional clients and their associates.
Prudential (together with its subsidiaries) employs nearly 100,000 persons
worldwide, and maintains a sales force of approximately 19,000 agents, 3,400
insurance brokers and 6,000 financial advisors. It insures or provides other
financial services to more than 50 million people worldwide. 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.
Investment advisory services are provided to the Fund by a unit of the
Subadviser, known as Prudential Mutual Fund Investment Management.
The Subadvisor maintains a credit unit which provides credit analysis and
research on taxable fixed-income securities. The portfolio manager routinely
consults with the credit unit in managing the Fund's portfolio. The credit unit
reviews on an ongoing basis issuers of taxable fixed-income obligations,
including prospective purchases and portfolio holdings of the Fund. Credit
analysts have broad access to research and financial reports, data retrieval
services and industry analysts.
Credit analysts review financial statements published by corporate (and
governmental) issuers to examine income statements, balance sheets and cash flow
numbers. They evaluate this data against their expectations of sales, earnings
growth and trends in credit ratios. They study the impact of economic,
regulatory and political developments on companies and industries and look at
the relative value of companies. They are in regular communication both in
person and by telephone with company management, Wall Street analysts and rating
agencies.
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, or 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.
DISTRIBUTOR
Prudential Securities, One Seaport Plaza, New York, New York 10292 acts as
the distributor of the Fund's shares.
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
under Rule 12b-1 under the Investment Company Act and a separate 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. See "How the Fund is Managed--Distributor" in the Prospectus.
Prior to December , 1995, the Fund operated as a closed-end fund and
offered only one class of shares (the then existing Class A shares). On
September 11, 1995, the Board of Directors, including a majority of the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Class A Plan or in any
agreement related to either Plan (the Rule 12b-1 Directors), at a meeting called
for the purpose of voting on the Class A Plan, adopted a plan of distribution
for the Class A shares of the Fund. The Class A Plan was approved by
shareholders of the Fund on December 6, 1995. On September 11, 1995, the Rule
12b-1 Directors, at a meeting called for the purpose of voting on the Class B
and Class C Plans, adopted plans of distribution for the Class B and Class C
shares of the Fund. The Class B and Class C Plans were approved by the sole
shareholder of each Class on December , 1995.
The 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 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 Fund on not more than 30 days' written notice to any other party
to the Plans. The Plans may not be amended to increase materially the amounts to
be spent for the services
B-21
<PAGE>
described therein without approval by the shareholders of the applicable class
(by both Class A and Class B shareholders, voting separately, in the case of
material amendments to the Class A Plan), and all material amendments are
required to be approved by the Board of Directors in the manner described above.
Each Plan will automatically terminate in the event of its assignment. The Fund
will not be contractually obligated to pay expenses incurred under any Plan if
they are terminated or not continued.
Pursuant to each Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf of
each class of shares of the Fund by the Distributor. The report will include an
itemization of the distribution expenses and the purposes of such expenditures.
In addition, as long as the Plans remain in effect, the selection and nomination
of Rule 12b-1 Directors shall be committed to the Rule 12b-1 Directors.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
Prudential Securities to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933. The Distribution Agreement was
approved by the Board of Directors, including a majority of the Rule 12b-1
Directors, on September 11, 1995.
NASD Maximum Sales Charge Rule. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. Interest charges on unreimbursed distribution expenses equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not included in
the calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of the Fund may not exceed .75 of 1% per class. The 6.25% limitation
applies to each class of the Fund 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.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In setting the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent "ombudsman" whom PSI
employees can call anonymously with complaints about ethics and compliance.
Prudential Securities shall report any allegations or instances of criminal
conduct and material improprieties to the new director. The new director will
submit compliance reports which shall identify all such allegations or instances
of criminal conduct and material improprieties every three months for a
three-year period.
B-22
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Fund, the
selection of brokers, dealers and futures commission merchants to effect the
transactions and the negotiation of brokerage commissions, if any. (For purposes
of this section, the term "Manager" includes the Subadviser.) On a national
securities exchange, broker-dealers may receive negotiated brokerage commissions
on Fund portfolio transactions, including options, futures, and options on
futures transactions and the purchase and sale of underlying securities upon the
exercise of options. On a foreign securities exchange, 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.
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 and agency securities may be purchased directly from the
issuer, in which case no commissions or discounts are paid. The Fund will not
deal with Prudential Securities in any transaction in which Prudential
Securities acts as principal. Thus, it will not deal in over-the-counter market
with Prudential Securities acting as market maker, and it will not execute a
negotiated trade with Prudential Securities if execution involves Prudential
Securities' acting as principal with respect to any part of the Fund's order.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of this policy, the Manager will consider the research and
investment services provided by brokers, dealers or futures commission merchants
who effect or are parties to portfolio transactions of the Fund, the Manager or
the Manager's other clients. Such research and investment services are those
which brokerage houses customarily provide to institutional investors and
include statistical and economic data and research reports on particular
companies and industries. Such services are used by the Manager in connection
with all of its investment activities, and some of such services obtained in
connection with the execution of transactions for the Fund may be used in
managing other investment accounts. Conversely, brokers, dealers or futures
commission merchants furnishing such services may be selected for the execution
of transactions of such other accounts, whose aggregate assets are far larger
than the Fund, and the services furnished by such brokers, dealers or futures
commission merchants may be used by the Manager in providing investment
management for the Fund. Commission rates are established pursuant to
negotiations with the broker, dealer or futures commission merchant based on the
quality and quantity of execution services provided by the broker, dealer or
futures commission merchant in the light of generally prevailing rates. The
Manager's policy is to pay higher commissions to brokers and futures commission
merchants, other than Prudential Securities, for particular transactions than
might be charged if a different broker had been selected, on occasions when, in
the Manager's opinion, this policy furthers the objective of obtaining best
price and execution. In addition, the Manager is authorized to pay higher
commissions on brokerage transactions for the Fund to brokers and futures
commission merchants other than Prudential Securities in order to secure
research and investment services described above, subject to review by the
Fund's Board of Directors from time to time as to the extent and continuation of
this practice. The allocation of orders among brokers and futures commission
merchants and the commission rates paid are reviewed periodically by the Fund's
Board of Directors. Portfolio securities may not be purchased from any
underwriting or selling syndicate of which Prudential Securities (or 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 Securities and Exchange Commission. This limitation, in the opinion of the
Fund, will not significantly affect the Fund's ability to pursue its present
investment objective. However, in the future, in other circumstances, the Fund
may be at a disadvantage because of this limitation in comparison to other funds
with similar objectives but not subject to such limitations.
Subject to the above considerations, Prudential Securities (or any
affiliate) may act as a broker or futures commission merchant for the Fund. In
order for Prudential Securities (or any affiliate) to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration received
by Prudential Securities (or any affiliate) must be reasonable and fair compared
to the commissions, fees or other remuneration paid to other such brokers or
futures commission merchants in connection with comparable transactions
involving similar securities or futures contracts being purchased or sold on an
exchange or board of trade during a comparable period of time. This standard
would allow Prudential Securities (or any affiliate) to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker or
futures commission merchant in a commensurate arm's-length transaction.
Furthermore, the Board of Directors of the Fund, including a majority of the
non-interested Directors, have adopted procedures which are reasonably designed
to provide that any commissions, fees or
B-23
<PAGE>
other remuneration paid to Prudential Securities (or any affiliate) are
consistent with the foregoing standard. In accordance with Section 11(a) of the
Securities Exchange Act of 1934, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange for
the Fund unless the Fund has expressly authorized the retention of such
compensation. Prudential Securities must furnish to the Fund at least annually a
statement setting forth the total amount of all compensation retained by
Prudential Securities for transactions effected by the Fund during the
applicable period. Brokerage transactions with Prudential Securities (or any
affiliate) are also subject to such fiduciary standards as may be imposed upon
Prudential Securities (or such affiliates) by applicable law.
The Fund paid no brokerage commissions to Prudential Securities for the
fiscal years ended December 31, 1994, 1993 and 1992.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis(Class B or Class C shares). See "Shareholder Guide--How
to Buy Shares of the Fund" in the Prospectus.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except
that the Fund has agreed with the Securities and Exchange Commission in
connection with the offering of a conversion feature on Class B shares to submit
any amendment of the Class A distribution and service plan to both Class A and
Class B shareholders) and (iii) only Class B shares have a conversion feature.
See "Distributor." Each class also has separate exchange privileges. See
"Shareholder Investment Account--Exchange Privilege."
Specimen Price Make-up
Under the current distribution arrangements between the Fund and the
Distributor, Class A* shares of the Fund are sold at a maximum sales charge of
4% and Class B* and Class C* shares are sold at net asset value. Using the
Fund's net asset value at June 30, 1995, the maximum offering price of the
Fund's shares is as follows:
Class A
Net asset value and redemption price per Class A share ............. $8.39
Maximum sales charge (4% of offering price) ........................ .35
-----
Offering price to public ........................................... $8.74
=====
Class B
Net asset value, offering price and redemption price
per Class B share* ............................................... $8.39
=====
Class C
Net asset value, offering price and redemption price
per Class C share* ............................................... $8.39
=====
- -------------------
* 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. Class B and
Class C shares did not exist on June 30, 1995 and the Fund operated as a
closed-end fund.
Reduction and Waiver of Initial Sales Charges--Class A Shares
Combined Purchase and Cumulative Purchase Privilege. If an investor or
eligible group of related investors purchases Class A shares of the Fund
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 breakpoints under "Shareholder
Guide--Alternative Purchase Plan" in the Prospectus.
An eligible group of related Fund 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);
B-24
<PAGE>
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include a
employer (or group of related employers) and one or more qualified 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 charges 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 shares of the
Fund 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 (net asset value plus maximum sales charge) as
of the previous business day. See "Net Asset Value" in the Prospectus. The
Distributor must be notified at the time of purchase that the investor is
entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings. Rights of accumulation are
not available to individual participants in any retirement or group plans.
Letter of Intent. Reduced sales charges are 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 Fund and shares of other Prudential
Mutual Funds. All shares of the Fund and shares of other Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the exchange
privilege) which were previously purchased and are still owned are also included
in determining the applicable reduction. However, the value of shares held
directly with the Transfer Agent and through Prudential Securities will not be
aggregated to determine the reduced sales charge. All shares must be held either
directly with the Transfer Agent or through Prudential Securities. 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. Letters of Intent are not
available to individual participants in any retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. 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 a Letter of Intent may be back-dated up to 90 days, in order
that any investments made during this 90-day period, valued at the purchaser's
cost, can be applied to the fulfillment of the Letter of Intent goal, except in
the case of retirement and group plans.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. 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. If the goal is exceeded in
an amount which qualifies for a lower sales charge, a price adjustment is made
by refunding to the purchaser the amount of excess sales charge, if any, paid
during the thirteen-month period. Investors electing to purchase Class A shares
of the Fund pursuant to a Letter of Intent should carefully read such Letter of
Intent.
Waiver of the Contingent Deferred Sales Charge--Class B Shares.
The contingent deferred sales charge is waived under circumtances 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.
B-25
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Category of Waiver Required Documentation
Death A copy of the shareholder's death certificate or, in the
case of a trust, a copy of the grantor's death
certificate, plus a copy of the trust agreement identifying the
grantor.
Disability--An individual will be considered A copy of the Social Security Administration award letter
disabled if he or she is unable to engage in or a letter from a physician on the physician's
any substantial gainful activity by reason of letterhead stating that the shareholder (or, in the case of
any medically determinable physical or mental a trust, the grantor) is permanently disabled. The
impairment which can be expected to result in letter must also indicate the date of disability.
death or to be of long-continued and indefinite
duration.
Distribution from an IRA or 403(b) Custodial A copy of the distribution form from the custodial firm
Account 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.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund 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 Fund at net asset
value on the record date. An investor may direct the Transfer Agent in writing
not less than five (5) full business days prior to the record date to have
subsequent dividends and/or distributions sent in cash rather than reinvested.
In the case of recently purchased shares for which registration instructions
have not been received on the record date, cash payment will be made directly to
the dealer. Any shareholder who receives a cash payment representing a dividend
or distribution may reinvest such distribution at net asset value by returning
the check or the proceeds to the Transfer Agent within 30 days after the payment
date. Such investment will be made at the net asset value per share next
determined after receipt of the check or proceeds by the Transfer Agent. Such
shareholder will receive credit for any contingent deferred sales charge paid in
connection with the amount of proceeds being reinvested.
Exchange Privilege.
The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of relative net asset value next determined after receipt of
an order in proper form. An exchange will be treated as a redemption and
purchase for tax purposes. Shares may be exchanged for shares of another fund
only if shares of such fund may legally be sold under applicable state laws. For
retirement and group plans having a limited menu of Prudential Mutual Funds, the
Exchange Privilege is available for those funds eligible for investment in the
particular program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
B-26
<PAGE>
Class A. Shareholders of the Fund will be able to exchange their Class A
shares for Class A shares of certain other Prudential Mutual Funds, shares of
Prudential Government Securities Trust (Intermediate Term Series) and shares of
the money market funds specified below. No fee or sales load will be imposed
upon the exchange. Shareholders of money market funds who acquired such shares
upon exchange of Class A shares may use the Exchange Privilege only to acquire
Class A shares, of the Prudential Mutual Funds participating in the Class A
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 MoneyMart Assets
Prudential Tax-Free Money Fund
Class B and Class C. Shareholders of the Fund 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, Inc., a money market fund. No CDSC may 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 first day of the month after of the initial purchase, rather
than the date of the exchange.
Class B and Class C shares of the Fund 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 the Fund, such shares will be subject to the CDSC calculated by
excluding the time such shares were held in the money market fund. In order to
minimize the period of time in which shares are subject to a CDSC, shares
exchanged out of the money market fund will be exchanged on the basis of their
remaining holding periods, with the longest remaining holding periods being
transferred first. In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month. Thus, if
shares are exchanged into the Fund from a money market fund during the month
(and are held in the Fund at the end of the month), the entire month will be
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period. For purposes of calculating the five 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 or Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B or Class C
shares of the Fund, 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, respectively of other funds without
being subject to any CDSC.
Additional details about the exchange privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The exchange privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the Fund,
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.
B-27
<PAGE>
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.1
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.2
<TABLE>
<CAPTION>
Period of
Monthly investments: $100,000 $150,000 $200,000 $250,000
------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years ........................ $ 110 $ 165 $ 220 $ 275
20 Years ........................ 176 264 352 440
15 Years ........................ 296 444 592 740
10 Years ........................ 555 833 1,110 1,388
5 Years ........................ 1,371 2,057 2,742 3,428
See "Automatic Savings Accumulation Plan."
</TABLE>
- -------------------
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.
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 Fund.
The investment return and principal value of an investment will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
Automatic Savings Accumulation Plan (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account or
Prudential Securities account (including a Command Account) to be debited to
invest specified dollar amounts in shares of the Fund. The investor's bank must
be a member of the Automatic Clearing House System. Share certificates are not
issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
Systematic Withdrawal Plan
A systematic withdrawal plan is available to shareholders through
Prudential Securities or the Transfer Agent. Such withdrawal plan provides for
monthly or quarterly checks in any amount, except as provided below, up to the
value of the shares in the shareholder's account. Withdrawals of Class B or
Class C shares may be subject to a CDSC. See "Shareholder Guide--How to Sell
Your Shares--Contingent Deferred Sales Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment
Account--Automatic Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
B-28
<PAGE>
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 applicable sales charges 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 plan, particularly 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-deferred 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, and 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 Compounding1
Contributions Personal
Made Over: Savings IRA
------------- -------- ---
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
- ------------
1 The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in the IRA account will be subject to tax when withdrawn from the
account.
Mutual Fund Programs
From time to time, the Fund may be included in a mutual fund program with
other Prudential Mutual Funds. Under such a program, a group of portfolios will
be selected and thereafter promoted collectively. Typically, these programs are
created with an investment theme, e.g., to seek greater diversification,
protection from interest rate movements or access to different management
styles. In the event such a program is instituted, there may be a minimum
investment requirement for the program as a whole. A Series may waive or reduce
the minimum initial investment requirements in connection with such a program.
The mutual funds in the program may be purchased individually or as a part
of the program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, investors should consult their Prudential
Securities Financial Adviser or Prudential/Pruco Securities Representative
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
B-29
<PAGE>
NET ASSET VALUE
The net asset value per share is the net worth of the Fund (assets,
including securities at value, minus liabilities) divided by the number of
shares outstanding. Net asset value is calculated separately for each class. The
Fund computes its net asset value at 4:15 P.M., New York time, on each day the
New York Stock Exchange is open for trading except days on which no orders to
purchase, sell or redeem Fund shares have been received or on days on which
changes in the value of the Fund's portfolio investments do not affect net asset
value. In the event the New York Stock Exchange closes early on any business
day, the net asset value of the Fund's 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, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of the
Fund's portfolio will be determined as follows:
Government securities for which quotations are available will be based on
the prices provided by independent pricing services. Pricing services consider
such factors as security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at securities
valuations. Other portfolio 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, will be valued at the average of the quoted bid
and asked prices provided by an independent pricing service or by principal
market makers. Any security for which the primary market is on an exchange is
valued at the last sale price on such exchange on the day of valuation or, if
there was no sale on such day, the last bid price quoted on such day. Quotations
of foreign securities in a foreign currency will be converted to U.S. dollar
equivalents at the spot currency value. Forward currency exchange contracts will
be valued at the current cost of covering or offsetting the contract. Options
will be valued at their last sale price as of the close of options trading on
the applicable exchanges. If there is no sale on the applicable options exchange
on a given day, options will be valued at the average of the quoted bid and
asked prices as of the close of the applicable exchange. The Fund may engage
pricing services to obtain such prices. Over-the-counter options will be valued
at the average of the bid and asked prices provided by principal market makers.
Options will be valued at market value or fair value if no market exists.
Futures contracts are marked to market daily, and options thereon are valued at
their last sale price, as of the close of the applicable commodities exchanges.
Short-term instruments which mature in 60 days or less are valued at amortized
cost, if their original maturity was 60 days or less, or by amortizing their
value on the 61st day prior to maturity, unless the Fund's Manager determines
that such valuation does not represent fair value. Repurchase agreements will be
valued at cost plus accrued interest. Securities or other assets for which
reliable market quotations are not readily available are valued by the Manager
in good faith at fair market value in accordance with procedures adopted by the
Board of Directors on the basis of the following factors: cost of the security,
transactions in comparable securities, relationships among various securities
and such other factors as may be determined by the Manager to materially affect
the value of the security.
PERFORMANCE INFORMATION
Average Annual Total Return. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See "How the Fund Calculates
Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the one, five or ten
year periods (or fractional portion thereof) of a
hypothetical $1,000 investment made at the beginning of
the one, five or ten year periods.
Average annual total return does not take into account any federal or state
income taxes that may be payable upon redemption.
The average annual total return for Class A shares based on market price
per share for the one and five year and since inception periods ended June 30,
1995 was 11.9%, 5.8% and 8.0%, respectively. No Class B or Class C shares were
outstanding during any of these periods. The Fund operated as a closed-end
investment company prior to December __, 1995.
B-30
<PAGE>
Aggregate Total Return. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B and
Class C 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 Fund and is computed according to the following formula:
ERV-P
--- -
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one, five or ten year periods
(or fractional portion thereof) at the end of the one, five
or ten year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption.
The Fund's aggregate total return for Class A shares based on market price
per share for the one and five year and since inception periods ended June 30,
1995 was 11.9%, 32.7% and 100.0%, respectively. No Class B or Class C shares
were outstanding during any of these periods. The Fund operated as a closed-end
investment company prior to December __, 1995.
Yield. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B and
Class C shares. The yield will be computed by dividing the Fund's 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:
a - b
YIELD = 2[(-----+1)6-1]
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 Fund as to what an investment in the Fund will actually yield for any
given period.
The Fund's 30-day yields for the 30 days ended June 30, 1995, was 6.12%. No
Class B or C shares were available during this period. The Fund operated as a
closed-end investment company prior to December __, 1995.
From time to time, the performance of the fund 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
A Look At Performance Over the Long-Term
(1926-1992)
[GRAPH]
1 Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1993
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Common stock returns are based on the Standard & 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.
B-31
<PAGE>
TAXES, DIVIDENDS AND DISTRIBUTIONS
General. The Fund has qualified and intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code for
each taxable year. Accordingly, the Fund must, among other things, (a) derive at
least 90% of its gross income (without offset for losses from the sale or other
disposition of securities or foreign currencies) 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 derived from options and futures on such securities or foreign
currencies; (b) derive less than 30% of its gross income from gains (without
offset for losses) from the sale or other disposition of securities or options
thereon held less than three months; and (c) diversify its holdings so that, at
the end of each fiscal quarter, (i) 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities and other securities limited,
in respect of any one issuer, to an amount not greater than 5% of the Fund's
assets and no more than 10% of the outstanding voting securities of any 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). These
requirements may limit the Fund's ability to engage in transactions involving
options on securities, futures contracts and options thereon.
The Fund declares dividends on a daily basis in an amount based on actual
net investment income determined in accordance with generally accepted
accounting principles. A portion of such dividend may also include projected net
investment income. Such dividends will be payable monthly in additional shares
of the Fund unless otherwise requested by the shareholder.
Net capital gains, if any, will be distributed at least annually. In
determining the amount of capital gains to be distributed, any capital loss
carryforwards from prior years will be offset against capital gains. The Fund
had a capital loss carryforward for federal income tax purposes at December 31,
1994 of approximately $32,431,000 which expires in 2002.
The Fund has elected to treat approximately $6,212,600 of net capital
losses and $10,344,800 of net foreign currency losses incurred in the two month
period ended December 31, 1994 as having been incurred in the following fiscal
year. Distributions, if any, will be paid in additional Fund shares based on the
net asset value unless the shareholder elects in writing not less than 5 full
business days prior to the record date to receive such distributions in cash.
The per share dividends on Class B and Class C shares typically will be
lower than the per share dividends on Class A shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions of net capital gains, if any, will be paid in the same
amount for Class A, Class B and Class C shares. See "Net Asset Value."
As a regulated investment company, the Fund 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 that it distributes at least 90% of
its net investment income and short-term capital gains earned in each year.
Distributions of net investment income, net currency gains and net short-term
capital gains will be taxable to the shareholder at ordinary income rates
regardless of whether the shareholder receives such distributions in additional
shares or in cash. Distributions of net long-term capital gains, if any, are
taxable as long-term capital gains regardless of how long the investor has held
his or her Fund shares. However, if a shareholder holds shares in the Fund for
not more than six months, then any loss recognized on the sale of such shares
will be treated as long-term capital loss to the extent of any distribution on
the shares which was treated as long-term capital gain. To the extent that, in a
given year, distributions to shareholders exceed recognized net investment
income and recognized short-term and long-term capital gains for the year,
shareholders will receive a return of capital in respect of such year and, in an
annual statement, will be notified of the amount of any return of capital for
such year. Shareholders will be notified annually by the Fund as to the federal
tax status of dividends and distributions made by the Fund. A 4% nondeductible
excise tax will be imposed on the Fund to the extent the Fund does not meet
certain distribution requirements by the end of each calendar year.
Distributions may be subject to additional state and local taxes. See "Taxes,
Dividends and Distributions" in the Prospectus.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses on disposition of
debt securities denominated in a foreign currency attributable to fluctuations
in the value of the foreign currency between the date of acquisition of the
security and the date of disposition also are treated as ordinary gain or loss.
These gains, referred to under the Code as "Section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income, rather than
increasing or decreasing the amount of the Fund's net capital gain, as was the
case prior to 1987. If Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund would not be able to make any
taxable ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as a return of capital to shareholders,
rather than as an ordinary dividend, reducing each shareholder's basis in his or
her shares.
B-32
<PAGE>
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 the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the Fund.
Distributions of net investment income made to a nonresident alien
individual fiduciary of a foreign estate or trust or 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. Gains
realized upon the sale or redemption of shares of the Fund 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 Fund
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 Fund 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 Fund 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 Fund.
Income received by the Fund 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 Fund's assets to be invested in
various countries is not known.
If the Fund is liable for foreign taxes, the Fund expects to meet the
requirements of the Internal Revenue Code for "passing-through" to its
shareholders foreign taxes paid, but there can be no assurance that the Fund
will be able to do so. Under the Internal Revenue Code, if more than 50% of the
value of the Fund's total assets at the close of its taxable year consists of
stock or securities of foreign corporations, the Fund will be eligible and may
file an election with the Internal Revenue Service to "pass-through" to the
Fund's shareholders the amount of foreign taxes paid by the Fund. 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 taxes paid by the Fund; (ii) treat their pro rata share of foreign taxes
as paid by them; and (iii) either deduct their pro rata share of foreign taxes
in computing their taxable income or, subject to certain limitations, use it as
a foreign tax credit against U.S. income taxes. 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
Fund's taxable year whether the foreign taxes paid by the Fund will
"pass-through" for that year and, if so, such notification will designate
(a) the shareholder's portion of the foreign taxes paid to each such country and
(b) the portion of the dividend which represents income derived from sources
within each such country.
Listed Options and Futures. Exchange-traded futures contracts, listed
options on futures contracts and listed options on U.S. Government securities
constitute "Section 1256 contracts" under the Internal Revenue Code. Section
1256 contracts are required to be "marked-to-market" at the end of the Fund's
tax year; that is, treated as having been sold at market value. Sixty percent of
any gain or loss recognized as a result of such "deemed sales" will be treated
as long-term capital gain or loss and the remainder will be treated as
short-term capital gain or loss.
Backup Withholding. With limited exceptions, the Fund is required to
withhold federal income tax at the rate of 31% of all taxable distributions
payable to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certification or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Any amounts withheld may be credited against a shareholder's
federal income tax liability.
B-33
<PAGE>
Other Taxation. Distributions may also be subject to state, local and
foreign taxes depending on each shareholder's particular situation. Shareholders
are advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING
AGENT AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash, and in that capacity maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Subcustodians provide custodial
services for the Fund's foreign assets held outside the United States. See "How
the Fund is Managed--Custodian and Transfer and Dividend Disbursing Agent" in
the Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the
Fund. PMFS is a wholly-owned subsidiary of PMF. PMFS provides customary transfer
agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions, and
related functions. For these services, PMFS receives an annual fee per
shareholder account, a new account set-up fee for each manually-established
account and a monthly inactive zero balance account fee per shareholder account.
PMFS is also reimbursed for its out-of-pocket expenses, including but not
limited to postage, stationery, printing, allocable communications expenses and
other costs.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, serves as the Fund's independent accountants and in that capacity audits
the Fund's annual financial statements.
B-34
<PAGE>
- ----------------------------------------------------------
THE GLOBAL TOTAL RETURN FUND, INC.
Portfolio of Investments
June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------
Principal US$
Amount Value
(000) Description (Note 1)
- --------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS(a)--89.7%
Australia--4.4%
Australian Government
Bond,
A$ 29,520 9.00%, 9/15/04.......... $ 20,701,082
New South Wales Treasury
Corp.,
7,000 6.50%, 5/1/06........... 3,958,905
------------
24,659,987
------------
Canada--5.0%
British Columbia
Provincial Bond,
C$ 8,000 7.75%, 6/16/03.......... 5,702,005
Canadian Government
Bond,
28,600 9.00%, 12/1/04.......... 22,192,702
------------
27,894,707
------------
Denmark--7.2%
Danish Government Bonds,
DKr 59,940 8.00%, 11/15/01......... 10,929,108
76,600 8.00%, 5/15/03.......... 13,762,610
91,940 7.00%, 12/15/04......... 15,310,370
------------
40,002,088
------------
Germany--10.9%
German Government Bonds,
DM 21,630 6.125%, 3/26/98......... 15,816,156
16,380 5.375%, 2/22/99......... 11,687,319
14,180 6.75%, 4/22/03.......... 10,102,225
16,300 7.375%, 1/3/05.......... 12,030,672
18,140 6.25%, 1/4/24........... 11,068,808
------------
60,705,180
------------
Ireland--3.7%
Irish Government Bonds,
IEP 6,500 8.75%, 7/27/97.......... 10,788,448
6,500 6.25%, 4/1/99........... 9,846,388
------------
20,634,836
------------
Italy--3.2%
Export Finance Corp. of
Norway,
Lira 1,000,000 12.25%, 8/5/96.......... 613,904
- --------------------------------------------------------
Principal US$
Amount Value
(000) Description (Note 1)
- --------------------------------------------------------
Italian Government Bond,
Lira 31,950,000 8.5%, 8/1/99............ $ 17,252,712
------------
17,866,616
------------
Japan--7.2%
Japanese Government
Bonds,
Y 1,200,000 6.60%, 6/20/01.......... 17,401,697
1,660,000 4.60%, 9/20/04.......... 22,327,040
------------
39,728,737
------------
Netherlands--3.0%
Dutch Government Bonds,
DG 14,000 7.00%, 6/15/05.......... 9,036,395
12,000 7.50%, 1/15/23.......... 7,682,780
------------
16,719,175
------------
New Zealand--0.7%
New Zealand Government
Bond,
NZ$ 6,000 10.00%, 7/15/97......... 4,148,149
------------
Sweden--4.2%
Swedish Government
Bonds,
SKr 51,200 11.00%, 1/21/99......... 7,099,233
120,000 10.25%, 5/5/00.......... 16,203,653
------------
23,302,886
------------
United Kingdom--7.7%
Guaranteed Export
Finance Corp.,
BP 1,750 7.25%, 12/15/98......... 2,701,757
United Kingdom Treasury
Bond,
13,000 7.75%, 9/8/06........... 19,593,844
United Kingdom Treasury
Notes,
3,180 7.00%, 11/6/01.......... 4,726,494
10,200 8.00%, 9/27/13.......... 15,495,402
------------
42,517,497
------------
United States--32.5%
U.S Government Bonds--30.6%
United States Treasury
Bond,
US$ 26,190 7.50%, 11/15/24......... 28,976,878
</TABLE>
See Notes to Financial Statements.
B-35
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------
<C> <S> <C>
Principal US$
Amount Value
(000) Description (Note 1)
- --------------------------------------------------------
United States (cont'd.)
United States Treasury
Notes,
US$ 12,100 7.375%, 11/15/97........ $ 12,493,250
14,000 5.00%, 1/31/99.......... 13,575,660
56,000 6.75%, 6/30/99.......... 57,443,680
10,000 7.75%, 11/30/99......... 10,665,600
14,100 7.75%, 1/31/00.......... 15,065,004
13,500 5.50%, 4/15/00.......... 13,238,370
16,810 7.875%, 11/15/04........ 18,722,137
------------
170,180,579
------------
Sovereign Bonds--1.8%
Argentina Cedulas,
Rural Mortgage Bonds
3,050 7.90%, 9/1/00........... 2,836,500
National Bank of
Hungary,
3,000 7.95%, 11/1/03.......... 2,583,000
Republic of Colombia,
3,000 8.75%, 10/6/99.......... 3,129,378
Republic of Poland
2,000 7.125%, 10/27/14........ 1,195,000
------------
9,743,878
------------
Supranational Bond--0.1%
Corporation Andina de
Fomento
500 6.625%, 10/14/98........ 491,250
------------
180,415,707
------------
Total long-term
investments
(cost
US$483,018,477)....... 498,595,565
------------
SHORT-TERM INVESTMENTS--7.8%
Mexico
Mexican Tesobonos,(b)
US$ 134(a) 8.45%, 7/27/95.......... 132,712
94(a) 8.35%, 8/3/95........... 92,725
------------
225,437
------------
- --------------------------------------------------------
Principal US$
Amount Value
(000) Description (Note 1)
- --------------------------------------------------------
Netherlands--0.7%
Netherlands Time
Deposit,
DG 5,900(a) 4.00%, 7/3/95........... $ 3,805,911
------------
New Zealand--3.4%
New Zealand Government
Bond,
NZ$ 12,000(a) 8.00%, 11/15/95......... 7,989,296
New Zealand Time
Deposit,
16,400(a) 8.50%, 7/3/95........... 10,960,149
------------
18,949,445
------------
United States--3.7%
Joint Repurchase
Agreement Account,
US$ 20,347 6.12%, 7/3/95, (Note
5).................... 20,347,000
------------
Total short-term
investments
(cost
US$43,420,982)........ 43,327,793
------------
Total Investments--97.5%
(cost $526,439,459; Note
3).................... 541,923,358
Other assets in excess
of
liabilities--2.5%..... 13,648,725
------------
Net Assets--100%........ $555,572,083
------------
------------
</TABLE>
- ------------------
Portfolio securities are classified according to the security's
currency denomination.
(a) Principal amount segregated as collateral for
forward currency contracts.
(b) Percentages quoted represent yields to maturity as
of purchase date.
See Notes to Financial Statements.
B-36
<PAGE>
- ----------------------------------------------------------
THE GLOBAL TOTAL RETURN FUND, INC.
Statement of Assets and Liabilities
June 30, 1995
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$526,439,459)........................ $541,923,358
Foreign currency, at value (cost
$252,404)............................ 254,617
Cash................................... 411
Receivable for investments sold........ 9,809,908
Interest receivable.................... 8,918,690
Forward contracts--amount receivable
from counterparties.................. 7,287,127
Other assets........................... 126,257
------------
Total assets....................... 568,320,368
------------
Liabilities
Forward contracts--amount payable to
counterparties....................... 7,550,489
Payable for investments purchased...... 4,144,952
Income distribution payable............ 461,510
Management fee payable................. 401,957
Accrued expenses and other
liabilities.......................... 189,377
------------
Total liabilities.................. 12,748,285
------------
Net Assets............................. $555,572,083
------------
------------
Net assets were comprised of:
Common stock, at par................. $ 662,077
Paid-in capital in excess of par..... 547,112,546
------------
547,774,623
Undistributed net investment income.... 21,362,604
Accumulated net realized losses on
investments.......................... (28,817,778)
Net unrealized appreciation on
investments
and foreign currencies............... 15,252,634
------------
Net assets, June 30, 1995.............. $555,572,083
------------
------------
Net asset value per share:
($555,572,083 / 66,207,699 shares of
common stock outstanding).......... $8.39
------------
------------
</TABLE>
----------------------------------------------------------
THE GLOBAL TOTAL RETURN FUND, INC.
Statement of Operations
June 30, 1995
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest and discount earned (net of
foreign
withholding taxes of $6,903)........ $19,253,219
-----------
Expenses
Management fee........................ 1,973,039
Custodian's fees and expenses......... 273,000
Reports to shareholders............... 100,000
Transfer agent's fees and expenses.... 86,000
Insurance............................. 56,000
Directors' fees....................... 52,000
Legal fees............................ 26,000
Audit fee............................. 24,000
Miscellaneous......................... 48,135
-----------
Total expenses...................... 2,638,174
-----------
Net investment income................. 16,615,045
-----------
Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions............... 6,291,168
Foreign currency transactions......... 35,087,803
Written option transactions........... (15,075)
-----------
41,363,896
-----------
Net change in unrealized appreciation/
depreciation on:
Investments........................... 19,081,926
Foreign currencies.................... 120,452
Written options....................... 304,000
-----------
19,506,378
-----------
Net gain on investments and foreign
currencies............................ 60,870,274
-----------
Net Increase in Net Assets
Resulting from Operations............... $77,485,319
-----------
-----------
</TABLE>
See Notes to Financial Statements.
B-37
<PAGE>
- ----------------------------------------------------------
THE GLOBAL TOTAL RETURN FUND, INC.
Statement of Changes in Net Assets
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease)
in Net Assets
Six Months
Ended Year Ended
June 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Operations:
Net investment income..... $ 16,615,045 $ 34,580,973
Net realized gain (loss)
on investment and
foreign currency
transactions............ 41,363,896 (75,052,921)
Net change in unrealized
appreciation/depreciation
on investment and
foreign currency
transactions............ 19,506,378 (5,772,110)
------------ ------------
Net increase (decrease) in
net assets resulting from
operations................ 77,485,319 (46,244,058)
------------ ------------
Dividends and distributions:
Dividends from net
investment income....... (15,558,284) (11,402,165)
Distributions from net
realized gains.......... -- (8,933,149)
Tax return of capital
distribution -- (19,717,909)
------------ ------------
Total dividends and
distributions............. (15,558,284) (40,053,223)
------------ ------------
Total increase (decrease)... 61,927,035 (86,297,281)
Net Assets
Beginning of period......... 493,645,048 579,942,329
------------ ------------
End of period............... $555,572,083 $493,645,048
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
- ----------------------------------------------------------
THE GLOBAL TOTAL RETURN FUND, INC.
Notes to Financial Statements
(Unaudited)
- ----------------------------------------------------------
The Global Total Return Fund, Inc., (the "Fund") was organized in Maryland
on May 6, 1986 as a closed-end, non-diversified management investment company.
Investment operations commenced on July 7, 1986.
The investment objective of the Fund is to seek total return, the components
of which are current income and capital appreciation. The Fund invests primarily
in investment grade bonds, i.e., bonds rated within the four highest quality
grades as determined by Moody's Investor's Service or Standard & Poor's Rating's
Group, or in unrated securities of equivalent quality. In addition the Fund is
permitted to invest up to 10% of the Fund's total assets in bonds rated below
investment grade with a minimum rating of B, or on unrated securities of
equivalent quality. The ability of the issuers of the debt securities held by
the Fund to meet their obligations may be affected by economic developments in a
specific country or industry.
Note 1. Accounting The following is a summary of
Policies significant accounting policies
followed by the Fund in the preparation of its
financial statements.
Securities Valuation: In valuing the Fund's assets, quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
then current currency value. Portfolio 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
most recently quoted bid and asked prices provided by principal market makers.
Any security for which the primary market is on an exchange is valued at the
last sale price on such exchange on the day of valuation or, if there was no
sale on such day, the last bid price quoted on such day. Forward currency
contracts are valued at the current cost of covering or offsetting the contract
on the day of valuation. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund.
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 Fund's policy that its custodian, or designated
subcustodians as the case may be under triparty repurchase agreements, takes
possession of the
B-38
<PAGE>
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.
Foreign Currency Translation: The books and records of the Fund are maintained
in United States dollars. Foreign currency amounts are translated into United
States dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at
the current rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rates 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 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 the securities held at period 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 debt securities sold
during the period. Accordingly, realized foreign currency gains (losses) are
included in the reported net realized gains on investment transactions.
Net realized gains on foreign currency transactions represents net foreign
exchange gains from sales and maturities of short-term securities and forward
currency contracts, disposition of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions, and
the difference between the amounts of interest, discount and foreign taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts actually
received or paid. Net currency gains from valuing foreign currency denominated
assets (excluding investments) and liabilities at period end exchange rates are
reflected as a component of unrealized appreciation on investments and foreign
currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. companies 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 currency transactions. Risks may
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
Option Writing: 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 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.
The Fund, as writer of an option, may have no control over whether the
underlying securities or currencies may be sold (called) or purchased (put). As
a result, the Fund bears the market risk of an unfavorable change in the price
of the security or currency underlying the written option. The Fund, as
purchaser of an option, bears the risk of the potential inability of the
counterparties to meet the terms of their contracts. There were no written
options outstanding at June 30, 1995.
Security Transactions and Investment Income: Security transactions are recorded
on the trade date. Realized and unrealized gains and losses from security and
currency
B-39
<PAGE>
transactions are calculated on the identified cost basis. Interest income which
is comprised of three elements: stated coupon, original issue discount and
market discount is recorded on the accrual basis.
Dividends and Distributions: Dividends are declared quarterly. Distributions of
long-term capital gains, if any, will be declared 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 currencies and loss deferrals.
Reclassification of Capital Accounts: The Fund 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 Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to increase accumulated net investment income and increase
accumulated net realized losses on investments by $20,305,843 for realized
foreign currency gains during the fiscal period ended June 30, 1995. Net
investment income, net realized gains and net assets were not affected by this
change.
Taxes: It is the Fund's policy 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 or excise tax provision is required.
Withholding taxes on foreign interest 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 Mutual Fund Management,
Inc. ("PMF"). Pursuant to this agreement PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF 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 PMF is computed weekly and payable monthly at the
annual rate of 0.75% of the Fund's average weekly net assets up to US$500
million, 0.70% of such assets between US$500 million and US$1 billion, and 0.65%
of such assets in excess of US$1 billion.
PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America ("Prudential").
Note 3. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments and written options, for
the six months ended June 30, 1995 aggregated $917,708,901 and $906,948,964,
respectively.
Transactions in written options during the six months ended June 30, 1995
were as follows:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
(000) Received
--------- -----------
<S> <C> <C>
Options outstanding at December
31, 1994........................ 76,000 $ 661,200
Options written................... 124,863 828,787
Options terminated in closing
purchase transactions........... 200,863 (1,489,987)
--------- -----------
Options outstanding at June 30,
1995............................ 0 0
--------- -----------
--------- -----------
</TABLE>
At June 30, 1995, the Fund had outstanding forward currency contracts, both
to purchase and sell foreign currencies, as follows:
<TABLE>
<CAPTION>
Foreign Currency Value at
Purchase Settlement Date Current Appreciation/
Contracts Payable Value (Depreciation)
- ----------------------- ---------------- -------------- ---------------
<S> <C> <C> <C>
Belgian Francs,
expiring 10/10/95.... $ 11,691,795 $ 11,692,924 $ 1,129
French Francs,
expiring 10/10/95.... 29,704,039 29,612,191 (91,848)
German Deutschemarks,
expiring 11/1/95..... 12,604,279 13,598,471 994,192
Spanish Pesetas,
expiring 9/11/95..... 89,508,558 95,263,846 5,755,288
---------------- ------------ ---------------
$143,508,671 $150,167,432 $ 6,658,761
---------------- ------------ ---------------
---------------- ------------ ---------------
</TABLE>
B-40
<PAGE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Sale Settlement Date Current Appreciation/
Contracts Receivable Value (Depreciation)
- ----------------------- ---------------- ------------ ---------------
<S> <C> <C> <C>
Australian Dollars,
expiring 7/27/95..... $ 7,367,955 $ 7,282,699 $ 85,256
Belgian Francs,
expiring 10/10/95.... 11,489,199 11,692,924 (203,725)
British Pounds,
expiring 7/27/95..... 26,292,940 26,443,257 (150,317)
French Francs,
expiring
10/10/95-11/9/95..... 29,155,255 29,525,235 (369,980)
German Deutschemarks,
expiring
7/27/95-11/1/95...... 108,138,075 108,017,279 120,796
Irish Punts,
expiring 7/27/95..... 10,158,180 10,175,133 (16,953)
Japanese Yen,
expiring 7/27/95..... 20,097,329 19,906,364 190,965
Spanish Pesetas,
expiring
9/11/95-10/2/95...... 88,596,372 95,302,296 (6,705,924)
Swedish Kroner,
expiring 7/27/95..... 7,603,595 7,556,051 47,544
Swiss Francs,
expiring 7/27/95..... 16,791,564 16,711,349 80,215
---------------- ------------ ---------------
$325,690,464 $332,612,587 $(6,922,123)
---------------- ------------ ---------------
---------------- ------------ ---------------
</TABLE>
The United States federal income tax basis of the Fund's investments at June
30, 1995 was $526,684,745 and, accordingly, net unrealized appreciation for
United States federal income tax purposes was $15,238,613 (gross unrealized
appreciation--$17,292,726; gross unrealized depreciation--$2,054,113).
For federal income tax purposes, the Fund had a capital loss carryforward as
of December 31, 1994 of approximately $32,431,000 which will expire in 2002.
Accordingly, no capital gains distribution is expected to be paid to
shareholders until net gains have been realized in excess of such amounts.
The Fund has elected to treat approximately $6,212,600 of net capital losses
and approximately $10,344,800 of net currency losses incurred in the two month
period ended December 31, 1994 as having been incurred in the following fiscal
year.
Note 4. Capital There are 200 million shares
of $.01 par value common stock authorized. Of the
66,207,699 shares outstanding as of June 30, 1995, Prudential owned 12,020
shares.
Note 5. Joint The Fund, along with other
Repurchase affiliated registered invest-
Agreement ment companies, transfers
Account 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 June 30, 1995, the Fund
had a 3.0% undivided interest in the joint account. The undivided interest for
the Fund represented $20,347,000 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., 6.125%, in the principal amount of $200,000,000,
repurchase price $200,102,083, due 7/3/95. The value of the collateral including
accrued interest was $204,321,562.
CS First Boston Corp., 6.13%, in the principal amount of $160,000,000,
repurchase price $160,081,733, due 7/3/95. The value of the collateral including
accrued interest was $163,246,196.
Goldman Sachs & Co., 6.10%, in the principal amount of $116,557,000,
repurchase price $116,616,250, due 7/3/95. The value of the collateral including
accrued interest was $118,889,059.
Smith Barney, Inc., 6.13%, in the principal amount of $200,000,000,
repurchase price $200,102,166, due 7/3/95. The value of the collateral including
accrued interest was $204,000,775.
Note 6. Dividend On July 31, 1995, the Board
of Directors of the Fund declared a dividend of
$0.145 per share from net investment income payable on September 29, 1995 to
shareholders of record on September 15, 1995.
Note 7. Subsequent At a special meeting held on
Event August 15, 1995, The Board
of Directors of the Fund approved the conversion
of the Fund from a closed-end fund to an open-end fund subject to shareholder
approval. At a special meeting of the Board to be held in or about September,
Directors will be asked, among other things, to approve specific changes to the
Fund's Articles of Incorporation and investment restrictions to facilitate the
conversion and to submit these changes and a proposal to convert the Fund to an
open-end fund for shareholder approval. These matters will be considered at a
special meeting of shareholders to be scheduled for the fourth quarter of 1995.
If shareholders approve the proposed conversion of the Fund to an open-end fund,
it is expected that a 2% redemption fee payable to the Fund will be imposed on
all redemptions of Fund shares during the first six months following the
conversion.
B-41
<PAGE>
Note 8. Quarterly Data
<TABLE>
<CAPTION>
Net realized and
unrealized
gains (losses) on Net increase (decrease)
investments in net assets
Net investment and foreign resulting from
Quarterly Total income currencies operations
period ended income Amount Per share Amount Per share Amount Per share
- ---------------------- ----------- ------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1993 $14,245,001 $12,895,901 $ .20 $ 11,154,194 $ .17 $ 24,050,095 $ .37
June 30, 1993 11,904,937 10,510,910 .16 23,340,174 .35 33,851,084 .51
September 30, 1993 11,665,435 10,207,392 .15 6,574,267 .10 16,781,659 .25
December 31, 1993 10,230,689 8,669,599 .13 7,786,754 .12 16,456,353 .25
March 31, 1994 10,004,223 8,562,473 .13 (37,140,649) (.56) (28,578,176) (.43)
June 30, 1994 9,470,430 8,070,788 .12 (16,776,369) (.25) (8,705,581) (.13)
September 30, 1994 10,323,100 9,001,986 .14 (13,445,332) (.21) (4,443,346) (.07)
December 31, 1994 10,388,192 8,945,726 .13 (13,462,681) (.20) (4,516,955) (.07)
March 31, 1995 9,278,978 8,009,531 .12 44,611,081 .67 52,620,612 .79
June 30, 1995 9,974,241 8,605,514 .13 16,259,193 .25 24,864,707 .38
<CAPTION>
Dividends Share
Quarterly and distributions price
period ended Amount Per share High Low
- ---------------------- ------------------------- ------------
<S> <C> <C> <C> <C>
March 31, 1993 $13,221,881 $ .20 $8 3/8 $8 1/4
June 30, 1993 13,221,881 .20 8 1/2 8
September 30, 1993 10,577,508 .16 8 3/4 8 1/8
December 31, 1993 10,593,232 .16 8 1/4 7 5/8
March 31, 1994 16,220,886 .245 8 1/4 7
June 30, 1994 7,282,847 .11 7 1/8 6 1/2
September 30, 1994 8,273,528 .125 6 3/4 6 1/8
December 31, 1994 8,275,962 .125 6 5/8 6
March 31, 1995 8,275,962 .125 6 1/2 6
June 30, 1995 7,282,322 .11 7 6 3/8
</TABLE>
B-42
<PAGE>
- --------------------------------------------------------------------------------
THE GLOBAL TOTAL RETURN FUND, INC.
Financial Highlights
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six
Months
Ended Years Ended December 31,
June 30, --------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 7.46 $ 8.76 $ 8.10 $ 8.99 $ 8.96 $ 8.57
-------- -------- -------- -------- -------- --------
Net investment income........................... .25 .52 .64 .81 .84 .89
Net realized and unrealized gain (loss) on
investments and foreign currencies............ .92 (1.22) .74 (.90) (.19) .36
-------- -------- -------- -------- -------- --------
Total from investment operations.............. 1.17 (.70) 1.38 (.09) .65 1.25
-------- -------- -------- -------- -------- --------
Dividends from net investment income............ (.24) (.17) (.30) (.75) (.62) (.88)
Distributions from net capital gains............ -- (.13) (.23) (.05) -- --
Distributions in excess of net capital gains.... -- -- (.19) -- -- --
Tax return of capital distribution.............. -- (.30) -- -- -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions............. (.24) (.60) (.72) (.80) (.62) (.88)
-------- -------- -------- -------- -------- --------
Increase resulting from Fund share
transactions.................................. -- -- -- -- -- .02
-------- -------- -------- -------- -------- --------
Net asset value, end of period.................. $ 8.39 $ 7.46 $ 8.76 $ 8.10 $ 8.99 $ 8.96
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Market price per share, end of period........... $ 6.75 $ 6.13 $ 8.00 $ 7.50 $ 8.13 $ 8.00
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN(b)...................... 14.12% (16.12)% 16.50% 1.75% 9.42% 12.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $555,572 $493,645 $579,942 $535,647 $593,376 $591,339
Average net assets (000)........................ $533,816 $536,230 $567,128 $570,812 $571,767 $596,824
Ratio of expenses to average net assets......... 1.00%(a) 1.04% 1.02% 1.01% .99% 1.03%
Ratio of net income to average net assets....... 6.28%(a) 6.45% 7.67% 9.39% 9.69% 10.03%
Portfolio turnover rate......................... 191% 583% 370% 192% 141% 221%
</TABLE>
- ---------------
(a) Annualized.
(b) Total investment return is calculated assuming a purchase of common stock
at the current market value on the first day and a sale at the current
market value on the last day of each period reported. Dividends and
distributions are assumed for purposes of this calculation to be
reinvested at prices obtained under the dividend reinvestment plan. This
calculation does not reflect brokerage commissions.
Contained above is selected data for a share of common stock outstanding,
total investment return, ratios to average net assets and other
supplemental data for the periods indicated. This information has been
determined based upon information provided in the financial statements
and market price data for the Fund's shares.
See Notes to Financial Statements.
B-43
<PAGE>
- ----------------------------------------------------------
THE GLOBAL TOTAL RETURN FUND, INC.
Portfolio of Investments
December 31, 1994
<TABLE>
<CAPTION>
- --------------------------------------------------------
Principal US$
Amount Value
(000) Description (Note 1)
- --------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--86.3%
Australia--10.0%
Australian Government
Bonds,
A$ 2,450# 7.00%, 8/15/98.......... $ 1,730,193
8,000# 12.00%, 11/15/01........ 6,799,888
17,300# 9.00%, 9/15/04.......... 12,563,530
New South Wales Treasury
Corp.,
8,100# 12.50%, 4/1/97.......... 6,565,054
10,520# 7.50%, 2/1/98........... 7,577,358
8,350# 12.00%, 12/1/01......... 6,986,618
Queensland Treasury
Corp.,
4,450# 8.00%, 5/14/97.......... 3,295,005
5,700# 8.00%, 8/14/01.......... 3,929,617
------------
49,447,263
------------
Canada--5.4%
Canadian Government
Bonds,
C$ 5,200# 5.75%, 3/1/99........... 3,296,079
3,000# Zero Coupon, 9/15/01.... 1,160,711
9,750# 7.25%, 6/1/03........... 6,190,525
Province of British
Columbia,
24,500# 7.00%, 6/9/99........... 16,143,627
------------
26,790,942
------------
Denmark--2.6%
Danish Government Bonds,
Dkr 47,000# 6.25%, 2/10/97.......... 7,458,504
32,490# 9.00%, 11/15/00......... 5,348,034
------------
12,806,538
------------
France--4.8%
French Government Bonds,
FF 48,200# 6.50%, 10/12/96......... 8,887,154
39,800# 8.50%, 3/28/00.......... 7,590,798
42,500# 6.75%, 10/25/03......... 7,230,538
------------
23,708,490
------------
Germany--6.3%
German Government Bonds,
DM 9,000# 6.375%, 5/20/98......... 5,681,588
9,700 8.75%, 5/22/00.......... $ 6,614,063
8,320 7.50%, 9/9/04........... 5,329,430
26,350 6.00%, 6/20/16.......... 13,626,088
------------
31,251,169
------------
Ireland--2.9%
Irish Government Bonds,
IEP 2,000 8.75%, 7/27/97.......... 3,113,406
8,820 6.25%, 10/18/04......... 11,262,243
------------
14,375,649
------------
Italy--1.2%
Export Finance Corp. of
Norway,
Lira 1,000,000 12.25%, 8/5/96.......... 622,530
Italian Government
Bonds,
700,000 9.00%, 10/1/96.......... 417,214
9,000,000 7.4375%, 4/1/99......... 4,927,701
------------
5,967,445
------------
Japan--16.1%
International Bank for
Reconstruction &
Development,
Y 860,000 5.25%, 3/20/02.......... 9,006,421
779,500 4.75%, 12/20/04......... 7,896,969
Japanese Government
Bonds,
520,000 6.40%, 3/20/00.......... 5,749,009
1,940,000 6.60%, 6/20/01.......... 21,807,116
2,100,000 4.10%, 12/22/03......... 20,412,131
1,450,000 4.60%, 9/20/04.......... 14,598,750
------------
79,470,396
------------
Netherlands--3.6%
Dutch Government Bonds,
DG 5,500 9.00%, 7/1/00........... 3,360,900
14,000 7.25%, 10/1/04.......... 7,774,083
12,000 7.50%, 1/15/23.......... 6,495,077
------------
17,630,060
------------
New Zealand--7.1%
New Zealand Government
Bonds,
NZ$ 34,600 9.00%, 11/15/96......... 22,013,224
</TABLE>
See Notes to Financial Statements.
B-44
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------
Principal US$
Amount Value
(000) Description (Note 1)
- --------------------------------------------------------
<C> <S> <C>
New Zealand (cont'd.)
New Zealand Government
Bonds,
NZ$ 20,000 10.00%, 7/15/97......... $ 13,003,902
------------
35,017,126
------------
Spain--1.8%
Spanish Government
Bonds,
Pts 600,000 11.85%, 8/30/96......... 4,538,990
600,000 10.55%, 11/30/96........ 4,609,066
------------
9,148,056
------------
United Kingdom--7.8%
United Kingdom Treasury
Bonds,
BP 9,700 7.00%, 8/6/97........... 14,729,617
3,400 6.00%, 8/10/99.......... 4,779,349
3,534 7.00%, 11/6/01.......... 5,021,220
10,200 6.75%, 11/26/04......... 13,894,652
------------
38,424,838
------------
United States--16.7%
Sovereign Bonds--3.0%
National Bank of
Argentina,
US$ 8,250 Zero Coupon, 9/1/00..... 7,301,250
Republic of Brazil,
8,771 IDU 6.0625%, 1/1/01..... 7,323,785
------------
14,625,035
------------
U.S. Government Bonds--13.7%
United States Treasury
Bonds,
6,700 6.25%, 8/15/23.......... 5,446,899
23,250 7.50%, 11/15/24......... 22,240,020
United States Treasury
Notes,
5,000 7.50%, 12/31/96......... 4,982,031
700 6.00%, 11/30/97......... 667,513
10,000 7.75%, 11/30/99......... 9,962,500
800 7.50%, 11/15/01......... 785,376
500 7.25%, 5/15/04.......... 480,155
22,910 7.875%, 11/15/04........ 22,974,377
------------
67,538,871
------------
Total United States
Securities............ 82,163,906
------------
Total long-term
investments
(cost
US$435,055,641)....... 426,201,878
------------
SHORT-TERM INVESTMENTS--9.5%
New Zealand--1.7%
New Zealand Government Bonds,
NZ$ 10,000 8.00%, 11/15/95......... 6,327,283
New Zealand Treasury
Bills,**
1,960 7.14%, 2/8/95........... 1,245,772
1,575 9.56%, 6/21/95.......... 966,662
------------
8,539,717
------------
<CAPTION>
- --------------------------------------------------------
Principal US$
Amount Value
(000) Description (Note 1)
- --------------------------------------------------------
<C> <S> <C>
Mexico--1.2%
Mexican Tesobonos,**
US$ 4,118 8.45%, 7/27/95.......... $ 3,689,597
2,631 8.35%, 8/3/95........... 2,349,107
------------
6,038,704
------------
United States--6.2%
Joint Repurchase
Agreement Account,
20,780 5.82%, 1/3/95, (Note
5).................... 20,780,000
United States Treasury
Bills,**
5,000 5.86%, 4/27/95.......... 4,903,795
5,000 6.84%, 12/14/95......... 4,673,780
------------
30,357,575
------------
Contracts OUTSTANDING OPTIONS
(000) PURCHASED*--0.4%
- --------------
Put Options--0.1%
United States Treasury
Bonds,
13,000 expiring 2/14/95 @
US$93.875............. 96,203
------------
Call Options--0.3%
German Deutschemarks,
76,000 expiring 2/13/95 @
DM1.57................ 1,672,000
Japanese Yen,
28,000 expiring 1/26/95 @
Y 93.70.............. 840
------------
1,672,840
------------
Cross-Currency Call Options
41,000 Swedish Krona,
expiring 1/20/95
@ Skr4.60 per German
Deutschemark.......... 2,624
Italian Lira,
24,100 expiring 1/12/95
@ Lira 974.16 per
German
Deutschemark.......... --
14,400 expiring 1/12/95
@ Lira 972.30 per
German
Deutschemark.......... --
------------
2,624
------------
Total short-term
investments
(cost
US$41,698,000)........ 46,707,663
------------
Total Investments,
Before Outstanding
Options Written--95.8%
(cost US$476,753,641;
Note 3)............... 472,909,541
------------
</TABLE>
See Notes to Financial Statements.
B-45
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------
Description US$
Contracts Value
(000) (Note 1)
- --------------------------------------------------------
<C> <S> <C>
OUTSTANDING CALL OPTION
WRITTEN*--(0.2%)
German Deutschemarks,
76,000 expiring 2/13/95
@DM1.545 (premiums
received
US$661,200)........... $ (965,200)
------------
Total Investments, Net
of Outstanding Call
Options
Written--95.6%........ 471,944,341
Other assets in excess
of other
liabilities--4.4%..... 21,700,707
------------
Net Assets--100%........ $493,645,048
------------
------------
</TABLE>
- ------------------
Portfolio securities are classified according to the security's
currency denomination. Option contracts are expressed in local
currency units.
* Non-income producing security.
** Percentages quoted represent yields to maturity as
of purchase date.
# Principal amount segregated as collateral for
forward currency contracts and options written.
Aggregate value of segregated
securities--$112,753,233.
IDU--Interest Due and Unpaid bond.
See Notes to Financial Statements.
B-46
<PAGE>
- ----------------------------------------------------------
THE GLOBAL TOTAL RETURN FUND, INC.
Statement of Assets and Liabilities
December 31, 1994
- ----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$476,753,641)........................ $472,909,541
Foreign currency, at value (cost
$1,367,013).......................... 1,351,530
Cash................................... 4,948,567
Receivable for investments sold........ 18,128,388
Interest receivable.................... 8,605,262
Forward contracts--amount receivable
from counterparties.................. 7,689,368
Other assets........................... 68,118
------------
Total assets....................... 513,700,774
------------
Liabilities
Payable for investments purchased...... 10,026,917
Forward contracts--amount payable to
counterparties....................... 7,767,249
Outstanding call options written, at
value (premiums received $661,200)... 965,200
Dividends payable...................... 569,026
Due to Manager......................... 360,435
Accrued expenses and other
liabilities.......................... 366,899
------------
Total liabilities.................. 20,055,726
------------
Net Assets............................. $493,645,048
------------
------------
Net assets were comprised of:
Common stock, at par................. $ 662,077
Paid-in capital in excess of par..... 547,112,546
------------
547,774,623
Accumulated net realized losses on
investment
and foreign currency transactions.... (49,875,831)
Net unrealized depreciation on
investments
and foreign currencies............... (4,253,744)
------------
Net assets, December 31, 1994.......... $493,645,048
------------
------------
Net asset value per share:
($493,645,048 / 66,207,699 shares of
common stock outstanding).......... $7.46
------------
------------
</TABLE>
- ----------------------------------------------------------
THE GLOBAL TOTAL RETURN FUND, INC.
Statement of Operations
December 31, 1994
- ----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest and discount earned (net of
foreign
withholding taxes of $191,158)...... $ 40,185,945
------------
Expenses
Management fee........................ 3,968,777
Custodian's fees and expenses......... 709,000
Reports to shareholders............... 300,000
Transfer agent's fees and expenses.... 224,000
Insurance............................. 112,000
Directors' fees....................... 94,000
Audit................................. 49,000
Legal................................. 40,000
Miscellaneous......................... 108,195
------------
Total expenses...................... 5,604,972
------------
Net investment income................. 34,580,973
------------
Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency
Transactions
Net realized loss on:
Investment transactions............... (42,726,992)
Foreign currency transactions......... (25,814,844)
Written option transactions........... (6,511,085)
------------
(75,052,921)
------------
Net change in unrealized appreciation/
depreciation on:
Investments........................... (7,328,206)
Foreign currencies.................... 1,184,882
Written options....................... 371,214
------------
(5,772,110)
------------
Net loss on investments and foreign
currencies............................ (80,825,031)
------------
Net Decrease in Net Assets
Resulting from Operations............... $(46,244,058)
------------
------------
</TABLE>
See Notes to Financial Statements.
B-47
<PAGE>
- ----------------------------------------------------------
THE GLOBAL TOTAL RETURN FUND, INC.
Statement of Changes in Net Assets
- ----------------------------------------------------------
<TABLE>
Increase (Decrease)
in Net Assets
<CAPTION>
Year Ended December 31,
----------------------------
1994 1993
------------ ------------
<S> <C> <C>
Operations:
Net investment income..... $ 34,580,973 $ 42,283,802
Net realized gain (loss)
on investment and
foreign currency
transactions............ (75,052,921) 15,039,964
Net change in unrealized
appreciation/depreciation
on investment and
foreign currency
transactions............ (5,772,110) 33,815,425
------------ ------------
Net increase (decrease) in
net assets resulting from
operations................ (46,244,058) 91,139,191
------------ ------------
Dividends and distributions:
Dividends from net
investment income....... (11,402,165) (19,539,619)
Distributions from net
capital gains........... (8,933,149) (15,039,964)
Distributions in excess of
net capital gains....... -- (13,034,919)
Tax return of capital
distribution ........... (19,717,909) --
------------ ------------
Total dividends and
distributions............. (40,053,223) (47,614,502)
------------ ------------
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions......... -- 770,334
------------ ------------
Total increase (decrease)... (86,297,281) 44,295,023
Net Assets
Beginning of year........... 579,942,329 535,647,306
------------ ------------
End of year................. $493,645,048 $579,942,329
------------ ------------
------------ ------------
</TABLE>
- ----------------------------------------------------------
THE GLOBAL TOTAL RETURN FUND, INC.
Notes to Financial Statements
- ----------------------------------------------------------
The Global Total Return Fund, Inc., formerly known as The Global Yield Fund,
Inc., (the "Fund") was organized in Maryland on May 6, 1986 as a closed-end,
non-diversified management investment company. Investment operations commenced
on July 7, 1986.
The investment objective of the Fund is to seek total return, the components
of which are current income and capital appreciation. The Fund invests primarily
in investment grade bonds, i.e., bonds rated within the four highest quality
grades as determined by Moody's Investor's Service or Standard & Poor's Rating's
Group, or in unrated securities of equivalent quality. In addition the Fund is
permitted to invest up to 10% of the Fund's total assets in bonds rated below
investment grade with a minimum rating of B, or on unrated securities of
equivalent quality. The ability of the issuers of the debt securities held by
the Fund to meet their obligations may be affected by economic developments in a
specific country or industry.
Note 1. Accounting The following is a summary of
Policies significant accounting policies
followed by the Fund in the preparation of its
financial statements.
Securities Valuation: In valuing the Fund's assets, quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
then current currency value. Portfolio 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
most recently quoted bid and asked prices provided by principal market makers.
Any security for which the primary market is on an exchange is valued at the
last sale price on such exchange on the day of valuation or, if there was no
sale on such day, the last bid price quoted on such day. Forward currency
contracts are valued at the current cost of covering or offsetting the contract
on the day of valuation. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund.
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 Fund's policy that its custodian, or designated
subcustodians as the case may be under triparty repurchase agreements, takes
possession of the
See Notes to Financial Statements.
B-48
<PAGE>
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.
Foreign Currency Translation: The books and records of the Fund are maintained
in United States dollars. Foreign currency amounts are translated into United
States dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at
the current rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rates 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 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 the securities held at 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 debt securities sold during the
year. Accordingly, realized foreign currency gains (losses) are included in the
reported net realized losses on security transactions.
Net realized losses on foreign currency transactions represents net foreign
exchange losses from sales and maturities of short-term securities and forward
currency contracts, disposition of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions, and
the difference between the amounts of interest, discount and foreign taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts actually
received or paid. Net currency gains from valuing foreign currency denominated
assets (excluding investments) and liabilities at year end exchange rates are
reflected as a component of unrealized depreciation on investments and foreign
currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. companies 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 currency transactions. Risks may
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
Option Writing: 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 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.
The Fund, as writer of an option, may have no control over whether the
underlying securities or currencies may be sold (called) or purchased (put). As
a result, the Fund bears the market risk of an unfavorable change in the price
of the security or currency underlying the written option. The Fund, as
purchaser of an option, bears the risk of the potential inability of the
counterparties to meet the terms of their contracts.
Security Transactions and Investment Income: Security transactions are recorded
on the trade date. Realized and unrealized gains and losses from security and
currency transactions are calculated on the identified cost basis. Interest
income which is comprised of three elements: stated
B-49
<PAGE>
coupon, original issue discount and market discount is recorded on the accrual
basis.
Dividends and Distributions: Dividends are declared quarterly. Distributions of
long-term capital gains, if any, will be declared 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 currencies and loss deferrals.
Reclassification of Capital Accounts: The Fund accounts for and reports
distributions to shareholders in accordance with 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 decrease paid-in capital in excess of
par by $19,717,909; decrease accumulated net investment income by $3,460,899,
and decrease accumulated net realized losses on investments by $23,178,808 for
realized foreign currency losses incurred during the fiscal year ended December
31, 1994. Net investment income, net realized gains and net assets were not
affected by this change.
Taxes: It is the Fund's policy 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 or excise tax provision is required.
Withholding taxes on foreign interest 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 Mutual Fund Management,
Inc. ("PMF"). Pursuant to this agreement PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF 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 PMF is computed weekly and payable monthly at the
annual rate of 0.75% of the Fund's average weekly net assets up to US$500
million, 0.70% of such assets between US$500 million and US$1 billion, and 0.65%
of such assets in excess of US$1 billion.
PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America ("Prudential").
Note 3. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments and written options, for
the year ended December 31, 1994 aggregated $2,812,952,477 and $2,855,216,511,
respectively.
Transactions in written options during the year ended December 31, 1994 were
as follows:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
(000) Received
---------- -----------
<S> <C> <C>
Options outstanding at December
31, 1993...................... 91,000 $ 647,250
Options written................. 1,873,542 13,031,893
Options terminated in closing
purchase transactions......... (1,544,195) (9,778,546)
Options expired................. (186,000) (2,212,365)
Options exercised............... (158,347) (1,027,032)
---------- -----------
Options outstanding at December
31, 1994...................... 76,000 $ 661,200
---------- -----------
---------- -----------
</TABLE>
At December 31, 1994, the Fund had outstanding forward currency contracts,
both to purchase and sell foreign currencies, as follows:
<TABLE>
<CAPTION>
Foreign Currency Value at
Purchase Settlement Date Current Appreciation/
Contracts Payable Value (Depreciation)
- ----------------------- ---------------- -------------- ---------------
<S> <C> <C> <C>
Australian Dollars
expiring 1/6/95...... $ 49,720,096 $ 50,773,051 $ 1,052,955
British Pounds
expiring 2/8/95...... 26,534,573 25,915,090 (619,483)
Canadian Dollars
expiring
1/23/95-2/13/95...... 60,817,932 59,760,494 (1,057,438)
German Deutschemarks
expiring
1/9/95-2/27/95....... 335,255,416 336,986,240 1,730,824
Italian Lira
expiring 2/13/95..... 3,400,996 3,423,830 22,834
Japanese Yen
expiring
1/18/95-1/31/95...... 132,549,213 132,191,009 (358,204)
Netherlands Guilder
expiring 1/3/95...... 7,788,629 7,915,547 126,918
Swedish Krona
expiring 2/7/95...... 9,956,457 10,064,789 108,332
Swiss Francs
expiring 1/17/95..... 29,928,730 30,243,871 315,141
---------------- ------------ ---------------
$655,952,042 $657,273,921 $ 1,321,879
---------------- ------------ ---------------
---------------- ------------ ---------------
<CAPTION>
Value at
Foreign Currency Sale Settlement Date Current Appreciation/
Contracts Receivable Value (Depreciation)
- ----------------------- ---------------- ------------ ---------------
<S> <C> <C> <C>
Australian Dollars
expiring 1/6/95...... $ 69,543,075 $ 71,045,053 $(1,501,978)
Belgian Francs
expiring 2/7/95...... 10,869,187 10,619,275 249,912
</TABLE>
B-50
<PAGE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Sale Settlement Date Current Appreciation/
Contracts Receivable Value (Depreciation)
- ----------------------- ---------------- ------------ ---------------
<S> <C> <C> <C>
British Pounds
expiring 2/8/95...... $ 19,947,284 $ 19,986,311 $ (39,027)
Canadian Dollars
expiring
1/23/95-2/13/95...... 75,187,350 73,839,682 1,347,668
Danish Kroner
expiring 2/27/95..... 40,883,010 41,263,643 (380,633)
French Francs
expiring 1/17/95..... 16,992,158 16,852,111 140,047
German Deutschemarks
expiring
1/9/95-1/31/94....... 192,199,487 194,441,521 (2,242,034)
Italian Lira
expiring 2/13/95..... 3,400,000 3,423,830 (23,830)
Japanese Yen
expiring
1/18/95-1/31/95...... 159,170,921 158,525,294 645,627
Netherlands Guilder
expiring
1/3/95-1/10/95....... 23,297,637 22,972,702 324,935
New Zealand Dollars
expiring 1/24/95..... 18,878,880 18,929,854 (50,974)
Spanish Pesetas
expiring 2/22/95..... 11,069,463 11,109,177 (39,714)
Swedish Krona
expiring 2/7/95...... 12,534,553 12,302,052 232,501
Swiss Francs
expiring 1/17/95..... 30,181,611 30,243,871 (62,260)
---------------- ------------ ---------------
$684,154,616 $685,554,376 $(1,399,760)
---------------- ------------ ---------------
---------------- ------------ ---------------
</TABLE>
The United States federal income tax basis of the Fund's investments at
December 31, 1994 was $476,161,435 and, accordingly, net unrealized depreciation
for United States federal income tax purposes was $3,251,894 (gross unrealized
appreciation--$4,441,472; gross unrealized depreciation--$7,693,366).
For federal income tax purposes, the Fund has a capital loss carryforward as
of December 31, 1994 of approximately $32,431,000 which will expire in 2002.
Accordingly, no capital gains distribution is expected to be paid to
shareholders until net gains have been realized in excess of such amounts. The
Fund has elected to treat approximately $6,212,600 of net capital losses and
approximately $10,344,800 of net currency losses incurred in the two month
period ended December 31, 1994 as having been incurred in the following fiscal
year.
Note 4. Capital There are 200 million shares
of $.01 par value common stock authorized. Of the
66,207,699 shares outstanding as of December 31, 1994, Prudential owned 12,020
shares.
The Fund issued 98,288 shares during the year ended December 31, 1993 in
connection with the reinvestment of dividends and distributions paid to
shareholders enrolled in the dividend reinvestment plan.
Note 5. Joint The Fund, along with other
Repurchase affiliated registered invest-
Agreement ment companies, transfers
Account 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 December 31, 1994, the
Fund had a 2.70% undivided interest in the joint account. The undivided interest
for the Fund represented $20,780,000 in the principal amount. As of such date,
each repurchase agreement in the joint account and the collateral therefor were
as follows:
Goldman Sachs & Co., 5.75%, in the principal amount of $250,000,000,
repurchase price $250,159,722, due 1/3/95. The value of the collateral including
accrued interest is $255,000,108.
Lehman Government Securities, Inc., 5.90%, in the principal amount of
$70,000,000, repurchase price $70,045,889, due 1/3/95. The value of the
collateral including accrued interest is $71,379,084.
Morgan Stanley & Co., 5.75%, in the principal amount of $250,000,000,
repurchase price $250,159,722, due 1/3/95. The value of the collateral including
accrued interest is $255,146,220.
Smith Barney, Inc., 5.95%, in the principal amount of $200,000,000,
repurchase price $200,132,222, due 1/3/95. The value of the collateral including
accrued interest is $204,036,161.
Note 6. Dividend On February 9, 1995, the
Board of Directors of the Fund declared a dividend
of $0.125 per share from net investment income payable on March 31, 1995 to
shareholders of record on March 17, 1995.
B-51
<PAGE>
Note 7. Quarterly Data
(Unaudited)
<TABLE>
<CAPTION>
Net realized and
unrealized
gains (losses) on Net increase (decrease)
investments in net assets
Net investment and foreign resulting from
Quarterly Total income currencies operations
period ended income Amount Per share Amount Per share Amount Per share
- ---------------------- ----------- ------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1993 $14,245,001 $12,895,901 $ .20 $ 11,154,194 $ .17 $ 24,050,095 $ .37
June 30, 1993 11,904,937 10,510,910 .16 23,340,174 .35 33,851,084 .51
September 30, 1993 11,665,435 10,207,392 .15 6,574,267 .10 16,781,659 .25
December 31, 1993 10,230,689 8,669,599 .13 7,786,754 .12 16,456,353 .25
March 31, 1994 10,004,223 8,562,473 .13 (37,140,649) (.56) (28,578,176) (.43)
June 30, 1994 9,470,430 8,070,788 .12 (16,776,369) (.25) (8,705,581) (.13)
September 30, 1994 10,323,100 9,001,986 .14 (13,445,332) (.21) (4,443,346) (.07)
December 31, 1994 10,388,192 8,945,726 .13 (13,462,681) (.20) (4,516,955) (.07)
<CAPTION>
Dividends Share
Quarterly and distributions price
period ended Amount Per share High Low
- ---------------------- ------------------------- ------------
<S> <C> <C> <C> <C>
March 31, 1993 $13,221,881 $ .20 $8 3/8 $8 1/4
June 30, 1993 13,221,881 .20 8 1/2 8
September 30, 1993 10,577,508 .16 8 3/4 8 1/8
December 31, 1993 10,593,232 .16 8 1/4 7 5/8
March 31, 1994 16,220,886 .245 8 1/4 7
June 30, 1994 7,282,847 .11 7 1/8 6 1/2
September 30, 1994 8,273,528 .125 6 3/4 6 1/8
December 31, 1994 8,275,962 .125 6 5/8 6
</TABLE>
B-52
<PAGE>
- --------------------------------------------------------------------------------
THE GLOBAL TOTAL RETURN FUND, INC.
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.............................. $ 8.76 $ 8.10 $ 8.99 $ 8.96 $ 8.57
-------- -------- -------- -------- --------
Net investment income........................................... .52 .64 .81 .84 .89
Net realized and unrealized gain (loss) on investments and
foreign currencies............................................ (1.22) .74 (.90) (.19) .36
-------- -------- -------- -------- --------
Total from investment operations.............................. (.70) 1.38 (.09) .65 1.25
-------- -------- -------- -------- --------
Dividends from net investment income............................ (.17) (.30) (.75) (.62) (.88)
Distributions from net capital gains............................ (.13) (.23) (.05) -- --
Distributions in excess of net capital gains.................... -- (.19) -- -- --
Tax return of capital distribution.............................. (.30) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions............................. (.60) (.72) (.80) (.62) (.88)
-------- -------- -------- -------- --------
Increase resulting from Fund share transactions................. -- -- -- -- .02
-------- -------- -------- -------- --------
Net asset value, end of year.................................... $ 7.46 $ 8.76 $ 8.10 $ 8.99 $ 8.96
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Market price per share, end of year............................. $ 6.13 $ 8.00 $ 7.50 $ 8.13 $ 8.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN<F1>..................................... (16.12)% 16.50% 1.75% 9.42% 12.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................... $493,645 $579,942 $535,647 $593,376 $591,339
Average net assets (000)........................................ $536,230 $567,128 $570,812 $571,767 $596,824
Ratio of expenses to average net assets......................... 1.04% 1.02% 1.01% .99% 1.03%
Ratio of net income to average net assets....................... 6.45% 7.67% 9.39% 9.69% 10.03%
Portfolio turnover rate......................................... 583% 370% 192% 141% 221%
- ---------------
<FN>
<F1> Total investment return is calculated assuming a purchase of
common stock at the current market value on the first day and
a sale at the current market value on the last day of each period
reported. Dividends and distributions are assumed for purposes
of this calculation to be reinvested at prices obtained under the
dividend reinvestment plan. This calculation does not reflect
brokerage commissions.
Contained above is selected data for a share of common stock
outstanding, total investment return, ratios to average
net assets and other supplemental data for the periods
indicated. This information has been determined based upon
information provided in the financial statements and market
price data for the Fund's shares.
</FN>
</TABLE>
See Notes to Financial Statements.
B-53
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of
The Global Total Return Fund, Inc.
We have audited the accompanying statement of assets and liabilities
including the portfolio of investments of The Global Total Return Fund, Inc.,
(formerly known as The Global Yield Fund, Inc.) as of December 31, 1994, the
related statements of operations for the year then ended and of changes in net
assets for each of the years in the two year period then ended, and the
financial highlights for each of the years in the five year 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
December 31, 1994, 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 The Global Total
Return Fund, Inc. as of December 31, 1994, 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
February 9, 1995
B-54
<PAGE>
APPENDIX A--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.
A-1
<PAGE>
APPENDIX B--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.
[INVESTMENT GRAPH]
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is for illustrative
purposes only and is not indicative of the past, present, or future performance
of any asset class or any Prudential Mutual Fund.
Generally, stock returns are attributable to capital appreciation and the
reinvestment of distributions. Bond returns are attributable mainly to the
reinvestment of distributions. Also, stock prices are usually more volatile than
bond prices over the long-term.
Small stock returns for 1926-1989 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.
Long-term government bond returns are represented by a portfolio that contains
only one bond with a maturity of roughly 20 years. At the beginning of each year
a new bond with a then-current coupon replaces the old bond. Treasury bill
returns are for a one-month bill. Treasuries are guaranteed by the government as
to the timely payment of principal and interest; equities are not. Inflation is
measured by the consumer price index (CPI).
Impact of Inflation. The "real" rate of investment return is that which exceeds
the rate of inflation, the percentage change in the value of consumer goods and
the general cost of living. A common goal of long-term investors is to outpace
the erosive impact of inflation on investment returns.
B-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1987 to
May 1995. The total returns of the indices include accrued interest, plus the
price changes (gains or losses) of the underlying securities during the period
mentioned. The data is provided to illustrate the varying historical total
returns and investors should not consider this performance data as an indication
of the future performance of the Fund or of any sector in which the Fund
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>
YTD
'87 '88 '89 '90 '91 '92 '93 '94 5/95
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Treasury
Bonds1 ................................... 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 10.3%
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Government
Mortgage
Securities2 .............................. 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 10.1%
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Investment Grade
Corporate
Bonds3 ................................... 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 12.8%
- --------------------------------------------------------------------------------------------------------------------------------
U.S.
High Yield
Corporate
Bonds4 ................................... 5.0% 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 11.7%
- --------------------------------------------------------------------------------------------------------------------------------
World
Government
Bonds5 ................................... 35.2% 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.4%
================================================================================================================================
Difference between highest
and lowest return percent ................ 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 9.3
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
B-2
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
[Treasury Bonds Graph]
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex 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.
B-3
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Financial Statements incorporated by reference in the Prospectus
constituting Part A of this Registration Statement:
Financial Highlights.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at December 31, 1994 and June 30, 1995
unaudited.
Statement of Assets and Liabilities at December 31, 1994 and
June 30, 1995 unaudited.
Statement of Operations for the Fiscal Year Ended December 31, 1994
and the six months ended June 30, 1995 unaudited.
Statement of Changes in Net Assets for the Fiscal Years ended
December 31, 1994 and 1993 and the six months ended June 30, 1995
unaudited.
Notes to Financial Statements.
Financial Highlights.
Report of Independent Accountants.
(b) Exhibits:
1. (a) Articles of Incorporation. Incorporated by reference to
Registration Statement on Form N-2, File No. 33-5470, filed on
May 6, 1986.
(b) Amendment to Articles of Incorporation. Incorporated by reference
to Post-Effective Amendment No. 3 to Registration Statement on
Form N-2, File No. 33-5470, filed on April 27, 1989.
(c) Amendment to Articles of Incorporation. Incorporated by reference
to Post-Effective Amendment No. 4 to Registration Statement on
Form N-2, File No. 33-5470, filed on April 30, 1990.
(d) Amendment to Articles of Incorporation.*
(e) Form of Amended and Restated Articles of Incorporation.*
2. (a) By-Laws. Incorporated by reference to Registration Statement on
Form N-2, File No. 33-5470, filed on May 6, 1986.
(b) Amended and Restated By-Laws.*
(c) Form of Amended and Restated By-Laws.*
3. Not Applicable.
4. Instruments defining rights of shareholders.*
5. (a) Management Agreement Between the Registrant and Prudential Mutual
Fund Management, Inc. Incorporated by reference to Post-Effective
Amendment No. 3 to Registration Statement on Form N-2, File No. 33-5470,
filed on April 27, 1989.
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc.and The Prudential Investment Corporation. Incorporated by
reference to Post-Effective Amendment No. 3, File No. 33-5470, filed on
April 27, 1989.
(c) Form of Amended Management Agreement between the Registrant and
Prudential Mutual Fund Management, Inc.*
(d) Form of Amended Subadvisory Agreement between Prudential Mutual
Fund Management, Inc. and The Prudential Investment Corporation.*
6. (a) Form of Distribution Agreement between the Registrant and Prudential
Securities Incorporated.*
(b) Form of Selected Dealer Agreement.*
7. Not Applicable.
8. Custodian Contract between the Registrant and State Street Bank and
Trust Company.*
C-1
<PAGE>
9. Form of Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc.*
10. Opinion and Consent of Counsel. Incorporated by reference to
Pre-Effective Amendment No. 3 to Registration Statement on Form N-2,
File No. 33-5470, filed on June 30, 1986.
11. Consent of Independent Accountants.*
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. (a) Form of Distribution and Service Plan for Class A Shares.*
(b) Form of Distribution and Service Plan for Class B Shares.*
(c) Form of Distribution and Service Plan for Class C Shares.*
16. Schedule of Computation of Performance Quotations.*
17. Financial Data Schedules.*
- ----------
*Filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of September 29, 1995 there were approximately 9,217 shareholders of
record.
Item 27. Indemnification
As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940 (the 1940 Act) and pursuant to Article VII of the Fund's By-Laws (Exhibit 2
to the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of each Distribution Agreement (Exhibits 6(a)
and (b) to the Registration Statement), each Distributor of the Registrant may
be indemnified against liabilities which it may incur, except liabilities
arising from bad faith, gross negligence, willful misfeasance or reckless
disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of such
issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross
C-2
<PAGE>
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 Sections 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
Item 28. Business and other Connections of Investment Adviser
(a) Prudential Mutual Fund Management, Inc.
See "How the 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 PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed on March 30, 1995).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
Brendan D. Boyle Executive Vice President, Executive Vice President,
Director of Marketing and Director of Marketing and
Director Director, PMF; Senior Vice
President, Prudential
Securities Incorporated
(Prudential Securities);
Chairman and Director,
Prudential Mutual Fund
Distributors, Inc. (PMFD)
Stephen P. Fisher Senior Vice President Senior Vice President, PMF;
Senior Vice President,
Prudential Securities;
Vice President, PMFD
Frank W. Giordano Executive Vice Executive Vice President,
President, General General Counsel, Secretary
Counsel, Secretary and and Director, PMF and PMFD;
Director Senior Vice President,
Prudential Securities;
Director, Prudential Mutual
Fund Services, Inc.(PMFS)
Robert F. Gunia Executive Vice Executive Vice President,
President, Chief Chief Financial and
Financial and Administrartive Officer,
Administrative Officer, Treasurer and Director, PMF;
Treasurer, and Director Senior Vice President,
Prudential Securities;
Executive Vice President,
Chief Financial Officer,
Treasurer, and Director,
PMFD; Director, PMFS
Theresa A. Hamacher Director Director, PMF; Vice
President, Prudential; Vice
President, Prudential
Investment Corporation (PIC)
Timothy J. O'Brien Director President, Chief Executive
Officer, Chief Operating
Officer and Director, PMFD;
Chief Executive Officer and
Director, PMFS; Director, PMF
Richard A. Redeker President, Chief Executive President, Chief Executive
Officer and Director Officer and Director, PMF;
Executive Vice President,
Director and Member of the
Operating Committee,
Prudential Securities;
Director, Prudential
Securities Group, Inc. PSG;
Executive Vice President,
PIC; Director, PMFD;
Director, PMFS
S. Jane Rose Senior Vice President, Senior Vice President,
Senior Counsel Senior Counsel and Assistant
and Assistant Secretary, PMF; Senior Vice
Secretary President and Senior Counsel,
Prudential Securities
(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.
C-3
<PAGE>
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
- ---------------- ----------------- ---------------------
William M. Bethke Senior Vice President Senior Vice President,
Two Gateway Center Prudential; Senior Vice
Newark, NJ 07102 President, PIC
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President,
51 JFK Parkway and Director Prudential; Senior Vice
Short Hills, NJ 07078 President and Director, PIC
Barry M. Gillman Director Director, PIC
Theresa A. Hamacher Vice President Vice President, Prudential;
Vice President, PIC;
Director,PMF
Harry E. Knapp, Jr. President, Chairman of President, Chairman of the
the Board, Chief Board, Chief Executive
Executive Officer and Officer and Director, PIC;
Director Vice President, Prudential
William P. Link Senior Vice President Executive Vice President,
Four Gateway Center Prudential; Senior Vice
Newark, NJ 07102 President, PIC
Richard A. Redeker Executive Vice President President, Chief Executive
Officer and Director, PMF;
Executive Vice President,
Director and Member of the
Operating Committee,
Prudential Securities;
Director, Prudential
Securities Group, Inc.
(PSG); Executive Vice
President, PIC; Director,
PMFD; Director, PMFS
Eric A. Simonson Vice President and Vice President and
Director Director, PIC; Executive
Vice President, Prudential
Claude J. Zinngrabe, Jr. Executive Vice President Vice President, Prudential;
Executive Vice President,
PIC
C-4
<PAGE>
Item 29. Principal Underwriters
(a)(i) Prudential Securities Incorporated
Prudential Securities Incorporated is distributor for Prudential Government
Securities Trust (Short-Intermediate Term Series), Prudential Jennison Fund,
Inc., The Target Portfolio Trust, for Class B shares of Prudential Adjustable
Rate Securities Fund, Inc., and for Class B and Class C shares of The BlackRock
Government Income Trust, Global Utility Fund, Inc., Nicholas-Applegate Fund,
Inc. (Nicholas-Applegate Growth Equity Fund), Prudential Allocation Fund,
Prudential California Municipal Fund (California Income Series and California
Series), Prudential Diversified Bond Fund, Inc., Prudential Equity Fund, Inc.,
Prudential Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential
Global Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global
Limited Maturity Fund, Inc., Prudential Global Natural Resources Fund, Inc.,
Prudential Government Income Fund, Inc., Prudential Growth Opportunity Fund,
Inc., Prudential High Yield Fund, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential Mortgage Income Fund, Inc., Prudential Multi-Sector Fund,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund (except
Connecticut Money Market Series, Massachusetts Money Market Series, New York
Money Market Series, and New Jersey Money Market Series), Prudential National
Municipals Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential
Structured Maturity Fund, Inc., Prudential U.S. Government Fund, and Prudential
Utility Fund, Inc. 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
(a)(ii) Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series), Prudential
Government Securities Trust (Money Market Series and U.S. Treasury Money Market
Series), Prudential Institutional Liquidity Portfolio, Inc., Prudential-Bache
MoneyMart Assets Inc. (d/b/a Prudential MoneyMart Assets), Prudential Municipal
Series Fund (Connecticut Money Market Series, Massachusetts Money Market Series,
New York Money Market Series, and New Jersey Money Market Series),
Prudential-Bache Special Money Market Fund, Inc. (d/b/a Prudential Special Money
Market Fund), Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential
Tax-Free Money Fund), and for Class A shares of The BlackRock Government Income
Trust, Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Adjustable Rate Securities
Fund, Inc., Prudential Allocation Fund, Prudential California Municipal Fund
(California Income Series and California Series), Prudential Diversified Bond
Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund, Inc., Prudential Global Fund, Inc., Prudential
Global Genesis Fund, Inc., Prudential Global Limited Maturity Fund, Inc.,
Prudential Global Natural Resources Fund, Inc., Prudential Government Income
Fund, Inc., Prudential Growth Opportunity Fund, Inc., Prudential High Yield
Fund, Inc., Prudential Intermediate Global Income Fund, Inc., Prudential
Mortgage Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund (except Connecticut Money
Market Series, Massachusetts Money Market Series, New York Money Market Series,
and New Jersey Money Market Series), Prudential National Municipals Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Structured Maturity Fund, Inc.,
Prudential U.S. Government Fund, and Prudential Utility Fund, Inc.
C-5
<PAGE>
(b)(i) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below.
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- -------------
Robert C. Golden Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Alan D. Hogan Executive Vice President, Chief
Administrative Officer and Director None
George A. Murray Executive Vice President and Director None
Leland B. Paton Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Vincent T. Pica, II Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Richard A. Redeker Executive Vice President and Director President and
Director
Gregory W. Scott Executive Vice President, Chief
Financial Officer and Director None
Hardwick Simmons Chief Executive Officer, President
and Director None
Lee B. Spencer Executive Vice President, Secretary,
General Counsel and Director None
(b)(ii) Information concerning the directors and officers of Prudential
Mutual Fund Distributors, Inc. is set forth below.
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- -------------
Joanne Accurso-Soto Vice President None
Dennis N. Annarumma Vice President, Assistant Treasurer
and Assistant Comptroller None
Phyllis J. Berman Vice President None
Brendan D. Boyle Chairman and Director None
Stephen P. Fisher Vice President None
Frank W. Giordano Executive Vice President, General
Counsel, Secretary and Director None
Robert F. Gunia Executive Vice President, Chief
Financial Officer, Treasurer
and Director Vice President
Timothy J. O'Brien President, Chief Executive Officer,
Chief Operating Officer and Director None
Richard A. Redeker Director President and
Director
Andrew J. Varley Vice President None
Anita L. Whelan Vice President and Assistant Secretary None
- -----------
(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, One Heritage Drive, North
Quincy, Massachusetts 02171, The Prudential Investment Corporation, Prudential
Plaza, 745 Broad Street, Newark, New Jersey 07102, the Registrant, One Seaport
Plaza, New York, New York 10292, and Prudential Mutual Fund Services, Inc.,
Raritan Plaza One, Edison, New Jersey 08837. Documents required by Rules
31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Three
Gateway Center, documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at
One Seaport Plaza and the remaining accounts, books and other documents required
by such other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services, Inc.
C-6
<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 hereby undertakes to furnish 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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on behalf of the Registrant by the
undersigned, thereunto duly authorized, in the City of New York, and State of
New York, on the 31st day of October, 1995.
THE GLOBAL TOTAL RETURN FUND, INC.
/s/ Richard A. Redeker
--------------------------------------
(Richard A. Redeker, President)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Richard A. Redeker President and Director October 31, 1995
- ------------------------
Richard A. Redeker
/s/ Edward D. Beach Director October 31, 1995
- ------------------------
Edward D. Beach
/s/ Harry A. Jacobs, Jr. Director October 31, 1995
- ------------------------
Harry A. Jacobs, Jr.
/s/ Thomas T. Mooney Director October 31, 1995
- ------------------------
Thomas T. Mooney
/s/ Sir Michael Sandberg Director October 31, 1995
- ------------------------
Sir Michael Sandberg
/s/ Robin B. Smith Director October 31, 1995
- ------------------------
Robin B. Smith
/s/ Nancy H. Teeters Director October 31, 1995
- ------------------------
Nancy H. Teeters
/s/ Eugene S. Stark Treasurer and October 31, 1995
- ------------------------ Principal Financial
Eugene S. Stark and Accounting Officer
<PAGE>
EXHIBIT INDEX
(b) Exhibits:
1. (a) Articles of Incorporation. Incorporated by reference to
Registration Statement on Form N-2, File No. 33-5470, filed on May 6,
1986.
(b) Amendment to Articles of Incorporation. Incorporated by reference
to Post-Effective Amendment No. 3 to Registration Statement on Form
N-2, File No. 33-5470, filed on April 27, 1989.
(c) Amendment to Articles of Incorporation. Incorporated by reference
to Post-Effective Amendment No. 4 to Registration Statement on Form
N-2, File No. 33-5470, filed on April 30, 1990.
(d) Amendment to Articles of Incorporation.*
(e) Form of Amended and Restated Articles of Incorporation.*
2. (a) By-Laws. Incorporated by reference to Registration Statement on
Form N-2, File No. 33-5470, filed on May 6, 1986.
(b) Amended and Restated By-Laws.*
(c) Form of Amended and Restated By-Laws.*
3. Not Applicable.
4. Instruments defining rights of shareholders.*
5. (a) Management Agreement Between the Registrant and Prudential Mutual
Fund Management, Inc. Incorporated by reference to Post-Effective
Amendment No. 3 to Registration Statement on Form N-2, File No.
33-5470, filed on April 27, 1989.
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation. Incorporated by
reference to Post-Effective Amendment No. 3, File No. 33-5470, filed on
April 27, 1989.
(c) Form of Amended Management Agreement between the Registrant and
Prudential Mutual Fund Management, Inc.*
(d) Form of Amended Subadvisory Agreement between Prudential Mutual
Fund Management, Inc. and The Prudential Investment Corporation.*
6. (a) Form of Distribution Agreement between the Registrant and
Prudential Securities Incorporated.*
(b) Form of Selected Dealer Agreement.*
7. Not Applicable.
8. Custodian Contract between the Registrant and State Street Bank and
Trust Company.*
9. Form of Transfer Agency and Service Agreement between the Registrant
and Prudential Mutual Fund Services, Inc.*
10. Opinion and Consent of Counsel. Incorporated by reference to
Pre-Effective Amendment No. 3 to Registration Statement on Form N-2,
File No. 33-5470, filed on June 30, 1986.
11. Consent of Independent Accountants.*
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. (a) Form of Distribution and Service Plan for Class A Shares.*
(b) Form of Distribution and Service Plan for Class B Shares.*
(c) Form of Distribution and Service Plan for Class C Shares.*
16. Schedule of Computation of Performance Quotations.*
17. Financial Data Schedules.*
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*Filed herewith.
Exhibit 1(d)
ARTICLES OF AMENDMENT
OF
THE GLOBAL YIELD FUND, INC.
THE GLOBAL YIELD FUND, INC., a Maryland corporation having its principal
offices in Baltimore, Maryland and New York, New York (the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Article SECOND of the Corporation's Charter is hereby amended
in its entirety to read as follows:
The name of the corporation is THE GLOBAL TOTAL RETURN FUND, INC. (the
"Corporation").
SECOND: The foregoing amendment to the Charter of the Corporation does
not increase the authorized stock of the Corporation.
THIRD: The foregoing amendment to the Charter of the Corporation has
been advised by the Board of Directors and approved by a majority of the
shareholders of the Corporation.
FOURTH: The foregoing amendment to the Charter of the Corporation
shall become effective at 9:00 a.m. on November 30, 1994.
IN WITNESS WHEREOF, THE GLOBAL YIELD FUND, INC. has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Secretary on November 22, 1994.
THE GLOBAL YIELD FUND, INC.
By /s/ Lawrence C. McQuade
------------------------------
Lawrence C. McQuade
President
Attest: /s/ S. Jane Rose
-------------------------
S. Jane Rose
Secretary
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The undersigned, President of THE GLOBAL YIELD FUND, INC., who executed on
behalf of said corporation the foregoing amendment to the Charter of which this
certificate is made a part, hereby acknowledges in the name and on behalf of
said corporation, the foregoing amendment to the Charter to be the corporate act
of said corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
/s/ Lawrence C. McQuade
----------------------------
Lawrence C. McQuade
Exhibit 1(e)
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
THE GLOBAL TOTAL RETURN FUND, INC.
The Global Total Return Fund, Inc. ((hereinafter called the
"Corporation"), a Maryland corporation having its principal offices
in the city of Baltimore, Maryland and New York, New York, hereby
certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The Charter of the Corporation is hereby restated in
its entirety to read as follows:
ARTICLE I.
The name of the Corporation is The Global Total Return Fund,
Inc.
ARTICLE II.
Purposes
The purpose for which the Corporation is formed is to act as
an open-end investment company of the management type registered as
such with the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940, as amended (the Investment Company
Act) and to exercise and generally to enjoy all of the powers,
rights and privileges granted to, or conferred upon, corporations
by the General Laws of the State of Maryland now or hereinafter in
force.
<PAGE>
ARTICLE III.
Address in Maryland
The post office address of the place at which the principal
office of the Corporation in the State of Maryland is located is
c/o CT Corporation System, 32 South Street Baltimore, Maryland
21202.
The name of the Corporation's resident agent is The
Corporation Trust Incorporated, and its post office address is 32
South Street, Baltimore Maryland 21202. Said resident agent is a
corporation of the State of Maryland.
ARTICLE IV.
Common Stock
Section 1. The total number of shares of capital stock
which the Corporation shall have authority to issue is
2,000,000,000 shares of the par value of $.01 per share and of the
aggregate par value of $20,000,000 to be divided into three
classes, consisting of 1,000,000,000 shares of Class A Common
Stock, 500,000,000 shares of Class B Common Stock and 500,000,000
shares of Class C Common Stock. The shares of Common Stock issued
and outstanding will be reclassified Class A Common Stock. The
shares of Common Stock issued and outstanding on the date Class B
and Class C shares are first issued will be reclassified Class A
Common Stock.
(a) Each share of Class A, Class B and Class C Common Stock
of the Corporation shall represent the same interest in the
Corporation and have identical voting, dividend, liquidation and
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other rights, except that (i) expenses related to the distribution
of a class of shares shall be borne solely by such class; (ii) the
bearing of any such expenses solely by shares of a class shall be
appropriately reflected (in the manner determined by the Board of
Directors) in the net asset value, dividends, distribution and
liquidation rights of the shares of such class; (iii) the Class A
Common Stock shall be subject to a front-end sales load and a Rule
12b-1 distribution fee as determined by the Board of Directors from
time to time; (iv) the Class B Common Stock shall be subject to a
contingent deferred sales charge and a Rule 12b-1 distribution fee
as determined by the Board of Directors from time to time; and (v)
the Class C Common Stock shall be subject to a contingent deferred
sales charge and a Rule 12b-1 distribution fee as determined by the
Board of Directors from time to time. All shares of a particular
class shall represent an equal proportionate interest in that
class, and each share of any particular class shall be equal to
each other share of that class.
(b) Each share of the Class B Common Stock of the Corporation
shall be converted automatically, and without any action or choice
on the part of the holder thereof, into shares (including fractions
thereof) of the Class A Common Stock of the Corporation (computed
in the manner hereinafter described), at the applicable net asset
value of each Class, at the time of the calculation of the net
asset value of such Class B Common Stock at such times, which may
vary between shares originally issued for cash and shares purchased
through the automatic reinvestment of dividends and distributions
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with respect to Class B Common Stock (each a Conversion Date),
determined by the Board of Directors in accordance with applicable
laws, rules, regulations and interpretations of the Securities and
Exchange Commission and the National Association of Securities
Dealers, Inc. and pursuant to such procedures as may be established
from time to time by the Board of Directors and disclosed in the
Corporation's then current prospectus for such Class A and Class B
Common Stock.
(c) The number of shares of the Class A Common Stock of the
Corporation into which a share of the Class B Common Stock is
converted pursuant to Paragraph (1)(b) hereof shall equal the
number (including for this purpose fractions of a share) obtained
by dividing the net asset value per share of the Class B Common
Stock for purposes of sales and redemptions thereof at the time of
the calculation of the net asset value on the Conversion Date by
the net asset value per share of the Class A Common Stock for
purposes of sales and redemptions thereof at the time of the
calculation of the net asset value on the Conversion Date.
(d) On the Conversion Date, the shares of the Class B Common
Stock of the Corporation converted into shares of the Class A
Common Stock will cease to accrue dividends and will no longer be
outstanding and the rights of the holders thereof will cease
(except the right to receive declared but unpaid dividends to the
Conversion Date).
(e) The Board of Directors shall have full power and
authority to adopt such other terms and conditions concerning the
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conversion of shares of the Class B Common Stock to shares of the
Class A Common Stock as they deem appropriate; provided such terms
and conditions are not inconsistent with the terms contained in
this Section 1 and subject to any restrictions or requirements
under the Investment Company Act of 1940 and the rules, regulations
and interpretations thereof promulgated or issued by the Securities
and Exchange Commission, and conditions or limitations contained in
an order issued by the Securities and Exchange Commission
applicable to the Corporation, or any restrictions or requirements
under the Internal Revenue Code of 1986, as amended, and the rules,
regulations and interpretations promulgated or issued thereunder.
Section 2. The Board of Directors may, in its discretion,
classify and reclassify any unissued shares of the capital stock of
the Corporation into one or more additional or other classes or
series by setting or changing in any one or more respects the
designations, conversion or other rights, restrictions, limitations
as to dividends, qualifications or terms or conditions of
redemption of such shares and pursuant to such classification or
reclassification to increase or decrease the number of authorized
shares of any existing class or series. If designated by the Board
of Directors, particular classes or series of capital stock may
relate to separate portfolios of investments.
Section 3. Unless otherwise expressly provided in the
charter of the Corporation, including any Articles Supplementary
creating any class or series of capital stock, the holders of each
class and series of capital stock of the Corporation shall be
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entitled to dividends and distributions in such amounts and at such
times as may be determined by the Board of Directors, and the
dividends and distributions paid with respect to the various
classes or series of capital stock may vary among such classes or
series. Expenses related to the distribution of, and other
identified expenses that should properly be allocated to, the
shares of a particular class or series of capital stock may be
charged to and borne solely by such class or series and the bearing
of expenses solely by a class or series may be appropriately
reflected (in a manner determined by the Board of Directors) and
cause differences in the net asset value attributable to, and the
dividend, redemption and liquidation rights of, the shares of each
such class or series of capital stock.
Section 4. Unless otherwise expressly provided in the
charter of the Corporation, including any Articles Supplementary
creating any class or series of capital stock, on each matter
submitted to a vote of stockholders, each holder of a share of
capital stock of the Corporation shall be entitled to one vote for
each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all
shares of all classes and series shall vote together as a single
class; provided, however, that (a) as to any matter with respect
to which a separate vote of any class or series is required by the
Investment Company Act of 1940, as amended, and in effect from time
to time, or any rules, regulations or orders issued thereunder, or
by the Maryland General Corporation Law, such requirement as to a
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separate vote by that class or series shall apply in lieu of a
general vote of all classes and series as described above; (b) in
the event that the separate vote requirements referred to in (a)
above apply with respect to one or more classes or series, then
subject to paragraph (c) below, the shares of all other classes and
series not entitled to a separate vote shall vote together as a
single class; and (c) as to any matter which in the judgment of the
Board of Directors (which shall be conclusive) does not affect the
interest of a particular class or series, such class or series
shall not be entitled to any vote and only the holders of shares of
the one or more affected classes and series shall be entitled to
vote.
Section 5. Unless otherwise expressly provided in the
charter of the Corporation, including any Articles Supplementary
creating any class or series of capital stock, in the event of any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, holders of shares of capital stock of the
Corporation shall be entitled, after payment or provision for
payment of the debts and other liabilities of the Corporation (as
such liabilities may affect one or more of the classes of shares of
capital stock of the Corporation), to share ratably in the
remaining net assets of the Corporation; provided, however, that in
the event the capital stock of the Corporation shall be classified
or reclassified into series, holders of any shares of capital stock
within such series shall be entitled to share ratably out of assets
belonging to such series pursuant to the provisions of Section 7(c)
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of this Article IV.
Section 6. Each share of any class of the capital stock of
the Corporation, and in the event the capital stock of the
Corporation shall be classified or reclassified into series, each
share of any class of capital stock of the Corporation within such
series shall be subject to the following provisions:
(a) The net asset value of each outstanding share
of capital stock of the Corporation (or of a class or
series, in the event the capital stock of the Corporation
shall be so classified or reclassified into series),
subject to subsection (b) of this Section 6, shall be the
quotient obtained by dividing the value of the net assets
of the Corporation (or the net assets of the Corporation
attributable or belonging to that class or series as
designated by the Board of Directors pursuant to Articles
Supplementary) by the total number of outstanding shares
of capital stock of the Corporation (or of such class or
series, in the event the capital stock of the Corporation
shall be classified or reclassified into series).
Subject to subsection (b) of this Section 6, the value of
the net assets of the Corporation (or of such class or
series, in the event the capital stock of the Corporation
shall be classified or reclassified into series) shall be
determined pursuant to the procedures or methods (which
procedures or methods, in the event the capital stock of
the Corporation shall be classified or reclassified into
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series, may differ from class to class or from series to
series) prescribed or approved by the Board of Directors
in its discretion, and shall be determined at the time or
times (which time or times may, in the event the capital
stock of the Corporation shall be classified into classes
or series, differ from series to series) prescribed or
approved by the Board of Directors in its discretion. In
addition, subject to subsection (b) of this Section 6,
the Board of Directors, in its discretion, may suspend
the daily determination of net asset value of any share
of any series or class of capital stock of the
Corporation.
(b) The net asset value of each share of the
capital stock of the Corporation or any class or series
thereof shall be determined in accordance with any
applicable provision of the Investment Company Act, any
applicable rule, regulation or order of the Securities
and Exchange Commission thereunder, and any applicable
rule or regulation made or adopted by any securities
association registered under the Securities Exchange Act
of 1934.
(c) All shares now or hereafter authorized shall be
subject to redemption and redeemable at the option of the
stockholder pursuant to the applicable provisions of the
Investment Company Act and laws of the State of Maryland,
including any applicable rules and regulations
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thereunder. Each holder of a share of any class or
series, upon request to the Corporation (if such holder's
shares are certificated, such request being accompanied
by surrender of the appropriate stock certificate or
certificates in proper form for transfer), shall be
entitled to require the Corporation to redeem all or any
part of such shares outstanding in the name of such
holder on the books of the Corporation (or as represented
by share certificates surrendered to the Corporation by
such redeeming holder) at a redemption price per share
determined in accordance with subsection (a) of this
Section 6.
(d) Notwithstanding subsection (c) of this Section
6, the Board of Directors of the Corporation may suspend
the right of the holders of shares of any or all classes
or series of capital stock to require the Corporation to
redeem such shares or may suspend any purchase of such
shares:
(i) for any period (A) during which the New York
Stock Exchange is closed, other than customary weekend
and holiday closings, or (B) during which trading on the
New York Stock Exchange is restricted;
(ii) for any period during which an emergency, as
defined by the rules of the Securities and Exchange
Commission or any successor thereto, exists as a result
of which (A) disposal by the Corporation of securities
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owned by it and belonging to the affected series of
capital stock (or the Corporation, if the shares of
capital stock of the Corporation have not been classified
or reclassified into series) is not reasonably
practicable, or (B) it is not reasonably practicable for
the Corporation fairly to determine the value of the net
assets of the affected series of capital stock; or
(iii) for such other periods as the Securities and
Exchange Commission or any successor thereto may by order
permit for the protection of the holders of shares of
capital stock of the Corporation.
(e) All shares of the capital stock of the
Corporation now or hereafter authorized shall be subject
to redemption and redeemable at the option of the
Corporation. The Board of Directors may by resolution
from time to time authorize the Corporation to require
the redemption of all or any part of the outstanding
shares of any class or series upon the sending of written
notice thereof to each holder whose shares are to be
redeemed and upon such terms and conditions as the Board
of Directors, in its discretion, shall deem advisable,
out of funds legally available therefor, at the net asset
value per share of that class or series determined in
accordance with subsections (a) and (b) of this Section
6 and take all other steps deemed necessary or advisable
in connection therewith.
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(f) The Board of Directors may by resolution from
time to time authorize the purchase by the Corporation,
either directly or through an agent, of shares of any
class or series of the capital stock of the Corporation
upon such terms and conditions and for such consideration
as the Board of Directors, in its discretion, shall deem
advisable out of funds legally available therefor at
prices per share not in excess of the net asset value per
share of that class or series determined in accordance
with subsections (a) and (b) of this Section 6 and to
take all other steps deemed necessary or advisable in
connection therewith.
(g) Except as otherwise permitted by the Investment
Company Act, payment of the redemption price of shares of
any class or series of the capital stock of the
Corporation surrendered to the Corporation for redemption
pursuant to the provisions of subsection (c) of this
Section 6 or for purchase by the Corporation pursuant to
the provisions of subsection (e) or (f) of this Section
6 shall be made by the Corporation within seven days
after surrender of such shares to the Corporation for
such purpose. Any such payment may be made in whole or
in part in portfolio securities or in cash, as the Board
of Directors, in its discretion, shall deem advisable,
and no stockholder shall have the right, other than as
determined by the Board of Directors, to have his or her
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shares redeemed in portfolio securities.
(h) In the absence of any specification as to the
purposes for which shares are redeemed or repurchased by
the Corporation, all shares so redeemed or repurchased
shall be deemed to be acquired for retirement in the
sense contemplated by the laws of the State of Maryland.
Shares of any class or series retired by repurchase or
redemption shall thereafter have the status of authorized
but unissued shares of such class or series.
Section 7. In the event the Board of Directors shall
authorize the classification or reclassification of shares into
classes or series, the Board of Directors may (but shall not be
obligated to) provide that each class or series shall have the
following powers, preferences and voting or other special rights,
and the qualifications, restrictions and limitations thereof shall
be as follows:
(a) All consideration received by the Corporation
for the issue or sale of shares of capital stock of each
series, together with all income, earnings, profits, and
proceeds received thereon, including any proceeds derived
from the sale, exchange or liquidation thereof, and any
funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall
irrevocably belong to the series with respect to which
such assets, payments or funds were received by the
Corporation for all purposes, subject only to the rights
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of creditors, and shall be so handled upon the books of
account of the Corporation. Such assets, payments and
funds, including any proceeds derived from the sale,
exchange or liquidation thereof, and any assets derived
from any reinvestment of such proceeds in whatever form
the same may be, are herein referred to as "assets
belonging to" such series.
(b) The Board of Directors may from time to time
declare and pay dividends or distributions, in additional
shares of capital stock of such series or in cash, on any
or all series of capital stock, the amount of such
dividends and the means of payment being wholly in the
discretion of the Board of Directors.
(i) Dividends or distributions on shares of any
series shall be paid only out of earned surplus or other
lawfully available assets belonging to such series.
(ii) Inasmuch as one goal of the Corporation is to
qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, or any
successor or comparable statute thereto, and Regulations
promulgated thereunder, and inasmuch as the computation
of net income and gains for federal income tax purposes
may vary from the computation thereof on the books of the
Corporation, the Board of Directors shall have the power,
in its discretion, to distribute in any fiscal year as
dividends, including dividends designated in whole or in
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part as capital gains distributions, amounts sufficient,
in the opinion of the Board of Directors, to enable the
Corporation to qualify as a regulated investment company
and to avoid liability for the Corporation for federal
income tax in respect of that year. In furtherance, and
not in limitation of the foregoing, in the event that a
series has a net capital loss for a fiscal year, and to
the extent that the net capital loss offsets net capital
gains from such series, the amount to be deemed available
for distribution to that series with the net capital gain
may be reduced by the amount offset.
(c) In the event of the liquidation or dissolution
of the Corporation, holders of shares of capital stock of
each series shall be entitled to receive, as a series,
out of the assets of the Corporation available for
distribution to such holders, but other than general
assets not belonging to any particular series, the assets
belonging to such series; and the assets so distributable
to the holders of shares of capital stock of any series
shall be distributed, subject to the provisions of
subsection (d) of this Section 7, among such stockholders
in proportion to the number of shares of such series held
by them and recorded on the books of the Corporation. In
the event that there are any general assets not belonging
to any particular series and available for distribution,
such distribution shall be made to the holders of all
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series in proportion to the net asset value of the
respective series determined in accordance with the
charter of the Corporation.
(d) The assets belonging to any series shall be
charged with the liabilities in respect to such series,
and shall also be charged with its share of the general
liabilities of the Corporation, in proportion to the
asset value of the respective series determined in
accordance with the charter of the Corporation. The
determination of the Board of Directors shall be
conclusive as to the amount of liabilities, including
accrued expenses and reserves, as to the allocation of
the same as to a given series, and as to whether the same
or general assets of the Corporation are allocable to one
or more classes.
Section 8. Any fractional shares shall carry
proportionately all the rights of a whole share, excepting any
right to receive a certificate evidencing such fractional share,
but including, without limitation, the right to vote and the right
to receive dividends.
Section 9. No holder of shares of Common Stock of the
Corporation shall, as such holder, have any pre-emptive right to
purchase or subscribe for any shares of the Common Stock of the
Corporation of any class or series which it may issue or sell
(whether out of the number of shares authorized by the Articles of
Incorporation, or out of any shares of the Common Stock of the
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Corporation acquired by it after the issue thereof, or otherwise).
Section 10. All persons who shall acquire any shares of
capital stock of the Corporation shall acquire the same subject to
the provisions of the charter and By-Laws of the Corporation.
Section 11. Notwithstanding any provisions of law requiring
action to be taken or authorized by the affirmative vote of the
holders of a designated proportion greater than a majority of the
outstanding shares of all classes or of the outstanding shares of
a particular class or classes, as the case may be, such action
shall be valid and effective if taken or authorized by the
affirmative vote of the holders of a majority of the total number
of shares of all classes or series or of the total number of shares
of such class or classes or series, as the case may be, outstanding
and entitled to vote thereupon pursuant to the provisions of these
Articles of Incorporation.
ARTICLE V.
Directors
The By-Laws of the Corporation may fix the number of directors
at no less than three and may authorize the Board of Directors, by
the vote of a majority of the entire Board of Directors, to
increase or decrease the number of directors within a limit
specified in the By-Laws (provided that, if there are no shares
outstanding, the number of directors may be less than three but not
less than one), and to fill the vacancies created by any such
increase in the number of directors. Unless otherwise provided by
the By-Laws of the Corporation, the directors of the Corporation
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need not be stockholders.
The By-Laws of the Corporation may divide the directors of the
Corporation into classes and prescribe the tenure of office of the
several classes; but no class shall be elected for a period shorter
than one year or for a period longer than five years, and the term
of office of at least one class shall expire each year.
ARTICLE VI.
Indemnification of Directors and Officers
The Corporation shall indemnify to the fullest extent
permitted by law (including the Investment Company Act, as
currently in effect or as the same may hereafter be amended, any
person made or threatened to be made a party to any action, suit or
proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that such person or such
person's testator or intestate is or was a director or officer of
the Corporation or serves or served at the request of the
Corporation any other enterprise as a director or officer. To the
fullest extent permitted by law (including the Investment Company
Act), as currently in effect or as the same may hereafter be
amended, expenses incurred by any such person in defending any such
action, suit or proceeding shall be paid or reimbursed by the
Corporation promptly upon receipt by it of an undertaking of such
person to repay such expenses if it shall ultimately be determined
that such person is not entitled to be indemnified by the
Corporation. The rights provided to any person by this Article VI
shall be enforceable against the Corporation by such person who
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shall be presumed to have relied upon it in serving or continuing
to serve as a director or officer as provided above. No amendment
of this Article VI shall impair the rights of any person arising at
any time with respect to events occurring prior to such amendment.
For purposes of this Article VI, the term "Corporation" shall
include any predecessor of the Corporation and any constituent
corporation (including any constituent of a constituent) absorbed
by the Corporation in a consolidation or merger; the term "other
enterprise" shall include any corporation, partnership, joint
venture, trust or employee benefit plan; service "at the request of
the Corporation" shall include service as a director or officer of
the Corporation which imposes duties on, or involves services by,
such director or officer with respect to an employee benefit plan,
its participants or beneficiaries; any excise taxes assessed on a
person with respect to an employee benefit plan shall be deemed to
be indemnifiable expenses; and action by a person with respect to
any employee benefit plan which such person reasonably believes to
be in the interest of the participants and beneficiaries of such
plan shall be deemed to be action not opposed to the best interests
of the Corporation.
ARTICLE VII.
Miscellaneous
The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation,
and for creating, defining, limiting and regulating the powers of
the Corporation, the directors and the stockholders.
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Section 1. The Board of Directors shall have the management
and control of the property, business and affairs of the
Corporation and is hereby vested with all the powers possessed by
the Corporation itself so far as is not inconsistent with law or
these Articles of Incorporation. In furtherance and without
limitation of the foregoing provisions, it is expressly declared
that, subject to these Articles of Incorporation, the Board of
Directors shall have power:
(a) To make, alter, amend or repeal from time to time
the By-Laws of the Corporation except as such power may
otherwise be limited in the By-Laws.
(b) To issue shares of any class or series of the
capital stock of the Corporation.
(c) To authorize the purchase of shares of any class or
series in the open market or otherwise, at prices not in
excess of their net asset value for shares of that class,
series or class within such series determined in accordance
with subsections (a) and (b) of Section 6 of Article IV
hereof, provided that the Corporation has assets legally
available for such purpose, and to pay for such shares in
cash, securities or other assets then held or owned by the
Corporation.
(d) To declare and pay dividends and distributions from
funds legally available therefor on shares of such class or
series, in such amounts, if any, and in such manner (including
declaration by means of a formula or other similar method of
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determination whether or not the amount of the dividend or
distribution so declared can be calculated at the time of such
declaration) and to the holders of record as of such date, as
the Board of Directors may determine.
(e) To take any and all action necessary or appropriate
to maintain a constant net asset value per share for shares of
any class, series or class within such series.
Section 2. Any determination made in good faith and, so far
as accounting matters are involved, in accordance with generally
accepted accounting principles applied by or pursuant to the
direction of the Board of Directors or as otherwise required or
permitted by the Securities and Exchange Commission, shall be final
and conclusive, and shall be binding upon the Corporation and all
holders of shares, past, present and future, of each class or
series, and shares are issued and sold on the condition and
undertaking, evidenced by acceptance of certificates for such
shares by, or confirmation of such shares being held for the
account of, any stockholder, that any and all such determinations
shall be binding as aforesaid.
Nothing in this Section 2 shall be construed to protect any
director or officer of the Corporation against liability to the
Corporation or its stockholders to which such director or officer
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
Section 3. The directors of the Corporation may receive
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compensation for their services, subject, however, to such
limitations with respect thereto as may be determined from time to
time by the holders of shares of capital stock of the Corporation.
Section 4. Except as required by law, the holders of shares
of capital stock of the Corporation shall have only such right to
inspect the records, documents, accounts and books of the
Corporation as may be granted by the Board of Directors of the
Corporation.
Section 5. Any vote of the holders of shares of capital stock
of the Corporation authorizing liquidation of the Corporation or
proceedings for its dissolution may authorize the Board of
Directors to determine, as provided herein, or if provision is not
made herein, in accordance with generally accepted accounting
principles, which assets are the assets belonging to the
Corporation or any series thereof available for distribution to the
holders of shares of capital stock of the Corporation or any series
thereof (pursuant to the provisions of Section 7 of Article IV
hereof) and may divide, or authorize the Board of Directors to
divide, such assets among the stockholders of the shares of capital
stock of the Corporation or any series thereof in such manner as to
ensure that each such holder receives an amount from the proceeds
of such liquidation or dissolution that such holder is entitled to,
as determined pursuant to the provisions of Sections 3 and 7 of
Article IV hereof.
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ARTICLE VIII.
Amendments
The Corporation reserves the right from time to time to amend,
alter or repeal any of the provisions of these Articles of
Incorporation (including any amendment that changes the terms of
any of the outstanding shares by classification, reclassification
or otherwise), and to add or insert any other provisions that may,
under the statutes of the State of Maryland at the time in force,
be lawfully contained in articles of incorporation, and all rights
at any time conferred upon the stockholders of the Corporation by
these Articles of Incorporation are subject to the provisions of
this Article VIII.
SECOND: The foregoing amendment and restatement of the
Articles of Incorporation of the Corporation has been advised by
the Board of Directors and approved by a majority of the
shareholders of the Corporation.
THIRD: (a) As of immediately before the amendment the
total number of shares of Common Stock which the Corporation had
authority to issue was 200,000,000 shares of Common Stock, par
value of $.01 per share, having an aggregate par value of
$2,000,000.
(b) As amended, the total number of shares of stock
of all classes which the Corporation has authority to issue is
2,000,000,000 shares, all of which are Common Stock, par value $
.01 per share.
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(c) The aggregate par value of all shares having a
par value was $2,000,000 before the amendment and $20,000,000 as
amended.
(d) A description of the Class A, Class B and Class
C Common Stock is as set forth herein above.
_____________________________
IN WITNESS WHEREOF, THE GLOBAL TOTAL RETURN FUND, INC. has
caused these presents to be signed in its name and on its behalf by
its President and attested by its Secretary on , 1995.
THE GLOBAL TOTAL RETURN FUND, INC.
By _____________________________
Richard A. Redeker
President
Attest: _____________________________
S. Jane Rose
Secretary
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The undersigned, President of The Global Total Return Fund,
Inc., who executed on behalf of said Corporation the foregoing
amendment to the Articles of Incorporation of which this
certificate is made a part, hereby acknowledges the foregoing
amendment and restatement of the Articles of Incorporation to be
the act of the Corporation, and further certifies that, to the best
of his knowledge, information and belief, all matters and facts set
forth therein are true in all material respects and that this
statement is made under the penalties of perjury.
_____________________________
Richard A. Redeker
25
Exhibit 2(b)
BY-LAWS
OF
THE GLOBAL TOTAL RETURN FUND, INC.
(A MARYLAND CORPORATION)
As Amended
ARTICLE I
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
Section 1. Name. The name of the corporation is The Global Total
Return Fund, Inc.
Section 2. Principal Offices. The principal office of the
Corporation in the State of Maryland shall be located in Baltimore,
Maryland. The corporation may, in addition, establish and maintain
such other offices and places of business as the Board of Directors
may, from time to time, determine.
Section 3. Seal. The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation, the
year of its incorporation, and the word "Maryland." The form of
the seal shall be subject to alteration by the Board of Directors
and the seal may be used by causing it or a facsimile to be
impressed or affixed or printed or otherwise reproduced. Any
officer or Director of the Corporation shall have authority to
affix the corporate seal of the Corporation to any document
requiring the same.
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ARTICLE II
STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders
shall be held at the principal office of the Corporation in the
State of Maryland or at such other place within the United States
as may from time to time be designated by the Board of Directors
and stated in the notice of such meeting.
Section 2. Annual Meetings. An annual meeting of stockholders
for the election of Directors and the transaction of such other
business as may properly come before the meeting shall be held at
such time and place within the United States as the Board of
Directors shall select in the month of September, except in 1995.
Section 3. Special Meetings. Special meetings of stockholders may
be called at any time by the President or a majority of the Board
of Directors and shall be held at such time and place as may be
stated in the notice of the meeting. Special meetings of the
stockholders shall be called by the Secretary upon receipt of the
written request of the holders of shares entitled to not less than
25% of all the votes entitled to be cast at such meeting, provided
that (1) such request shall state the purposes of such meeting and
the matters proposed to be acted on, and (2) the stockholders
requesting such meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice
thereof, which the Secretary shall determine and specify to such
stockholders. No special meeting shall be called upon the request
of stockholders to consider any matter which is substantially the
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same as a matter voted upon at any special meeting of the
stockholders held during the preceding 12 months, unless requested
by the holders of a majority of all shares entitled to be voted at
such meeting.
Section 4. Notice of Meetings. The Secretary shall cause written
or printed notice of the place, date and hour, and, in the case of
a special meeting, the purpose or purposes for which the meeting is
called, to be given, not less than 10 and not more than 90 days
before the date of the meeting, to each stockholders entitled to
vote at, or entitled to notice of, such meeting by leaving the same
with such stockholder or at such stockholder's residence or usual
place of business or by mailing it, postage prepaid, and addressed
to such stockholder at his address as it appears on the records of
the Corporation at the time of such mailing. If mailed, notice
shall be deemed to be given when deposited in the United States
mail addressed to the stockholder as aforesaid. Notice of any
stockholders' meeting need not be given to any stockholder who
shall sign a written waiver of such notice either before or after
the time of such meeting, which waiver shall be filed with the
records of such meeting, or to any stockholder who is present at
such meeting in person or by proxy. Notice of adjournment of a
stockholders' meeting to another time or place need not be given if
such time and place are announced at the meeting.
Section 5. Quorum, Adjournment of Meetings. The presence at any
stockholders' meeting, in person or by proxy, of stockholders
entitled to cast a majority of the votes entitled to be cast shall
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be necessary and sufficient to constitute a quorum for the
transaction of business. In the absence of a quorum, the holders
of a majority of shares entitled to vote at the meeting and present
in person or by proxy, or, if no stockholder entitled to vote is
present in person or by proxy, any officer present entitled to
preside or act as Secretary of such meeting may adjourn the meeting
without determining the date of the new meeting or from time to
time without further notice to a date not more than 120 days after
the original record date. Any business that might have been
transacted at the meeting originally called may be transacted at
any such adjourned meeting at which a quorum is present.
Section 6. Voting and Inspectors. At each stockholders' meeting,
each stockholder entitled to vote thereat shall be entitled to one
vote for each share of stock of the Corporation validly issued and
outstanding and standing in his name on the books of the
Corporation on the record date fixed in accordance with Section 5
of Article VI hereof (and each stockholder of record holding
fractional shares, if any, shall have proportionate voting rights),
either in person or by proxy appointed by instrument in writing
subscribed by such stockholder or his duly authorized attorney.
Except as otherwise specifically provided in the Articles of
Incorporation or these By-Laws or as required by provisions of the
Investment Company Act of 1940, as amended from time to time, all
matters shall be decided by a vote of the majority of the votes
validly cast at a meeting at which a quorum is present. The vote
upon any question shall be by ballot whenever requested by a person
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entitled to vote but, unless such a request is made, voting may be
conducted in any way approved by the meeting.
At any election of Directors, the Chairman of the meeting
may, and upon the request of the holders of ten percent (10%) of
the stock entitled to vote at such election shall, appoint two
inspectors of election who shall first subscribe an oath or
affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of
their ability, and shall after the election make a certificate of
the result of the vote taken. No candidate for the office of
Director shall be appointed such Inspector.
Section 7. Stockholders Entitled to Vote. If the Board of
Directors sets a record date for the determination of stockholders
entitled to notice of or to vote at any stockholders' meeting in
accordance with Section 5 Article VI hereof, each stockholder of
the Corporation shall be entitled to vote, in person or by proxy,
each share of stock standing in his name on the books of the
Corporation on such record date. If no record date has been fixed,
the record date for the determination of stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the
later of the close of business on the day which notice of the
meeting is mailed or the thirtieth day before the meeting, or, if
notice is waived by all stockholders, at the close of business on
the tenth day next preceding the day on which the meeting is held.
Section 8. Validity of Proxies, Ballots. The right to vote by
proxy shall exist only if the instrument authorizing such proxy to
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act shall have been signed by the stockholder or by his duly
authorized attorney. Unless a proxy provides otherwise, it shall
not be valid more than eleven months after its date. At every
meeting of the stockholders, all proxies shall be received and
taken in charge of and all ballots shall be received and canvassed
by the Secretary of the Corporation or the person acting as
Secretary of the meeting before being voted, who shall decide all
questions touching the qualification of voters, the validity of the
proxies and the acceptance or rejection of votes, unless inspectors
of election shall have been appointed by the Chairman of the
meeting in which event such inspectors of election shall decide all
such questions. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by one of them
unless at or prior to exercise of such proxy the Corporation
receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid unless challenged at or prior to
its exercise.
Section 9. Conduct of Stockholders' Meetings. The meetings of the
stockholders shall be presided over by the President, or if he is
not present, by a Vice President, or if none of them is present, by
a Chairman to be elected at the meeting. The Secretary of the
Corporation, if present, shall act as a Secretary of such meetings,
or if he is not present, an Assistant Secretary shall so act; if
neither the Secretary nor the Assistant Secretary is present, then
the meeting shall elect its Secretary.
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Section 10. Action Without Meeting. Any action to be taken by
stockholders may be taken without a meeting if (1) all stockholders
entitled to vote on the matter consent to the action in writing,
(2) all stockholders entitled to notice of the meeting but not
entitled to vote at it sign a written waiver of any right to
dissent and (3) said consents and waivers are filed with the
records of the meetings of stockholders. Such consent shall be
treated for all purposes as a vote at the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. Except as otherwise provided by law, by the
Articles of Incorporation or by these By-Laws, the business and
affairs of the Corporation shall be managed under the direction of,
and all the powers of the Corporation shall be exercised by or
under authority of, its Board of Directors.
Section 2. Number of Directors. The Board of Directors shall
consist of not fewer than three nor more than fourteen Directors,
as specified by a resolution of a majority of the entire Board of
Directors. The Board of Directors may elect, but shall not be
required to elect, a Chairman of the Board. Directors need not be
stockholders.
Section 3. Election and Tenure of Directors. Commencing with the
1989 Annual Meeting of Stockholders and thereafter, whenever there
shall be at least three Directors, the Directors shall be divided
into three classes, as nearly equal in number as possible, with the
term of office of the first class to expire at the first subsequent
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Annual Meeting of Stockholders, the term of office of the second
class to expire at the second subsequent Annual Meeting of
Stockholders, and the term of office of the third class to expire
at the third subsequent Annual Meeting of Stockholders. At each
Annual Meeting of Stockholders, successors to the class of
Directors whose term expires at that Annual Meeting shall be
elected for a three-year term. The provisions of Article SIXTH of
the Articles of Incorporation will govern herein. Directors shall
be elected by vote of the holders of a majority of the shares of
common stock outstanding and entitled to vote thereupon.
Section 4. Vacancies and Newly Created Directorships. Subject to
Section 2-407(a) (1) and (c) (1) of the Maryland General
Corporation Law, if any vacancies shall occur in the Board of
Directors (i) by reason of death, resignation, removal or
otherwise, the remaining Directors shall continue to act, and such
vacancies may be filled by a majority of the remaining Directors,
although less than a quorum, and (ii) by reason of an increase in
the authorized number of Directors, such vacancies may be filled
only by a majority vote of the entire Board of Directors; provided,
however, that immediately after filling any such vacancy, at least
two-thirds (2/3) of the Directors then holding office shall have
been elected to such office by the stockholders of the Corporation.
In the event that at any time, less than a majority of the
Directors of the Corporation holding office at that time were
elected by the stockholders, a meeting of the stockholders shall be
held promptly and in any event within 60 days for the purpose of
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electing Directors to fill any existing vacancies in the Board of
Directors unless the Securities and Exchange Commission shall by
order extend such period.
Section 5. Removal. At any meeting of stockholders duly called
and at which a quorum is present, the stockholders may, by the
affirmative vote of a majority of the shares of common stock
outstanding and entitled to vote thereupon remove any Director or
Directors from office, but only for cause.
Section 6. Place of Meeting. The Directors may hold their
meetings, have one or more offices, and keep the books of the
Corporation, outside the State of Maryland, and within or without
of the United States of America, at any office or offices of the
Corporation or at any other place as they may from time to time by
resolution determine, or in the case of meetings, as they may from
time to time by resolution determine or as shall be specified or
fixed in the respective notices or waivers of notice thereof.
Section 7. Annual and Regular Meetings. The annual meeting of the
Board of Directors for choosing officers and transacting other
proper business shall be held immediately after the annual
stockholders' meeting at the place of such meeting or at such other
time and place as the Board may determine. The Board of Directors
from time to time may provide by resolution for the holding of
regular meetings and fix their time and place as the Board of
Directors may determine. Notice of such annual and regular
meetings need not be in writing, provided that notice of any change
in the time or place of such meetings shall be communicated
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promptly to each Director not present at the meeting at which such
change was made, in the manner provided in Section 8 of this
Article III for notice of special meetings. Members of the Board
of Directors or any committee designated thereby may participate in
a meeting of such Board or committee by means of a conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the
same time, and participation by such means shall constitute
presence in person at a meeting.
Section 8. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place and for any purpose when
called by the President, the Secretary or two or more of the
Directors. Notice of special meetings, stating the time and place,
shall be communicated by telephone or transmitted to him by
telegraph, telefax, telex cable or wireless at least one day before
the meeting.
Section 9. Waiver of Notice. No notice of any meeting of the
Board of Directors or a committee of the Board need be given to any
Director who is present at the meeting or who waives notice of such
meeting in writing (which waiver shall be filed with the records of
such meeting), either before or after the time of the meeting.
Section 10. Quorum and Voting. At all meetings of the Board of
Directors, the presence of a majority of the number of Directors
then in office shall constitute a quorum for the transaction of
business. In the absence of quorum, a majority of the Directors
present may adjourn the meeting, from time to time, until a quorum
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shall be present. The action of a majority of the Directors
present at a meeting at which a quorum is present shall be the
action of the Board of Directors, unless the concurrence of a
greater proportion is required for such action by law, by the
Articles of Incorporation or by these By-Laws.
Section 11. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting if a
written consent to such action is signed by all members of the
Board or of such committee, as the case may be, and such written
consent is filed with the minutes of the proceedings of the Board
or committee.
Section 12. Compensation of Directors. Directors shall be entitled
to receive such compensation from the Corporation for their
services as may from time to time be determined by resolution of
the Board of Directors.
ARTICLE IV
COMMITTEES
Section 1. Organization. By resolution adopted by the Board of
Directors, the Board may designate one or more committees,
including an Executive Committee, composed of two or more
Directors. The Chairman of such committees shall be elected by the
Board of Directors. The Board of Directors shall have the power at
any time to change the members of such committees and to fill
vacancies in the committees. The Board may delegate to these
committees any of its powers, except the power to authorize the
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issuance of stock, declare a dividend or distribution on stock,
recommend to stockholders any action requiring stockholder
approval, amend these By-Laws, or approve any merger or share
exchange which does not require stockholder approval.
Section 2. Proceedings and Quorum. In the absence of an
appropriate resolution of the Board of Directors, each committee
may adopt such rules and regulations governing its proceedings,
quorum and manner of acting as it shall deem proper and desirable.
In the event any member of any committee is absent from any
meeting, the members thereof present at the meeting, whether or not
they constitute a quorum, may appoint a member of the Board of
Directors to act in the place of such absent member.
ARTICLE V
OFFICERS
Section 1. General. The officers of the Corporation shall be a
President (who shall be a Director), a Secretary and a Treasurer,
and may include one or more Vice Presidents, Assistant Secretaries
or Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 8 of this
Article.
Section 2. Election, Tenure and Qualifications. The officers of
the Corporation, except those appointed as provided in Section 8 of
this Article V, shall be elected by the Board of Directors at its
first meeting or such meetings as shall be held prior to its first
annual meeting, and thereafter annually at its annual meeting. If
any officers are not chosen at any annual meeting, such officers
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may be chosen at any subsequent regular or special meeting of the
Board. Except as otherwise provided in this Article V, each
officer chosen by the Board of Directors shall hold office until
the next annual meeting of the Board of Directors and until his
successor shall have been elected and qualified. Any person may
hold one or more offices of the Corporation except the offices of
President and Vice President.
Section 3. Removal and Resignation. Whenever in the judgment of
the Board of Directors the best interest of the Corporation will be
served thereby, any officer may be removed from office by the vote
of a majority of the members of the Board of Directors given at a
regular meeting or any special meeting called for such purpose.
Any officer may resign his office at any time by delivering a
written resignation to the Board of Directors, the President, the
Secretary or any Assistant Secretary. Unless otherwise specified
therein, such resignation shall take effect upon delivery.
Section 4. President. The President shall be the Chief executive
officer of the Corporation and he shall preside at all
stockholders' meetings. Subject to the supervision of the Board of
Directors, he shall have general charge of the business, affairs
and property of the Corporation and general supervision over its
officers, employees and agents. Except as the Board of Directors
may otherwise order, he may sign in the name and on behalf of the
Corporation all deeds, bonds, contracts, or agreements. He shall
exercise such other powers and perform such other duties as from
time to time may be assigned to him by the Board of Directors.
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Section 5. Vice President. The Board of Directors may from time
to time elect one or more Vice Presidents who shall have such
powers and perform such duties as from time to time may be assigned
to them by the Board of Directors or the President. At the request
or in the absence or disability of the President, the Vice
President (or, if there are two or more Vice Presidents, then the
senior of the Vice Presidents present and able to act) may perform
all the duties of the President and, when so acting, shall have all
the powers of and be subject to all the restrictions upon the
President.
Section 6. Treasurer and Assistant Treasurers. The Treasurer
shall be the principal financial and accounting officer of the
Corporation and shall have general charge of the finances and books
of account of the Corporation. Except as otherwise provided by the
Board of Directors, he shall have general supervision of the funds
and property of the Corporation and of the performance by the
Custodian of its duties with respect thereto. He shall render to
the Board of Directors, whenever directed by the Board, an account
of the financial condition of the Corporation and of all his
transactions as Treasurer; and as soon as possible after the close
of each fiscal year he shall make and submit to the Board of
Directors a like report for such fiscal year. He shall perform all
acts incidental to the Office of Treasurer, subject to the control
of the Board of Directors.
Any Assistant Treasurer may perform such duties of the
Treasurer as the Treasurer or the Board of Directors may assign,
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and, in the absence of the Treasurer, he may perform all the duties
of the Treasurer.
Section 7. Secretary and Assistant Secretaries. The Secretary
shall attend to the giving and serving of all notices of the
Corporation and shall record all proceedings of the meetings and
stockholders and Directors in books to be kept for that purpose.
He shall keep in safe custody the seal of the Corporation, and
shall have charge of the records of the Corporation, including the
stock books and such other books and papers as the Board of
Directors may direct and such books, reports, certificates and
other documents required to be kept, all of which shall at all
reasonable times be open to inspection by any Director. He shall
perform such other duties as appertain to his office or as may be
required by the Board of Directors.
Any Assistant Secretary may perform such duties of the
Secretary as the Secretary or the Board of Directors may assign,
and, in the absence of the Secretary, he may perform all the duties
of the Secretary.
Section 8. Subordinate Officers. The Board of Directors from
time to time may appoint such other officers or agents as it may
deem advisable, each of whom shall have such title, hold office
for such period, have such authority and perform such duties as the
Board of Directors may determine. The Board of Directors from time
to time may delegate to one or more officers or agents the power to
appoint any such subordinate officers or agents and to prescribe
their respective rights, term of office, authorities and duties.
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Section 9. Remuneration. The salaries or other compensation of
the officers of the Corporation shall be fixed from time to time by
resolution of the Board of Directors, except that the Board of
Directors may by resolution delegate to any person or group of
persons the power to fix the salaries or other compensation of any
subordinate officers or agents appointed in accordance with the
provisions of Section 8 of this Article V.
Section 10. Surety Bonds. The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including,
without limitation, any bond required by the Investment Company Act
of 1940, as amended, and the rules and regulations of the
Securities and Exchange Commission) to the Corporation in such sum
and with such surety or sureties as the Board of Directors may
determine, conditioned upon the faithful performance of his duties
to the Corporation, including responsibility for negligence and for
the accounting of any of the Corporation's property, funds or
securities that may come into his hands.
ARTICLE VI
Capital Stock
Section 1. Certificates of Stock. The interest of each
stockholder of the Corporation shall be evidenced by certificates
for shares of stock in such form as the Board of Directors may from
time to time prescribe. No certificate shall be valid unless it is
signed by the President or a Vice President and countersigned by
the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer of the Corporation and sealed with its seal, or
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bears the facsimile of such seal.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof
in person or by his duly authorized attorney or legal
representative upon surrender and cancellation of a certificate or
certificates for the same number of shares of the same class, duly
endorsed or accompanied by proper instruments of assignment and
transfer, with such proof of the authenticity of the signature as
the Corporation or its agent may reasonably require. The shares of
stock of the Corporation may be freely transferred, and the Board
of Directors may, from time to time, adopt rules and regulations
with reference to the method of transfer of the shares of stock of
the Corporation.
Section 3. Stock Ledgers. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the
number of shares held by them respectively, shall be kept at the
principal office of the Corporation or, if the Corporation employs
a transfer agent, at the offices of the transfer agent of the
Corporation.
Section 4. Transfer Agents and Registrars. The Board of Directors
may from time to time appoint or remove transfer agents and/or
registrars of transfers of shares of stock of the Corporation, and
it may appoint the same person as both transfer agent and
registrar. Upon any such appointment being made all certificates
representing shares of capital stock thereafter issued shall be
countersigned by one of such registrars of transfers or by both and
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shall not be valid unless so countersigned. If the same person
shall be both transfer agent and registrar, only one
countersignature by such person shall be required.
Section 5. Fixing of Record Date. The Board of Directors may fix
in advance a date as a record date for the determination of the
stockholders entitled to notice of or to vote at any stockholders'
meeting or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or to receive
payment of any dividend or other distribution or to be allotted any
other rights, or for the purpose of any other lawful action,
provided that (1) such record date shall not exceed 90 days
preceding the date on which the particular action requiring such
determination will be taken; (2) the transfer books shall remain
open regardless of the fixing of a record date; (3) in the case of
a meeting of stockholders, the record date shall be at least 10
days before the date of the meeting; and (4) in the event a
dividend or other distribution is declared, the record date for
shareholders entitled to a dividend or distribution shall be at
least 10 days after the date on which the dividend is declared
(declaration date).
Section 6. Lost, Stolen or Destroyed Certificates. Before issuing
a new certificate for stock of the Corporation alleged to have been
lost, stolen or destroyed, the Board of Directors or any officer
authorized by the Board may, in its discretion, require the owner
of the lost, stolen or destroyed certificate (or his legal
representative) to give the Corporation a bond or other indemnity,
18
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in such form and in such amount as the Board or any such officer
may direct and with such surety or sureties as may be satisfactory
to the Board or any such officer, sufficient to indemnify the
Corporation against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VII
Fiscal Year and Accountant
Section 1. Fiscal Year. The fiscal year of the Corporation shall
begin on the first day of January and shall end on the last day of
December in each year.
Section 2. Accountant. The Corporation shall employ an
independent public accountant or a firm of independent public
accountants as its Accountants to examine the accounts of the
Corporation and to sign and certify financial statements filed by
the Corporation. The employment of the Accountant shall be
conditioned upon the right of the Corporation to terminate the
employment forthwith without any penalty by vote of a majority of
the outstanding voting securities at any stockholders' meeting
called for that purpose.
ARTICLE VIII
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Corporation shall
place and at all times maintain in the custody of a Custodian
(including any sub-custodian for the Custodian) all funds,
securities and similar investment owned by the Corporation. The
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<PAGE>
Custodian (and any subcustodian) shall be a bank or trust company
of good standing having a capital, surplus and undivided profits
aggregating not less than fifty million dollars ($50,000,000) or
such other financial institution as shall be permitted by rule or
order of the United States Securities and Exchange Commission. The
Custodian shall be appointed from time to time by the Board of
Directors which shall fix its remuneration.
Section 2. Termination of Custodian Agreement. Upon termination
of the agreement for services with the Custodian or inability of
the Custodian to continue to serve, the Board of Directors shall
promptly appoint a successor Custodian, but in the event that no
successor Custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors
shall call as promptly as possible a special meeting of the
stockholders to determine whether the Corporation shall function
without a Custodian or shall be liquidated. If so directed by vote
of the holders of a majority of the outstanding shares of stock of
the Corporation, the Custodian shall deliver and pay over all
property of the Corporation held by it as specified in such vote.
ARTICLE IX
Indemnification
Section 1. Indemnification of Officers, Directors, Employees and
Agents. The Corporation shall indemnify each person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative ("Proceeding"), by reason
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of the fact that he is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against all expenses (including attorneys' fees),
judgment, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such Proceeding to
the maximum extent permitted by the laws of the State of Maryland.
Notwithstanding the foregoing, the following provisions shall apply
with respect to indemnification of the Corporation's Directors,
officers, and, except as may otherwise be provided by an agreement
investment adviser (as defined in the Investment Company Act of
1940) and principal underwriter:
(a) whether or not there is an adjudication of liability in
such Proceeding, the Corporation shall not indemnify any such
person for any liability arising by reason of such person's willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office or under any
contract or agreement with the Corporation ("disabling conduct").
(b) The Corporation shall not indemnify any such person
unless:
(1) the court or other body before which the Proceeding was
brought (i) dismisses the Proceeding for insufficiency of evidence
of any disabling conduct, or (ii) reaches a final decision on the
merits that such person was not liable by reason of disabling
conduct; or
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(2) absent such a decision, a reasonable determination is
made, based upon a review of the facts, by (i) the vote of a
majority of a quorum of the Directors of the Corporation who are
neither interested persons of the Corporation as defined in the
Investment Company Act of 1940 nor parties to the Proceeding, or
(ii) if such quorum is not obtainable, or even if obtainable, if a
majority of a quorum of Directors described in paragraph (b) (2)
(i) above so directs, by independent legal counsel in a written
opinion, that such person was not liable by reason of disabling
conduct.
(c) Expenses (including attorneys' fees) incurred in defending
a Proceeding involving any such person will be paid by the
Corporation in advance of the final disposition thereof upon an
undertaking by such person to repay such expenses (unless it is
ultimately determined that he is entitled to indemnification), if:
(1) such person shall provide adequate security for his
undertaking;
(2) the Corporation shall be insured against losses arising by
reason of such advance; or
(3) a majority of quorum of the Directors of the Corporation
who are neither interested persons of the Corporation as defined in
the Investment Company Act of 1940 nor parties to the Proceeding,
or independent legal counsel in a written opinion, shall determine,
based on a review of readily available facts, that there is reason
to believe that such person will be found entitled to
indemnification.
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ARTICLE X
Amendments
Section 1. General. The By-Laws of the Corporation may be
altered, amended, added to or repealed only by majority vote of the
entire Board of Directors.
As amended on September 11, 1995
23
Exhibit 2(c)
THE GLOBAL TOTAL RETURN FUND, INC.
By-Laws
ARTICLE I.
Stockholders
Section 1. Place of Meeting. All meetings of the
stockholders shall be held at the principal office of the
Corporation in the State of Maryland or at such other place within
the United States as may from time to time be designated by the
Board of Directors and stated in the notice of such meeting.
Section 2. Annual Meetings. The annual meeting of the
stockholders of the Corporation shall be held on a date and at such
hour as may from time to time be designated by the Board of
Directors and stated in the notice of such meeting, within the
month ending four months after the end of the Corporation's fiscal
year, for the transaction of such business as may properly be
brought before the meeting; provided, however, that an annual
meeting shall not be required to be held in any year in which the
election of directors is not required to be acted on by
stockholders under the Investment Company Act of 1940.
Section 3. Meetings. Meetings of the stockholders for any
purpose or purposes, including for purposes of voting on the
removal of one or more Directors, may be called by the Chairman of
the Board, the President or a majority of the Board of Directors,
and shall be called by the Secretary upon receipt of the request in
writing signed by stockholders holding not less than 10% of the
common stock issued and outstanding and entitled to vote thereat.
<PAGE>
Such request shall state the purpose or purposes of the proposed
meeting. The Secretary shall inform such stockholders of the
reasonably estimated costs of preparing and mailing such notice of
meeting and upon payment to the Corporation of such costs, the
Secretary shall give notice stating the purpose or purposes of the
meeting as required in this Article and by-law to all stockholders
entitled to notice of such meeting. No meeting need be called upon
the request of the holders of shares entitled to cast less than a
majority of all votes entitled to be cast at such meeting to
consider any matter which is substantially the same as a matter
voted upon at any meeting of stockholders held during the preceding
twelve months.
Section 4. Notice of Meetings of Stockholders. Not less
than ten days' and not more than ninety days' written or printed
notice of every meeting of stockholders, stating the time and place
thereof and the general nature of the business proposed to be
transacted thereat, shall be given to each stockholder entitled to
vote thereat by leaving the same with such stockholder or at such
stockholder's residence or usual place of business or by mailing
it, postage prepaid, and addressed to such stockholder at such
stockholder's address as it appears upon the books of the
Corporation. If mailed, notice shall be deemed to be given when
deposited in the United States mail addressed to the stockholder as
aforesaid.
No notice of the time, place or purpose of any meeting of
stockholders need be given to any stockholder who attends in person
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or by proxy or to any stockholder who, in writing executed and
filed with the records of the meeting, either before or after the
holding thereof, waives such notice.
Section 5. Record Dates. The Board of Directors may fix, in
advance, a date not exceeding ninety days preceding the date of any
meeting of stockholders, any dividend payment date or any date for
the allotment of rights, as a record date for the determination of
the stockholders entitled to notice of and to vote at such meeting
or entitled to receive such dividends or rights, as the case may
be; and only stockholders of record on such date shall be entitled
to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be. In the case of a meeting
of stockholders, such date shall not be less than ten days prior to
the date fixed for such meeting.
Section 6. Quorum, Adjournment of Meetings. The presence in
person or by proxy of the holders of record of one-third of the
shares of the common stock of the Corporation issued and
outstanding and entitled to vote thereat shall constitute a quorum
at all meetings of the stockholders except as otherwise provided in
the Articles of Incorporation. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the
holders of a majority of the stock present in person or by proxy
shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until stockholders
owning the requisite amount of stock entitled to vote at such
meeting shall be present. At such adjourned meeting at which
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<PAGE>
stockholders owning the requisite amount of stock entitled to vote
thereat shall be represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
Section 7. Voting and Inspectors. At all meetings,
stockholders of record entitled to vote thereat shall have one vote
for each share of common stock standing in his name on the books of
the Corporation (and such stockholders of record holding fractional
shares, if any, shall have proportionate voting rights) on the date
for the determination of stockholders entitled to vote at such
meeting, either in person or by proxy appointed by instrument in
writing subscribed by such stockholder or his duly authorized
attorney.
All elections shall be had and all questions decided by a
majority of the votes cast at a duly constituted meeting, except as
otherwise provided by statute or by the Articles of Incorporation
or by these By-Laws.
At any election of directors, the Chairman of the meeting may,
and upon the request of the holders of ten percent (10%) of the
stock entitled to vote at such election shall, appoint two
inspectors of election who shall first subscribe an oath or
affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of
their ability, and shall after the election make a certificate of
the result of the vote taken. No candidate for the office of
director shall be appointed such inspector.
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<PAGE>
Section 8. Conduct of Stockholders' Meetings. The meetings
of the stockholders shall be presided over by the Chairman of the
Board, or if he or she is not present, by the President, or if he
or she is not present, by a Vice-President, or if none of them is
present, by a Chairman to be elected at the meeting. The Secretary
of the Corporation, if present, shall act as a Secretary of such
meetings, or if he or she is not present, an Assistant Secretary
shall so act; if neither the Secretary nor the Assistant Secretary
is present, then the meeting shall elect its Secretary.
Section 9. Concerning Validity of Proxies, Ballots, etc. At
every meeting of the stockholders, all proxies shall be received
and taken in charge of and all ballots shall be received and
canvassed by the Secretary of the meeting, who shall decide all
questions concerning the qualification of voters, the validity of
the proxies and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed by the Chairman of
the meeting, in which event such inspectors of election shall
decide all such questions.
ARTICLE II.
Board of Directors
Section 1. Number and Tenure of Office. The business and
affairs of the Corporation shall be conducted and managed by a
Board of Directors of not less than three nor more than twelve
directors, as may be determined from time to time by vote of a
majority of the directors then in office, provided that if there is
no stock outstanding the number of directors may be less than three
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<PAGE>
but not less than one. Directors need not be stockholders.
Section 2. Vacancies. In case of any vacancy in the Board of
Directors through death, resignation or other cause, other than an
increase in the number of directors, a majority of the remaining
directors, although a majority is less than a quorum, by an
affirmative vote, may elect a successor to hold office until the
next meeting of stockholders or until his successor is chosen and
qualifies.
Section 3. Increase or Decrease in Number of Directors. The
Board of Directors, by the vote of a majority of the entire Board,
may increase the number of directors and may elect directors to
fill the vacancies created by any such increase in the number of
directors until the next meeting of stockholders or until their
successors are duly chosen and qualified. The Board of Directors,
by the vote of a majority of the entire Board, may likewise
decrease the number of directors to a number not less than three.
Section 4. Place of Meeting. The directors may hold their
meetings, have one or more offices, and keep the books of the
Corporation, outside the State of Maryland, at any office or
offices of the Corporation or at any other place as they may from
time to time by resolution determine, or in the case of meetings,
as they may from time to time by resolution determine or as shall
be specified or fixed in the respective notices or waivers of
notice thereof.
Section 5. Regular Meetings. Regular meetings of the Board
of Directors shall be held at such time and on such notice as the
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directors may from time to time determine.
Section 6. Special Meetings. Special meetings of the Board
of Directors may be held from time to time upon call of the
Chairman of the Board, the President, the Secretary or two or more
of the directors, by oral or telegraphic or written notice duly
served on or sent or mailed to each director not less than one day
before such meeting. No notice need be given to any director who
attends in person or to any director who, in writing executed and
filed with the records of the meeting either before or after the
holding thereof, waives such notice. Such notice or waiver of
notice need not state the purpose or purposes of such meeting.
Section 7. Quorum. One-third of the directors then in office
shall constitute a quorum for the transaction of business, provided
that a quorum shall in no case be less than two directors. If at
any meeting of the Board there shall be less than a quorum present,
a majority of those present may adjourn the meeting from time to
time until a quorum shall have been obtained. The act of the
majority of the directors present at any meeting at which there is
a quorum shall be the act of the directors, except as may be
otherwise specifically provided by statute or by the Articles of
Incorporation or by these By-Laws.
Section 8. Executive Committee. The Board of Directors may,
by the affirmative vote of a majority of the whole Board, appoint
from the directors an Executive Committee to consist of such number
of directors (not less than three) as the Board may from time to
time determine. The Chairman of the Committee shall be elected by
7
<PAGE>
the Board of Directors. The Board of Directors by such affirmative
vote shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from
the directors. When the Board of Directors is not in session, to
the extent permitted by law, the Executive Committee shall have and
may exercise any or all of the powers of the Board of Directors in
the management of the business and affairs of the Corporation. The
Executive Committee may fix its own rules of procedure, and may
meet when and as provided by such rules or by resolution of the
Board of Directors, but in every case the presence of a majority
shall be necessary to constitute a quorum. During the absence of
a member of the Executive Committee, the remaining members may
appoint a member of the Board of Directors to act in his place.
Section 9. Other Committees. The Board of Directors, by the
affirmative vote of a majority of the whole Board, may appoint from
the directors other committees which shall in each case consist of
such number of directors (not less than two) and shall have and may
exercise such powers as the Board may determine in the resolution
appointing them. A majority of all the members of any such
committee may determine its action and fix the time and place of
its meetings, unless the Board of Directors shall otherwise
provide. The Board of Directors shall have power at any time to
change the members and powers of any such committee, to fill
vacancies and to discharge any such committee.
Section 10. Telephone Meetings. Members of the Board of
Directors or a committee of the Board of Directors may participate
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<PAGE>
in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the
meeting can hear each other at the same time. Participation in a
meeting by these means constitutes presence in person at the
meeting unless otherwise provided by the Investment Company Act of
1940.
Section 11. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting, if a written
consent to such action is signed by all members of the Board or of
such committee, as the case may be, and such written consent is
filed with the minutes of the proceedings of the Board or such
committee, unless otherwise provided by the Investment Company Act
of 1940.
Section 12. Compensation of Directors. No director shall
receive any stated salary or fees from the Corporation for his
services as such if such director is, other than by reason of being
such director, an interested person (as such term is defined by the
Investment Company Act of 1940) of the Corporation or of its
investment adviser, administrator or principal underwriter. Except
as provided in the preceding sentence, directors shall be entitled
to receive such compensation from the Corporation for their
services as may from time to time be voted by the Board of
Directors.
Section 13. Removal of Directors. No director shall continue
to hold office after the holders of record of not less than
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<PAGE>
two-thirds of the Corporation's outstanding common stock of all
series have declared that that director be removed from office
either by declaration in writing filed with the Corporation's
secretary or by votes cast in person or by proxy at a meeting
called for the purpose. The directors shall promptly call a
meeting of stockholders for the purpose of voting upon the question
of removal of any director or directors when requested in writing
to do so by the record holders of not less than 10 percent of the
Corporation's outstanding common stock of all series.
ARTICLE III.
Officers
Section 1. Executive Officers. The executive officers of the
Corporation shall be chosen by the Board of Directors. These may
include a Chairman of the Board of Directors (who shall be a
director) and shall include a President (who shall be a director),
one or more Vice-Presidents (the number thereof to be determined by
the Board of Directors), a Secretary and a Treasurer. The Board of
Directors or the Executive Committee may also in its discretion
appoint Assistant Secretaries, Assistant Treasurers and other
officers, agents and employees, who shall have such authority and
perform such duties as the Board or the Executive Committee may
determine. The Board of Directors may fill any vacancy which may
occur in any office. Any two offices, except those of President and
Vice-President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these
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By-Laws to be executed, acknowledged or verified by two or more
officers.
Section 2. Term of Office. The term of office of all
officers shall be one year and until their respective successors
are chosen and qualified. Any officer may be removed from office
at any time with or without cause by the vote of a majority of the
whole Board of Directors.
Section 3. Powers and Duties. The officers of the
Corporation shall have such powers and duties as generally pertain
to their respective offices, as well as such powers and duties as
may from time to time be conferred by the Board of Directors or the
Executive Committee.
ARTICLE IV.
Capital Stock
Section 1. Certificates for Shares. Each stockholder of the
Corporation shall be entitled to a certificate or certificates for
the full shares of stock of the Corporation owned by him in such
form as the Board from time to time prescribe.
Section 2. Transfer of Shares. Shares of the Corporation
shall be transferable on the books of the Corporation by the holder
thereof in person or by his duly authorized attorney or legal
representative, upon surrender and cancellation of certificates, if
any, for the same number of shares, duly endorsed or accompanied by
proper instruments of assignment and transfer, with such proof of
the authenticity of the signature as the Corporation or its agents
may reasonably require; in the case of shares not represented by
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<PAGE>
certificates, the same or similar requirements may be imposed by
the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the
Corporation, containing the names and addresses of the stockholders
and the number of shares held by them respectively, shall be kept
at the principal office of the Corporation or, if the Corporation
employs a Transfer Agent, at the office of the Transfer Agent of
the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Board
of Directors or the Executive Committee may determine the
conditions upon which a new certificate of stock of the Corporation
of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in its
discretion, require the owner of such certificate or such owner's
legal representative to give bond, with sufficient surety, to the
Corporation and each Transfer Agent, if any, to indemnify it and
each such Transfer Agent against any and all loss or claims which
may arise by reason of the issue of a new certificate in the place
of the one so lost, stolen or destroyed.
ARTICLE V.
Corporate Seal
The Board of Directors may provide for a suitable corporate
seal, in such form and bearing such inscriptions as it may
determine.
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ARTICLE VI.
Fiscal Year
The fiscal year of the Corporation shall be fixed by the Board
of Directors.
ARTICLE VII.
Indemnification
Directors, officers, employees and agents of the Corporation
shall not be liable to the Corporation, any stockholder, officer,
director, employee or other person for any action or failure to act
except for willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of their
office. The Corporation shall indemnify directors, officers,
employees and agents of the Corporation against judgments, fines,
settlements and expenses to the fullest extent authorized and in
the manner permitted by applicable federal and state law. The
Corporation may purchase insurance to protect itself and its
directors, officers, employees and agents against judgments, fines,
settlements and expenses to the fullest extent authorized and in
the manner permitted by applicable federal and state law. Nothing
contained in this Article VII shall be construed to indemnify
directors, officers, employees and agents of the Corporation
against, nor to permit the Corporation to purchase insurance that
purports to protect against, any liability to the Corporation or
any stockholder, officer, director, employee, agent or other person
to whom he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
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the duties involved in the conduct of his or her office.
ARTICLE VIII.
Custodian
Section 1. The Corporation shall have as custodian or
custodians one or more trust companies or banks of good standing,
each having a capital, surplus and undivided profits aggregating
not less than fifty million dollars ($50,000,000), and, to the
extent required by the Investment Company Act of 1940, the funds
and securities held by the Corporation shall be kept in the custody
of one or more such custodians, provided such custodian or
custodians can be found ready and willing to act, and further
provided that the Corporation may use as subcustodians, for the
purpose of holding any foreign securities and related funds of the
Corporation, such foreign banks as the Board of Directors may
approve and as shall be permitted by law.
Section 2. The Corporation shall upon the resignation or
inability to serve of its custodian or upon change of the
custodian:
(a) in case of such resignation or inability to serve,
use its best efforts to obtain a successor custodian;
(b) require that the cash and securities owned by the
Corporation be delivered directly to the successor custodian;
and
(c) in the event that no successor custodian can be
found, submit to the stockholders before permitting delivery
of the cash and securities owned by the Corporation otherwise
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than to a successor custodian, the question whether or not
this Corporation shall be liquidated or shall function without
a custodian.
ARTICLE IX.
Amendment of By-Laws
The By-Laws of the Corporation may be altered, amended, added
to or repealed by the stockholders or by majority vote of the
entire Board of Directors; but any such alteration, amendment,
addition or repeal of the By-Laws by action of the Board of
Directors may be altered or repealed by stockholders.
As amended on ,1995.
15
EXHIBIT 4
THE GLOBAL TOTAL RETURN FUND, INC.
INSTRUMENTS DEFINING RIGHTS OF SHAREHOLDERS
The following is a list of the provisions of the Articles of
Incorporation and By-Laws of The Global Total Return Fund, Inc.
setting forth the rights of shareholders.
I. Relevant Provisions of Articles of Incorporation:
ARTICLE IV - Common Stock
ARTICLE VI - Indemnification of Directors and Officers
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 5(c)
THE GLOBAL TOTAL RETURN FUND, INC.
Management Agreement
Agreement made this ___ day of _______, 1995 between The
Global Total Return Fund, Inc., a Maryland corporation (the Fund),
and Prudential Mutual Fund Management, Inc., a Delaware corporation
(the Manager).
W I T N E S S E T H
WHEREAS, the Fund is a non-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 is
authorized to enter into an agreement with The Prudential
Investment Corporation (PIC or the Subadviser) pursuant to which
<PAGE>
PIC shall furnish to the Fund the investment advisory services in
connection with the management of the Fund (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
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<PAGE>
all other applicable federal and state laws and regulations.
(c) The Manager shall determine the securities and
futures contracts to be purchased or sold by the 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 Securities
Incorporated) 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 Securities Incorporated may be used as a 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
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the Fund than may result when allocating brokerage to other
brokers or futures commission merchants on the basis of seeking
the most favorable price and efficient execution. Therefore,
the Manager is authorized to pay higher brokerage commissions
for the purchase and sale of securities and futures contracts
for the 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 transaction,
will be made by the Manager in the manner it considers to be
the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
(d) The Manager shall maintain all books and records with
4
<PAGE>
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.
(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
Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect on
the date hereof and as amended from time to time, are herein
called the "By-Laws");
(c) Certified resolutions of the Board of Directors of
the Fund authorizing the appointment of the Manager and
5
<PAGE>
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;
(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
6
<PAGE>
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,
(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
7
<PAGE>
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,
(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
8
<PAGE>
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,
(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
9
<PAGE>
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 up to $500 million, .70 of such
assets between $500 million and $1 billion and .65 of 1% of the
Fund's average net assets in excess of $1 billion. This fee will
be computed daily and will be paid to the Manager monthly. Any
reduction in the fee payable and any payment by the Manager to the
Fund pursuant to paragraph 7 shall be made monthly. Any such
reductions or payments are subject to readjustment during the year.
9. The Manager shall not be liable for any error of
judgment or for any loss suffered by the Fund in connection with
the matters to which this Agreement relates, except a loss
resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the 1940 Act) or loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
10. This Agreement shall continue in effect for a period
of more than two years from the date hereof only so long as such
10
<PAGE>
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.
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,
11
<PAGE>
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.
16. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of
the day and year first above written.
THE GLOBAL TOTAL RETURN FUND, INC.
By______________________________________
Robert F. Gunia
Vice President
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By______________________________________
Richard A. Redeker
President
13
Exhibit 5(d)
THE GLOBAL TOTAL RETURN FUND, INC.
Subadvisory Agreement
Agreement made as of this th day of , 1995 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 , 1995 (the Management Agreement), with The Global
Total Return Fund, Inc. (the Fund), a Maryland corporation and a
non-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.
<PAGE>
(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 Securities
Incorporated) to carry out the policy with 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 Securities
Incorporated may be used as a 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
2
<PAGE>
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 paragraph (f) of Rule 31a-1 under
the 1940 Act and shall render to the Fund's Board of
Directors such periodic and special reports as the
Directors 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
<PAGE>
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.
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.
4
<PAGE>
8. 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.
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_____________________________________
Richard A. Redeker
President
THE PRUDENTIAL INVESTMENT CORPORATION
BY_____________________________________
Vice President
5
Exhibit 6(a)
The GLOBAL TOTAL RETURN FUND, INC.
Distribution Agreement
Agreement made as of _____________________, 1995 between
The Global Total Return Fund, Inc., a Maryland corporation (the
Fund), and Prudential Securities Incorporated, a Delaware
corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment
Company Act of 1940, as amended (the Investment Company Act), as a
non-diversified, open-end, management investment company and it is
in the interest of the Fund to offer its shares for sale
continuously;
WHEREAS, the shares of the Fund may be divided into
classes and/or series (all such shares being referred to herein as
Shares) and the Fund currently is authorized to offer Class A,
Class B and Class C Shares;
WHEREAS, the Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, and is
engaged in the business of selling shares of registered investment
companies either directly or through other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into
an agreement with each other, with respect to the continuous
offering of the Fund's Shares from and after the date hereof in
order to promote the growth of the Fund and facilitate the
distribution of its Shares; and
WHEREAS, upon approval by the holders of the respective
classes and/or series of Shares of the Fund it is contemplated that
the Fund will adopt a plan (or plans) of distribution pursuant to
Rule 12b-1 under the Investment Company Act with respect to certain
of its classes and/or series of Shares (the Plans) authorizing
payments by the Fund to the Distributor with respect to the
distribution of such classes and/or series of Shares and the
maintenance of related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Shares of the Fund to sell
Shares to the public on behalf of the Fund and the Distributor
hereby accepts such appointment and agrees to act hereunder. The
<PAGE>
Fund hereby agrees during the term of this Agreement to sell Shares
of the Fund through the Distributor on the terms and conditions set
forth below.
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of
the Fund to act as principal underwriter and distributor of the
Fund's Shares, except that:
2.1 The exclusive rights granted to the Distributor to
sell Shares of the Fund shall not apply to Shares of the Fund
issued in connection with the merger or consolidation of any other
investment company or personal holding company with the Fund or the
acquisition by purchase or otherwise of all (or substantially all)
the assets or the outstanding shares of any such company by the
Fund.
2.2 Such exclusive rights shall not apply to Shares
issued by the Fund pursuant to reinvestment of dividends or capital
gains distributions or through the exercise of any conversion
feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares
issued by the Fund pursuant to the reinstatement privilege afforded
redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases
made through the Fund's transfer and dividend disbursing agent in
the manner set forth in the currently effective Prospectus of the
Fund. The term "Prospectus" shall mean the Prospectus and
Statement of Additional Information included as part of the Fund's
Registration Statement, as such Prospectus and Statement of
Additional Information may be amended or supplemented from time to
time, and the term "Registration Statement" shall mean the
Registration Statement filed by the Fund with the Securities and
Exchange Commission and effective under the Securities Act of 1933,
as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Shares from the Fund
3.1 The Distributor shall have the right to buy from the
Fund on behalf of investors the Shares needed, but not more than
the Shares needed (except for clerical errors in transmission) to
fill unconditional orders for Shares placed with the Distributor by
investors or registered and qualified securities dealers and other
financial institutions (selected dealers).
3.2 The Shares shall be sold by the Distributor on
behalf of the Fund and delivered by the Distributor or selected
2
<PAGE>
dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of
any or all classes and/or series of its Shares at times when
redemption is suspended pursuant to the conditions in Section 4.3
hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale
of any or all classes and/or series of its Shares if a banking
moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Shares received by the Distributor. Any order may be
rejected by the Fund; provided, however, that the Fund will not
arbitrarily or without reasonable cause refuse to accept or confirm
orders for the purchase of Shares. The Fund (or its agent) will
confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment
therefor, will deliver deposit receipts for such Shares pursuant to
the instructions of the Distributor. Payment shall be made to the
Fund in New York Clearing House funds or federal funds. The
Distributor agrees to cause such payment and such instructions to
be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by the Fund
4.1 Any of the outstanding Shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem
the Shares so tendered in accordance with its Articles of
Incorporation as amended from time to time, and in accordance with
the applicable provisions of the Prospectus. The price to be paid
to redeem or repurchase the Shares shall be equal to the net asset
value determined as set forth in the Prospectus. All payments by
the Fund hereunder shall be made in the manner set forth in Section
4.2 below.
4.2 The Fund shall pay the total amount of the
redemption price as defined in the above paragraph pursuant to the
instructions of the Distributor on or before the seventh day
subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of Shares shall be
paid by the Fund as follows: (i) in the case of Shares subject to
a contingent deferred sales charge, any applicable contingent
deferred sales charge shall be paid to the Distributor, and the
balance shall be paid to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions
of the Prospectus; and (ii) in the case of all other Shares,
proceeds shall be paid to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions
of the Prospectus.
3
<PAGE>
4.3 Redemption of any class and/or series of Shares or
payment may be suspended at times when the New York Stock Exchange
is closed for other than customary weekends and holidays, when
trading on said Exchange is restricted, when an emergency exists as
a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or during
any other period when the Securities and Exchange Commission, by
order, so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of
Shares as provided herein, the Fund agrees to sell its Shares so
long as it has Shares of the respective class and/or series
available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Shares, and this shall include one certified copy,
upon request by the Distributor, of all financial statements
prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of
its Prospectus and annual and interim reports as the Distributor
shall reasonably request.
5.3 The Fund shall take, from time to time, but subject
to the necessary approval of the Board of Directors and the
shareholders, all necessary action to fix the number of authorized
Shares and such steps as may be necessary to register the same
under the Securities Act, to the end that there will be available
for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in
order that there will be no untrue statement of a material fact in
the Registration Statement, or necessary in order that there will
be no omission to state a material fact in the Registration
Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Shares
for sales under the securities laws of such states as the
Distributor and the Fund may approve; provided that the Fund shall
not be required to amend its Articles of Incorporation or By-Laws
to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its Shares in any
state from the terms set forth in its Registration Statement, to
qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims
arising out of the offering of its Shares. Any such qualification
4
<PAGE>
may be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section 9 hereof, the expense of
qualification and maintenance of qualification shall be borne by
the Fund. The Distributor shall furnish such information and other
material relating to its affairs and activities as may be required
by the Fund in connection with such qualifications.
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and
effort to effect sales of Shares, but shall not be obligated to
sell any specific number of Shares. Sales of the Shares shall be
on the terms described in the Prospectus. The Distributor may
enter into like arrangements with other investment companies. The
Distributor shall compensate the selected dealers as set forth in
the Prospectus.
6.2 In selling the Shares, the Distributor shall use its
best efforts in all respects duly to conform with the requirements
of all federal and state laws relating to the sale of such
securities. Neither the Distributor nor any selected dealer nor
any other person is authorized by the Fund to give any information
or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature
approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures
for the confirmation of sales to investors and selected dealers,
the collection of amounts payable by investors and selected dealers
on such sales and the cancellation of unsettled transactions, as
may be necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities
dealers and other financial institutions of its choice for the sale
of Shares, provided that the Fund shall approve the forms of such
agreements. Within the United States, the Distributor shall offer
and sell Shares only to such selected dealers as are members in
good standing of the NASD. Shares sold to selected dealers shall
be for resale by such dealers only at the offering price determined
as set forth in the Prospectus.
Section 7. Payments to the Distributor
7.1 With respect to classes and/or series of Shares
which impose a front-end sales charge, the Distributor shall
receive and may retain any portion of any front-end sales charge
which is imposed on such sales and not reallocated to selected
dealers as set forth in the Prospectus, subject to the limitations
of Article III, Section 26 of the NASD Rules of Fair Practice.
5
<PAGE>
Payment of these amounts to the Distributor is not contingent upon
the adoption or continuation of any applicable Plans.
7.2 With respect to classes and/or series of Shares
which impose a contingent deferred sales charge, the Distributor
shall receive and may retain any contingent deferred sales charge
which is imposed on such sales as set forth in the Prospectus,
subject to the limitations of Article III, Section 26 of the NASD
Rules of Fair Practice. Payment of these amounts to the
Distributor is not contingent upon the adoption or continuation of
any Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as
compensation for services under any Plans adopted by the Fund and
this Agreement a distribution and service fee with respect to the
Fund's classes and/or series of Shares as described in each of the
Fund's respective Plans and this Agreement.
8.2 So long as a Plan or any amendment thereto is in
effect, the Distributor shall inform the Board of Directors of the
commissions and account servicing fees with respect to the relevant
class and/or series of Shares to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and
financial institutions which have dealer agreements with the
Distributor. So long as a Plan (or any amendment thereto) is in
effect, at the request of the Board of Directors or any agent or
representative of the Fund, the Distributor shall provide such
additional information as may reasonably be requested concerning
the activities of the Distributor hereunder and the costs incurred
in performing such activities with respect to the relevant class
and/or series of Shares.
Section 9. Allocation of Expenses
The Fund shall bear all costs and expenses of the
continuous offering of its Shares (except for those costs and
expenses borne by the Distributor pursuant to a Plan and subject to
the requirements of Rule 12b-1 under the Investment Company Act),
including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment
Company Act or the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not
limited to the expense of setting in type any such Registration
Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of
qualification of the Shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other
6
<PAGE>
jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear
the expenses it assumes pursuant to any Plan, so long as such Plan
is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and directors and any person who controls
the Distributor within the meaning of Section 15 of the Securities
Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and
any reasonable counsel fees incurred in connection therewith) which
the Distributor, its officers, directors or any such controlling
person may incur under the Securities Act, or under common law or
otherwise, arising out of or based upon any untrue statement of a
material fact contained in the Registration Statement or Prospectus
or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary
to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out
of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to
the benefit of any such officer, director, trustee or controlling
person unless a court of competent jurisdiction shall determine in
a final decision on the merits, that the person to be indemnified
was not liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of directors or
trustees who are neither "interested persons" of the Fund as
defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in
a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors or trustees and any such
controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the
Distributor, its officers or directors or trustees, or any such
controlling person, such notification to be given by letter or
telegram addressed to the Fund at its principal business office.
The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of
7
<PAGE>
its officers or directors in connection with the issue and sale of
any Shares.
10.2 The Distributor agrees to indemnify, defend and hold
the Fund, its officers and Directors and any person who controls
the Fund, if any, within the meaning of Section 15 of the
Securities Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or
liabilities and any reasonable counsel fees incurred in connection
therewith) which the Fund, its officers and Directors or any such
controlling person may incur under the Securities Act or under
common law or otherwise, but only to the extent that such liability
or expense incurred by the Fund, its Directors or officers or such
controlling person resulting from such claims or demands shall
arise out of or be based upon any alleged untrue statement of a
material fact contained in information furnished in writing by the
Distributor to the Fund for use in the Registration Statement or
Prospectus or shall arise out of or be based upon any alleged
omission to state a material fact in connection with such
information required to be stated in the Registration Statement or
Prospectus or necessary to make such information not misleading.
The Distributor's agreement to indemnify the Fund, its officers and
Directors and any such controlling person as aforesaid, is
expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and
Directors or any such controlling person, such notification being
given to the Distributor at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date
first above written and shall remain in force for two years from
the date hereof and thereafter, but only so long as such
continuance is specifically approved at least annually by (a) the
Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the applicable class and/or series
of the Fund, and (b) by the vote of a majority of those Directors
who are not parties to this Agreement or interested persons of any
such parties and who have no direct or indirect financial interest
in this Agreement or in the operation of any of the Fund's Plans or
in any agreement related thereto (Independent Directors), cast in
person at a meeting called for the purpose of voting upon such
approval.
11.2 This Agreement may be terminated at any time,
without the payment of any penalty, by a majority of the
Independent Directors or by vote of a majority of the outstanding
voting securities of the applicable class and/or series of the
Fund, or by the Distributor, on sixty (60) days' written notice to
the other party. This Agreement shall automatically terminate in
the event of its assignment.
8
<PAGE>
11.3 The terms "affiliated person," "assignment,"
"interested person" and "vote of a majority of the outstanding
voting securities", when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of
the Fund, or by the vote of a majority of the outstanding voting
securities of the applicable class and/or series of the Fund, and
(b) by the vote of a majority of the Independent Directors cast in
person at a meeting called for the purpose of voting on such
amendment.
Section 13. Separate Agreement as to Classes and/or Series
The amendment or termination of this Agreement with
respect to any class and/or series shall not result in the
amendment or termination of this Agreement with respect to any
other class and/or series unless explicitly so provided.
Section 14. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as
at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of
the State of New York, or any of the provisions herein, conflict
with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential Securities Incorporated
By: ________________________
Robert F. Gunia
Senior Vice President
The Global Total Return Fund, Inc.
By: ________________________
Richard A. Redeker
President
9
EXHIBIT 6(b)
PRUDENTIAL SECURITIES INCORPORATED
One New York Plaza
New York, New York 10292
THE GLOBAL TOTAL RETURN FUND, INC.
Form of Selected Dealer Agreement
Date
(Name and Address of Outside Dealer)
As the distributor of the front end sales load shares (to be known as
Class A and hereinafter referred to as such) of THE GLOBAL TOTAL RETURN FUND,
INC. managed by Prudential Mutual Fund Management, Inc., we invite you to
participate as a selected dealer in the distribution of Class A shares of THE
GLOBAL TOTAL RETURN FUND, INC. upon the following terms and conditions:
1. You are to offer and sell such shares only at the public offering
prices which shall be currently in effect, in accordance with the terms of the
then current prospectus of the Fund. You shall not have authority to act as
agent for the Fund, for us, or for any other dealer in any respect. All orders
are subject to acceptance by us and become effective only upon confirmation by
us.
2. On each sale of shares by you, the total sales charges or
discounts, if any, to selected dealers shall be as stated in the attached
Schedule A, as may be amended from time to time.
Such sales charges or discounts to selected dealers are subject to
reductions under a variety of circumstances as described in the Fund's then
current prospectus. To obtain these reductions, we must be notified when the
sale takes place which would qualify for the reduced charge.
There is no sales charge or discount to selected dealers on the
reinvestment of dividends.
3. As a selected dealer, you are hereby authorized (i) to place
purchase orders on behalf of investors or for your own bona fide investment
directly with the Fund for its Class A shares
1
<PAGE>
subject to the applicable terms and conditions governing the placement of orders
by us set forth in the Distribution Agreement between the Fund and us and
subject to the applicable compensation provisions set forth in the Fund's then
current prospectus and (ii) to tender shares directly to the Fund or its agent
for redemption subject to the applicable terms and conditions set forth in the
Distribution Agreement.
4. Redemptions of shares will be made at the net asset value of such
shares in accordance with the then current prospectus of the Fund.
5. You represent that you are a member of the National Association of
Securities Dealers, Inc. and that you agree to abide by the Rules of Fair
Practice of such Association.
6. This Agreement is in all respects subject to Section 26 of the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
which shall control any provisions to the contrary in this Agreement.
7. You agree:
(a) To purchase shares only from us or only from your customers.
(b) To purchase shares from us only for the purpose of covering
purchase orders already received or for your own bona fide investment.
(c) That you will not purchase any shares from your customers at
prices lower than the redemption prices then quoted by the Fund. You shall,
however, be permitted to sell shares for the account of their record owners to
the Fund at the redemption prices currently established for such shares and may
charge the owner a fair commission for handling the transaction.
(d) That you will not delay placing customers' orders for shares.
(e) That if any shares confirmed to you hereunder are redeemed by the
Fund within seven days after such confirmation of your original order, you shall
forthwith refund to us the full sales charge or discount, if any, allowed to
you on such sales.
2
<PAGE>
We shall forthwith pay to the Fund our share of the sales charge, if
any, on the original sale, and shall also pay to the Fund the refund from you as
herein provided. Termination or cancellation of this Agreement shall not relieve
you or us from the requirements of this subparagraph.
(f) At your own expense to defend any suit, claim, action or other
proceeding brought by any party against the Fund, its transfer agent, or
PMFD and indemnify and hold harmless PMFD, the Fund and its transfer agent,
their officers, directors, employees, agents and assigns, from and against
any and all direct or indirect losses, claims, demands, damages (including
consequential damages), liabilities, attorneys' fees, interest and other
costs, all expenses of litigation or arbitration and any amounts agreed
upon in settlement, that may be assessed against, suffered or incurred by
any one or more of the above parties (whether pursuant to this Agreement or
otherwise) as a result of or arising out of, directly or indirectly, any
sale of the Fund, breach of representations or warranties herein; or as a
result of or arising out of, directly or indirectly, your failure to comply
with the terms of this Agreement; or as a result of or arising out of,
directly or indirectly, any error or omission in any event whether such
action, failure, error, omission, misconduct or breach is committed by you
or by your employees or agents, whether or not authorized or acting within
the scope of their employment, pursuant to this Agreement, including that
which may arise out of the malfunction of equipment, systems and programs;
or as a result, directly or indirectly, of not obtaining sufficient
authorization of all customers' communications and actions regarding such
customers' accounts, including all transfers; or as a result, directly or
indirectly, of any refusal by us to accept a purchase form a customer. Your
obligations under this sub-section (f) shall survive the termination of
this Agreement.
3
<PAGE>
8. We shall not accept from you any conditional orders for shares.
Delivery of certificates, if any, for shares purchased shall be made by the Fund
only against receipt of the purchase price, subject to deduction for the sales
charge or discount reallowed to you and our portion of the sales charge on such
sale, if any. If payment for the shares purchased is not received within the
time customary for such payments, the sale may be cancelled forthwith without
any responsibility or liability on our part or on the part of the Fund (in which
case you will be responsible for any loss, including loss of profit, suffered by
the Fund resulting from your failure to make payments as aforesaid), or, at our
option, we may sell on your behalf the shares ordered back to the Fund (in which
case we may hold you responsible for any loss, including loss of profit suffered
by us resulting from your failure to make payment as aforesaid).
9. You will not offer or sell any of the shares except under
circumstances that will result in compliance with the applicable Federal and
state securities laws and in connection with sales and offers to sell shares you
will furnish to each person to whom any such sale or offer is made a copy of the
applicable then current prospectus. We shall be under no liability to you
except for lack of good faith and for obligations expressly assumed by us
herein. Nothing herein contained, however, shall be deemed to be a condition,
stipulation or provision binding any persons acquiring any security to waive
compliance with any provision of the Securities Act of 1933, or of the Rules and
Regulations of the Securities and Exchange Commission or to relieve the parties
hereto from any liability arising under the Securities Act of 1933.
10. From time to time during the term of this Agreement we may (but
are not hereby obliged to) make payments to you pursuant to the distribution
plan adopted by the Fund pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act"), in consideration of your furnishing distribution services
hereunder with respect to the Fund. Any such payments made pursuant to this
Section 10 shall be subject to the following terms and conditions:
(a) Any such payments shall be in such amounts as we may from time to
time advise you in writing but in any event not in excess of the amounts
permitted by the plan in effect with respect to the Fund. Any such payments
shall be in addition to the selling concession, if any, allowed to you pursuant
to this Agreement.
(b) The provisions of this Section 10 relate to the plan adopted by
the Fund pursuant to Rule 12b-1. In accordance with Rule 12b-1, any person
4
<PAGE>
authorized to direct the disposition of monies paid or payable by a Fund
pursuant to this Section 10 shall provide the Fund's Board of Directors or
Trustees, and the Directors or Trustees shall review, at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.
(c) The provisions of this Section 10 applicable to the Fund shall
remain in effect for not more than a year and thereafter for successive annual
periods only so long as such continuance is specifically approved at least
annually in conformity with Rule 12b-1 and the Act. The provisions of this
Section 10 shall automatically terminate with respect to a particular plan in
the event of the assignment (as defined by the Act) of this Agreement, in the
event such plan terminates or is not continued or in the event this Agreement
terminates or ceases to remain in effect. In addition, the provisions of this
Section 10 may be terminated at any time, without penalty, by either party with
respect to any particular plan on not more than 60 days' nor less than 30 days'
written notice delivered or mailed by registered mail, postage prepaid, to the
other party.
11. No person is authorized to make any representations concerning
shares of the Fund except those contained in the current prospectus and printed
information issued by the Fund or by us as information supplemental to each
prospectus. We shall supply prospectuses, reasonable quantities of supplemental
sales literature, sales bulletins, and additional information as issued. You
agree not to use other advertising or sales material relating to the Fund,
unless approved in writing by us in advance of such use. Any printed
information furnished by us other than the then current prospectus and statement
of additional information for the Fund, periodic reports and proxy solicitation
materials are our sole responsibility and not the responsibility of the Fund,
and you agree that the Fund shall have no liability or responsibility to you in
these respects unless expressly assumed in connection therewith.
12. Either party to this Agreement may cancel this Agreement by
giving written notice to the other. Such notice shall be deemed to have been
given on the date on which it was either delivered personally to the other party
or any officer or partner thereof, or was mailed postpaid or delivered to a
telegraph office for transmission to the other party at his or its address as
shown
5
<PAGE>
below. This Agreement may be amended by us at any time and your placing of an
order after the effective date of any such amendment shall constitute your
acceptance thereof.
13. This Agreement shall be construed in accordance with the laws of
the State of New York and shall be binding upon both parties hereto when signed
by us and accepted by you in the space provided below.
Very truly yours,
PRUDENTIAL SECURITIES INCORPORATED
By: _______________________ DATE: _____________________
Firm Name ___________________________
Address ___________________________
City ________ State ___________ Zip Code
ACCEPTED BY (signature) ________________________________________
Name (print) _______________________________________
Title ________________
Date __________________________ 199___ Phone # __________________
Please return two signed copies of this Agreement
(one of which will be signed above by us and
thereafter returned to you) in the accompanying
return envelope to:
Prudential Securities Incorporated
One New York Plaza, 8th Floor
New York, New York 10292
Attention: P.J. Berman
6
<PAGE>
THE GLOBAL TOTAL RETURN FUND, INC.
SCHEDULE A
----------
<TABLE>
<CAPTION>
Amount of Sales Charge Sales Charge Dealer
Purchase as Percentage of as Percentage of Concession as
Offering Price Net Amount Percentage of
Invested Offering Price
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Less then 4.00% 4.17% 3.75%
$50,000
- -----------------------------------------------------------------------
$50,000 to 3.50% 3.63% 3.25%
$99,999
- -----------------------------------------------------------------------
$100,000 to 2.75% 2.83% 2.50%
$249,999
- -----------------------------------------------------------------------
$250,000 to 2.00% 2.04% 1.90%
$499,999
- -----------------------------------------------------------------------
$500,000 to 1.50% 1.52% 1.40%
$999,000
- -----------------------------------------------------------------------
$1,000,000 and None None None
above
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
</TABLE>
GL95
7
EXHIBIT 8
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES INDICATED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held by It....................... -1-
2. Duties to 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............................................... -2-
2.3 Registration of Securities........................................... -6-
2.4 Bank Accounts........................................................ -7-
2.5 Availability of Federal Funds........................................ -7-
2.6 Collection of Income................................................. -8-
2.7 Payment of Fund Monies............................................... -8-
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.. -11-
2.9 Appointment of Agents................................................ -11-
2.10 Deposit of Securities in Securities Systems.......................... -11-
2.10A Fund Assets Held in the Custodian's Direct Paper System.............. -13-
2.11 Segregated Account................................................... -14-
2.12 Ownership Certificates for Tax Purposes.............................. -15-
2.13 Proxies.............................................................. -16-
2.14 Communications Relating to Fund Portfolio Securities................. -16-
2.15 Reports to Fund by Independent Public Accountants.................... -16-
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States........................................................ -17-
3.1 Appointment of Foreign Sub-Custodians................................ -17-
3.2 Assets to be Held.................................................... -17-
3.3 Foreign Securities Depositories...................................... -18-
3.4 Segregation of Securities............................................ -18-
3.5 Agreements with Foreign Banking Institutions......................... -18-
3.6 Access of Independent Accountants of the Fund........................ -19-
3.7 Reports by Custodian................................................. -19-
3.9 Liability of Foreign Sub-Custodians.................................. -20-
3.10 Liability of Custodian............................................... -21-
3.11 Reimbursements for Advances.......................................... -21-
3.12 Monitoring Responsibilities.......................................... -22-
3.13 Branches of U.S. Banks............................................... -22-
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund.... -23-
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
5. Proper Instructions........................................................ -24-
6. Actions Permitted without Express Authority................................ -24-
7. Evidence of Authority...................................................... -25-
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.............................. -26-
9. Records.................................................................... -26-
10. Opinion of Fund's Independent Accountant................................... -27-
11. Compensation of Custodian.................................................. -27-
12. Responsibility of Custodian................................................ -27-
13. Effective Period, Termination and Amendment................................ -29-
14. Successor Custodian........................................................ -30-
15. Interpretative and Additional Provisions................................... -32-
16. Massachusetts Law to Apply................................................. -32-
17. Prior Contracts............................................................ -32-
18. The Parties................................................................ -32-
19. Limitation of Liability.................................................... -33-
</TABLE>
-ii-
<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.
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
<PAGE>
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 Treasury, 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 2.10A.
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
-2-
<PAGE>
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 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;
-3-
<PAGE>
(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 Custodian's own negligence or willful
misconduct;
(8) For exchange or conversation 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
-4-
<PAGE>
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, 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;
-5-
<PAGE>
(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 delivery
is to be made, declaring such purpose to be a proper business
purpose, and naming the person or persons to whom delivery 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 nominees 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
-6-
<PAGE>
"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 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 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
-7-
<PAGE>
Custodian in the amount of checks received in payment for Shares of the Fund
which are deposited into the Fund's account.
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:
(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
-8-
<PAGE>
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 2.10A; (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 through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery 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;
-9-
<PAGE>
(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 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 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.
-10-
<PAGE>
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 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 such securities are represented
in an account ("Account") of the Custodian in the Securities
System which shall not
-11-
<PAGE>
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 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.
-12-
<PAGE>
(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, 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.
2.10A 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;
-13-
<PAGE>
(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;
(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 control as the Fund may reasonably
request from time to time;
-14-
<PAGE>
2.11 Segregated 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
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.
-15-
<PAGE>
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 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 of which the Custodian is to take such action.
-16-
<PAGE>
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
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.
-17-
<PAGE>
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", as defined in paragraph (c)(1) 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.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
--------------------------------------------
foreign banking institution shall be substantially in the form set forth in
Exhibit I hereto and shall provide that (a) the Fund's assets will not be
subject to any right, charge, security interest, lien
-18-
<PAGE>
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 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.
-19-
<PAGE>
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 occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefore (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
-20-
<PAGE>
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.
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.
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 nominees shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the
-21-
<PAGE>
performance of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or wilful 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 and Exchange Commission is notified by
such foreign sub-custodian that there appears to be a substantial likelihood
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.
-22-
<PAGE>
(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 Directors/Trustees of the Fund pursuant
thereto, the Custodian shall, upon receipt of instructions from the Transfer
Agent, make funds available for payment 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.
-23-
<PAGE>
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 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.
6. Actions Permitted without Express Authority.
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund:
-24-
<PAGE>
(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/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.
-25-
<PAGE>
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 office 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 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
-26-
<PAGE>
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 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
-27-
<PAGE>
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 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,
-28-
<PAGE>
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 wilful 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
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
-29-
<PAGE>
under Section 2.10A 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 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.
-30-
<PAGE>
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 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.
-31-
<PAGE>
15. Interpretative 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 interpretative 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
interpretative 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 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.
-32-
<PAGE>
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 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
_________________________ By__________________________________________
Assistant Secretary
ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A
_________________________ By__________________________________________
Secretary
-33-
Exhibit 9
TRANSFER AGENCY AND SERVICE AGREEMENT
between
THE GLOBAL TOTAL RETURN 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.................................. 5
Article 3 Representations and Warranties of the Agent........ 5
Article 4 Representations of Warranties of the Fund.......... 6
Article 5 Duty of Care and Indemnification................... 7
Article 6 Documents and Covenants of the Fund and the Agent.. 10
Article 7 Termination of Agreement........................... 12
Article 8 Assignment......................................... 12
Article 9 Affiliations....................................... 13
Article 10 Amendment.......................................... 14
Article 11 Applicable Law..................................... 14
Article 12 Miscellaneous...................................... 14
Article 13 Merger of Agreement................................ 15
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the th day of ________, 1995 by
and between THE GLOBAL TOTAL RETURN 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
One, Edison, New Jersey 08837 (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, $.01 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
<PAGE>
information (prospectus) of the Fund, including without limitation
any periodic investment plan or periodic withdrawal program.
1.02 PMFS agrees that it will perform the following
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
2
<PAGE>
may be reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund and
its Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain
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
3
<PAGE>
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 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.
4
<PAGE>
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.
2.03 The Fund agrees to pay all fees and reimbursable
expenses within a reasonable period of time following the mailing
of the respective billing 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
5
<PAGE>
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.
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
6
<PAGE>
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, negligence 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.
(d) The reliance on, or the carrying out by PMFS or its
agents or subcontractors of, any instructions or requests of the
Fund.
7
<PAGE>
(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
8
<PAGE>
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 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
9
<PAGE>
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.
Article 6 Documents and Covenants of the Fund and PMFS
6.01 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 statements 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
10
<PAGE>
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.
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
11
<PAGE>
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.
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
Securities Incorporated (Prudential Securities), a registered
broker-dealer, (ii) The Prudential Insurance Company of America
(Prudential), (iii) Pruco Securities Corporation, a registered
broker-dealer, (iv) any Prudential Securities or Prudential
subsidiary or affiliate duly registered as a broker-dealer and/or
12
<PAGE>
a transfer agent pursuant to the 1934 Act or (vi) any other
Prudential Securities 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 omissions.
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, including without
limitation any investment company whose adviser, administrator,
sponsor or principal underwriter is or may become affiliated with
Prudential Securities and/or Prudential or any of its or their
direct or indirect subsidiaries or affiliates.
9.02 It is understood and agreed that the directors,
officers, employees, agents and Shareholders of the Fund, and the
directors, officers, employees, 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.
13
<PAGE>
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, unless 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 $1000 or less.
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
14
<PAGE>
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:
The Global Total Return Fund, Inc.
One Seaport Plaza
New York, NY 10292
Attention: President
To PMFS:
Prudential Mutual Fund Services, Inc.
Raritan Plaza One
Edison, NJ 08837
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.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf under
their seals by and through their duly authorized officers, as of
the day and year first above written.
THE GLOBAL TOTAL RETURN FUND, INC.
BY: ________________________________
Robert F. Gunia
Vice President
ATTEST:
________________________________
PRUDENTIAL MUTUAL FUND
SERVICES, INC.
BY: ________________________________
ATTEST:
________________________________
16
<PAGE>
SCHEDULE A
17
<PAGE>
SCHEDULE B
18
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of The Global Total Return
Fund, Inc. of our report dated February 9, 1995, appearing in the Statement of
Additional Information, which is a part of such Registration Statement, and to
the references to us under the headings "Financial Highlights" in the
Prospectus, which is a part of such Registration Statement, and "Custodian,
Transfer and Dividend Disbursing Agent and Independent Accountants" in the
Statement of Additional Information.
Deloitte & Touche LLP
New York, New York
October 31, 1995
Exhibit 15(a)
THE GLOBAL TOTAL RETURN 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 The Global Total Return Fund, Inc. (the Fund) and
by Prudential Securities Incorporated, the Fund's distributor
(the Distributor).
The Fund has entered into a distribution agreement pursuant
to which the Fund will employ the Distributor to distribute Class
A shares issued by the Fund (Class A shares). Under the Plan,
the Fund intends to pay to the Distributor, as compensation for
its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors of the Fund, including
a majority of those Directors who are not "interested persons" of
the Fund (as defined in the Investment Company Act) and who have
no direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the Rule 12b-1 Directors),
have determined by votes cast in person at a meeting called for
the purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and
<PAGE>
its shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) are primarily intended to
result in the sale of Class A shares of the Fund within the
meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the
Investment Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their
account executives to provide distribution assistance to their
customers who are investors in the Fund, to defray the costs and
expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other
promotional and distribution activities and to provide for the
servicing and maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A
shares of the Fund and to service shareholder accounts using all
of the facilities of the Prudential Securities distribution
network, including sales personnel and branch office and central
support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services
provided and activities undertaken to distribute Class A shares
of the Fund are referred to herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for
providing personal service and/or maintaining shareholder
accounts a service fee of .25 of 1% per annum of the average
daily net assets of the Class A shares (service fee). The Fund
shall calculate and accrue daily amounts payable by the Class A
shares of the Fund hereunder and shall pay such amounts monthly
or at such other intervals as the Board of Directors may
determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for
its services a distribution fee, together with the service fee
(described in Section 2 hereof), of .30 of 1% per annum of the
average daily net assets of the Class A shares of the Fund for
the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares
of the Fund hereunder and shall pay such amounts monthly or at
such other intervals as the Board of Directors may determine.
Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class A shares of the
Fund will not be used to pay the distribution expenses incurred
with respect to any other class of shares of the Fund except that
distribution expenses attributable to the Fund as a whole will be
allocated to the Class A shares according to the ratio of the
sales of Class A shares to the total sales of the Fund's shares
3
<PAGE>
over the Fund's fiscal year or such other allocation method
approved by the Board of Directors. The allocation of
distribution expenses among classes will be subject to the review
of the Board of Directors.
The Distributor shall spend such amounts as it deems
appropriate on Distribution Activities which include, among
others:
(a) sales commissions and trailer commissions
paid to, or on account of, account executives
of the Distributor;
(b) indirect and overhead costs of the Distributor
associated with Distribution Activities, including
central office and branch expenses;
(c) amounts paid to Prusec for performing
services under a selected dealer agreement
between Prusec and the Distributor for sale
of Class A shares of the Fund, including
sales commissions, trailer commissions paid
to, or on account of, agents and indirect and
overhead costs associated with Distribution
Activities;
(d) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
prospectuses, statements of additional
information and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund; and
(e) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prusec) which have entered into
selected dealer agreements with the
Distributor with respect to Class A shares of
the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors of the Fund for review, at least quarterly, a
4
<PAGE>
written report specifying in reasonable detail the amounts
expended for Distribution Activities (including payment of the
service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors of the Fund
such additional information as the Board shall from time to time
reasonably request, including information about Distribution
Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the
Fund of the commissions and account servicing fees to be paid by
the Distributor to account executives of the Distributor and to
broker-dealers and financial institutions which have selected
dealer agreements with the Distributor.
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.
5
<PAGE>
6. Termination
This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service
and distribution fees to be paid as provided for in Sections 2
and 3 hereof so as to increase materially the amounts payable
under this Plan unless such amendment shall be approved by the
vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of
the Fund. All material amendments of the Plan shall be approved
by a majority of the Board of Directors of the Fund and a
majority of the Rule 12b-1 Directors by votes cast in person at a
meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of
the Directors shall be committed to the discretion of the
Rule 12b-1 Directors.
9. Records
The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Section 4 hereof, for
a period of not less than six years from the date of
effectiveness of the Plan, such agreements or reports, and for at
least the first two years in an easily accessible place.
Dated: ______________, 1995
6
Exhibit 15(b)
THE GLOBAL TOTAL RETURN 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 The Global Total Return Fund, Inc. (the Fund) and
by Prudential Securities Incorporated (Prudential Securities), the
Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement
pursuant to which the Fund will employ the Distributor to
distribute Class B shares issued by the Fund (Class B shares).
Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with
respect to Class B shares.
A majority of the Board of Directors of the Fund including a
majority who are not "interested persons" of the Fund (as defined
in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors), have determined by votes
cast in person at a meeting called for the purpose of voting on
this Plan that there is a reasonable likelihood that adoption of
this Plan will benefit the Fund and its shareholders. Expenditures
<PAGE>
under this Plan by the Fund for Distribution Activities (defined
below) are primarily intended to result in the sale of Class B
shares of the Fund within the meaning of paragraph (a)(2) of Rule
12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their account
executives to provide distribution assistance to their customers
who are investors in the Fund, to defray the costs and expenses
associated with the preparation, printing and distribution of
prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and
maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B
shares of the Fund and to service shareholder accounts using all of
the facilities of the Prudential Securities distribution network
including sales personnel and branch office and central support
systems, and also using such other qualified broker-dealers and
financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class B shares of the Fund are
referred to herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for
providing personal service and/or maintaining shareholder accounts
a service fee of .25 of 1% per annum of the average daily net
assets of the Class B shares (service fee). The Fund shall
calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such
other intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its
services a distribution fee of .75 of 1% per annum of the average
daily net assets of the Class B shares of the Fund for the
performance of Distribution Activities. The Fund shall calculate
and accrue daily amounts payable by the Class B shares of the Fund
hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine. Amounts payable
under the Plan shall be subject to the limitations of Article III,
Section 26 of the NASD Rules of Fair Practice.
Amounts paid to the Distributor by the Class B shares of the
Fund will not be used to pay the distribution expenses incurred
with respect to any other class of shares of the Fund except that
distribution expenses attributable to the Fund as a whole will be
allocated to the Class B shares according to the ratio of the sale
of Class B shares to the total sales of the Fund's shares over the
Fund's fiscal year or such other allocation method approved by the
3
<PAGE>
Board of Directors. The allocation of distribution expenses among
classes will be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems
appropriate on Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions)
paid to, or on account of, account executives of the
Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of Distribution Activities
including central office and branch expenses;
(c) amounts paid to Prusec for performing services under
a selected dealer agreement between Prusec and the
Distributor for sale of Class B shares of the Fund,
including sales commissions and trailer commissions paid
to, or on account of, agents and indirect and overhead
costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through
any available medium, including the cost of printing and
mailing Fund prospectuses, statements of additional
information and periodic financial reports and sales
literature to persons other than current shareholders of
the Fund; and
(e) sales commissions (including trailer commissions)
paid to, or on account of, broker-dealers and other
financial institutions (other than Prusec) which have
entered into selected dealer agreements with the
Distributor with respect to Class B shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors of the Fund for review, at least quarterly, a written
report specifying in reasonable detail the amounts expended for
Distribution Activities (including payment of the service fee) and
the purposes for which such expenditures were made in compliance
with the requirements of Rule 12b-1. The Distributor will provide
to the Board of Directors of the Fund such additional information
4
<PAGE>
as they shall from time to time reasonably request, including
information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund
of the commissions and account servicing fees to be paid by the
Distributor to account executives of the Distributor and to
broker-dealers and other financial institutions which have selected
dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by
a vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the
Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class B shares of the Fund, the Plan shall,
unless earlier terminated in accordance with its terms, continue in
full force and effect thereafter for so long as such continuance is
specifically approved at least annually by a majority of the Board
of Directors of the Fund and a majority of the Rule 12b-1 Directors
by votes cast in person at a meeting called for the purpose of
voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Directors, or by vote of a majority of the
outstanding voting securities (as defined in the Investment Company
Act) of the Class B shares of the Fund.
5
<PAGE>
7. Amendments
The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3
hereof so as to increase materially the amounts payable under this
Plan unless such amendment shall be approved by the vote of a
majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of
the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the
purpose of voting on the Plan.
8. Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of
the Rule 12b-1 Directors shall be committed to the discretion of
the Rule 12b-1 Directors.
9. Records
The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Section 4 hereof, for
a period of not less than six years from the date of effectiveness
of the Plan, such agreements or reports, and for at least the first
two years in an easily accessible place.
Dated: _________, 1995
6
Exhibit 15(c)
THE GLOBAL TOTAL RETURN FUND, INC.
Distribution and Service Plan
(Class C Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below
which is designed to conform to the requirements of Rule 12b-1
under the Investment Company Act of 1940 (the Investment Company
Act) and Article III, Section 26 of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. (NASD) has
been adopted by The Global Total Return Fund, Inc. (the Fund) and
by Prudential Securities Incorporated (Prudential Securities), the
Fund's distributor (the Distributor) and will become effective upon
the approval of the Plan by the sole shareholder of the Class C
shares.
The Fund has entered into a distribution agreement pursuant to
which the Fund will employ the Distributor to distribute Class C
shares issued by the Fund (Class C shares). Under the Plan, the
Fund wishes to pay to the Distributor, as compensation for its
services, a distribution and service fee with respect to Class C
shares.
A majority of the Board of Directors of the Fund, including a
majority who are not "interested persons" of the Fund (as defined
in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors), have determined by votes
cast in person at a meeting called for the purpose of voting on
<PAGE>
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 C
shares of the Fund within the meaning of paragraph (a)(2) of Rule
12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their account
executives to provide distribution assistance to their customers
who are investors in the Fund, to defray the costs and expenses
associated with the preparation, printing and distribution of
prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and
maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class C
shares of the Fund and to service shareholder accounts using all of
the facilities of the Prudential Securities distribution network
including sales personnel and branch office and central support
systems, and also using such other qualified broker-dealers and
financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class C shares of the Fund are
referred to herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for
providing personal service and/or maintaining shareholder accounts
a service fee of .25 of 1% per annum of the average daily net
assets of the Class C shares (service fee). The Fund shall
calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such
other intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its
services a distribution fee of .75 of 1% per annum of the average
daily net assets of the Class C shares of the Fund for the
performance of Distribution Activities. The Fund shall calculate
and accrue daily amounts payable by the Class C shares of the Fund
hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine. Amounts payable
under the Plan shall be subject to the limitations of Article III,
Section 26 of the NASD Rules of Fair Practice.
Amounts paid to the Distributor by the Class C shares of the
Fund will not be used to pay the distribution expenses incurred
with respect to any other class of shares of the Fund except that
distribution expenses attributable to the Fund as a whole will be
allocated to the Class C shares according to the ratio of the sale
of Class C shares to the total sales of the Fund's shares over the
Fund's fiscal year or such other allocation method approved by the
Board of Directors. The allocation of distribution expenses among
3
<PAGE>
classes will be subject to the review of the Board of Directors.
Payments hereunder will be applied to distribution expenses in the
order in which they are incurred, unless otherwise determined by
the Board of Directors.
The Distributor shall spend such amounts as it deems
appropriate on Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions)
paid to, or on account of, account executives of the
Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of Distribution Activities
including central office and branch expenses;
(c) amounts paid to Prusec for performing services under
a selected dealer agreement between Prusec and the
Distributor for sale of Class C shares of the Fund,
including sales commissions and trailer commissions paid
to, or on account of, agents and indirect and overhead
costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through
any available medium, including the cost of printing and
mailing Fund prospectuses, statements of additional
information and periodic financial reports and sales
literature to persons other than current shareholders of
the Fund; and
(e) sales commissions (including trailer commissions)
paid to, or on account of, broker-dealers and other
financial institutions (other than Prusec) which have
entered into selected dealer agreements with the
Distributor with respect to Class C shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors of the Fund for review, at least quarterly, a written
report specifying in reasonable detail the amounts expended for
Distribution Activities (including payment of the service fee) and
the purposes for which such expenditures were made in compliance
4
<PAGE>
with the requirements of Rule 12b-1. The Distributor will provide
to the Board of Directors of the Fund such additional information
as they shall from time to time reasonably request, including
information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund
of the commissions and account servicing fees to be paid by the
Distributor to account executives of the Distributor and to
broker-dealers and other financial institutions which have selected
dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by
a vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class C shares of the
Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class C shares of the Fund, the Plan shall,
unless earlier terminated in accordance with its terms, continue in
full force and effect thereafter for so long as such continuance is
specifically approved at least annually by a majority of the Board
of Directors of the Fund and a majority of the Rule 12b-1 Directors
by votes cast in person at a meeting called for the purpose of
voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Directors, or by vote of a majority of the
5
<PAGE>
outstanding voting securities (as defined in the Investment Company
Act) of the Class C shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service and
distribution expenses to be paid as provided for in Sections 2 and
3 hereof so as to increase materially the amounts payable under
this Plan unless such amendment shall be approved by the vote of a
majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class C shares of the Fund. All
material amendments of the Plan shall be approved by a majority of
the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the
purpose of voting on the Plan.
8. Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of
the Rule 12b-1 Directors shall be committed to the discretion of
the Rule 12b-1 Directors.
9. Records
The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Section 4 hereof, for
a period of not less than six years from the date of effectiveness
of the Plan, such agreements or reports, and for at least the first
two years in an easily accessible place.
Dated: _________, 1995
6
Exhibit 16
THE GLOBAL TOTAL RETURN FUND, INC.
EXHIBIT
YIELD CALCULATION
AS OF 6/30/95
YIELD = 2 * [([(a - b)/(c * d)] + 1)^6 - 1]
a = dividends & interest earned during the period
b = expenses accrued for the period
c = average daily number of shares o/s during the
period entitled to receive dividends
d = maximum offering price per share
Base period = 30 days
-------------------------------------------
a = $3,262,682
b = $466,662
c = 66,207,699
d = $8.39
YIELD = 6.12%
<PAGE>
THE GLOBAL TOTAL RETURN FUND, INC.
EXHIBIT
AVERAGE ANNUAL TOTAL RETURN CALCULATION
n
ERV = P*(1 + T)^
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
-------------------------------------------
1 Year 5 Years 10 Years
--------- --------- ---------
P = $1,000.00 $1,000.00 $1,000.00
n = 1.00 5.00 9.00
ERV = $1,119.27 $1,327.30 $1,999.51
T = 11.9% 5.8% 8.00%
<PAGE>
THE GLOBAL TOTAL RETURN FUND, INC.
EXHIBIT
AGGREGATE TOTAL RETURN
T = (ERV - P)/P
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
-------------------------------------------
1 Year 5 Years 10 Years
--------- --------- ---------
P = $1,000.00 $1,000.00 $1,000.00
n = 1.00 5.00 9.00
ERV = $1,119.27 $1,327.30 $1,999.51
T = 11.9% 32.7% 100.00%
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> THE GLOBAL TOTAL RETURN FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 476,753,641
<INVESTMENTS-AT-VALUE> 472,909,541
<RECEIVABLES> 34,423,018
<ASSETS-OTHER> 6,368,215
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 513,700,774
<PAYABLE-FOR-SECURITIES> 10,026,917
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,028,809
<TOTAL-LIABILITIES> 20,055,726
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 545,615,707
<SHARES-COMMON-STOCK> 66,207,699
<SHARES-COMMON-PRIOR> 66,207,699
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (47,716,915)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4,253,744)
<NET-ASSETS> 493,645,048
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 40,185,945
<OTHER-INCOME> 0
<EXPENSES-NET> 5,604,972
<NET-INVESTMENT-INCOME> 34,580,973
<REALIZED-GAINS-CURRENT> (75,052,921)
<APPREC-INCREASE-CURRENT> (5,772,110)
<NET-CHANGE-FROM-OPS> (46,244,058)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,243,249)
<DISTRIBUTIONS-OF-GAINS> (8,933,149)
<DISTRIBUTIONS-OTHER> (21,876,825)
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (86,297,281)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 10,931,431
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,968,777
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,604,972
<AVERAGE-NET-ASSETS> 536,230,000
<PER-SHARE-NAV-BEGIN> 8.76
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> (1.22)
<PER-SHARE-DIVIDEND> (0.14)
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> (0.33)
<PER-SHARE-NAV-END> 7.46
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> THE GLOBAL TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 526,439,459
<INVESTMENTS-AT-VALUE> 541,923,358
<RECEIVABLES> 26,015,725
<ASSETS-OTHER> 381,285
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 568,320,368
<PAYABLE-FOR-SECURITIES> 4,144,952
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,603,333
<TOTAL-LIABILITIES> 12,748,285
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 547,774,623
<SHARES-COMMON-STOCK> 66,207,699
<SHARES-COMMON-PRIOR> 66,207,699
<ACCUMULATED-NII-CURRENT> 21,362,604
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (28,817,778)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,252,634
<NET-ASSETS> 555,572,083
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,253,219
<OTHER-INCOME> 0
<EXPENSES-NET> 2,638,174
<NET-INVESTMENT-INCOME> 16,615,045
<REALIZED-GAINS-CURRENT> 41,363,896
<APPREC-INCREASE-CURRENT> 19,506,378
<NET-CHANGE-FROM-OPS> 77,485,319
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15,558,284)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 61,927,035
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (49,875,831)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,973,039
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,638,174
<AVERAGE-NET-ASSETS> 533,572,000
<PER-SHARE-NAV-BEGIN> 7.46
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.92
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.39
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
