<PAGE>
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to (S)240.14a-11(c) or (S)240.14a-12
PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
<PAGE>
PRUDENTIAL MUTUAL FUNDS
ONE SEAPORT PLAZA
NEW YORK, NY 10292
APRIL 18, 1994
RE: IMPORTANT PROXY MATERIAL--IMMEDIATE ACTION REQUIRED
Dear Shareholder:
We are pleased to enclose a notice and proxy statement for a special meeting
of shareholders of the Prudential Mutual Funds to be held on June 23, 1994. You
are being asked to approve, among other things, a proposal to permit the
automatic conversion of Class B shares to Class A shares after a specified
number of years. Thereafter, converted shares will be subject to the lower
annual distribution-related fees applicable to Class A shares.
The proxy statement also includes proposals to revise the current
distribution and service plans for Class A and Class B shares and other
proposals recommended by the Fund's Manager and Subadviser.
Please read the enclosed materials carefully. The proxy statement discusses
each proposal in detail and the reasons why the Board of Directors/Trustees
recommend that you vote in favor of those proposals.
The Fund is using Shareholder Communications Corporation (SCC), a
professional proxy solicitation firm, to assist shareholders in the voting
process. If we have not yet received your proxy card as the date of the meeting
approaches, you may receive a telephone call from SCC reminding you to exercise
your right to vote.
Your vote is critical in allowing your Fund to hold the meeting as scheduled.
Please take a moment now to sign and return the proxy card in the enclosed
postage-paid envelope. If less than a majority of the eligible shares are
represented, the Fund, at shareholders' expense, will have to continue to
solicit votes until a quorum is obtained. Your prompt attention in this matter
benefits all shareholders. Thank you.
Sincerely,
Lawrence C. McQuade
President
SPECIAL NOTE: If you hold shares in more than one Prudential fund, you will
receive a separate proxy package for each Fund you hold. Please be sure to
sign and return each proxy card regardless of how many you receive.
<PAGE>
PRUDENTIAL EQUITY INCOME FUND
ONE SEAPORT PLAZA
NEW YORK, N.Y. 10292
-----------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
-----------------------
To our Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of Prudential
Equity Income Fund (the Fund) will be held at 3:00 P.M. on June 23, 1994, at
199 Water Street, New York, N.Y. 10292, for the following purposes:
1. To elect Trustees.
2. To approve an amendment of the Fund's Declaration of Trust to permit
a conversion feature for Class B shares.
3. To approve an amended and restated Class A Distribution and Service
Plan.
4. To approve an amended and restated Class B Distribution and Service
Plan.
5. To approve amendments of the Fund's investment restrictions regarding
restricted and illiquid securities.
6. To approve an amendment of the Fund's investment restriction limiting
the Fund's ability to invest in a security if the Fund would hold more
than 10% of any class of securities of an issuer.
7. To approve the elimination of the Fund's investment restriction
limiting the Fund's ability to invest in the securities of any issuer in
which officers and Trustees of the Fund or officers and directors of its
investment adviser own more than a specified interest.
8. To ratify the selection by the Trustees of Deloitte & Touche as
independent accountants for the fiscal year ending October 31, 1994.
9. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
Only shares of beneficial interest of the Fund of record at the close of
business on March 31, 1994 are entitled to notice of and to vote at this
Meeting or any adjournment thereof.
S. Jane Rose
Secretary
Dated: April 18, 1994
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE. IN ORDER TO AVOID THE ADDITIONAL EXPENSE TO THE FUND OF FURTHER
SOLICITATION, WE ASK YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
<PAGE>
PRUDENTIAL EQUITY INCOME FUND
ONE SEAPORT PLAZA
NEW YORK, N.Y. 10292
-----------------------
PROXY STATEMENT
-----------------------
This statement is furnished by the Trustees of Prudential Equity Income Fund
(the Fund) in connection with their solicitation of proxies for use at a
Special Meeting of Shareholders to be held at 3:00 P.M. on June 23, 1994 at 199
Water Street, New York, New York 10292, the Fund's principal executive office.
The purpose of the Meeting and the matters to be acted upon are set forth in
the accompanying Notice of Special Meeting.
If the accompanying form of Proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the Proxy. However, if no instructions are specified, shares
will be voted for the election of Trustees and for each of the other proposals.
A Proxy may be revoked at any time prior to the time it is voted by written
notice to the Secretary of the Fund or by attendance at the Meeting. If
sufficient votes to approve one or more of the proposed items are not received,
the persons named as proxies may propose one or more adjournments of the
Meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of those shares present at the
Meeting or represented by proxy. When voting on a proposed adjournment, the
persons named as proxies will vote for the proposed adjournment all shares that
they are entitled to vote with respect to each item, unless directed to
disapprove the item, in which case such shares will be voted against the
proposed adjournment.
If a Proxy that is properly executed and returned accompanied by instructions
to withhold authority to vote represents a broker "non-vote" (that is, a Proxy
from a broker or nominee indicating that such person has not received
instructions from the beneficial owner or other person entitled to vote shares
on a particular matter with respect to which the broker or nominee does not
have discretionary power), the shares represented thereby will be considered
not to be present at the Meeting for purposes of determining the existence of a
quorum for the transaction of business and be deemed not cast with respect to
such proposal. If no instructions are received by the broker or nominee from
the shareholder with reference to routine matters, the shares represented
thereby may be considered for purposes of
1
<PAGE>
determining the existence of a quorum for the transaction of business and will
be deemed cast with respect to such proposal. Also, a properly executed and
returned Proxy marked with an abstention will be considered present at the
Meeting for purposes of determining the existence of a quorum for the
transaction of business. However, abstentions and broker "non-votes" do not
constitute a vote "for" or "against" the matter, but have the effect of a
negative vote on matters which require approval by a requisite percentage of
the outstanding shares.
The close of business on March 31, 1994 has been fixed as the record date
for the determination of shareholders entitled to notice of, and to vote at,
the Meeting. On that date, the Fund had 66,577,389 shares of beneficial
interest outstanding and entitled to vote, consisting of 9,535,267 Class A
shares and 57,042,122 Class B shares. Each share will be entitled to one vote
at the Meeting. It is expected that the Notice of Special Meeting, Proxy
Statement and form of Proxy will first be mailed to shareholders on or about
April 22, 1994.
Management does not know of any person or group who owned beneficially 5% or
more of the outstanding shares of either class of beneficial interest of the
Fund as of March 31, 1994.
The expense of solicitation will be borne by the Fund and will include
reimbursement of brokerage firms and others for expenses in forwarding proxy
solicitation material to beneficial owners. The solicitation of proxies will
be largely by mail. The Trustees of the Fund have authorized management to
retain Shareholder Communications Corporation, a proxy solicitation firm, to
assist in the solicitation of proxies for this Meeting. This cost, including
specified expenses, is not expected to exceed $48,000 and will be borne by the
Fund. In addition, solicitation may include, without cost to the Fund,
telephonic, telegraphic or oral communication by regular employees of
Prudential Securities Incorporated (Prudential Securities) and its affiliates.
2
<PAGE>
ELECTION OF TRUSTEES
(PROPOSAL NO. 1)
At the Meeting, seven Trustees will be elected to hold office for a term of
unlimited duration until their successors are elected and qualify. It is the
intention of the persons named in the accompanying form of Proxy to vote for
the election of Edward D. Beach, Donald D. Lennox, Douglas H. McCorkindale,
Lawrence C. McQuade, Thomas T. Mooney, Richard A. Redeker and Louis A. Weil,
III, all of whom are currently Trustees. Each of the nominees has consented to
be named in the Proxy Statement and to serve as a Trustee if elected. All of
the current Trustees, except for Mr. Redeker, have previously been elected by
shareholders. Messrs. Beach, Mooney and Weil have served as Trustees of the
Fund since November 6, 1986, Messrs. Lennox and McCorkindale since March 12,
1987 and Mr. McQuade since February 18, 1988. Mr. Redeker has served as a
Trustee since November 9, 1993.
The Trustees have no reason to believe that any of the nominees named above
will become unavailable for election as a Trustee, but if that should occur
before the Meeting, proxies will be voted for such persons as the Trustees may
recommend.
As a Massachusetts business trust, the Fund is not required to hold annual
meetings of shareholders. Accordingly, the Fund does not intend to submit the
election of Trustees to the shareholders on an annual basis. See "Shareholder
Proposals."
3
<PAGE>
INFORMATION REGARDING TRUSTEES
<TABLE>
<CAPTION>
SHARES OF
BENEFICIAL INTEREST
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS WITH FUND MARCH 31, 1994
- ----------------------------------------- --------- -------------------
<S> <C> <C>
Edward D. Beach (69), President and Di- Trustee -0-
rector of BMC Fund, Inc., a closed-end
investment company; prior thereto,
Vice Chairman of Broyhill Furniture
Industries, Inc.; Certified Public Ac-
countant, Secretary and Treasurer of
Broyhill Family Foundation, Inc.;
President, Treasurer and Director of
First Financial Fund, Inc. and The
High Yield Plus Fund, Inc.; President
and Director of Global Utility Fund,
Inc.; Director of The Global Govern-
ment Plus Fund, Inc., The Global Yield
Fund, Inc., Prudential Adjustable Rate
Securities Fund, Inc., Prudential Eq-
uity Fund, Inc., Prudential Global
Genesis Fund, Prudential Global Natu-
ral Resources Fund, Prudential GNMA
Fund, Prudential Government Plus Fund,
Prudential Multi-Sector Fund, Inc. and
Prudential Special Money Market Fund;
Trustee of The BlackRock Government
Income Trust, Command Government Fund,
Command Money Fund, Command Tax-Free
Fund, Prudential California Municipal
Fund, Prudential Equity Income Fund,
Prudential FlexiFund, Prudential Mu-
nicipal Bond Fund and Prudential Mu-
nicipal Series Fund.
Donald D. Lennox (75), Chairman (since Trustee -0-
February 1990) and Director (since
April 1989) of International Imaging
Materials, Inc.; Retired Chairman,
Chief Executive Officer and Director
of Schlegel Corporation (industrial
manufacturing) (March 1987 - February
1989); Director of Gleason Corpora-
tion, Navistar International Corpora-
tion, Personal Sound Technologies,
Inc., Prudential Global Genesis Fund,
Prudential Global Natural Resources
Fund, Prudential Institutional Liquid-
ity Portfolio, Inc., Prudential Multi-
Sector Fund, Inc., The Global Govern-
ment Plus Fund, Inc. and The High
Yield Income Fund, Inc.; Trustee of
Prudential Equity Income Fund, Pruden-
tial FlexiFund, Prudential Municipal
Bond Fund and The Target Portfolio
Trust.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
BENEFICIAL INTEREST
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS WITH FUND MARCH 31, 1994
- ----------------------------------------- --------- -------------------
<S> <C> <C>
Douglas H. McCorkindale (54), Vice Trustee -0-
Chairman, Gannett Co. Inc. (publishing
and media) (since March 1984); Direc-
tor of Continental Airlines, Inc.,
Gannett Co., Inc., Rochester Telephone
Corporation, Prudential Global Genesis
Fund, Prudential Global Natural Re-
sources Fund, Prudential Multi-Sector
Fund, Inc. and The Global Government
Plus Fund, Inc.; Trustee of Prudential
Equity Income Fund, Prudential
FlexiFund and Prudential Municipal
Bond Fund.
*Lawrence C. McQuade (66), Vice Chairman President 1,189
of Prudential Mutual Fund Management, and Trustee
Inc. (PMF) (since 1988); Managing Di-
rector, Investment Banking, Prudential
Securities (1988 -1991); Director of
Quixote Corporation (since February
1992) and BUNZL, PLC (since June
1991); formerly Director of Crazy Ed-
die Inc. (1987 - 1990) and Kaiser
Tech, Ltd. and Kaiser Aluminum and
Chemical Corp. (March 1987 -November
1988); formerly Executive Vice Presi-
dent and Director of W.R. Grace & Com-
pany; President and Director of Pru-
dential Adjustable Rate Securities
Fund, Inc., Prudential Equity Fund,
Inc., Prudential Global Fund, Inc.,
Prudential Global Genesis Fund, Pru-
dential Global Natural Resources Fund,
Prudential GNMA Fund, Prudential Gov-
ernment Plus Fund, Prudential Growth
Fund, Inc., Prudential Growth Opportu-
nity Fund, Prudential High Yield Fund,
Prudential IncomeVertible (R) Fund,
Inc., Prudential Institutional Liquid-
ity Portfolio, Inc., Prudential Inter-
mediate Global Income Fund, Inc., Pru-
dential MoneyMart Assets, Prudential
Multi-Sector Fund, Inc., Prudential
National Municipals Fund, Prudential
Pacific Growth Fund, Inc., Prudential
Short-Term Global Income Fund, Inc.,
Prudential Special Money Market Fund,
Prudential Structured Maturity Fund,
Prudential Tax-Free Money
Fund, Prudential Utility Fund, The
Global Government Plus Fund, Inc., The
Global Yield Fund, Inc. and The High
Yield Income Fund, Inc.; President and
Trustee of The BlackRock Government
Income Trust, Com-
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
BENEFICIAL INTEREST
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS WITH FUND MARCH 31, 1994
- ----------------------------------------- --------- -------------------
<S> <C> <C>
mand Government Fund, Command Money
Fund, Command Tax-Free Fund, Pruden-
tial California Municipal Fund, Pru-
dential Equity Income Fund, Prudential
FlexiFund, Prudential Government Secu-
rities Trust, Prudential Municipal
Bond Fund, Prudential Municipal Series
Fund, Prudential U.S. Government Fund
and The Target Portfolio Trust.
Thomas T. Mooney (52), President of the Trustee 699
Greater Rochester Metro Chamber of
Commerce; former Rochester City Manag-
er; Trustee of Center for Governmental
Research, Inc.; Director of Blue Cross
of Rochester, Monroe County Water Au-
thority, Rochester Jobs, Inc., Execu-
tive Service Corps of Rochester, Mon-
roe County Industrial Development Cor-
poration, Northeast Midwest Institute,
Global Utility Fund, Inc., Prudential
Adjustable Rate Securities Fund, Inc.,
Prudential Equity Fund, Inc., Pruden-
tial Global Genesis Fund, Prudential
Global Natural Resources Fund, Pruden-
tial GNMA Fund, Prudential Government
Plus Fund, Prudential Multi-Sector
Fund, Inc., First Financial Fund,
Inc., The Global Government Plus Fund,
Inc., The Global Yield Fund, Inc. and
The High Yield Plus Fund, Inc.;
Trustee of Prudential California Mu-
nicipal Fund, Prudential Equity Income
Fund, Prudential FlexiFund, Prudential
Municipal Bond Fund and Prudential Mu-
nicipal Series Fund.
*Richard A. Redeker (50), President, Trustee -0-
Chief Executive Officer and Director
(since October 1993), PMF; Executive
Vice President, Director and Member of
the Operating
Committee (since October 1993), Pru-
dential Securities; Director (since
October 1993) of Prudential Securities
Group, Inc. (PSG); formerly Senior Ex-
ecutive Vice President and Director of
Kemper Financial Services, Inc. (Sep-
tember 1978 - September 1993); Direc-
tor of Global Utility Fund, Inc., Pru-
dential Adjustable Rate Securities
Fund, Inc., Prudential Equity Fund,
Inc., Prudential Global Fund, Inc.,
Prudential Global Genesis Fund, Pru-
dential Global Natural Resources Fund,
Pru-
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
BENEFICIAL INTEREST
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS WITH FUND MARCH 31, 1994
- ----------------------------------------- --------- -------------------
<S> <C> <C>
dential GNMA Fund, Prudential Govern-
ment Plus Fund, Prudential Growth
Fund, Inc., Prudential
IncomeVertible (R) Fund, Inc., Pruden-
tial Institutional Liquidity Portfo-
lio, Inc., Prudential Intermediate
Global Income Fund, Inc., Prudential
MoneyMart Assets, Prudential Multi-
Sector Fund, Inc., Prudential Pacific
Growth Fund, Inc., Prudential Short-
Term Global Income Fund, Inc., Pruden-
tial Special Money Market Fund, Pru-
dential Structured Maturity Fund, Pru-
dential Utility Fund, The Global Yield
Fund, Inc., The Global Government Plus
Fund, Inc. and The High Yield Income
Fund, Inc.; Trustee of The BlackRock
Government Income Trust, Command Gov-
ernment Fund, Command Money Fund, Com-
mand Tax-Free Fund, Prudential Cali-
fornia Municipal Fund, Prudential Eq-
uity Income Fund, Prudential
FlexiFund, Prudential Municipal Bond
Fund, Prudential Municipal Series
Fund, Prudential U.S. Government Fund
and The Target Portfolio Trust.
Louis A. Weil, III (52), Publisher and Trustee 461
Chief Executive Officer, Phoenix News-
papers, Inc. (since August 1991); Di-
rector of Central Newspapers, Inc.
(since September 1991); prior thereto,
Publisher of Time Magazine (May 1989 -
March 1991); formerly President, Pub-
lisher and CEO of The Detroit News
(February 1986 -August 1989); formerly
member of the Advisory Board, Chase
Manhattan Bank-Westchester; Director
of Prudential Global Genesis Fund,
Prudential Global Natural Resources
Fund, Prudential Growth Opportunity
Fund, Prudential High Yield Fund, Pru-
dential Multi-Sector Fund, Inc., Pru-
dential National Municipals Fund, Pru-
dential Tax-Free Money Fund; and The
Global Government Plus Fund, Inc.;
Trustee of Prudential Equity Income
Fund, Prudential FlexiFund, Prudential
Government Securities Trust and Pru-
dential Municipal Bond Fund.
</TABLE>
- -----------
* Indicates "interested" Trustee, as defined in the Investment Company Act, by
reason of his affiliation with PMF or Prudential Securities.
7
<PAGE>
The Trustees and officers of the Fund as a group owned beneficially 2,349
shares of the Fund at March 31, 1994, representing less than 1% of the
outstanding shares of the Fund.
The Fund pays annual compensation of $7,500, plus travel and incidental
expenses, to each of the five Trustees not affiliated with PMF or Prudential
Securities. The Trustees have the option to receive the Trustee's fee pursuant
to a deferred fee agreement with the Fund. Under the terms of the agreement,
the Fund accrues daily the amount of such Trustee's fee which accrues interest
at a rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury
Bills at the beginning of each calendar quarter or, pursuant to an exemptive
order of the Securities and Exchange Commission (SEC), at the rate of return of
the Fund. Payment of the interest so accrued is also deferred and accruals
become payable at the option of the Trustee. The Fund's obligation to make
payments of deferred Trustees' fees, together with interest thereon, is a
general obligation of the Fund. During the fiscal year ended October 31, 1993,
the Fund paid Trustees' fees of approximately $45,000 and travel and incidental
expenses of approximately $1,200.
There were four regular meetings and three special meetings of the Fund's
Trustees held during the fiscal year ended October 31, 1993. The Trustees
presently have an Audit Committee, the members of which are Messrs. Beach,
Lennox, McCorkindale, Mooney and Weil, the Fund's non-interested Trustees. The
Audit Committee met twice during the fiscal year ended October 31, 1993. The
Audit Committee makes recommendations to the Trustees with respect to the
engagement of independent accountants and reviews with the independent
accountants the plan and results of the audit engagement and matters having a
material effect upon the Fund's financial operations. The Trustees also have a
Nominating Committee, comprised of the Fund's non-interested Trustees, which
selects and proposes candidates for election as Trustees. The Nominating
Committee met once during the fiscal year ended October 31, 1993. The
Nominating Committee does not consider nominees recommended by shareholders to
fill Trustee vacancies.
During the fiscal year ended October 31, 1993, no Trustee attended fewer than
75% of the aggregate of the total number of meetings of the Trustees and any
committees thereof of which such Trustee was a member.
The executive officers of the Fund, other than as shown above, are: S. Jane
Rose, Secretary, having held office since November 6, 1986; Robert F. Gunia,
Vice President, and Susan C. Cote, Treasurer and Principal Financial and
Accounting Officer, both having held office since October 7,
8
<PAGE>
1987; and Marguerite E.H. Morrison, Assistant Secretary, having held office
since May 15, 1991. Mr. Gunia is 47 years old and is currently Chief
Administrative Officer (since July 1990), Director (since January 1989),
Executive Vice President, Treasurer and Chief Financial Officer (since June
1987) of PMF and Senior Vice President (since March 1987) of Prudential
Securities. He is also Vice President and Director (since May 1989) of The Asia
Pacific Fund, Inc. Ms. Cote is 39 years old and is a Senior Vice President
(since January 1989) of PMF and a Senior Vice President (since January 1992) of
Prudential Securities. Prior thereto, she was a Vice President (January 1986-
December 1991) of Prudential Securities. Ms. Rose is 48 years old and is a
Senior Vice President (since January 1991) and Senior Counsel (since June 1987)
of PMF and a Senior Vice President and Senior Counsel of Prudential Securities
(since July 1992). Prior thereto, she was a First Vice President (June 1987 -
December 1990) of PMF and a Vice President and Associate General Counsel of
Prudential Securities. Ms. Morrison is 38 years old and is a Vice President and
Associate General Counsel (since June 1991) of PMF and a Vice President and
Associate General Counsel of Prudential Securities. The executive officers of
the Fund are elected annually by the Trustees.
REQUIRED VOTE
Trustees must be elected by a vote of a plurality of the shares present at
the Meeting in person or by proxy and entitled to vote thereupon, provided that
a quorum is present.
9
<PAGE>
MANAGEMENT OF THE FUND
THE MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, serves as the Fund's Manager under a
management agreement dated as of March 1, 1988 (the Management Agreement).
The Management Agreement was last approved by the Trustees of the Fund,
including a majority of the Trustees who are not parties to such contract or
interested persons of such parties (as defined in the Investment Company Act)
on May 4, 1993 and was approved by shareholders on January 14, 1988.
TERMS OF THE MANAGEMENT AGREEMENT
Pursuant to the Management Agreement, PMF, subject to the supervision of the
Fund's Trustees and in conformity with the stated policies of the Fund, is
responsible for managing or providing for the management of the investment of
the Fund's assets. In this regard, PMF provides supervision of the Fund's
investments, furnishes a continuous investment program for the Fund's
portfolio and places purchase and sale orders for portfolio securities of the
Fund and other investments. The Prudential Investment Company (PIC), a wholly-
owned subsidiary of The Prudential Insurance Company of America (Prudential),
provides such services pursuant to a subadvisory agreement (the Subadvisory
Agreement) with PMF. PMF also administers the Fund's corporate affairs,
subject to the supervision of the Fund's Trustees, and, in connection
therewith, furnishes the Fund with office facilities, together with those
ordinary clerical and bookkeeping services which are not being furnished by
the Fund's Transfer and Dividend Disbursement Agent and Custodian.
PMF has authorized any of its directors, officers and employees who have
been elected as Trustees or officers of the Fund to serve in the capacities in
which they have been elected. All services furnished by PMF under the
Management Agreement may be furnished by any such directors, officers or
employees of PMF. In connection with its administration of the corporate
affairs of the Fund, PMF bears the following expenses:
(a) the salaries and expenses of all personnel of the Fund and PMF,
except the fees and expenses of Trustees not affiliated with PMF or the
Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with
administering the ordinary course of the Fund's business, other than those
assumed by the Fund, as described below; and
10
<PAGE>
(c) the costs and expenses payable to PIC pursuant to the Subadvisory
Agreement.
The Fund pays PMF for the services performed and the facilities furnished by
it a fee at an annual rate of .60 of 1% of the Fund's average net assets up to
$500 million and .50 of 1% of the Fund's average net assets in excess of $500
million. The fee is computed daily and paid monthly. For the fiscal year ended
October 31, 1993, PMF received a management fee of $2,254,755.
The Management Agreement provides that, if the expenses of the Fund
(including the fees of PMF, but excluding interest, taxes, brokerage
commissions, distribution fees and litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdiction in which shares of the Fund are then qualified for offer and
sale, the compensation due PMF will be reduced by the amount of such excess, or
if such reduction exceeds the compensation payable to PMF, PMF will pay the
Fund the amount of such reduction which exceeds the amount of such
compensation. Any such reductions or payments are subject to readjustment
during the year. No such reductions or payments were required during the fiscal
year ended October 31, 1993. The Fund believes the most restrictive of such
annual limitations is 2 1/2% of a 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.
Except as indicated above, the Fund is responsible under the Management
Agreement for the payment of its expenses, including (a) the fees payable to
PMF, (b) the fees and expenses of Trustees who are not affiliated with PMF or
the investment adviser, (c) the fees and certain expenses of the Fund's
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records of the Fund and of pricing Fund shares, (d) the charges and
expenses of the Fund's legal counsel and independent accountants, (e) brokerage
commissions and any issue or transfer taxes chargeable to the Fund in
connection with its securities transactions, (f) all taxes and corporate fees
payable by the Fund to governmental agencies, (g) the fees of any trade
association of which the Fund may be a member, (h) the cost of any 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 SEC and 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 Trustees' meetings and of preparing, printing and
mailing reports, proxy statements and prospectuses
11
<PAGE>
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 to the Fund for
any error of judgment by PMF or for any loss suffered by the Fund in connection
with the matters to which the Management Agreement relates, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or willful misfeasance, bad faith, gross negligence
or reckless disregard of duty. The Management Agreement also provides that it
will terminate automatically if assigned and that it may be terminated without
penalty by the Trustees of the Fund, by vote of a majority of the Fund's
outstanding voting securities (as defined in the Investment Company Act) or by
the Manager, upon not more than 60 days' nor less than 30 days' written notice.
INFORMATION ABOUT PMF
PMF is a subsidiary of Prudential Securities and an indirect, wholly-owned
subsidiary of Prudential. Prudential's address is Prudential Plaza, Newark, New
Jersey 07102. PMF was organized in May 1987 under the laws of the State of
Delaware. PMF acts as manager for the following investment companies:
Open-End Management Investment Companies: Command Government Fund,
Command Money Fund, Command Tax-Free Fund, Prudential Adjustable Rate
Securities Fund, Inc., Prudential California Municipal Fund,
Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential FlexiFund, Prudential Global Fund, Inc., Prudential-Bache
Global Genesis Fund, Inc. (d/b/a Prudential Global Genesis Fund),
Prudential-Bache Global Natural Resources Fund, Inc. (d/b/a
Prudential Global Natural Resources Fund), Prudential-Bache GNMA
Fund, Inc. (d/b/a Prudential GNMA Fund), Prudential-Bache Government
Plus Fund, Inc. (d/b/a Prudential Government Plus Fund), Prudential
Government Securities Trust, Prudential Growth Fund, Inc.,
Prudential-Bache Growth Opportunity Fund, Inc. (d/b/a Prudential
Growth Opportunity Fund), Prudential-Bache High Yield Fund, Inc.
(d/b/a Prudential High Yield Fund), Prudential IncomeVertible (R)
Fund, Inc., Prudential-Bache MoneyMart Assets Fund, Inc. (d/b/a
Prudential MoneyMart Assets), Prudential Multi-Sector Fund, Inc.,
Prudential Municipal Bond Fund, Prudential Municipal Series Fund,
Prudential-Bache National Municipals Fund, Inc., (d/b/a Prudential
National Municipals Fund), Prudential Pacific Growth Fund, Inc.,
Prudential Short-Term Global Income Fund, Prudential-Bache Special
Money Market Fund, Inc. (d/b/a Prudential Special Money Market Fund),
12
<PAGE>
Prudential-Bache Structured Maturity Fund, Inc. (d/b/a Prudential
Structured Maturity Fund), Prudential-Bache Tax-Free Money Fund, Inc.
(d/b/a Prudential Tax-Free Money Fund), Prudential U.S. Government
Fund, Prudential-Bache Utility Fund, Inc. (d/b/a Prudential Utility
Fund), Prudential Institutional Liquidity Portfolio, Inc., Prudential
Intermediate Global Income Fund, Inc., Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc. and The BlackRock Government Income
Trust.
Closed-End Management Investment Companies: The Global Government
Plus Fund, Inc., The Global Yield Fund, Inc. and The High Yield
Income Fund, Inc.
The consolidated statement of financial condition of PMF and its subsidiaries
as of December 31, 1993 is set forth as Exhibit A to this Proxy Statement.
Certain information regarding the directors and principal executive officers
of PMF is set forth below. Except as otherwise indicated, the address of each
person is One Seaport Plaza, New York, New York 10292.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<C> <S> <C>
Brendan D. Boyle Executive Vice President and Executive Vice
Director of Marketing President and
Director of
Marketing, PMF
John D. Brookmeyer, Jr. Director Senior Vice
Two Gateway Center President,
Newark, NJ 07102 Prudential; Senior
Vice
President, PIC
Susan C. Cote Senior Vice President Senior Vice
President, PMF;
Senior Vice
President,
Prudential
Securities
Fred A. Fiandaca Executive Vice President, Executive Vice
Raritan Plaza One Chief Operating Officer and President, Chief
Edison, NJ 08847 Director Operating Officer
and Director, PMF;
Chairman, Chief
Operating Officer
and Director,
Prudential Mutual
Fund Services, Inc.
Stephen P. Fisher Senior Vice President Senior Vice
President, PMF;
Senior Vice
President,
Prudential
Securities
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<C> <S> <C>
Frank W. Giordano Executive Vice President, Executive Vice
General Counsel and President, General
Secretary Counsel and
Secretary, PMF;
Senior Vice
President,
Prudential
Securities
Robert F. Gunia Executive Vice President, Executive Vice
Chief Financial and President, Chief
Administrative Officer, Financial and
Treasurer and Director Administrative
Officer, Treasurer
and Director, PMF;
Senior Vice
President,
Prudential
Securities
Eugene B. Heimberg Director Senior Vice
Prudential Plaza President,
Newark, NJ 07102 Prudential;
President, Director
and Chief
Investment Officer,
PIC
Lawrence C. McQuade Vice Chairman Vice Chairman, PMF
Leland B. Paton Director Executive Vice
President and
Director,
Prudential
Securities;
Director, PSG
Richard A. Redeker President, Chief Executive President, Chief
Officer and Director Executive Officer
and Director, PMF;
Executive Vice
President, Director
and Member of the
Operating
Committee,
Prudential
Securities;
Director, PSG
S. Jane Rose Senior Vice President, Senior Senior Vice
Counsel and Assistant President, Senior
Secretary Counsel and
Assistant
Secretary, PMF;
Senior Vice
President and
Senior Counsel,
Prudential
Securities
Director Senior Vice
Donald G. Southwell President,
213 Washington Street Prudential;
Newark, NJ 07102 Director, PSG
</TABLE>
THE SUBADVISER
Investment advisory services are provided to the Fund by PMF through its
affiliate, The Prudential Investment Corporation (PIC or the Subadviser),
Prudential Plaza, Newark, New Jersey 07102, under a Subadvisory Agreement dated
as of March 1, 1988. The Subadvisory Agreement was approved by shareholders on
January 14, 1988 and was last approved by the Trustees of the Fund, including a
majority of the Trustees who are not parties
14
<PAGE>
to such contract or interested persons of such parties (as defined in the
Investment Company Act), on May 4, 1993.
TERMS OF THE SUBADVISORY AGREEMENT
Pursuant to the Subadvisory Agreement, PIC, subject to the supervision of PMF
and the Trustees and in conformity with the stated policies of the Fund,
manages the investment operations of the Fund and the composition of the Fund's
portfolio, including the purchase, retention and disposition of securities and
other investments. PIC is reimbursed by PMF for reasonable costs and expenses
incurred by it in furnishing such services. The fees paid by the Fund to PMF
under the Management Agreement with PMF are not affected by this arrangement.
PIC keeps certain books and records required to be maintained pursuant to the
Investment Company Act. The investment advisory services of PIC to the Fund are
not exclusive under the terms of the Subadvisory Agreement and PIC is free to,
and does, render investment advisory services to others.
PIC has authorized any of its directors, officers and employees who may be
elected as Trustees or officers of the Fund to serve in the capacities in which
they have been elected. Services furnished by PIC under the Subadvisory
Agreement may be furnished by any such directors, officers or employees of PIC.
The Subadvisory Agreement provides that PIC shall not be liable for any error
of judgment or for any loss suffered by the Fund or PMF in connection with the
matters to which the Subadvisory Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on PIC's part in the
performance of its duties or from its reckless disregard of duty. The
Subadvisory Agreement provides that it shall terminate automatically if
assigned or upon termination of the Management Agreement and that it may be
terminated without penalty by the Fund, PMF or PIC upon not more than 60 days'
nor less than 30 days' written notice.
INFORMATION ABOUT PIC
PIC was organized in June 1984 under the laws of the State of New Jersey. The
business and other connections of PIC's directors and executive officers are as
set forth below. Except as otherwise indicated, the address of each person is
Prudential Plaza, Newark, New Jersey 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<S> <C> <C>
Martin A. Berkowitz Senior Vice President Senior Vice President
and Chief Financial and Chief Financial
and Compliance and Compliance
Officer Officer, PIC; Vice
President,
Prudential
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<S> <C> <C>
William M. Bethke Senior Vice President Senior Vice
Two Gateway Cen- President,
ter Prudential; Senior
Newark, NJ 07102 Vice President, PIC
John D. Brookmeyer, Senior Vice President Senior Vice
Jr. President,
Two Gateway Cen- Prudential; Senior
ter Vice President, PIC
Newark, NJ 07102
Eugene B. Heimberg President, Director Senior Vice
and Chief President,
Investment Officer Prudential;
President, Director
and Chief
Investment Officer,
PIC
Garnett L. Keith, Director Vice Chairman and
Jr. Director,
Prudential;
Director, PIC
Harry E. Knapp, Jr. Vice President Vice President,
Four Gateway Cen- Prudential; Vice
ter President, PIC
Newark, NJ 07102
William P. Link Senior Vice President Executive Vice
Four Gateway Center President,
Newark, NJ 07102 Prudential; Senior
Vice President, PIC
Robert E. Riley Executive Vice Executive Vice
800 Boylston Ave- President President,
nue Prudential;
Boston, MA 02199 Executive Vice
President, PIC;
Director, PSG
James W. Stevens Executive Vice Executive Vice
Four Gateway Center President President,
Newark, NJ 07102 Prudential;
Executive Vice
President, PIC;
Director, PSG
Robert C. Winters Director Chairman of the Board
and Chief Executive
Officer,
Prudential;
Director, PIC;
Chairman of the
Board, PSG
Claude J. Executive Vice Vice President,
Zinngrabe, Jr. President Prudential;
Executive Vice
President, PIC
</TABLE>
THE DISTRIBUTORS
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the
Fund. Prudential Securities, One Seaport Plaza, New York, New York 10292, acts
as the distributor of the Class B shares of the Fund. PMFD and Prudential
Securities are indirect, wholly-owned subsidiaries of Prudential.
Under separate Distribution and Service Plans (the Class A Plan and the Class
B Plan, collectively, the Plans) adopted by the Fund under Rule 12b-1 under the
Investment Company Act and separate distribution agreements (the Distribution
Agreements), PMFD and Prudential Securities (collectively, the Distributor)
incur the expenses of distributing the Fund's Class A and Class B shares,
respectively.
16
<PAGE>
The Plans were last approved by the Trustees, including a majority of the
Trustees who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Class A or Class B Plan or
in any agreement related to either Plan (the Rule 12b-1 Trustees), on May 4,
1993. The Class A Plan was approved by the Class A shareholders on December 19,
1990. The Class B Plan was approved by the Class B shareholders on January 11,
1990.
The Plans are proposed to be amended as set forth in Proposals No. 3 and 4
below.
Class A Plan. Under the Class A Plan, the Fund reimburses PMFD for its
distribution-related expenses with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net assets of the Class A shares. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used for personal service and/or the maintenance
of shareholder accounts (service fee) and (ii) total distribution fees
(including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. PMFD has advised the Fund that
distribution-related expenses of the Fund will not exceed .25 of 1% of the
average daily net assets of the Class A shares for the fiscal year ending
October 31, 1994.
For the fiscal year ended October 31, 1993, PMFD received payments of
$141,790 under the Class A Plan representing .20 of 1% of the average daily net
assets of the Class A shares as reimbursement of expenses related to the
distribution of Class A shares. This amount was primarily expended on account
servicing fees to Prudential Securities and Pruco Securities Corporation
(Prusec), an affiliated broker-dealer, for payment to financial advisers and
other salespersons who sell Class A shares. For the fiscal year ended October
31, 1993, PMFD also received $1,497,600 in initial sales charges.
Class B Plan. Under the Class B Plan, the Fund reimburses Prudential
Securities for its distribution-related expenses with respect to Class B shares
at an annual rate of up to .75 of 1% of the average daily net assets of the
Class B shares. The Class B Plan also provides for the payment of a service fee
to Prudential Securities at a rate not to exceed .25 of 1% of the average daily
net assets of Class B shares. The aggregate distribution fee for Class B shares
(asset-based sales charge plus service fee) will not exceed 1% of the average
daily net assets under the Class B Plan.
For the fiscal year ended October 31, 1993, Prudential Securities received
$3,048,976 from the Fund under the Class B Plan and spent approximately
$11,240,500 in distributing the Fund's Class B shares. It is estimated that of
17
<PAGE>
the latter amount approximately 0.8% ($87,700) was spent on printing
and mailing of prospectuses to other than current shareholders; 12.4%
($1,390,400) on compensation to Prusec, for commissions to its financial
advisers and other expenses, including an allocation of overhead and other
branch office distribution-related expenses, incurred by it for distribution of
Fund shares; 1.5% ($175,600) on interest and/or carrying charges; and 85.3%
($9,586,800) on the aggregate of (i) payments of commissions to financial
advisers, 36.6% ($4,109,300) and (ii) an allocation of overhead and other
branch office distribution-related expenses for payments of related expenses,
48.7% ($5,477,500). The term "overhead and other branch office distribution-
related expenses" represents (a) the expenses of operating Prudential
Securities branch offices in connection with the sale of Fund shares, including
lease costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) expenses of mutual fund
sales coordinators to promote the sale of Fund shares and (d) other incidental
expenses relating to branch promotion of Fund sales.
Prudential Securities also receives the proceeds of contingent deferred sales
charges paid by holders of Class B shares upon certain redemptions of Class B
shares. Under the current Class B Plan, the amount of distribution expenses
reimbursable by Class B shares of the Fund is reduced by the amount of such
contingent deferred sales charges. For the fiscal year ended October 31, 1993,
Prudential Securities received approximately $538,500 in contingent deferred
sales charges. As of December 31, 1993, the aggregate amount of unreimbursed
distribution expenses for the Fund's Class B shares was approximately
$12,437,400.
The Class A and Class B Plans continue in effect from year to year, provided
that each such continuance is approved at least annually by a vote of the
Trustees, including a majority vote of the Rule 12b-1 Trustees, cast in person
at a meeting called for the purpose of voting on such continuance. The Class A
and Class B Plans may each be terminated at any time, without penalty, by the
vote of a majority of the Rule 12b-1 Trustees or by the vote of the holders of
a majority of the outstanding shares of the applicable class on not more than
30 days' written notice to any other party to the Plans. Neither Plan may be
amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of the applicable class,
and all material amendments are required to be approved by the Trustees in the
manner described above. Each Plan will automatically terminate in the event of
its assignment. The Fund will not be contractually obligated to pay expenses
incurred under either the Class A Plan or the Class B Plan if it is terminated
or not continued. In the event of termination or
18
<PAGE>
noncontinuation of the Class B Plan, the Trustees may consider the
appropriateness of having the Fund reimburse Prudential Securities for the
outstanding carry forward amounts plus interest thereon.
Pursuant to each Plan, the Trustees review at least quarterly a written
report of the distribution expenses incurred on behalf of the Class A and Class
B shares of the Fund by PMFD and Prudential Securities, respectively. The
report includes an itemization of the distribution expenses and the purposes of
such expenditures. In addition, as long as the Plans remain in effect, the
selection and nomination of Rule 12b-1 Trustees shall be committed to the Rule
12b-1 Trustees.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law
against certain liabilities under the Securities Act. Each Distribution
Agreement was last approved by the Trustees, including a majority of the Rule
12b-1 Trustees, on May 4, 1993.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Fund, the selection of brokers,
dealers and futures commission merchants to effect the transactions and the
negotiation of brokerage commissions, if any. For purposes of this section, the
term "Manager" includes the Subadviser. Broker-dealers may receive brokerage
commissions on Fund portfolio transactions, including options and the purchase
and sale of underlying securities upon the exercise of options. 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.
Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, 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 U.S.
Government 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 (or any affiliate) in any transaction in which Prudential
Securities (or any affiliate) acts as principal. Thus, it will not deal with
Prudential Securities (or any affiliate) acting as market maker, and it will
not execute a negotiated trade with Prudential
19
<PAGE>
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. 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's, and the services furnished by
such brokers, dealers or futures commission merchants may be used by the
Manager in providing investment management for the Fund. Commission rates are
established pursuant to negotiations with the broker, dealer or futures
commission merchant based on the quality and quantity of execution services
provided by the broker, dealer or futures commission merchant in light of
generally prevailing rates. The Manager's policy is to pay higher commissions
to brokers, 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 other than
Prudential Securities in order to secure research and investment services
described above, subject to review by the Fund's Trustees from time to time as
to the extent and continuation of this practice. The allocation of orders among
brokers and the commission rates paid are reviewed periodically by the Fund's
Trustees. Portfolio securities may not be purchased from any underwriting
syndicate of which Prudential Securities (or any affiliate), during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the SEC. This
limitation, in the opinion of the Fund, will not significantly affect the
Fund's ability to pursue its 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.
20
<PAGE>
Subject to the above considerations, Prudential Securities may act as a
securities broker or futures commission merchant for the Fund. In order for
Prudential Securities (or any affiliate) to effect any portfolio transactions
for the Fund, the commissions, fees or other remuneration received by
Prudential Securities (or any affiliate) must be reasonable and fair compared
to the commissions, fees or other remuneration paid to other brokers or futures
commission merchants in connection with comparable transactions involving
similar securities or futures being purchased or sold on an exchange during a
comparable period of time. This standard would allow Prudential Securities (or
any affiliate) to receive no more than the remuneration which would be expected
to be received by an unaffiliated broker or futures commission merchant in a
commensurate arm's-length transaction. Furthermore, the Trustees of the Fund,
including a majority of the Rule 12b-1 Trustees, have adopted procedures which
are reasonably designed to provide that any commissions, fees or other
remuneration paid to Prudential Securities (or any affiliate) are consistent
with the foregoing standard. In accordance with Section 11(a) of the Securities
Exchange Act of 1934, Prudential Securities may not retain compensation for
effecting transactions on a national securities exchange for the Fund unless
the Fund has expressly authorized the retention of such compensation.
Prudential Securities must furnish to the Fund at least annually a statement
setting forth the total amount of all compensation retained by Prudential
Securities from transactions effected for the Fund during the applicable
period. Brokerage and futures transactions with Prudential Securities (or any
affiliate) are also subject to such fiduciary standards as may be imposed upon
Prudential Securities (or such affiliate) by applicable law.
The table below sets forth information concerning the payment of commissions
by the Fund, including the commissions paid to Prudential Securities, for the
fiscal year ended October 31, 1993.
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED OCTOBER 31, 1993
----------------------
<S> <C>
Total brokerage commissions paid by the Fund............ $1,046,105
Total brokerage commissions paid to Prudential
Securities or any affiliate........................... $ 193,083
Percentage of total brokerage commissions paid to Pru-
dential Securities or any affiliate .................. 18.5%
</TABLE>
The Fund effected approximately 21% of the total dollar amount of its
transactions involving the payment of commissions through Prudential Securities
during the fiscal year ended October 31, 1993. Of the total brokerage
commissions paid during the fiscal year ended October 31, 1993, approximately
$841,486 (or 80.4%) was paid to firms which provide research, statistical or
other services to PIC.
21
<PAGE>
APPROVAL OF A PROPOSAL TO AMEND THE FUND'S DECLARATION OF TRUST TO PERMIT THE
IMPLEMENTATION OF A CONVERSION FEATURE
(FOR CONSIDERATION BY CLASS A AND
CLASS B SHAREHOLDERS, VOTING JOINTLY)
(PROPOSAL NO. 2)
The Trustees are recommending that shareholders approve an amendment to the
Fund's Declaration of Trust to permit the implementation of a conversion
feature for Class B shares. The conversion feature is authorized pursuant to an
exemptive order of the SEC (the SEC Order) and would provide for the automatic
conversion of Class B shares to Class A shares at relative net asset value
approximately seven years after purchase. Class A shares are subject to a lower
annual distribution and service fee than Class B shares and conversions would
occur without the imposition of any additional sales charge. A description of
the conversion feature is set forth in greater detail below. Amendment of the
Declaration of Trust requires approval by a majority of the Fund's outstanding
shares.
THE CLASSES OF SHARES
The Fund currently offers two classes of shares, designated as Class A and
Class B shares pursuant to the Alternative Purchase Plan, in reliance upon the
SEC Order. Class A shares are currently offered with an initial sales charge of
up to 5.25% of the offering price and are subject to an annual distribution and
service fee of up to .30 of 1% of the average daily net assets of the Class A
shares pursuant to a Rule 12b-1 plan. This fee is currently charged at a rate
of .25 of 1% of the average daily net assets of the Class A shares and PMFD has
agreed to so limit its fee under the Class A Plan for the fiscal year ending
October 31, 1994. Class B shares are currently offered without an initial sales
charge but are subject to a contingent deferred sales charge or CDSC (declining
from 5% to zero of the lesser of the amount invested or the redemption
proceeds) on certain redemptions generally made within six years of purchase
and to an annual distribution and service fee pursuant to a Rule 12b-1 plan of
up to 1% of the average daily net assets of the Class B shares.
In accordance with the SEC Order, the Trustees may, among other things,
authorize the creation of additional classes of shares from time to time. The
Trustees have approved the offering of a new class of shares, to be designated
Class C shares, which will be offered simultaneously with the offering of Class
B shares with the proposed conversion feature. It is anticipated that Class C
shares will be offered without an initial sales charge
22
<PAGE>
but will be subject to an annual distribution and service fee not to exceed 1%
of the average daily net assets of the Class C shares and, subject to approval
by the Trustees, a 1% CDSC on certain redemptions made within one year of
purchase. If the proposed conversion feature for Class B shares is not
approved, Class C shares will not be offered.
THE PROPOSED CONVERSION FEATURE
On March, 17, 1993, the Fund's Trustees, including a majority of the Rule
12b-1 Trustees, approved an amendment to the Fund's Declaration of Trust to
permit the implementation of a conversion feature for the Fund's Class B
shares. A copy of the proposed amendment to the Fund's Declaration of Trust is
attached hereto as Exhibit B.
If this proposal is approved, it is currently contemplated that conversions
of Class B shares to Class A shares will occur on a quarterly basis
approximately seven years from purchase. The first conversion is currently
anticipated to occur in or about January 1995. Conversions will be effected
automatically at relative net asset value without the imposition of any
additional sales charge. Class B shareholders will benefit from the conversion
feature because they will thereafter be subject to the lower annual
distribution and service fee applicable to Class A shares.
Since the Fund tracks amounts paid rather than the number of shares bought on
each purchase of Class B shares, it is currently anticipated that the number of
Class B shares eligible to convert to Class A shares (excluding shares acquired
through the automatic reinvestments 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 a shareholder's
account (ii) multiplied by the total number of Class B shares then held in such
shareholder's account. Each time any Eligible Shares in a shareholder's account
convert to Class A shares, all shares or amounts representing Class B shares
then in such account that were acquired through the automatic reinvestment of
dividends and other distributions will convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in a shareholder's account on any conversion date are the result of
multiple purchases at different net asset values per share, the number of
Eligible Shares calculated as described above will generally be either more or
less than the number of shares actually purchased approximately seven
23
<PAGE>
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 $1,000), 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.
If the net asset value per share of Class A is higher than that of Class B at
the time of conversion (which may be the case because of the higher
distribution and service fee applicable to Class B shares), shareholders will
receive fewer Class A shares than Class B, shares converted, although the
aggregate dollar value will be the same.
For purposes of calculating the applicable holding period for conversions,
all payments for purchases of Class B shares during a month will be deemed to
have been made on the last day of the month, or for Class B shares acquired
through exchange, or a series of exchanges, on the last day of the month in
which the original payment for purchases of such Class B shares was made. For
Class B shares previously exchanged for shares of a money market fund, the time
period during which such shares were held in the money market fund will be
excluded. For example, Class B shares held in a money market fund for a period
of one year will not convert to Class A 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. As of the date of the first conversion
(which, as noted above, is currently anticipated to occur in or about January
1995) all amounts representing Class B shares then outstanding beyond the
expiration of the applicable conversion period will automatically convert to
Class A shares, together with shares or amounts representing Class B shares
acquired through the automatic reinvestment of dividends and distributions then
held in the shareholder's account.
The Fund has obtained an opinion of counsel to the effect that the conversion
of Class B shares into Class A shares does not constitute a taxable event for
U.S. income tax purposes. However, such opinion is not binding on the Internal
Revenue Service.
If approved by shareholders, 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
24
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A and Class B shares will not constitute "preferential dividends" under the
Internal Revenue Code of 1986, as amended, and (ii) that the conversion of
shares does not constitute a taxable event. 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.
REQUIRED VOTE
The proposed amendment to the Fund's Declaration of Trust to implement the
conversion feature requires the affirmative vote of a majority of the Fund's
outstanding shares. In the event shareholders of the Fund do not approve the
proposed amendment, the conversion feature will not be implemented for the Fund
and Class B shares of the Fund will continue to be subject, possibly
indefinitely, to their higher annual distribution and service fee.
THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS PROPOSAL NO. 2.
APPROVAL OF
AMENDED AND RESTATED CLASS A DISTRIBUTION
AND SERVICE PLAN
(FOR CONSIDERATION BY CLASS A AND
CLASS B SHAREHOLDERS, VOTING SEPARATELY)
(PROPOSAL NO. 3)
On May 4, 1993, the Fund's Trustees approved an amended and restated Class A
Distribution and Service Plan pursuant to Rule 12b-1 under the Investment
Company Act and an amended and restated Distribution Agreement with PMFD for
Class A shares of the Fund (the Proposed Class A Plan and the Proposed Class A
Distribution Agreement, respectively) and recommend submission of the Proposed
Class A Plan to the Fund's Class A shareholders for approval or disapproval at
this Special Meeting of Shareholders. As contemplated by the SEC Order
(previously defined under Proposal No. 2), the Proposed Class A Plan is also
being submitted for approval by Class B shareholders because, subject to
approval of Proposal No. 2, Class B shares will automatically convert to Class
A shares approximately seven years after purchase. The Proposed Class A
Distribution Agreement does not require, and is not being submitted for,
shareholder approval.
The purpose of the Proposed Class A Plan is to compensate PMFD, the
distributor of the Fund's Class A shares, for providing distribution assistance
25
<PAGE>
to broker-dealers, including Prudential Securities and Prusec, affiliated
broker-dealers, and other qualified broker-dealers, if any, whose customers
invest in Class A shares of the Fund and to defray the costs and expenses,
including the payment of account servicing fees, of the services provided and
activities undertaken to distribute Class A shares (Distribution Activities).
The Trustees previously adopted a plan of distribution for the Fund's Class A
shares pursuant to Rule 12b-1 under the Investment Company Act which was
approved by shareholders on October 11, 1989 and last approved by the Trustees
on May 4, 1993 (the Existing Class A Plan). Shareholders of the Fund's Class A
and Class B shares are being asked to approve amendments to the Existing Class
A Plan that change it from a reimbursement type plan to a compensation type
plan. The amendments do not change the maximum annual fee that may be paid to
PMFD under the Existing Class A Plan, although the possibility exists that
expenses incurred by PMFD and for which it is entitled to be reimbursed under
the Existing Class A Plan may be less than the fee PMFD will receive under the
Proposed Class A Plan. The amendments are being proposed to facilitate
administration and accounting. The Trustees believe that the Proposed Class A
Plan is in the best interest of the Fund and is reasonably likely to benefit
the Fund's Class A shareholders. A copy of the Proposed Class A Plan is
attached hereto as Exhibit C.
THE EXISTING CLASS A PLAN
Under the Existing Class A Plan, the Fund reimburses PMFD for expenses
incurred for Distribution Activities at an annual rate of up to .30 of 1% of
the average daily net assets of the Class A shares (up to .25 of 1% of which
may constitute a service fee for the servicing and maintenance of shareholder
accounts). Article III, Section 26 of the NASD Rules of Fair Practice (the NASD
Rules) places an annual limit of .25 of 1% on fees that may be imposed for the
provision of personal service and/or the maintenance of shareholder accounts
(service fees) and an annual limit of .75 of 1% on asset-based sales charges
(as defined in the NASD Rules). Subject to these limits, the Fund may impose
any combination of service fees and asset-based sales charges under both the
Existing Class A Plan and the Proposed Class A Plan, provided that the total
fees do not exceed .30 of 1% per annum of the average daily net assets of the
Class A shares.
The Existing Class A Plan may not be amended to increase materially the
amount to be spent for the services described therein without approval by a
majority of the holders of the Class A shares of the Fund. In addition, all
material amendments thereof must be approved by vote of a majority of the
26
<PAGE>
Trustees, including a majority of the Rule 12b-1 Trustees, cast in person at a
meeting called for the purpose of voting on the Plan. So long as the Existing
Class A Plan is in effect, the selection and nomination of Rule 12b-1 Trustees
will be committed to the discretion of the Rule 12b-1 Trustees.
The Existing Class A Plan may be terminated at any time without payment of
any penalty by the vote of a majority of the Rule 12b-1 Trustees or by the vote
of a majority of the outstanding Class A shares of the Fund (as defined in the
Investment Company Act) on written notice to any other party to such plan and
will automatically terminate in the event of its assignment (as defined in the
Investment Company Act). For a more detailed description of the Existing Class
A Plan, see "Management of the Fund--The Distributors--Class A Plan."
THE PROPOSED CLASS A PLAN
The Proposed Class A Plan amends the Existing Class A Plan in one material
respect. Under the Existing Class A Plan, the Fund reimburses PMFD for expenses
actually incurred for Distribution Activities up to a maximum of .30 of 1% per
annum of the average daily net assets of the Class A shares. The Proposed Class
A Plan authorizes the Fund to pay PMFD the same maximum annual fee as
compensation for its Distribution Activities regardless of the expenses
incurred by PMFD for Distribution Activities. The Distributor may, however, as
it currently does, voluntarily agree to limit its fee to an amount less than
the maximum annual fee. In contrast to the Existing Class A Plan, the amounts
payable by the Fund under the Proposed Class A Plan would not be directly
related to the expenses actually incurred by PMFD for its Distribution
Activities. Consequently, if PMFD's expenses for Distribution Activities are
less than the distribution and service fees it receives under the Proposed
Class A Plan, it will retain its full fees and realize a profit.
Since inception of the Existing Class A Plan, the reimbursable expenses
incurred thereunder by PMFD have generally equalled or exceeded the amount
reimbursed by the Fund. For each of the fiscal years ended October 31, 1991,
1992 and 1993, PMFD received payments of $4,167, $43,861 and $141,790,
respectively under the Existing Class A Plan representing .20 of 1% of the
average daily net assets of the Class A shares as reimbursement of expenses
incurred for Distribution Activities. Although PMFD agreed to limit its fees
under the Existing Class A Plan to .20 of 1% for the fiscal years ended October
31, 1991 and 1992 and to .25 of 1% for the fiscal year ended October 31, 1993,
it in fact limited its fee to .20 of 1% for all three fiscal years
27
<PAGE>
even though its direct and indirect reimbursable distribution expenses exceeded
such amount. PMFD believes that it would have similarly limited its fee had the
Proposed Class A Plan been in effect during the past three fiscal years,
although it could have assessed the maximum annual fee of .30 of 1%. Regardless
of which Plan will be in effect, the Distributor has voluntarily agreed to
limit its fees for Distribution Activities to no more than .25 of 1% of the
average daily net assets of the Class A shares for the fiscal year ending
October 31, 1994. Other expenses incurred by PMFD for Distribution Activities
have been and will continue to be paid from the proceeds of initial sales
charges.
Among the major perceived benefits of a compensation type plan, such as the
Proposed Class A Plan, over a reimbursement type plan, such as the Existing
Class A Plan, is the facilitation of administration and accounting. Under
reimbursement plans, all expenses must be specifically accounted for by the
Distributor and attributed to the specific class of shares of a fund in order
to qualify for reimbursement. Although the Proposed Class A Plan will continue
to require quarterly reporting to the Trustees of the amounts accrued and paid
under the Plan and of the expenses actually borne by the Distributor, there
will be no need to match specific expenses to reimbursements as under the
Existing Class A Plan. Thus, the accounting for the Proposed Class A Plan would
be simplified and the timing of when expenditures are to be made by the
Distributor would not be an issue. These considerations, combined with the
reasonable likelihood, although there is no assurance, that the per annum
payment rate under the Proposed Class A Plan will not exceed the expenses
incurred by PMFD for Distribution Activities, suggest that the costs and
efforts associated with a reimbursement plan are unwarranted.
In considering whether to approve the Proposed Class A Plan, the Trustees
reviewed, among other things, the nature and scope of the services to be
provided by PMFD, the purchase options available to investors under the
Alternative Purchase Plan, the amount of expenditures under the Existing Class
A Plan, the relationship of such expenditures to the overall cost structure of
the Fund, and comparative data with respect to distribution arrangements
adopted by other investment companies. Based upon such review, the Trustees,
including a majority of the Rule 12b-1 Trustees, determined that there is a
reasonable likelihood that the Proposed Class A Plan will benefit the Fund and
its Class A shareholders.
If approved by shareholders, the Proposed Class A Plan will continue in
effect from year to year, provided such continuance is approved at least
annually by vote of a majority of the Trustees, including a majority of the
Rule 12b-1 Trustees.
28
<PAGE>
REQUIRED VOTE
If Proposal No. 2 is approved by shareholders, the Proposed Class A Plan will
require the approval of a majority of the Fund's outstanding Class A shares and
Class B shares (as defined in the Investment Company Act), voting separately.
If Proposal No. 2 is not approved by shareholders, the Proposed Class A Plan
will only require the approval of a majority of the Fund's outstanding Class A
shares. Under the Investment Company Act, a majority of a class' outstanding
shares is defined as the lesser of (i) 67% of a class' outstanding shares
represented at a meeting at which more than 50% of the outstanding shares of
the class are present in person or represented by proxy, or (ii) more than 50%
of a class' outstanding shares. If the Proposed Class A Plan is not approved as
described above, the Existing Class A Plan will continue in its present form.
THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS PROPOSAL NO. 3.
APPROVAL OF
AMENDED AND RESTATED CLASS B DISTRIBUTION
AND SERVICE PLAN
(FOR CONSIDERATION BY CLASS B SHAREHOLDERS ONLY)
(PROPOSAL NO. 4)
On May 4, 1993, the Fund's Trustees approved an amended and restated Class B
Distribution and Service Plan pursuant to Rule 12b-1 under the Investment
Company Act and an amended and restated Class B Distribution Agreement with
Prudential Securities for Class B shares of the Fund (the Proposed Class B Plan
and the Proposed Class B Distribution Agreement, respectively) and recommend
submission of the Proposed Class B Plan to the Fund's Class B shareholders for
approval or disapproval at this Special Meeting of Shareholders. The Proposed
Class B Distribution Agreement does not require, and is not being submitted
for, shareholder approval.
The purpose of the Proposed Class B Plan is to compensate Prudential
Securities, the distributor of the Fund's Class B shares, for providing
distribution assistance to broker-dealers, including Prusec, an affiliated
broker-dealer, and other qualified broker-dealers, if any, whose customers
invest in Class B shares of the Fund and to defray the costs and expenses,
including the payment of account servicing fees, of the services provided and
activities undertaken to distribute Class B shares (Distribution Activities).
29
<PAGE>
The Trustees previously adopted a plan of distribution for the Fund's Class B
shares pursuant to Rule 12b-1 under the Investment Company Act which was
approved by shareholders on January 11, 1990 and last approved by the Trustees
on May 4, 1993 (the Existing Class B Plan). Shareholders of the Fund's Class B
shares are being asked to approve amendments to the Existing Class B Plan that
change it from a reimbursement type plan to a compensation type plan. The
amendments do not change the maximum annual fee that may be paid to Prudential
Securities under the Existing Class B Plan, although the possibility exists
that expenses incurred by Prudential Securities for which it is entitled to be
reimbursed under the Existing Class B Plan may be less than the fee Prudential
Securities will receive under the Proposed Class B Plan. The amendments are
being proposed to facilitate administration and accounting. The Trustees
believe that the Proposed Class B Plan is in the best interest of the Fund and
is reasonably likely to benefit the Fund's Class B shareholders. A copy of the
Proposed Class B Plan is attached hereto as Exhibit D.
THE EXISTING CLASS B PLAN
Under the Existing Class B Plan, the Fund reimburses Prudential Securities
for expenses incurred for Distribution Activities at an annual rate of up to 1%
of the average daily net assets of the Class B shares (up to .25 of 1% of which
may constitute a service fee for the servicing and maintenance of shareholder
accounts). Amounts reimbursable under the Plan that are not paid because they
exceed the maximum fee payable thereunder are carried forward and may be
recovered in future years by Prudential Securities from asset-based sales
charges imposed on Class B shares, to the extent such charges do not exceed .75
of 1% per annum of the average daily net assets of the Class B shares, and from
contingent deferred sales charges received from certain redeeming shareholders,
subject to the limitations of Article III, Section 26 of the NASD Rules
(previously defined under Proposal No. 3). The NASD Rules place an annual limit
of .25 of 1% on fees that may be imposed for the provision of personal service
and/or the maintenance of shareholder accounts (service fees) and an annual
limit of .75 of 1% on asset-based sales charges (as defined in the NASD Rules).
Pursuant to the NASD Rules, the aggregate deferred sales charges and asset-
based sales charges on Class B shares of the Fund may not, subject to certain
exclusions, exceed 6.25% of total gross sales of Class B shares.
The Existing Class B Plan may not be amended to increase materially the
amount to be spent for the services described therein without approval by a
majority of the holders of the Class B shares of the Fund. In addition, all
30
<PAGE>
material amendments thereof must be approved by vote of a majority of the
Trustees, including a majority of the Rule 12b-1 Trustees, cast in person at a
meeting called for the purpose of voting on the Plan. So long as the Existing
Class B Plan is in effect, the selection and nomination of Rule 12b-1 Trustees
will be committed to the discretion of the Rule 12b-1 Trustees.
The Existing Class B Plan may be terminated at any time without payment of
any penalty by the vote of a majority of the Rule 12b-1 Trustees or by the vote
of a majority of the outstanding Class B shares of the Fund (as defined in the
Investment Company Act) on written notice to any other party to such plan and
will automatically terminate in the event of its assignment (as defined in the
Investment Company Act). For a more detailed description of the Existing Class
B Plan, see "Management of the Fund--The Distributors--Class B Plan."
THE PROPOSED CLASS B PLAN
The Proposed Class B Plan amends the Existing Class B Plan in one material
respect. Under the Existing Class B Plan, the Fund reimburses Prudential
Securities for expenses actually incurred for Distribution Activities up to a
maximum of 1% per annum of the average daily net assets of the Class B shares.
The Proposed Class B Plan authorizes the Fund to pay Prudential Securities the
same maximum annual fee as compensation for its Distribution Activities
regardless of the expenses incurred by Prudential Securities for Distribution
Activities. In contrast to the Existing Class B Plan, the amounts payable by
the Fund under the Proposed Class B Plan would not be directly related to the
expenses actually incurred by Prudential Securities for its Distribution
Activities. Consequently, if Prudential Securities' expenses are less than its
distribution and service fees, it will retain its full fees and realize a
profit. However, if Prudential Securities' expenses exceed the distribution and
service fees received under the Proposed Class B Plan, it will no longer carry
forward such amounts for reimbursement in future years.
Since inception of the Existing Class B Plan, the cumulative reimbursable
expenses incurred thereunder by Prudential Securities have exceeded the amounts
reimbursed by the Fund. As of December 31, 1993, the aggregate amount of
distribution expenses incurred and not yet reimbursed by the Fund or recovered
through contingent deferred sales charges was approximately $12,437,400.
For the fiscal years ended October 31, 1991, 1992 and 1993, Prudential
Securities received $1,366,020, $1,695,241 and $3,048,976, respectively, from
the Fund under the Existing Class B Plan, representing 1.0% of the average
31
<PAGE>
daily net assets of the Class B shares in each year, and spent approximately
$1,267,800, $2,053,800 and $11,240,500, respectively, for Distribution
Activities. Since the maximum annual fee under the Existing Class B Plan is the
same as under the Proposed Class B Plan, Prudential Securities would have
received the same annual fee under the Proposed Class B Plan as it did under
the Existing Class B Plan for the fiscal years ended October 31, 1991, 1992 and
1993.
Among the major perceived benefits of a compensation type plan, such as the
Proposed Class B Plan, over a reimbursement type plan, such as the Existing
Class B Plan, is the facilitation of administration and accounting. Under
reimbursement plans, all expenses must be specifically accounted for by the
Distributor and attributed to the specific class of shares of a fund in order
to qualify for reimbursement. Although the Proposed Class B Plan will continue
to require quarterly reporting to the Trustees of the amounts accrued and paid
under the Plan and of the expenses actually borne by the Distributor, there
will be no need to match specific expenses to reimbursements and no carrying
forward of such amounts, as under the Existing Class B Plan. Thus, the
accounting for the Proposed Class B Plan would be simplified and the timing of
when expenditures are to be made by the Distributor ordinarily would not be an
issue. Currently, because the Existing Class B Plan is a reimbursement plan,
the Distributor retains an independent expert to perform a study of its
methodology for determining and substantiating which of its expenses should
properly be allocated to the Fund's Class B shares for reimbursement, the cost
of which is borne by the Fund and other funds for which Prudential Securities
serves as distributor. These considerations, combined with the fact that the
cumulative expenses incurred by Prudential Securities for Distribution
Activities have exceeded the amounts reimbursed by the Fund under the Existing
Class B Plan, suggest that the costs and efforts associated with a
reimbursement plan are unwarranted.
In considering whether to approve the Proposed Class B Plan, the Trustees
reviewed, among other things, the nature and scope of the services to be
provided by Prudential Securities, the purchase options available to investors
under the Alternative Purchase Plan, the amount of expenditures under the
Existing Class B Plan, the relationship of such expenditures to the overall
cost structure of the Fund and comparative data with respect to distribution
arrangements adopted by other investment companies. Based upon such review, the
Trustees, including a majority of the Rule 12b-1 Trustees, determined that
there is a reasonable likelihood that the Proposed Class B Plan will benefit
the Fund and its Class B shareholders.
32
<PAGE>
If approved by Class B shareholders, the Proposed Class B Plan will continue
in effect from year to year, provided such continuance is approved at least
annually by vote of a majority of the Trustees, including a majority of the
Rule 12b-1 Trustees.
REQUIRED VOTE
The Proposed Class B Plan requires the approval of a majority of the Fund's
outstanding Class B shares, as defined in the Investment Company Act and
described under Proposal No. 3. If the Proposed Class B Plan is not approved,
the Existing Class B Plan will continue in its present form.
THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS PROPOSAL NO. 4.
APPROVAL OF AMENDMENTS OF THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS
REGARDING RESTRICTED AND ILLIQUID SECURITIES
(PROPOSAL NO. 5)
On May 4, 1993, at the request of the Fund's Manager and Subadviser, the
Trustees considered and recommend for shareholder approval revision of the
Fund's fundamental investment restrictions regarding illiquid and restricted
securities. The current restrictions are overly confining in light of the
development of an active market in those securities that, although subject to
restrictions on resale, are transferable under Rule 144A under the Securities
Act of 1933, as amended (the Securities Act). The Trustees recommend
elimination of the Fund's Investment Restriction No. 12, which limits the
purchase of any security that is restricted as to disposition under federal
securities laws. Further, the Trustees recommend modification of Investment
Restriction No. 15 to eliminate restrictions on investments in repurchase
agreements with maturities of longer than seven days and other illiquid assets.
Investment Restriction No. 12, which is proposed to be eliminated, currently
provides that the Fund may not:
Purchase any security restricted as to disposition under federal
securities laws if such purchase would result in more than 5% of the value
of the Fund's total assets being invested in such securities.
33
<PAGE>
Investment Restriction No. 15 is proposed to be modified to provide as
follows (deletions in brackets):
The Fund may not:
Make loans, except through [(i)] repurchase agreements [(repurchase
agreements with a maturity of longer than seven days together with
illiquid assets (including securities restricted as to disposition under
the federal securities laws) being limited to 10% of the Fund's total
assets) and (ii)] and loans of portfolio securities (limited to 33% of the
Fund's total assets).
The Trustees recommend replacement of such fundamental investment
restrictions with a non-fundamental investment policy that could be modified by
the vote of the Trustees in response to regulatory or market developments
without further approval by shareholders. The change would expand the Fund's
ability to invest in securities which have restrictions on resale but have a
readily available institutional market, such as securities eligible for resale
pursuant to Rule 144A under the Securities Act. The proposed non-fundamental
policy would provide as follows:
The Fund may invest up to 10% of its net assets in illiquid
securities including repurchase agreements which have a maturity of
longer than seven days, securities with legal or contractual
restrictions on resale (restricted securities) and securities that
are not readily marketable. Restricted securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act), that have a readily available market are not
considered illiquid for purposes of this limitation. The investment
adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. Repurchase agreements subject
to demand are deemed to have a maturity equal to the applicable
notice period.
An open-end investment company may not hold a significant amount of
restricted securities or illiquid securities because such securities may
present problems of accurate valuation and because it is possible that the
investment company would have difficulty satisfying redemptions within seven
days. The proposed investment policy is not expected by the investment adviser
or the Trustees to affect the Fund's liquidity because it excludes from
illiquid securities only those Rule 144A securities for which there is a
readily available market.
34
<PAGE>
Historically, illiquid securities have been defined to include securities
subject to contractual or legal restrictions on resale, securities for which
there is no readily available market and repurchase agreements having a
maturity of longer than seven days. In recent years, however, the securities
markets have evolved significantly, with the result that new types of
instruments have developed which make the Fund's present restrictions on
illiquid investments overly broad and unnecessarily restrictive in the view of
the Fund's Manager. In particular, the SEC adopted Rule 144A in April 1990,
which allows for a broader institutional trading market for securities
otherwise subject to restrictions on resale to the general public. SEC
interpretations give directors of registered investment companies the
discretion to designate restricted securities as liquid if the presence of a
readily available market can be demonstrated and if a current market value can
be ascertained. In adopting Rule 144A, the SEC recognized the increased size
and liquidity of the institutional markets for unregistered securities and the
importance of institutional investors in the capital formation process. In
1992, the SEC staff issued amended guidelines to the effect that up to 15% (as
opposed to 10%) of an open-end fund's net assets may be invested in illiquid
securities, including repurchase agreements with a maturity of longer than
seven days. The guidelines were amended in connection with the SEC's efforts to
remove unnecessary barriers to capital formation and to facilitate access to
the capital markets by small businesses.
The staff of the SEC has also taken the position that purchased over-the-
counter options and the assets used as "cover" for written over-the-counter
options are illiquid securities unless the Fund and the counterparty have
provided for the Fund at its option to unwind the over-the-counter option. The
exercise of such an option ordinarily would involve the payment by the Fund of
an amount designed to reflect the counterparty's economic loss from an early
termination, but does allow the Fund to treat the assets used as "cover" as
"liquid."
The proposed change would expand the Fund's ability to invest in securities
which are eligible for resale pursuant to Rule 144A, which generally have a
readily available institutional market. The markets for certain equity
securities, corporate bonds and notes are almost exclusively institutional.
These institutional investors depend on an efficient institutional market in
which the unregistered security can be readily resold. In the opinion of the
Fund's Manager, the fact that there are restrictions on resale to the general
public is therefore not necessarily indicative of the liquidity of such
investments. If designated as liquid (under the supervision of the Trustees),
these Rule 144A securities would be exempt from the 10% limitation.
35
<PAGE>
In order to take advantage of the market for Rule 144A securities and the
increasingly liquid institutional trading markets, the Manager recommends that
the Fund eliminate its fundamental policies regarding illiquid and restricted
securities so that Rule 144A securities that are nonetheless liquid may be
purchased without regard to the current limitations. By making the Fund's
policy on illiquid securities non-fundamental, the Fund will be able to respond
more quickly to regulatory and market developments because a shareholder vote
will not be required to define what types of securities should be deemed
illiquid. If this proposal is approved by shareholders, the Manager and the
Subadviser, under the supervision of the Trustees, will monitor the liquidity
of specific types of securities and, based on their recommendations, the
Trustees will from time to time determine whether such securities should be
deemed to be liquid in light of legal, regulatory and market developments.
In reaching liquidity decisions, the Manager and the Subadviser will
consider, inter alia, the following factors:
1. the frequency of trades and quotes for the security;
2. the number of dealers wishing to purchase or sell the security and
the number of other potential purchasers;
3. dealer undertakings to make a market in the security; and
4. the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
The Trustees believe that adoption of Proposal No. 5 is in the best interests
of the Fund and its shareholders.
REQUIRED VOTE
Amendment of the Fund's investment restrictions to eliminate Investment
Restriction No. 12 and modify Investment Restriction No. 15 requires the
approval of a majority of the outstanding voting securities of the Fund. Under
the Investment Company Act, a majority of the Fund's outstanding securities is
defined as the lesser of (i) 67% of the Fund's outstanding shares represented
at a meeting at which more than 50% of the Fund's outstanding shares are
present in person or represented by proxy, or (ii) more than 50% of the Fund's
outstanding shares. In the event shareholders do not approve the proposed
modification of the Fund's investment policy, the current limitations would
remain a fundamental policy which could not be changed without the approval of
a majority of the outstanding voting securities of the Fund.
36
<PAGE>
THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS PROPOSAL NO. 5.
APPROVAL OF AN AMENDMENT OF THE FUND'S INVESTMENT
RESTRICTION LIMITING THE FUND'S ABILITY TO INVEST IN A
SECURITY IF THE FUND WOULD HOLD MORE THAN TEN PERCENT OF ANY CLASS OF
SECURITIES OF AN ISSUER
(PROPOSAL NO. 6)
On May 4, 1993, at the request of the Fund's Manager and Subadviser, the
Trustees considered and recommend for shareholder approval modification of
Investment Restriction No. 5 to delete the restriction that prohibits the Fund
from purchasing a security if the Fund would hold more than ten percent of any
class of securities of an issuer.
The Fund currently may not purchase a security if the Fund would then hold
more than 10% of any class of securities of an issuer. Under this restriction,
all common stock issues of an issuer, all preferred stock issues and all debt
issues are each taken as a separate single class. The Fund's Subadviser
believes the restriction is confining and has requested its deletion. This
restriction is not required under federal securities laws. If the proposal is
approved, and a state securities commission requires inclusion of this
limitation, the Fund would continue to comply with the restriction as a non-
fundamental operating policy so long as the Fund sells its shares in that
state.
Investment Restriction No. 5 provides that the Fund may not:
Purchase any security if as a result the Fund would then hold more
than 10% of any class of securities of an issuer (taking all common
stock issues of an issuer as a single class, all preferred stock
issues as a single class and all debt issues as a single class) or
more than 10% of the outstanding voting securities of an issuer.
The Trustees are proposing that Investment Restriction No. 5 be modified to
read as follows:
The Fund may not:
Purchase any security if as a result the Fund would then hold more
than 10% of the outstanding voting securities of an issuer.
Currently, the Fund may not hold more than 10% of the outstanding voting
securities of an issuer pursuant to Section 5(b)(1) of the Investment Company
Act and state securities laws. This restriction would remain in effect.
37
<PAGE>
The Trustees believe that adoption of Proposal No. 6 is in the best interests
of the Fund and its shareholders.
REQUIRED VOTE
Adoption of Proposal No. 6 requires the approval of a majority of the
outstanding voting securities of the Fund, as defined by the Investment Company
Act and described under Proposal No. 5 above. If the proposed change in
investment policy is not approved, the current limitation would remain a
fundamental policy which could not be changed without the approval of a
majority of the outstanding voting securities of the Fund.
THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS PROPOSAL NO. 6.
APPROVAL OF ELIMINATION OF THE FUND'S INVESTMENT
RESTRICTION LIMITING INVESTMENT IN THE SECURITIES OF ANY ISSUER IN WHICH THE
OFFICERS AND TRUSTEES OF THE FUND OR THE OFFICERS AND DIRECTORS OF
ITS INVESTMENT ADVISER OWN MORE THAN A SPECIFIED INTEREST
(PROPOSAL NO. 7)
On May 4, 1993, at the request of the Fund's Manager, the Trustees considered
and recommend for shareholder approval elimination of the Fund's Investment
Restriction No. 7, which provides that the Fund may not:
Invest in securities of any issuer if, to the knowledge of the
Fund, any officer or Trustee of the Fund or the Fund's investment
adviser owns more than 1/2 of 1% of the outstanding securities of
such issuer, and such officers and Trustees who own more than 1/2 of
1% own in the aggregate more than 5% of the outstanding securities of
such issuer.
The Manager has advised the Trustees that the restriction upon the Fund's
investing in companies in which officers and Trustees of the Fund or officers
and directors of the Manager own more than 1/2 of 1% of the outstanding
securities of such company was initially adopted to comply with a restriction
imposed in connection with the sale of the Fund's shares in Ohio. If the
proposal is approved, the Fund would continue to comply with the restriction as
a non-fundamental operating policy so long as the Fund sells its shares in
Ohio. However, if Ohio were to eliminate the requirement or the Fund stopped
offering its shares for sale in Ohio, the Trustees could eliminate
38
<PAGE>
the operating policy without the necessity of shareholder approval. The Fund
does not currently intend to stop offering its shares in Ohio, nor is the Fund
or the Fund's Manager aware of any proposal to change the Ohio law.
The Trustees believe that adoption of Proposal No. 7 is in the best interests
of the Fund and its shareholders.
REQUIRED VOTE
Amendment of the Fund's investment restrictions to delete Investment
Restriction No. 7 requires the approval of a majority of the Fund's outstanding
voting securities, as defined in the Investment Company Act and described under
Proposal No. 5. If the proposed change in investment policy is not approved,
the current limitation would remain a fundamental policy which could not be
changed without the approval of a majority of the outstanding voting securities
of the Fund.
THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS PROPOSAL NO. 7.
RATIFICATION OF INDEPENDENT ACCOUNTANTS
(PROPOSAL NO. 8)
The Trustees of the Fund, including Rule 12b-1 Trustees, have selected
Deloitte & Touche as independent accountants for the Fund for the fiscal year
ending October 31, 1994. The ratification of the selection of independent
public accountants is to be voted upon at the Meeting and it is intended that
the persons named in the accompanying Proxy will vote for Deloitte & Touche. No
representative of Deloitte & Touche is expected to be present at the Meeting of
Shareholders.
The policy of the Trustees regarding engaging independent accountants'
services is that management may engage the Fund's principal independent public
accountants to perform any service(s) normally provided by independent
accounting firms, provided that such services(s) meet(s) any and all of the
independence requirements of the American Institute of Certified Public
Accountants and the SEC. In accordance with this policy, the Audit Committee
reviews and approves all services provided by the independent public
accountants prior to their being rendered. The Trustees of the Fund receive a
report from their Audit Committee relating to all services after they have been
performed by the Fund's independent accountants.
39
<PAGE>
REQUIRED VOTE
The affirmative vote of a majority of the shares present, in person or by
proxy, at the Meeting is required for ratification.
THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS PROPOSAL NO. 8.
OTHER MATTERS
No business other than as set forth herein is expected to come before the
Meeting, but should any other matter requiring a vote of shareholders arise,
including any question as to an adjournment of the Meeting, the persons named
in the enclosed Proxy will vote thereon according to their best judgment in the
interest of the Fund.
SHAREHOLDER PROPOSALS
As a Massachusetts business trust, the Fund is not required to hold annual
meetings of shareholders and the Trustees currently do not intend to hold such
meetings unless shareholder action is required in accordance with the
Investment Company Act or the Fund's Declaration of Trust. A shareholder
proposal intended to be presented at any meeting of shareholders of the Fund
hereinafter called must be received by the Fund a reasonable time before the
Trustees' solicitation relating thereto is made in order to be included in the
Fund's proxy statement and form of proxy relating to that meeting and presented
at the meeting. The mere submission of a proposal by a shareholder does not
guarantee that such proposal will be included in the proxy statement because
certain rules under the federal securities laws must be complied with before
inclusion of the proposal is required.
S. Jane Rose
Secretary
Dated: April 18, 1994
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WHO WISH TO
HAVE THEIR SHARES VOTED ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
40
<PAGE>
EXHIBIT A
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1993
<TABLE>
<S> <C>
ASSETS
Cash and short-term investments................................... $ 42,667,507
Loan to affiliate................................................. 85,000,000
Management, administration and other fees receivable.............. 17,897,292
Transfer agency and fiduciary fees receivable..................... 3,744,874
Furniture, equipment and leasehold improvements, net.............. 10,495,702
Other assets...................................................... 4,676,430
------------
$164,481,805
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to affiliates................................................ $ 48,794,366
Accounts payable and accrued expenses............................ 11,208,209
Income taxes payable to affiliate--net........................... 2,937,828
------------
62,940,403
------------
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Class A common stock, $1 par value (1,000
shares authorized, 850 shares outstanding)..................... 850
Class B common stock, $1 par value (1,000
shares authorized, 150 shares outstanding)..................... 150
Additional paid-in capital....................................... 24,999,000
Retained earnings................................................ 76,541,402
------------
101,541,402
------------
$164,481,805
============
</TABLE>
See notes to consolidated statement of financial condition.
A-1
<PAGE>
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1993
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Prudential Mutual Fund Management, Inc. ("PMF") and subsidiaries (the
"Company"), an indirect wholly-owned subsidiary of The Prudential Insurance
Company of America (the "Prudential"), were created to operate as the manager,
distributor and/or transfer agent for investment companies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statement includes the accounts of PMF and its
wholly-owned subsidiaries, Prudential Mutual Fund Services, Inc. ("PMFS") and
Prudential Mutual Fund Distributors, Inc. ("PMFD"). All intercompany profits,
transactions and balances have been eliminated.
INCOME TAXES
The Company is a member of a group of affiliated companies which join in
filing a consolidated Federal income tax return. Pursuant to a tax allocation
agreement, tax expense is determined for individual profitable companies on a
separate return basis. Profit members pay this amount to an affiliated company
which in turn apportions the payment among the loss members in proportion to
their losses. In January 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The
adoption of SFAS 109 did not have a material effect on the Company's financial
position.
2.SHORT-TERM INVESTMENTS
At December 31, 1993, the Company had invested $35,411,571 in several money
market funds which PMF manages.
A-2
<PAGE>
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL CONDITION--(CONTINUED)
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<S> <C>
Furniture.......................................................... $ 6,481,799
Equipment.......................................................... 9,181,984
Leasehold improvements............................................. 3,407,213
-----------
19,070,996
Less accumulated depreciation and amortization..................... 8,575,294
-----------
$10,495,702
===========
</TABLE>
4.RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company participates in a variety of
financial and administrative transactions with affiliates.
The loan to affiliate bears interest at 3.45 percent at December 31, 1993 and
is due on demand.
The caption "Due to affiliates" includes $18,241,795 at December 31, 1993 for
reimbursement of employee compensation and benefits, and other administrative
and operating expenses. This amount is noninterest-bearing and payable on
demand.
The Company has entered into subadvisory agreements with The Prudential
Investment Corporation ("PIC"), a wholly-owned subsidiary of Prudential. Under
these agreements, PIC furnishes investment advisory services to substantially
all the funds for which the Company acts as Manager. At December 31, 1993 there
were unpaid fees due to PIC of $23,926,277, included in the caption "Due to
affiliates."
Distribution expenses include commissions and account servicing fees paid to,
or on account of, financial advisors of Prudential Securities Incorporated
("Prudential Securities") and Pruco Securities Corporation ("PruSec"),
affiliated broker-dealers and indirect wholly-owned subsidiaries
A-3
<PAGE>
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL CONDITION--(CONTINUED)
of Prudential, advertising expenses, the cost of printing and mailing
prospectuses to potential investors, and indirect and overhead costs of
Prudential Securities and PruSec, including lease, utility, communications and
sales promotion expenses. At December 31, 1993 there were unpaid distribution
expenses of approximately $6,626,000, included in the caption "Due to
affiliates."
5.CAPITAL
PMFD is subject to the SEC Uniform Net Capital Rule (Rule 15c3-1), which
requires the maintenance of minimum net capital and requires that the ratio of
aggregate indebtedness to net capital, both as defined, shall not exceed 15 to
1. At December 31, 1993, PMFD had net capital of $2,308,981, which was
$1,859,405 in excess of its required net capital of $449,576. PMFD had a ratio
of aggregate indebtedness to net capital of 2.9 to 1.
6.COMMITMENTS
The Company leases office space under operating leases expiring in 2003. The
leases are subject to escalation based upon certain costs incurred by the
lessor. Future minimum rentals, as of December 31, 1993, under the leases, are
as follows:
<TABLE>
<CAPTION>
YEAR MINIMUM RENTAL
---- --------------
<S> <C>
1994...................................................... $ 2,738,000
1995...................................................... 2,865,000
1996...................................................... 3,375,000
1997...................................................... 3,385,000
1998...................................................... 3,230,000
Thereafter................................................. 13,800,000
-----------
$29,393,000
===========
</TABLE>
7.PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company has two defined benefit pension plans (the "Plans") sponsored by
the Prudential and Prudential Securities. The Plans cover substantially all of
the Company's employees. The funding policy is to
A-4
<PAGE>
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL CONDITION--(CONCLUDED)
contribute annually the amount necessary to satisfy the Internal Revenue
Service funding standards. In addition, the Company has two defined benefit
plans for key executives, the Supplemental Retirement Plan (SRP) for which
estimated pension costs are currently accrued but not funded.
The Company provides certain health care and life insurance benefits for
eligible retired employees. Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106"). SFAS 106 changed the
practice of accounting for postretirement benefits on a cash basis to an
accrual basis, whereby employers record the projected future cost of providing
such postretirement benefits as employees render services instead of when
benefits are paid. This new accounting method has no effect on the Company's
cash outlays for these retirement benefits. The adoption of SFAS 106 did not
materially impact the Company's financial position.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," ("SFAS 112") which is effective for fiscal years beginning after
December 15, 1993. Although several benefits are fully insured which result in
no SFAS 112 obligation, the Company currently has an obligation and resulting
expense under SFAS 112 for medical benefits provided under long-term
disability. The Company will adopt SFAS 112 on January 1, 1994. Management
believes that implementation will have no material effect on the Company's
financial position.
8.CONTINGENCY
On October 12, 1993, a purported class action lawsuit was instituted against
PMF, et al and certain current and former directors of a fund managed by PMF.
The plaintiffs seek damages in an unspecified amount for excessive management
and distribution fees they allege were incurred by them. Although the outcome
of this litigation cannot be predicted at this time, the defendants believe
they have meritorious defenses to the claims asserted in the complaint and
intend to defend this action vigorously. In any case, management does not
believe that the outcome of this action is likely to have a material adverse
effect on the Company's financial position.
* * * * * *
A-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Prudential Mutual Fund
Management, Inc.:
We have audited the accompanying consolidated statement of financial
condition of Prudential Mutual Fund Management, Inc. and subsidiaries as of
December 31, 1993. This consolidated financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this consolidated financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated statement
of financial condition. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such consolidated statement of financial condition presents
fairly, in all material respects, the financial position of Prudential Mutual
Fund Management, Inc. and subsidiaries at December 31, 1993 in conformity with
generally accepted accounting principles.
Deloitte & Touche
New York, New York
January 26, 1994
A-6
<PAGE>
EXHIBIT B
PRUDENTIAL EQUITY INCOME FUND
FORM OF AMENDMENT TO CERTIFICATE OF DESIGNATION
(a) Paragraphs 3 and 4 of the Certificate of Designation dated January 11,
1990 and filed with the Secretary of State of The Commonwealth of Massachusetts
on January 18, 1990 (the "Certificate of Designation") are deleted in their
entirety and the following six new paragraphs, numbered 3 through 8, are
inserted immediately after paragraph 2, reading as follows:
3. The shares of beneficial interest of the Trust are classified into
three classes, designated "Class A Shares," "Class B Shares," and "Class C
Shares," an unlimited number of each of which may be issued. All Class A
Shares and Class B Shares outstanding on the date on which the amendments
provided for herein become effective shall be and continue to be Class A
Shares and Class B Shares, respectively.
4. The holders of Class A Shares, Class B Shares and Class C Shares
shall be considered Shareholders of the Trust, and shall have the relative
rights and preferences set forth herein and in the Declaration of Trust
with respect to Shares of the Trust, and shall also be considered
Shareholders of the Trust for all other purposes (including, without
limitation, for purposes of receiving reports and notices and the right to
vote) and, for matters reserved to the Shareholders of one or more other
classes by the Declaration of Trust or by any instrument establishing and
designating a particular class, or as required by the Investment Company
Act of 1940 and/or the rules and regulations of the Securities and
Exchange Commission thereunder (collectively, as from time to time in
effect, the "1940 Act") or other applicable laws.
5. The Class A Shares, Class B Shares and Class C Shares shall represent
an equal proportionate interest in the share of such class in the Trust
Property, adjusted for any liabilities specifically allocable to the
Shares of that class, and each Share of any such class shall have
identical voting, dividend, liquidation and other rights and the same
terms and conditions, except that the expenses related directly or
indirectly to the distribution of the Shares of a class, and any service
fees to which such class is subject (as determined by the Trustees), shall
be borne solely by such class, and such expenses shall be appropriately
reflected in the determination of net asset value and the dividend,
distribution and liquidation rights of such class.
B-1
<PAGE>
6. (a) Class A Shares shall be subject to (i) a front-end sales charge
and (ii)(A) an asset-based sales charge pursuant to a plan under Rule 12b-
1 of the 1940 Act (a "Plan"), and/or (B) a service fee for the maintenance
of shareholder accounts and personal services, in such amounts as shall be
determined from time to time.
(b) Class B Shares shall be subject to (i) a contingent deferred sales
charge and (ii)(A) an asset-based sales charge pursuant to a Plan, and/or
(B) a service fee for the maintenance of shareholder accounts and personal
services, in such amounts as shall be determined from time to time.
(c) Class C Shares shall be subject to (i) a contingent deferred sales
charge and (ii) (A) an asset-based sales charge pursuant to a Plan, and/or
(B) a service fee for the maintenance of shareholder accounts and personal
services, in such amounts as shall be determined from time to time.
7. Subject to compliance with the requirements of the 1940 Act, the
Trustees shall have the authority to provide that holders of Shares of the
Trust shall have the right to convert said Shares into Shares of one or
more other registered investment companies specified for the purpose in
this Trust's Prospectus for the Shares accorded such right, that holders
of any class of Shares of the Trust shall have the right to convert such
Shares into Shares of one or more other classes of the Trust, and that
Shares of any class of the Trust shall be automatically converted into
Shares of another class of the Trust, in each case in accordance with such
requirements and procedures as the Trustees may from time to time
establish. The requirements and procedures applicable to such mandatory or
optional conversion of Shares of any such class shall be set forth in the
Prospectus in effect with respect to such Shares.
8. Shareholders of each class shall vote as a separate class, as the
case may be, on any matter to the extent required by, and any matter shall
be deemed to have been effectively acted upon with respect to any class as
provided in, Rule 18f-2, as from time to time in effect, under the 1940
Act, or any successor rule and by the Declaration of Trust. Except as
otherwise required by the 1940 Act, the Shareholders of each class, voting
as a separate class, shall have sole and exclusive voting rights with
respect to the provisions of any Plan applicable to Shares of such class,
and shall have no voting rights with respect to provisions of any Plan
applicable solely to any other class of Shares of such Trust.
B-2
<PAGE>
EXHIBIT C
PRUDENTIAL EQUITY INCOME FUND
DISTRIBUTION AND SERVICE PLAN
(Class A Shares)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Equity Income Fund (the Fund) and by
Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement 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 Trustees of the Fund, including a majority of those
Trustees 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
Trustees), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and its shareholders. Expenditures
under this Plan by the Fund for Distribution Activities (defined below) are
primarily intended to result in the sale of Class A shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
C-1
<PAGE>
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
distribution networks of Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities Corporation (Prusec), including sales
personnel and branch office and central support systems, and also using such
other qualified broker-dealers and financial institutions as the Distributor
may select. Services provided and activities undertaken to distribute Class A
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing personal
service and/or maintaining shareholder accounts a service fee of .25 of 1% per
annum of the average daily net assets of the Class A shares (service fee). The
Fund shall calculate and accrue daily amounts payable by the Class A shares of
the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Trustees 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 Trustees may determine. Amounts payable under the Plan shall be subject to
the limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
Amounts paid to the Distributor by the Class A shares of the Fund will not be
used to pay the distribution expenses incurred with respect to any other class
of shares of the Fund except that distribution expenses attributable to the
Fund as a whole will be allocated to the Class A shares according to the ratio
of the sales of Class A shares to the total sales of the Fund's shares over the
Fund's fiscal year or such other allocation method approved by the Trustees.
The allocation of distribution expenses among classes will be subject to the
review of the Trustees.
C-2
<PAGE>
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) amounts paid to Prudential Securities for performing services under
a selected dealer agreement between Prudential Securities and the
Distributor for sale of Class A shares of the Fund, including sales
commissions and trailer commissions paid to, or on account of, account
executives and indirect and overhead costs associated with Distribution
Activities, including central office and branch expenses;
(b) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class A
shares of the Fund, including sales commissions and trailer commissions
paid to, or on account of, agents and indirect and overhead costs
associated with Distribution Activities;
(c) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports and
sales literature to persons other than current shareholders of the Fund;
and
(d) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other than
Prudential Securities and Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class A shares of the
Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Trustees 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 Trustees of the Fund such additional information as the Trustees 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 Trustees 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.
C-3
<PAGE>
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 Trustees of the Fund and a majority of the Rule 12b-1 Trustees
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 Trustees, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class A shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class A shares of
the Fund. All material amendments of the Plan shall be approved by a majority
of the Trustees of the Fund and a majority of the Rule 12b-1 Trustees by votes
cast in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Trustees
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
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.
10. Enforcement of Claims
The name "Prudential Equity Income Fund" is the designation of the Trustees
under a Declaration of Trust dated September 18, 1986 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, and neither the Trustees, officers, agents nor
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.
Dated:
C-4
<PAGE>
EXHIBIT D
PRUDENTIAL EQUITY INCOME FUND
DISTRIBUTION AND SERVICE PLAN
(Class B Shares)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Equity Income Fund, (the Fund) and
by Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement 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 Trustees 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 Trustees), have determined by
votes cast in person at a meeting called for the purpose of voting on this Plan
that there is a reasonable likelihood that adoption of this Plan will benefit
the Fund and its shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) are primarily intended to result in the
sale of Class B shares of the Fund within the meaning of paragraph (a)(2) of
Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
D-1
<PAGE>
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class B shares of the Fund are referred to herein as
"Distribution Activities."
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing personal
service and/or maintaining shareholder accounts a service fee of .25 of 1% per
annum of the average daily net assets of the Class B shares (service fee). The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Trustees 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 Trustees 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 Trustees.
The allocation of distribution expenses among classes will be subject to the
review of the Trustees.
D-2
<PAGE>
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and branch
expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class B
shares of the Fund, including sales commissions and trailer commissions
paid to, or on account of, agents and indirect and overhead costs
associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports and
sales literature to persons other than current shareholders of the Fund;
and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other than
Prusec) which have entered into selected dealer agreements with the
Distributor with respect to Class B shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Trustees 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 Trustees 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 Trustees 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
D-3
<PAGE>
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 Trustees of the Fund and a majority of the Rule 12b-1 Trustees
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 Trustees, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class B shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class B shares of
the Fund. All material amendments of the Plan shall be approved by a majority
of the Trustees of the Fund and a majority of the Rule 12b-1 Trustees by votes
cast in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Trustees
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
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.
10. Enforcement of Claims.
The name "Prudential Equity Income Fund" is the designation of the Trustees
under a Declaration of Trust dated September 18, 1986 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, and neither the Trustees, officers, agents nor
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.
Dated:
D-4
<PAGE>
- --------------------------------
1--Election of Trustees
- --------------------------------
[X] [X] [X]
Approve Withhold Withhold
All All Those Listed
Nominees Nominees On Back
- --------------------------------
TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL
NOMINEE, PLEASE WRITE NAME ON BACK OF FORM.
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Lawrence C. McQuade
Thomas T. Mooney
Richard A. Redeker
Louis A. Weil, III
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
For Against Abstain
2. To approve an amendment of the Fund's Declaration of 2 [X] [X] [X]
Trust to permit a conversion feature for Class B
shares.
3. To approve an amended and restated Class A 3 [X] [X] [X]
Distribution and Service Plan.
4. NOT APPLICABLE TO CLASS A SHAREHOLDERS. 4 [X] [X] [X]
5. To approve amendments of the Fund's investment 5 [X] [X] [X]
restrictions regarding restricted and illiquid
securities.
6. To approve an amendment of the Fund's investment 6 [X] [X] [X]
restriction limiting the Fund's ability to invest in
a security if the Fund would hold more than 10% of
any class of securities of an issuer.
7. To approve the elimination of the Fund's investment 7 [X] [X] [X]
restriction limiting the Fund's ability to invest in
the securities of any issuer in which officers and
Trustees of the Fund or officers and directors of
its investment adviser own more than a specified
interest.
8. To ratify the selection by the Trustees of Deloitte 8 [X] [X] [X]
& Touche as independent accountants for the fiscal
year ending October 31, 1994.
9. To transact such other business as may properly come 9 [X] [X] [X]
before the Meeting or any adjournment thereof.
Only Class A shares of beneficial interest
of the Fund of record at the close
of business on March 31, 1994 are entitled
to notice of and to vote at the Meeting
or any adjournment thereof.
PLEASE SIGN EXACTLY AS NAME APPEARS
- --------------------------------- AT LEFT. WHEN SHARES ARE HELD BY
Signature Date JOINT TENANTS, BOTH SHOULD SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
- --------------------------------- PLEASE GIVE FULL TITLE AS SUCH. IF A
Signature (Joint Ownership) CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
<PAGE>
[_]
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
YOUR PROXY WILL BE ELECTRONICALLY
SCANNED.
CAREFULLY DETACH HERE AND RETURN BOTTOM
PORTION ONLY.
PROXY (CLASS A) This Proxy is solicited on behalf of the Trustees.
PRUDENTIAL EQUITY INCOME The undersigned hereby appoints Susan C. Cote, S.
FUND Jane Rose and Marguerite E. H. Morrison as Proxies,
ONE SEAPORT PLAZA each with the power of substitution, and hereby
NEW YORK, NEW YORK 10292 authorizes each of them to represent and to vote as
designated below, all the Class A shares of
beneficial interest of Prudential Equity Income Fund
held of record by the undersigned on March 31, 1994 at
the Special Meeting of Shareholders to be held on June
23, 1994, or any adjournment thereof.
THIS PROXY WHEN PROP-
ERLY EXECUTED WILL BE
VOTED IN THE MANNER DI-
RECTED HEREIN BY THE
UNDERSIGNED SHAREHOLD-
ER(S). IF NO DIRECTION
IS MADE, THIS PROXY
WILL BE VOTED FOR ALL
OF THE PROPOSALS LISTED
BELOW.
Your Account No.: Your voting shares are:
<PAGE>
- ----------------------------------------
1--Election of Trustees
- ----------------------------------------
[X] [X] [X]
Approve Withhold Withhold
All All Those Listed
Nominees Nominees On Back
- ----------------------------------------
TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL
NOMINEE, PLEASE WRITE NAME ON BACK OF FORM.
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Lawrence C. McQuade
Thomas T. Mooney
Richard A. Redeker
Louis A. Weil, III
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
For Against Abstain
2. To approve an amendment of the Fund's Declaration 2 [X] [X] [X]
of Trust to permit a conversion feature for
Class B shares.
3. To approve an amended and restated Class A 3 [X] [X] [X]
Distribution and Service Plan.
4. To approve an amended and restated Class B 4 [X] [X] [X]
Distribution and Service Plan.
5. To approve amendments of the Fund's 5 [X] [X] [X]
investment restrictions regarding restricted and
illiquid securities.
6. To approve an amendment of the Fund's investment 6 [X] [X] [X]
restriction limiting the Fund's ability to invest
in a security if the Fund would hold more than 10%
of any class of securities of an issuer.
7. To approve the elimination of the Fund's 7 [X] [X] [X]
investment restriction limiting the Fund's ability
to invest in the securities of any issuer in which
officers and Trustees of the Fund or officers and
directors of its investment adviser own more than
a specified interest.
8. To ratify the selection by the Trustees of 8 [X] [X] [X]
Deloitte & Touche as independent accountants for
the fiscal year ending October 31, 1994.
9. To transact such other business as may properly 9 [X] [X] [X]
come before the Meeting or any adjournment thereof.
Only Class B shares of beneficial interest of the Fund of record at the close of
business on March 31, 1994 are entitled to notice of and to vote at the
Meeting or any adjournment thereof.
- --------------------------------- PLEASE SIGN EXACTLY AS NAME APPEARS
Signature Date AT LEFT. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN. WHEN
- --------------------------------- SIGNING AS ATTORNEY, EXECUTOR,
Signature (Joint Ownership) ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
<PAGE>
[_]
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
YOUR PROXY WILL BE ELECTRONICALLY SCANNED.
CAREFULLY DETACH HERE AND RETURN BOTTOM
PORTION ONLY.
PROXY (CLASS B) THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES.
The undersigned hereby appoints Susan C. Cote, S.
PRUDENTIAL EQUITY Jane Rose and Marguerite E. H. Morrison as Proxies,
INCOME FUND each with the power of substitution, and hereby
ONE SEAPORT PLAZA authorizes each of them to represent and to vote as
NEW YORK, NEW YORK 10292 designated below, all the Class B shares of
beneficial interest of Prudential Equity Income Fund
held of record by the undersigned on March 31, 1994 at
the Special Meeting of Shareholders to be held on June
23, 1994, or any adjournment thereof.
THIS PROXY WHEN PROP-
ERLY EXECUTED WILL BE
VOTED IN THE MANNER DI-
RECTED HEREIN BY THE
UNDERSIGNED SHAREHOLD-
ER(S). IF NO DIRECTION
IS MADE, THIS PROXY
WILL BE VOTED FOR ALL
OF THE PROPOSALS LISTED
BELOW.
Your Account No.: Your voting shares are:
