<PAGE>
As filed with the Securities and Exchange Commission on March 4, 1998
Registration No. 33-38461
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 11
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
[X]
AMENDMENT NO. 13
(Check appropriate box or boxes)
-----------
NICHOLAS-APPLEGATE FUND, INC.
(Formerly Nicholas-Applegate Growth Equity Fund, Inc.)
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7530
S. JANE ROSE, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)
[_] on (date) pursuant to paragraph (a) of Rule 485.
[_] 75 days after filing pursuant to paragraph (a)(ii).
[_] on (date) pursuant to paragraph (a)(ii) of Rule
485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[_] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
TITLE OF SECURITIES BEING REGISTERED . . . . SHARES OF COMMON STOCK, PAR VALUE
$.01 PER SHARE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
------------- --------
<C> <S> <C>
PART A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information...... Fund Expenses; Financial
Highlights; How the Fund
Calculates Performance
Item 4. General Description of Registrant.... Cover Page; Fund Highlights;
General Information
Item 5. Management of Fund................... Financial Highlights; How the
Fund is Managed; General
Information
Item 6. Capital Stock and Other Securities... Taxes, Dividends and
Distributions; General
Information
Item 7. Purchase of Securities Being Offered. Shareholder Guide: How the
Fund Values its Shares
Item 8. Redemption or Repurchase............. Shareholder Guide: How the
Fund Values its Shares;
General Information
Item 9. Pending Legal Proceedings............ Not Applicable
PART B
Item 10. Cover Page........................... Cover Page
Item 11. Table of Contents.................... Table of Contents
Item 12. General Information and History...... General Information
Item 13. Investment Objectives and Policies... Investment Objective and
Policies; Investment
Restrictions
Item 14. Management of the Fund............... Directors and Officers;
Manager; Distributor
Item 15. Control Persons and Principal Holders Principal Holders of
of Securities........................ Securities
Item 16. Investment Advisory and Other Manager; Distributor;
Services............................. Custodian, Transfer and
Dividend Disbursing Agent and
Independent Auditors
Item 17. Brokerage Allocation and Other Portfolio Transactions and
Practices............................ Brokerage
Item 18. Capital Stock and Other Securities... Not Applicable
Item 19. Purchase, Redemption and Pricing of Purchase and Redemption of
Securities Being Offered............. Fund Shares; Shareholder
Investment Account; Net Asset
Value
Item 20. Tax Status........................... Dividends, Distributions and
Taxes
Item 21. Underwriters......................... Distributor
Item 22. Calculation of Performance Data...... Performance Information
Item 23. Financial Statements................. Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
</TABLE>
<PAGE>
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
- -------------------------------------------------------------------------------
PROSPECTUS DATED MARCH 4, 1998
- -------------------------------------------------------------------------------
Nicholas-Applegate Growth Equity Fund (the Fund) is a series of Nicholas-
Applegate Fund, Inc. (the Company), an open-end, diversified management
investment company whose objective is capital appreciation. The Fund intends
to invest principally in a diversified portfolio of common stocks and
securities convertible into or exercisable for common stocks, the earnings and
securities prices of which its Investment Adviser expects to grow at a rate
above the rate of the Standard & Poor's 500 Stock Price Index (S&P 500). The
Fund intends to invest primarily in companies having middle market
capitalizations and above. Companies which have market capitalizations of $500
million to approximately $5 billion are generally referred to as "middle
market capitalization" companies. No assurance can be given that the Fund's
investment objective will be achieved. THE FUND MAY ENGAGE IN SHORT-SELLING
AND SHORT-TERM TRADING. THESE TECHNIQUES MAY BE CONSIDERED SPECULATIVE AND MAY
RESULT IN HIGHER RISKS AND COSTS TO THE FUND. SEE "HOW THE FUND INVESTS--
INVESTMENT OBJECTIVE" AND "--INVESTMENT POLICIES AND PRACTICES."
The Fund's Manager is Prudential Investments Fund Management LLC. The Fund's
Investment Adviser is Nicholas-Applegate Capital Management. See "How the Fund
is Managed." The Fund's address is Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102-4077, and its telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and is available at the Web
site of The Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information, dated March 4, 1998, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Company at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.
- -------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in this prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS NICHOLAS-APPLEGATE GROWTH EQUITY FUND?
Nicholas-Applegate Growth Equity Fund is a mutual fund. A mutual fund pools
the resources of investors by selling its shares to the public and investing
the proceeds of such sales in a portfolio of securities designed to achieve
its investment objective. Technically, the Fund is an open-end, diversified
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is capital appreciation. It seeks to
achieve this objective by investing primarily in common stocks and
securities convertible into or exercisable for common stocks (such as
convertible preferred stocks and convertible debentures) the earnings and
securities prices of which the Investment Adviser expects to grow at a rate
above that of the S&P 500. There can be no assurance that the Fund's
objective will be achieved. See "How the Fund Invests--Investment Objective
and Policies" at page 8.
WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?
In seeking to achieve its investment objective, the Fund has generally
invested in companies having middle market capitalizations, and above.
Companies which have capitalizations of $500 million to approximately $5
billion are generally referred to as "middle market capitalization"
companies. The Fund's net asset value may be subject to above average
fluctuations, and its portfolio turnover may be substantially greater than
that of many other funds. The Fund may also invest in securities of foreign
issuers, engage in short sales and borrow from banks for certain purposes,
all of which involve special risk considerations. See "How the Fund
Invests--Investment Objective and Policies" at page 8. As with an investment
in any mutual fund, an investment in this Fund can decrease in value and you
can lose money.
WHO MANAGES THE FUND?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
.95 of 1% of the Fund's average daily net assets. As of January 31, 1998,
PIFM served as manager or administrator to 64 investment companies,
including 42 mutual funds, with aggregate assets of approximately $63
billion. Nicholas-Applegate Capital Management (NACM or the Investment
Adviser) furnishes investment advisory services in connection with the
management of the Fund under a Subadvisory Agreement with PIFM. See "How the
Fund is Managed--Manager" at page 12 and "How the Fund is Managed--
Investment Adviser" at page 12.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or the
Distributor), a major securities underwriter and securities and commodities
broker, acts as the Distributor of the Fund's Class A, Class B and Class C
and Class Z shares and is paid a distribution and service fee with respect
to Class A shares which is currently being charged at the annual rate of .25
of 1% of the average daily net assets of the Class A shares and a
distribution and service fee with respect to Class B and Class C shares at
an annual rate of 1% of the average daily net assets of each of the Class B
and Class C shares. Prudential Securities incurs the expense of distributing
the Fund's Class Z shares under a Distribution Agreement with the Fund, none
of which is reimbursed or paid for by the Fund. See "How the Fund is
Managed--Distributor" at page 13.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares except that the minimum initial investment
for Class C shares may be waived from time to time. The minimum subsequent
investment is $100 for Class A, Class B and Class C shares. Class Z shares are
not subject to any minimum investment requirements. There is no minimum
investment requirement for certain retirement and employee savings plans or
custodial accounts for the benefit of minors. For purchases made through the
Automatic Savings Accumulation Plan the minimum initial and subsequent
investment is $50. See "Shareholder Guide--How to Buy Shares of the Fund" at
page 18 and "Shareholder Guide--Shareholder Services" at page 29.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco-
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent) at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at NAV without any sales charge. See "How the Fund
Values its Shares" at page 15 and "Shareholder Guide--How to Buy Shares of the
Fund" at page 18.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers four classes of shares:
.Class A Shares: Sold with an initial sales charge of up to 5% of the offering
price.
.Class B Shares: Sold without an initial sales charge but are subject to a
contingent deferred sales charge or CDSC (declining from 5%
to zero of the lower of the amount invested or the redemption
proceeds) which will be imposed on certain redemptions made
within six years of purchase. Although Class B shares are
subject to higher ongoing distribution-related expenses than
Class A shares, Class B shares will automatically convert to
Class A shares (which are subject to lower ongoing
distribution-related expenses) approximately seven years
after purchase.
.Class C Shares: Sold without an initial sales charge and, for one year after
purchase, are subject to a 1% CDSC on redemptions. Like Class
B shares, Class C shares are subject to higher ongoing
distribution-related expenses than Class A shares but do not
convert to another class.
.Class Z Shares: Sold without either an initial sales charge or CDSC to a
limited group of investors. Class Z shares are not subject to
any ongoing service or distribution expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 20.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 24. Participants
in programs sponsored by Prudential Retirement Services should contact their
client representative for more information about selling their Class Z shares.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to pay dividends of net investment income annually, if any,
and make distributions of any net capital gains at least annually. Dividends
and distributions will be automatically reinvested in additional shares of the
Fund at NAV without a sales charge unless you request that they be paid to you
in cash. See "Taxes, Dividends and Distributions" at page 16.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
EXPENSES+ -------------- ------------------------------------- ---------------------------- --------------
<S> <C> <C> <C> <C>
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)...... 5.00% None None None
Maximum Sales Load
Imposed on Reinvested
Dividends............ None None None None
Maximum Deferred Sales
Load (as a percentage
of original purchase
price or redemption 5% during the first year, decreasing
proceeds, whichever by 1% annually to 1% in the fifth and 1% on redemptions made
is lower)............ None sixth years and 0% the seventh year* within one year of purchase. None
Redemption Fees....... None None None None
Exchange Fees......... None None None None
<CAPTION>
ANNUAL FUND OPERATING CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
EXPENSES -------------- ------------------------------------- ---------------------------- --------------
<S> <C> <C> <C> <C>
(as a percentage of av-
erage net assets)
Management Fees....... .95% .95% .95% .95%
12b-1 Fees............ .25++ 1.00 1.00 None
Other Expenses........ .24% .24% .24% .24%
---- ------------------------------------- ---------------------------- ----
Total Fund Operating
Expenses............. 1.44% 2.19% 2.19% 1.19%
==== ===================================== ============================ ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) 5% annual return and (2) redemption at
the end of each time period:
Class A..................................... $64 $93 $125 $214
Class B..................................... $72 $98 $127 $224
Class C..................................... $32 $68 $117 $252
Class Z..................................... $12 $38 $ 65 $144
You would pay the following expenses on the
same investment, assuming no redemption:
Class A..................................... $64 $93 $125 $214
Class B..................................... $22 $68 $117 $224
Class C..................................... $22 $68 $117 $252
Class Z..................................... $12 $38 $ 65 $144
</TABLE>
The above example is based on restated data for the Fund's fiscal year
ended December 31, 1997. The example should not be considered a
representation of past or future expenses. Actual expenses may be greater
or less than those shown.
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, whether
directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Fund is Managed". "Other Expenses"
includes operating expenses of the Fund, such as directors' and
professional fees, registration fees, reports to shareholders, transfer
agency and custodian fees and franchise taxes.
----------
* Class B shares will automatically convert to Class A shares
approximately seven years after purchase. See "Shareholder Guide--
Conversion Feature--Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers,
Inc., the aggregate initial sales charges, deferred sales charges and
asset-based sales charges on shares of the Fund may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation
is imposed on the Fund rather than on a per shareholder basis.
Therefore, long-term shareholders of the Fund may pay more in total
sales charges than the economic equivalent of 6.25% of such
shareholders' investment in such shares. See "How the Fund is Managed--
Distributor."
++ Although the Class A Distribution and Service Plan provides that the
Fund may pay a distribution fee of up to .30 of 1% per annum of the
average daily net assets of the Class A shares, the Distributor has
agreed to limit its distribution fees with respect to Class A shares of
the Fund to no more than .25 of 1% of the average daily net assets of
the Class A shares for the fiscal year ending December 31, 1998. Total
operating expenses without such limitation would be 1.49%. See "How the
Fund is Managed--Distributor."
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
THE INFORMATION PRESENTED IN THIS SECTION INCLUDES INFORMATION FOR FISCAL
PERIODS ENDED PRIOR TO THE FUND'S CONVERSION FROM A CLOSED-END INVESTMENT
COMPANY TO AN OPEN-END INVESTMENT COMPANY.
The following financial highlights have been audited by Ernst & Young LLP
with respect to the fiscal years ended December 31, 1995, December 31, 1996
and December 31, 1997 and by Coopers & Lybrand LLP, with respect to the
fiscal years of the Fund ended December 31, 1990, December 31, 1991, December
31, 1992 December 31, 1993 and December 31, 1994, each of whom is an
independent auditor, and whose respective reports thereon were unqualified.
This information should be read in conjunction with the financial statements
and the notes thereto, which appear in the Statement of Additional
Information. Further performance information is contained in the annual
report, which may be obtained without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS A(A)
------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1997 1996 1995(C) 1994(C) 1993(C) 1992(C) 1991(C)
-------- -------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPER-
ATING
PERFORMANCE:
Net asset value, beginning
of year........ $ 15.41 $ 15.18 $ 11.99 $ 13.56 $ 12.77 $ 11.73 $ 10.19
-------- -------- -------- ------- ------- ------- --------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income (loss).. (.12) (0.14) (.011) (.07) (0.07) (0.07) (0.10)
Net realized and
unrealized gain
(loss) on
investment
transactions... 2.60 2.64 3.82 (1.19) 2.63 1.11 5.50
-------- -------- -------- ------- ------- ------- --------
Total from
investment
operations..... 2.48 2.50 3.71 (1.26) 2.56 1.04 5.40
-------- -------- -------- ------- ------- ------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from
net investment
income......... -- -- -- -- -- -- --
Distributions
from net
realized gains
from investment
transactions... (3.42) (2.27) (0.52) (0.31) (1.77) -- (3.86)
-------- -------- -------- ------- ------- ------- --------
Total dividends
and
distributions.. (3.42) (2.27) (0.52) (0.31) (1.77) -- (3.86)
-------- -------- -------- ------- ------- ------- --------
Increase
(decrease)
resulting from
Fund share
transactions... -- -- -- -- -- -- --
-------- -------- -------- ------- ------- ------- --------
Net asset value,
end of year.... $ 14.47 $ 15.41 $ 15.18 $ 11.99 $ 13.56 $ 12.77 $ 11.73
======== ======== ======== ======= ======= ======= ========
TOTAL
RETURN(E): .... 17.33% 16.45% 31.20% (9.53)% 20.26% 8.87% 55.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end
of year (000).. $133,973 $145,120 $124,340 $86,069 $97,596 $84,169 $ 63,028
Average net
assets (000)... $139,933 $136,482 $109,740 $93,620 $90,332 $74,005 $104,819
Ratios to average net assets:
Expenses,
including
distribution
fee........... 1.37% 1.41% 1.44% 1.49%(g) 1.42%(g) 1.54%(g) 1.94%(f)(g)
Expenses,
excluding
distribution
fee........... 1.19% 1.23% 1.27% 1.32%(g) 1.30%(g) 1.44%(g) 1.90%(g)
Net investment
income (loss). (.82)% (0.93)% (0.83)% (0.59)% (0.53)% (0.63)% (0.83)%
Portfolio
turnover
rate(d)........ 182% 113% 106% 110% 112% 107% 115%
Asset coverage
of borrowing... -- -- -- -- -- -- --
Total debt
outstanding
(000 omitted).. -- -- -- -- -- -- --
Average
commission rate
paid per share. $ .0590 $ .0588 $ .0592 N/A N/A N/A N/A
<CAPTION>
1990(C) 1989(B)(C) 1988(B)(C)
--------------- ---------------- ----------------
<S> <C> <C> <C>
PER SHARE OPER-
ATING
PERFORMANCE:
Net asset value, beginning
of year........ $ 11.42 $ 8.55 $ 7.40
--------------- ---------------- ----------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income (loss).. 0.02 (0.25) (0.14)
Net realized and
unrealized gain
(loss) on
investment
transactions... (0.66) 3.39 1.21
--------------- ---------------- ----------------
Total from
investment
operations..... (0.64) 3.14 1.07
--------------- ---------------- ----------------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from
net investment
income......... (0.02) -- --
Distributions
from net
realized gains
from investment
transactions... (0.06) (0.28) --
--------------- ---------------- ----------------
Total dividends
and
distributions.. (0.08) (0.28) --
--------------- ---------------- ----------------
Increase
(decrease)
resulting from
Fund share
transactions... (0.51) 0.01 0.08
--------------- ---------------- ----------------
Net asset value,
end of year.... $ 10.19 $ 11.42 $ 8.55
=============== ================ ================
TOTAL
RETURN(E): .... (10.03)% 36.83% 15.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end
of year (000).. $120,987 $108,415 $81,559
Average net
assets (000)... $116,094 $ 98,874 $79,103
Ratios to average net assets:
Expenses,
including
distribution
fee........... 1.63%(f)(g) 4.55%(f)(g) 4.60%(f)(g)
Expenses,
excluding
distribution
fee........... 1.63%(g) 4.55%(g) 4.60%(g)
Net investment
income (loss). 0.24% (2.36)% (1.64)%
Portfolio
turnover
rate(d)........ 149% 120% 183%
Asset coverage
of borrowing... -- 371% 372%
Total debt
outstanding
(000 omitted).. -- $ 40,000 $30,000
Average
commission rate
paid per share. N/A N/A N/A
</TABLE>
---------
<TABLE>
<C> <S>
(a) Prior to June 10, 1991, the Fund was organized as a closed-end
investment company. On June 10, 1991, the Fund was re-organized as an
open-end investment company and commenced offering of Class A shares.
(b) Not audited by Ernst & Young LLP or Coopers & Lybrand LLP.
(c) Calculated based upon weighted average shares outstanding during the
periods due to effects of open-ending, Fund share sales and the
resulting share issuance from a stock rights offering.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(e) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return does not
consider the effects of sales loads. Total return for periods of less
than one full year are not annualized.
(f) Ratios of expenses, before loan interest, commitment fees and
nonrecurruing expenses were 1.71% in 1991, 1.16% in 1990, 1.14% in
1989, 1.29% in 1988 and 1.25% in 1987 for Class A Shares, respectively.
(g) Current year amounts have been restated from prior periods
presentation.
N/A -- Not applicable.
</TABLE>
5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
THE INFORMATION PRESENTED IN THIS SECTION INCLUDES INFORMATION FOR FISCAL
PERIODS ENDED PRIOR TO THE FUND'S CONVERSION FROM A CLOSED-END INVESTMENT
COMPANY TO AN OPEN-END INVESTMENT COMPANY.
The following financial highlights have been audited by Ernst & Young LLP
with respect to the fiscal years ended December 31, 1995, December 31, 1996,
and December 31, 1997 and by Coopers & Lybrand LLP, with respect to the
fiscal years of the Fund ended December 31, 1990, December 31, 1991, December
31, 1992, December 31, 1993 and December 31, 1994, each of whom is an
independent auditor, and whose respective reports thereon were unqualified.
This information should be read in conjunction with the financial statements
and the notes thereto, which appear in the Statement of Additional
Information. Further performance information is contained in the annual
report which may be obtained without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS B(B)
------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995(C) 1994(C) 1993(C) 1992(C)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPER-
ATING
PERFORMANCE:
Net asset value, beginning
of period..... $14.48 $ 14.49 $ 11.56 $ 13.18 $ 12.56 $ 11.65
-------- -------- -------- -------- -------- --------
INCOME FROM IN-
VESTMENT
OPERATIONS:
Net investment
loss........... (0.23) (0.24) (0.22) (0.17) (0.18) (0.16)
Net realized and
unrealized gain
(loss) on
investment
transactions... 2.43 2.50 3.67 (1.14) 2.57 1.07
-------- -------- -------- -------- -------- --------
Total from in-
vestment opera-
tions.......... 2.20 2.26 3.45 (1.31) 2.39 0.91
-------- -------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Distributions
from net
realized gains
from investment
transactions... (3.42) (2.27) (0.52) (0.31) (1.77) --
-------- -------- -------- -------- -------- --------
Net asset value,
end of period.. $13.26 $ 14.48 $ 14.49 $ 11.56 $ 13.18 $ 12.56
======== ======== ======== ======== ======== ========
TOTAL
RETURN(E): .... 16.48% 15.54% 30.11% (10.20)% 19.21% 7.81%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end
of period
(000).......... $284,191 $317,768 $290,751 $257,059 $252,911 $123,306
Average net as-
sets (000)..... $300,520 $304,841 $265,597 $261,285 $179,456 $ 80,531
Ratios to average net assets:
Expenses, in-
cluding dis-
tribution fee. 2.19% 2.23% 2.27% 2.32%(h) 2.30%(h) 2.44%(h)
Expenses, ex-
cluding dis-
tribution fee. 1.19% 1.23% 1.27% 1.32%(h) 1.30%(h) 1.44%(h)
Net investment
income (loss). (1.64)% (1.75)% (1.66)% (1.39)% (1.40)% (1.56)%
Portfolio turn-
over rate(d)... 182% 113% 106% 110% 112% 107%
Average
commission rate
paid per share. $ .0590 $ .0588 $ .0592 N/A N/A N/A
<CAPTION>
CLASS C
-----------------------------------------------------------------
JUNE 10, AUGUST 1,
1991 YEAR ENDED 1994(F)
THROUGH DECEMBER 31, THROUGH
DECEMBER 31, --------------------------- DECEMBER 31,
1991(C) 1997 1996 1995(C) 1994(C)
-------------------- -------- -------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPER-
ATING
PERFORMANCE:
Net asset value, beginning
of period..... $ 12.43 $14.48 $14.49 $11.56 $11.62
-------------------- -------- -------- --------- ----------------
INCOME FROM IN-
VESTMENT
OPERATIONS:
Net investment
loss........... (0.08) (0.22) (0.22) (0.22) (0.05)
Net realized and
unrealized gain
(loss) on
investment
transactions... 3.16 2.42 2.48 3.67 (0.01)
-------------------- -------- -------- --------- ----------------
Total from in-
vestment opera-
tions.......... 3.08 2.20 2.26 3.45 (0.06)
-------------------- -------- -------- --------- ----------------
LESS DIVIDENDS AND DISTRIBUTIONS:
Distributions
from net
realized gains
from investment
transactions... (3.86) (3.42) (2.27) (0.52) --
-------------------- -------- -------- --------- ----------------
Net asset value,
end of period.. $ 11.65 $13.26 $14.48 $14.49 $11.56
==================== ======== ======== ========= ================
TOTAL
RETURN(E): .... 26.82% 16.48% 15.54% 30.11% (0.52)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end
of period
(000).......... $12,877 $6,750 $6,735 $4,897 $1,100
Average net as-
sets (000)..... $ 1,922 $6,796 $5,862 $2,961 $ 226
Ratios to average net assets:
Expenses, in-
cluding dis-
tribution fee. 3.77%(a)(g)(h) 2.19% 2.33% 2.27% 6.23%(a)(h)
Expenses, ex-
cluding dis-
tribution fee. 2.77%(a)(h) 1.19% 1.23% 1.27% 5.23%(a)(h)
Net investment
income (loss). (3.17)%(a) (1.64)% (1.75)% (1.63)% (3.36)%(a)
Portfolio turn-
over rate(d)... 115% 182% 113% 106% 110%
Average
commission rate
paid per share. N/A $.0590 $.0588 $.0592 N/A
</TABLE>
---------
<TABLE>
<C> <S>
(a) Annualized.
(b) Prior to June 10, 1991, the Fund was organized as a closed-end
investment company. On June 10, 1991, the Fund was re-organized as an
open-end investment company and commenced offering of Class B shares.
(c) Calculated based upon weighted average shares outstanding during the
periods due to effects of open-ending, Fund share sales and the
resulting share issuance from a stock rights offering.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(e) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return does not
consider the effects of sales loads. Total return for periods of less
than one full year are not annualized.
(f) Commencement of offering of Class C shares.
(g) Ratio of expenses, before loan interest, commitment fees and
nonrecurring expenses was 3.76% for Class B shares.
(h) Current year amounts have been restated from prior period presentation.
N/A -- Not applicable
</TABLE>
6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS Z SHARES)
The following financial highlights have been audited by Ernst & Young LLP,
independent auditors, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and the notes
thereto, which appear in the Statement of Additional Information. The financial
highlights contain selected data for a share of Class Z common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. The information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS Z
------------
MARCH 18,
1997(A)
THROUGH
DECEMBER 31,
1997
------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning period............................... $14.48
------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss............................................. (0.22)
Net realized and unrealized gains on investment and foreign cur-
rency transactions............................................. 3.18
------
Total from investment operations................................ 2.96
------
LESS DISTRIBUTIONS
Distributions from net realized gains from investment transac-
tions.......................................................... (2.91)
------
Net asset value, end of period.................................. $14.53
======
TOTAL RETURN(C)................................................. 21.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................................. $ 633
Average net assets (000)........................................ $ 121
Ratios to average net assets:
Expenses, including distribution fees......................... 1.19%(b)
Expenses, excluding distribution fees......................... 1.19%(b)
Net investment income......................................... (.85)%(b)
Portfolio turnover rate......................................... 182%
Average commission rate paid per share.......................... $.0590
</TABLE>
- ----------
(a) Commencement of offering of Class Z shares.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of the period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
7
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS CAPITAL APPRECIATION. THE FUND SEEKS TO
ACHIEVE ITS OBJECTIVE BY INVESTING PRIMARILY IN COMMON STOCKS AND SECURITIES
CONVERTIBLE INTO OR EXERCISABLE FOR COMMON STOCKS (SUCH AS CONVERTIBLE
PREFERRED STOCKS AND CONVERTIBLE DEBENTURES), THE EARNINGS AND SECURITIES
PRICES OF WHICH THE INVESTMENT ADVISER EXPECTS TO GROW AT A RATE ABOVE THAT OF
THE S&P 500. THERE CAN BE NO ASSURANCE THAT SUCH OBJECTIVE WILL BE ACHIEVED.
See "Investment Objective and Policies" in the Statement of Additional
Information.
AS WITH AN INVESTMENT IN ANY MUTUAL FUND, AN INVESTMENT IN THE FUND CAN
DECREASE IN VALUE AND YOU CAN LOSE MONEY.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND THEREFORE MAY NOT
BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940,
AS AMENDED (THE INVESTMENT COMPANY ACT). FUND POLICIES THAT ARE NOT FUNDAMENTAL
MAY BE MODIFIED BY THE BOARD OF DIRECTORS.
Pursuant to the Investment Adviser's growth equity management approach, under
normal market conditions the Fund intends to invest at least 90% of its total
assets in a diversified portfolio of equity securities such as common stocks,
preferred stocks and convertible preferred stocks, which the Investment Adviser
believes have above-average earnings growth prospects based on a company-by-
company analysis (rather than on broader analyses of specific industries or
sectors of the economy).
THE INVESTMENT ADVISER SEEKS TO IDENTIFY STOCKS OF COMPANIES WHICH IT EXPECTS
TO ENTER INTO AN ACCELERATING EARNINGS PERIOD, TO ATTRACT INCREASING
INSTITUTIONAL SPONSORSHIP OR TO DEMONSTRATE STRONG PRICE APPRECIATION RELATIVE
TO THEIR INDUSTRIES AND TO BROAD MARKET AVERAGES. The companies in which the
Fund invests do not necessarily have records of past high growth. Examples of
possible investments include companies with cyclical earnings, companies with
new and innovative products or services, companies facing a changed economic,
competitive or regulatory environment, companies with a new or different
management approach and initial public offerings of companies which the
Investment Adviser believes offer above-average growth potential.
THE FUND INTENDS TO INVEST PRIMARILY IN COMPANIES HAVING MIDDLE MARKET
CAPITALIZATIONS AND ABOVE. Stock market capitalization is calculated by
multiplying the total number of a company's issued and outstanding common
shares by the per share market price of such shares. The Investment Adviser
believes that the over $500 million capitalization sector will continue for the
foreseeable future to offer a sufficient number of stocks having growth
characteristics which meet the Fund's investment criteria, so that it is
unlikely the Fund will need to consider investing in the under $500 million
capitalization sector. The Fund would only consider investments in the under
$500 million sector if sufficient attractive growth stocks were not available
in the over $500 million sector and if ample opportunity were believed to exist
in the under $500 million sector sufficient to satisfy the requirements of all
accounts the Investment Adviser manages which are primarily invested in the
under $500 million sector. Companies which have market capitalizations of $500
million to approximately $5 billion are generally referred to as "middle market
capitalization" companies. The Investment Adviser anticipates that the Fund's
investments will continue to be primarily in companies with smaller and medium
market capitalizations compared to those of the S&P 500 as a whole.
The Investment Adviser uses an extensive network of more than 75 brokerage
firms throughout the United States to identify equity investment opportunities.
The Investment Adviser's staff then applies its own computer-assisted
fundamental analysis to such individual potential investments, building
portfolios of equity securities which the Investment Adviser believes have
above-average earnings growth prospects. Investments are closely monitored with
a view to the sale of portfolio securities when the reasons for the initial
purchases are no longer valid.
8
<PAGE>
THE FUND RETAINS CASH AND EQUIVALENTS IN AMOUNTS DEEMED ADEQUATE FOR CURRENT
NEEDS, AND MAY MAKE SHORT-TERM INVESTMENTS DURING PERIODS WHEN, IN THE OPINION
OF THE INVESTMENT ADVISER, ATTRACTIVE EQUITY INVESTMENTS ARE NOT AVAILABLE.
See "Other Investments and Policies--Short-Term Investments".
The Fund's net asset value may be subject to above-average fluctuations
compared to the net asset values of other investment companies, because
greater than average risk will be assumed in investing in companies for the
purpose of seeking to achieve higher than average capital growth. The Fund's
investment policies may result in portfolio turnover substantially greater
than the turnover of many other investment companies. See "Other Investments
and Policies--Portfolio Turnover".
OTHER INVESTMENTS AND POLICIES
CONVERTIBLE SECURITIES AND WARRANTS
The Fund may invest in securities which may be exchanged for, converted into
or exercised to acquire a predetermined number of shares of the issuer's
common stock at the option of the Fund during a specified time period (such as
convertible preferred stocks, convertible debentures and warrants). See
"Investment Objective and Policies--Investment Policies and Practices--
Convertible Securities and Warrants" in the Statement of Additional
Information.
FOREIGN SECURITIES
The Fund may invest up to 20% of its total assets in securities of foreign
issuers and in American Depository Receipts, which are receipts issued by an
American bank or trust company evidencing ownership of underlying securities
issued by a foreign issuer. Investments in foreign securities involve certain
inherent risks, such as exchange rate fluctuations, political, social or
economic instability of the country of issue, diplomatic developments which
could affect the assets of the Fund held in foreign countries, and the
possible imposition of exchange controls, withholding taxes on dividends or
interest payments, confiscatory taxes or expropriation. There may be less
government supervision and regulation of foreign securities exchanges, brokers
and listed companies than exists in the United States, foreign brokerage
commissions and custody fees are generally higher than those in the United
States, and foreign security settlements will in some instances be subject to
delays and related administrative uncertainties. The Fund will probably have
greater difficulty in obtaining or enforcing a court judgment abroad than it
would have doing so within the United States. Less information may be publicly
available about a foreign company than about a domestic company, and foreign
companies may not be subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies. In
addition, foreign securities markets have substantially less volume than the
New York Stock Exchange and securities of some foreign companies are less
liquid and more volatile than securities of comparable U.S. companies.
SHORT-TERM INVESTMENTS
The Fund may invest in short-term investments during periods when, in the
opinion of the Investment Adviser, attractive equity investments are
temporarily unavailable or other circumstances or market conditions warrant
such investments. Under normal circumstances no more than 10% of the Fund's
total assets will be retained in cash and equivalents. Such investments may
include U.S. Treasury Bills or other U.S. Government or Government agency
obligations; certificates of deposit of the 50 largest commercial banks in the
United States, measured by total assets as shown by their most recent annual
financial statements; commercial paper rated A-1 or A-2 by Standard & Poor's
Corporation or P-1 or P-2 by Moody's Investors Service or, if not rated,
issued by companies having an outstanding debt issue rated AA or better by
Standard & Poor's or Aa or better by Moody's; shares of money market mutual
funds; or repurchase agreements with respect to such securities.
REPURCHASE AGREEMENTS
The Fund may on occasion enter into repurchase agreements, whereby the seller
of a security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few
9
<PAGE>
days, although it may extend over a number of months. The resale price is in
excess of the purchase price, reflecting an agreed-upon rate of return
effective for the period of time the Fund's money is invested in the security.
The Fund's repurchase agreements will at all times be fully collateralized in
an amount at least equal to the resale price. The instruments held as
collateral are valued daily and, if the value of the instruments declines, the
Fund will require additional collateral. If the seller defaults and the value
of the collateral securing the repurchase agreement declines, the Fund may
incur a loss.
PUT AND CALL OPTIONS
The Fund is authorized to purchase listed covered "put" and "call" options
with respect to securities which are otherwise eligible for purchase by the
Fund and with respect to the S&P 500, subject to the following restrictions:
the aggregate premiums on call options purchased by the Fund may not exceed 5%
of the market value of the total assets of the Fund as of the date the call
options are purchased, and the aggregate premiums on the put options may not
exceed 5% of the market value of the total assets of the Fund as of the date
such options are purchased. A "put" gives a holder the right to require the
writer of the put to purchase from the holder a security at a specified price,
and a "call" gives a holder the right to require the writer of the call to
sell a security to the holder at a specified price. See "Investment Objective
and Policies--Investment Policies and Practices--Put and Call Options" in the
Statement of Additional Information.
SHORT SALES
The Investment Adviser believes that its growth equity management approach,
in addition to identifying equity securities the earnings and prices of which
it expects to grow at a rate above that of the S&P 500, also identifies
securities the prices of which can be expected to decline. Therefore, the Fund
is authorized to make short sales of securities it owns or has the right to
acquire at no added cost through conversion or exchange of other securities it
owns (referred to as short sales "against the box") and to make short sales of
securities which it does not own or have the right to acquire. Short sales by
the Fund that are not made "against the box" create opportunities to increase
the Fund's return but, at the same time, involve special risk considerations
and may be considered a speculative technique. Since the Fund in effect
profits from a decline in the price of the securities sold short without the
need to invest the full purchase price of the securities on the date of the
short sale, the Fund"s asset value per share will tend to increase more when
the securities it has sold short decrease in value, and to decrease more when
the securities it has sold short increase in value, than would otherwise be
the case if it had not engaged in such short sales. Furthermore, under adverse
market conditions the Fund might have difficulty purchasing securities to meet
its short sale delivery obligations, and might have to sell portfolio
securities to raise the capital necessary to meet its short sale obligations
at a time when fundamental investment considerations would not favor such
sales.
If the Fund makes a short sale "against the box", the Fund would not
immediately deliver the securities sold and would not receive the proceeds
from the sale. The seller is said to have a short position in the securities
sold until it delivers the securities sold, at which time it receives the
proceeds of the sale. The Fund's decision to make a short sale "against the
box" may be a technique to hedge against market risks when the investment
Adviser believes that the price of a security may decline, causing a decline
in the value of a security owned by the Fund or a security convertible into or
exchangeable for such security. In such case, any future losses in the Fund's
long position would be reduced by a gain in the short position. The Investment
Adviser has had experience in using short sales for its separate accounts
since 1985. See "Investment Objective and Policies--Investment Policies and
Practices--Short Sales" in the Statement of Additional Information.
In the view of the Securities and Exchange Commission (the "Commission"), a
short sale by the Fund involves the creation of a "senior security" as such
term is defined in the Investment Company Act, unless the sale is "against the
box" and the securities sold short are placed in a segregated account (not
with the broker), or the Fund"s obligation to deliver the securities sold
short is "covered" by placing in a segregated account (not with the broker)
cash or U.S. Government securities in an amount equal to the difference
between the market value of the securities sold short at the time of the short
sale and any cash or U.S. Government securities required to be deposited as
collateral with a broker in connection with the sale (not including the
proceeds from the short
10
<PAGE>
sale), which difference is adjusted daily for changes in the value of the
securities sold short. The total value of the cash and U.S. Government
securities deposited with the broker and otherwise segregated may not at any
time be less than the market value of the securities sold short at the time of
the short sale. As a matter of policy, the Company's Board of Directors has
determined that the Fund will not make short sales of securities or maintain a
short position if to do so would create liabilities or require collateral
deposits and segregation of assets aggregating more than 25% of the Fund's
total assets, taken at market value. See "Investment Restrictions" in the
Statement of Additional Information.
SECURITIES LENDING
To increase its income, the Fund may lend its portfolio securities to
financial institutions such as banks and brokers if the loan is collateralized
in accordance with applicable regulatory requirements. The Company's Board of
Directors has adopted an operating policy that limits the amount of such loans
to not more than 10% of the value of the total assets of the Fund. See
"Investment Restrictions" in the Statement of Additional Information. During
the time portfolio securities are on loan, the borrower pays the Fund an
amount equivalent to any dividends or interest paid on such securities, and
the Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower who has
delivered equivalent collateral or secured a letter of credit. Such loans
involve risks of delay in receiving additional collateral or in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, such securities lending will be
made only when, in the Investment Adviser's judgment, the income to be earned
from the loans justifies the attendant risks. Loans are subject to termination
at the option of the Fund or the borrower. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent collateral
to the borrower or placing broker. The Fund does not have the right to vote
securities on loan, but would terminate the loan and regain the right to vote
if that were considered important with respect to the investment.
PORTFOLIO TURNOVER
The Investment Adviser's growth equity management approach results in
substantial portfolio turnover, as the Investment Adviser sells portfolio
securities when it believes the reasons for their initial purchase are no
longer valid. The Fund's portfolio turnover rates for the fiscal years ended
December 31, 1997 and December 31, 1996 were 182% and 113%, respectively.
Although it is not possible to predict future portfolio turnover rates
accurately, and such rates may vary greatly from year to year, the Fund
anticipates that its annual portfolio turnover rate will not exceed 200%.
Portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities by the monthly average value
of securities in the portfolio during the year, excluding portfolio securities
the maturities of which at the time of acquisition were one year or less. See
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information.
Portfolio turnover will not otherwise be a limiting factor in making
investment decisions, and the Fund's investment policies may result in
portfolio turnover substantially greater than that of other investment
companies. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expense than a lower rate, which expense must be borne by
the Fund and its shareholders. High portfolio turnover may also result in the
realization of substantial net short-term capital gains, and any distributions
resulting from such gains will be ordinary income for federal income tax
purposes. See "'Dividends, Distributions and Taxes" in the Statement of
Additional Information.
BORROWING
The Fund is permitted to borrow money from banks in amounts of up to 30% of
its total assets (calculated when the loan is made) only for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Board of Directors reserves the right to change this policy in the future,
without shareholder approval, if it concludes that such a change would be in
the best interests of the Fund and its shareholders.
11
<PAGE>
The use of borrowing by the Fund is a speculative technique that creates an
opportunity for greater total return but, at the same time, involves special
risk considerations that may not be associated with other funds having similar
objectives and policies. Since substantially all the Fund's assets fluctuate in
value, whereas the interest obligation resulting from a borrowing will be fixed
by the terms of the Fund's agreement with its lender, the asset value per share
of the Fund will tend to increase more when its portfolio securities increase
in value and to decrease more when its portfolio assets decrease in value than
would otherwise be the case if the Fund did not borrow funds. In addition,
interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds
(or on the assets that were retained rather than sold to meet the needs for
which funds were borrowed). Under adverse market conditions, the Fund might
have to sell portfolio securities to meet interest or principal payments at a
time when fundamental investment considerations would not favor such sales. See
"Borrowing Policy" in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE COMPANY HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, INVESTMENT ADVISER AND DISTRIBUTOR, AS SET FORTH
BELOW, DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S INVESTMENT
ADVISER FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
For the year ended December 31, 1997, the Fund's total expenses as a
percentage of average net assets for Class A, Class B, Class C and Class Z
shares were 1.37%, 2.19%, 2.19% and 1.19%, respectively. See "Financial
Highlights".
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE EQUAL
TO .95 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE FUND. PIFM is organized in
New York as a limited liability Company. For the fiscal year ended December 31,
1997, the Fund paid management fees to PIFM of .95% of the Fund's average net
assets. See "Manager" in the Statement of Additional Information.
As of January 31, 1998 PIFM served as the manager to 42 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $63 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE COMPANY, PIFM SUPERVISES THE
INVESTMENT OPERATIONS OF THE COMPANY AND ADMINISTERS THE COMPANY'S CORPORATE
AFFAIRS. See "Manager" in the Statement of Additional Information.
INVESTMENT ADVISER
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, 600 WEST BROADWAY, 29TH FLOOR, SAN
DIEGO, CALIFORNIA 92101, HAS SERVED AS THE INVESTMENT ADVISER TO THE FUND SINCE
ITS INCEPTION. THE INVESTMENT ADVISER MANAGES THE INVESTMENT OPERATIONS OF THE
FUND AND THE COMPOSITION OF THE FUND'S PORTFOLIO, INCLUDING THE PURCHASE,
RETENTION AND DISPOSITION THEREOF. It is compensated for its services by PIFM,
not the Fund, at a rate of .75 of 1% of the
12
<PAGE>
average daily net assets of the Fund. PIFM continues to have responsibility
for all investment advisory services in accordance with the Management
Agreement and supervises NACM's performance of such services. For the fiscal
year ended December 31, 1997, PIFM paid subadvisory fees to NACM of .75% of
the Fund's average net assets.
The Investment Adviser currently manages a total of approximately $30 billion
of assets for a variety of clients, including employee benefit plans of
corporations, public retirement systems and unions, university endowments,
foundations and other institutional investors and individuals. The Investment
Adviser was organized in 1984 as a California limited partnership. Its general
partner is Nicholas-Applegate Capital Management Holdings, L.P., a California
limited partnership controlled by Arthur E. Nicholas. He and twenty other
partners manage a staff of approximately 475 employees.
The Fund is managed under the general supervision of Arthur E. Nicholas (who
has been the Chief Investment Officer of the Investment Adviser since its
organization) and Catherine Somhegyi, the Investment Adviser's Chief
Investment Officer-Global Equity, who has been employed by the Investment
Adviser since 1987. A team management approach is utilized in connection with
the day-to-day management of the Fund's portfolio. The members of the team are
Andrew B. Gallagher, Maren Lindstrom and Thomas J. Sullivan. Mr. Gallagher has
been employed by Nicholas-Applegate Capital Management since 1992. Ms.
Lindstrom has been employed by Nicholas-Applegate Capital Management since
1994; prior thereto, she was employed by Societe Generale, Banque D'Orsay and
Prudential Asset Management. Mr. Sullivan has been employed by Nicholas-
Applegate Capital Management since 1994; prior thereto he was employed by
Donaldson, Lufkin & Jenrette Securities Corporation.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE
DISTRIBUTOR OF THE CLASS A, CLASS B, CLASS C AND CLASS Z SHARES OF THE FUND.
IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA (PRUDENTIAL).
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY THE PLANS) ADOPTED BY THE COMPANY
UNDER RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A SEPARATE DISTRIBUTION
AGREEMENT (THE DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF
DISTRIBUTING THE FUND'S CLASS A, CLASS B AND CLASS C SHARES. The Distributor
also incurs the expenses of distributing the Fund's Class Z shares under the
Distribution Agreement, none of which is reimbursed by or paid for by the
Fund. These expenses include commissions and account servicing fees paid to,
or on account of, financial advisers of Prudential Securities and
representatives of Pruco Securities Corporation (Prusec), an affiliated
broker-dealer, commissions and account servicing fees paid to, or on account
of, other broker-dealers or financial institutions (other than national banks)
which have entered into agreements with the Distributor, advertising expenses,
the cost of printing and mailing prospectuses to potential investors and
indirect and overhead costs of Prudential Securities and Prusec associated
with the sale of Fund shares, including lease, utility, communications and
sales promotion expenses.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL
RATE OF UP TO .30% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of up to .25 of 1%) may not exceed .30 of 1%
of the average daily net assets of the Class A shares. The Distributor has
agreed to limit its distribution-related fees under the Class A Plan to .25 of
1% of the average daily net assets of the Class A shares for the fiscal year
ending December 31, 1998.
13
<PAGE>
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES AT
AN ANNUAL RATE OF UP TO 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE
CLASS B AND CLASS C SHARES. The Class B and Class C Plans provide for the
payment to the Distributor of (i) an asset-based sales charge of .75 of 1% of
the average daily net assets of each of the Class B and Class C shares, and
(ii) a service fee of .25 of 1% of the average daily net assets of each of the
Class B and Class C shares. The service fee is used to pay for personal
service and/or the maintenance of shareholder accounts. The Distributor also
receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."
For the fiscal year ended December 31, 1997, the Fund paid distribution
expenses of .25%, 1.00% and 1.00% of the average net assets of the Class A,
Class B and Class C shares, respectively. The Fund records all payments made
under the Plans as expenses in the calculation of net investment income. See
"Distributor" in the Statement of Additional Information.
Distribution expenses attributable to the sale of Class A, Class B or Class C
shares of the Fund will be allocated to each class based upon the ratio of
sales of each class to the sales of all shares of the Fund other than expenses
allocable to a particular class. The distribution fee and sales charge of one
class will not be used to subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Company, including a
majority of the Directors who are not "interested persons" of the Company (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to
the Plan (the "Rule 12b-1 Directors"), vote annually to continue the Plan.
Each Plan may be terminated at any time by vote of a majority of the Rule 12b-
1 Directors or of a majority of the outstanding shares of the applicable class
of the Fund. The Fund will not be obligated to pay distribution and service
fees incurred under any plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the Class
A, Class B and Class C Plans, the Manager (or one of its affiliates) may make
payments out of its own resources to dealers (including Prudential Securities)
and other persons which distribute shares of the Fund (including Class Z
shares). Such payments may be calculated by reference to the net asset value
of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Fund provided that the
commissions, fees or other remuneration it receives are fair and reasonable.
Subject to obtaining the best price and execution, brokers' sales of the
Fund's shares may be considered in selecting brokers, and brokers who provide
supplemental research, market and statistical information and other research
services and products to the Investment Adviser may receive orders for
transactions by the Fund. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
FEE WAIVERS AND SUBSIDY
PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. Fee waivers
and expense subsidize will increase the Fund's total return. See "Performance
Information" in the Statement of Additional Information and "Fund Expenses".
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Company. Its mailing
address is P.O. Box 1713, Boston, Massachusetts 02105.
14
<PAGE>
Prudential Mutual Fund Services LLC, Raritan Plaza One, Edison, New Jersey
08837, serves as the Fund's Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PIFM. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
YEAR 2000
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of their outside service
providers. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such event could have a negative impact on handling securities
trades, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that their will be no adverse
impact on the Fund, the Manager, the Distributor, the Transfer Agent and the
Custodian have advised the Fund that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000 and
expect that their systems, and those of their outside service providers, will
be adapted in time for that event.
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
BOARD OF DIRECTORS HAS FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF
THE FUND'S NET ASSET VALUE TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued according to market quotations or, if such
quotations are not readily available, at fair value as determined in good faith
under procedures established by the Company's Board of Directors. See "Net
Asset Value" in the Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of the Fund's portfolio securities do not materially affect the
NAV.
Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different NAVs and
dividends. The NAV of Class B and Class C shares will generally be lower than
the NAV of Class A shares as a result of the larger distribution-related fee to
which Class B and Class C shares are subject. The NAV of Class Z shares will
generally be higher than the NAV of the other three classes because Class Z
shares are not subject to any distribution and/or service fees. It is expected,
however, that the NAV of the four classes will tend to converge immediately
after the recording of dividends, if any, which will differ by approximately
the amount of the distribution and/or service fee expense accrual differential
among the classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE COMPANY MAY ADVERTISE THE FUND'S AVERAGE ANNUAL TOTAL
RETURN, AND AGGREGATE TOTAL RETURN AND YIELD, IN ADVERTISEMENTS AND SALES
LITERATURE. TOTAL RETURN IS CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C
AND CLASS Z SHARES. These figures are based on historical earnings and are not
intended to indicate future performance. The total return shows how much an
investment in the Fund would have increased (decreased) over a specified period
of time (i.e., one, five or ten years or since inception of the Fund) assuming
that all distributions and dividends by the Fund were reinvested on the
reinvestment dates during the period. The aggregate total return reflects
actual performance over a stated period of time. Average annual total return is
a hypothetical rate of return that, if achieved annually, would have produced
15
<PAGE>
the same aggregate total return if performance had been constant over the
entire period. Average annual total return smooths out variations in
performance and takes into account any applicable initial or contingent
deferred sales charges. Neither average annual total return nor aggregate total
return takes into account any federal or state income taxes which may be
payable upon redemption. The yield refers to the income generated by an
investment in the Fund over a one-month or 30-day period. This income is then
annualized; that is, the amount of income generated by the investment during
that 30-day period is assumed to be generated each 30-day period for twelve
periods and is shown as a percentage of the investment. The income earned on
the investment is also assumed to be reinvested at the end of the sixth 30-day
period. The Fund also may include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc., Morningstar Publications,
Inc., other industry publications, business periodicals and market indices. See
"Performance Information" in the Statement of Additional Information. Further
performance information is contained in the Fund's annual and semi-annual
reports to Shareholders, which may be obtained without charge. See "Shareholder
Counsel--Shareholder Services--Reports to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE FUND WILL
NOT BE SUBJECT TO FEDERAL INCOME TAX ON ITS NET INVESTMENT INCOME AND CAPITAL
GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See "Dividends,
Distributions and Taxes" in the Statement of Additional Information.
TAXATION OF SHAREHOLDERS
Any dividends out of net taxable investment income, together with any
distributions of short-term gains (i.e., the excess of net short-term capital
gains over net long-term capital losses) distributed to shareholders, will be
taxable as ordinary income to the shareholders whether or not reinvested. Any
net capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses) distributed to shareholders will be taxable as long-
term capital gains to the shareholders, whether or not reinvested and
regardless of the length of time a shareholder has owned his or her shares. The
maximum long-term capital gains rate for individual shareholders for securities
held between 12 and 18 months currently is 28% and for securities held more
than 18 months is 20%. The maximum tax rate for ordinary income is 39.6%. The
maximum long-term capital gains rate for corporate shareholders currently is
the same as the maximum tax rate for ordinary income.
The Fund has obtained opinions of counsel to the effect that neither the
conversion of Class B shares into Class A shares nor the exchange of any class
of the Fund's shares for any other class of its shares constitutes a taxable
event for federal income tax purposes. However, such opinions are not binding
on the Internal Revenue Service.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Company is required to withhold and remit
to the U.S. Treasury 31% of dividends, capital gain income and redemption
proceeds payable to certain individuals and certain non-corporate shareholders
who fail to furnish correct tax identification numbers on IRS Form W-9 (or IRS
Form W-8 in the case of certain foreign shareholders). For shareholders who are
otherwise subject to backup withholding under federal income tax law, only
dividends and capital gains distributions are subject to withholding. Dividends
of net investment income and short-term capital gains paid to a foreign
shareholder will generally be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, ANNUALLY
AND MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY NET CAPITAL GAINS. Dividends
paid by the Fund with respect to each class of shares, to the extent any
dividends
16
<PAGE>
are paid, will be calculated in the same manner, at the same time, on the same
day and will be in the same amount except that each class (other than Class Z)
will bear its own distribution expenses, generally resulting in lower dividends
for Class B and Class C shares in relation to Class A and Class Z shares and
lower dividends for Class A shares in relation to Class Z shares. Distributions
of net capital gains, if any, will be paid in the same amount per share for
each class of shares. See "How The Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE, OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Shareholders who acquired shares prior to the conversion
of the Company from a closed-end company to an open-end company, and who did
not elect to participate in the Fund's dividend reinvestment plan, will
continue to receive dividends and distributions in cash unless further
elections are made to the Fund. Such election should be submitted to Prudential
Mutual Fund Services, Inc., Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year of both the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. If you
hold shares through Prudential Securities, you should contact your financial
adviser to elect to receive dividends and distributions in cash.
IF YOU BUY SHARES ON OR IMMEDIATELY BEFORE THE RECORD DATE (THE DATE THAT
DETERMINED WHO RECEIVES THE DIVIDEND), YOU WILL RECEIVE A PORTION OF THE MONEY
YOU INVESTED AS A TAXABLE DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE TIMING
OF DIVIDENDS WHEN BUYING SHARES OF THE FUND.
Dividends paid by the Fund will be eligible for the 70% dividends received
deduction for corporate shareholders, to the extent that the Fund's income is
derived from certain dividends received from domestic corporations. Capital
gains distributions are not eligible for the 70% dividends received deduction.
Shareholders are advised to consult their own tax advisers regarding specific
questions as to federal, state or local taxes.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE COMPANY WAS INCORPORATED IN MARYLAND ON JANUARY 30, 1987 UNDER THE NAME
"NICHOLAS-APPLEGATE GROWTH EQUITY FUND, INC." AS A CLOSED-END, DIVERSIFIED
MANAGEMENT INVESTMENT COMPANY. THE FUND OPERATED AS A CLOSED-END FUND UNTIL
JUNE 10, 1991. AS A CLOSED-END INVESTMENT COMPANY DURING THE 1990 CALENDAR
YEAR, THE FUND'S SHARES TRADED AT AN AVERAGE DISCOUNT FROM NET ASSET VALUE OF
7.52%. BECAUSE OF THIS DISCOUNTED VALUATION OF ITS SHARES, THE COMPANY
CONVERTED TO AN OPEN-END INVESTMENT COMPANY IN ACCORDANCE WITH ITS CHARTER AND
CHANGED ITS NAME TO "NICHOLAS-APPLEGATE FUND, INC." ON JUNE 10, 1991. ALL
OUTSTANDING SHARES OF THE COMPANY AT THE TIME OF THE CONVERSION TO AN OPEN-END
INVESTMENT COMPANY WERE CONVERTED INTO CLASS A SHARES OF THE FUND. THE COMPANY
IS AUTHORIZED TO ISSUE 50 MILLION SHARES OF CLASS A COMMON STOCK, 50 MILLION
SHARES OF CLASS B COMMON STOCK, 50 MILLION SHARES OF CLASS C COMMON STOCK AND
50 MILLION SHARES OF CLASS Z COMMON STOCK OF THE NICHOLAS-APPLEGATE GROWTH
EQUITY FUND SERIES, $.01 PAR VALUE PER SHARE. Each class represents an interest
in the same assets of the Fund and is identical in all respects except that (i)
each class is subject to different sales charges and distribution and/or
service fees (except for Class Z shares, which are not subject to any sales
charges and distribution and/or service fees), which may affect performance,
(ii) each class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its distribution and/or service fee
arrangements and has separate voting rights on any other matter submitted to
shareholders in which the interests of one class differ from the interests of
another class, (iii) each class has a different exchange privilege, (iv) only
Class B shares have a conversion feature and (v) Class Z shares are offered
exclusively for
17
<PAGE>
sales to a limited group of investors. See "How the Fund is Managed--
Distributor." In accordance with the Company's Charter, the Board of Directors
may authorize the creation of additional series of common stock, and classes
within series, with such preferences, privileges, limitations and voting and
dividend rights as the Board may determine.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares of the Fund are also redeemable at the option of the
Company under certain circumstances as described under "Shareholder Guide--How
to Sell Your Shares." Each share of each class of Common Stock is equal as to
earnings, assets and voting privileges, except as noted above, and each class
bears the expenses related to the distribution of its shares with the exception
of Class Z shares which are not subject to any distribution or service fees.
Except for the conversion feature applicable to Class B shares, there are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of Common Stock of the Fund is entitled to its portion
of all of the Fund's assets after all debt and expenses of the Fund have been
paid. Since Class B and Class C shares generally bear higher distribution
expenses than Class A shares, the liquidation proceeds to shareholders of those
classes are likely to be lower than to Class A shareholders and to Class Z
shareholders, whose shares are not subject to any distribution and/or service
fees. The Fund's shares do not have cumulative voting rights for the election
of Directors.
THE COMPANY DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS OF THE
FUND UNLESS OTHERWISE REQUIRED BY LAW. THE COMPANY WILL NOT BE REQUIRED TO HOLD
MEETINGS OF SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS
REQUIRED TO BE ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT.
SHAREHOLDERS HAVE CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A
VOTE OF 10% OF THE FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE
REMOVAL OF ONE OR MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the Commission under
the Securities Act of 1933. Copies of the Registration Statement may be
obtained at a reasonable charge from the Commission or may be examined, without
charge, at the office of the Commission in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH THE DISTRIBUTOR OR DIRECTLY FROM
THE FUND THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND SERVICES LLC (PMFS
OR THE TRANSFER AGENT) ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020,
NEW BRUNSWICK, NEW JERSEY 08906-5020.
The purchase price is the NAV next determined following receipt of an order by
the Transfer Agent or the Distributor plus a sales charge which, at your
option, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). Class Z shares are
offered to a limited group of investors without a sales charge. Participants in
programs sponsored by Prudential Retirement Services should contact their
client representative for more information about Class Z shares. Payments may
be made by cash, wire, check or through your brokerage account. See
"Alternative Purchase Plan" below. See also "How the Fund Values its Shares."
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares, except that the minimum initial investment
for Class C shares may be waived from time to time. There is no minimum
investment requirement for Class Z shares. The minimum subsequent investment is
$100 for all classes, except for Class Z shares for which there is no
18
<PAGE>
such minimum. All minimum investment requirements are waived for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan,
the minimum initial and subsequent investment is $50.
Application forms can be obtained from PMFS, Prudential Securities, Prusec or
certain selected dealers (Class A only). If a stock certificate is desired, it
must be requested in writing for each transaction. Certificates are issued
only for full shares. Shareholders who hold their shares through Prudential
Securities will not receive stock certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS at (800) 225-1852 (toll-free) to receive an account
number. The following information will be requested: your name, address, tax
identification number, class election, dividend distribution election, amount
being wired and wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to the Fund's Custodian, State Street Bank and
Trust Company, Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Nicholas-Applegate Growth Equity Fund, Inc. specifying on
the wire the account number assigned by PMFS and your name and identifying the
class in which you are eligible to invest (Class A, Class B, Class C shares or
Class Z shares).
If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Nicholas-Applegate Growth
Equity Fund, Class A, Class B, Class C or Class Z shares and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders utilizing Federal Funds. The minimum amount which may be
invested by wire is $1,000.
19
<PAGE>
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS FOUR CLASSES OF SHARES (CLASS A, CLASS B, CLASS C AND CLASS Z
SHARES), WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE
FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH
OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES
(ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
---------------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge .30 of 1% Initial sales charge
of 5% of the public offering (Currently being waived or reduced for
price charged at a rate certain purchases
of 0.25 of 1%)
Class B Maximum CDSC of 5% of the 1% Shares convert to Class
lesser of the amount A shares approximately
invested or the redemption seven years after
proceeds; declines to zero purchase
after six years
Class C Maximum CDSC of 1% of the 1% Shares do not convert to
lesser of the amount another class
invested or the redemption
proceeds on redemptions made
within one year of purchase
Class Z None None Sold to a limited group
of investors
</TABLE>
The four classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
(with the exception of Class Z shares, which are not subject to any
distribution and/or service fees) bears the separate expenses of its Rule 12b-
1 distribution and service plan, (ii) each class has exclusive voting rights
on any matter submitted to shareholders that relates solely for its
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class and (iii) only Class B shares have a conversion feature. The
four classes also have separate exchange privileges. See "How to Exchange Your
Shares" below. The income attributable to each class and the dividends payable
on the shares of each class will be reduced by the amount of the distribution
fee (if any) of each class. Class B and Class C shares bear the expenses of a
higher distribution fee which will generally cause them to have higher expense
ratios and to pay lower dividends than the Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class
Z shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C or Class Z shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of
any applicable sales charge (whether imposed at the time of purchase or
redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the difference classes of shares (see "How
to Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund.
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales charge of 5% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6 year period, you
should consider purchasing Class C shares over either Class A or Class B
shares.
20
<PAGE>
If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money
invested initially because the sales charge on Class A shares is deducted at
the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B or Class C shares for the higher
cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fee on Class
A shares. This does not take into account the time value of money, which
further reduces the impact of the higher Class B or Class C distribution-
related fee on the investment, fluctuations in NAV, the effect of the return
on the investment over this period of time or redemptions when the CDSC is
applicable.
ALL PURCHASES OF $1 MILLION OR MORE EITHER AS PART OF A SINGLE INVESTMENT,
EXCEPT IN THE CASE OF CERTAIN RETIREMENT PLANS, OR UNDER RIGHTS OF
ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES UNLESS THE
PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. See "Reduction and Waiver of
Initial Sales Charges" and "Class Z shares" below.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial sales
charge alternative is the next determined NAV plus a sales charge (expressed
as a percentage of the offering price and of the amount invested) as shown in
the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
AMOUNT OF PURCHASE --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
The Distributor may reallow the entire initial charge to dealers. Selling
dealers may be deemed to be underwriters, as that term is defined in the
Securities Act.
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisers and other persons which distribute shares
a finders' fee from its own resources based on a percentage of the NAV of
shares sold by such persons.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be
aggregated to determine the applicable reduction. See "Purchase and Redemption
of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares"
in the Statement of Additional Information.
21
<PAGE>
Benefit Plans. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code (collectively, Benefit Plans), provided that the Benefit
Plan has existing assets of at least $1 million invested in shares of
Prudential Mutual Funds (excluding money market funds other than those
acquired pursuant to the exchange privilege) or 250 eligible employees or
participants. In the case of Benefit Plans whose accounts are held directly
with the Transfer Agent or Prudential Securities and for which the Transfer
Agent or Prudential Securities does individual account record keeping (Direct
Account Benefit Plans) and Benefit Plans sponsored by Prudential Securities or
its subsidiaries (Prudential Securities or Subsidiary Prototype Benefit
Plans), Class A shares may be purchased at NAV by participants who are
repaying loans made from such plans to the participant.
Prudential Retirement Programs. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or non-
qualified under the Internal Revenue Code for which Prudential serves as the
plan administrator or recordkeeper, provided that (i) the plan has at least $1
million in existing assets or 250 eligible employees and (ii) the Fund is an
available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code, deferred compensation and annuity plans under Sections 457 and
403(b)(7) of the Internal Revenue Code and plans that participate in the
Transfer Agent's PruArray and SmartPath Program (benefit plan recordkeeping
services) (hereafter referred to as a PruArray or SmartPath Plan). All plans
of a company for which Prudential serves as plan administrator or recordkeeper
are aggregated in meeting the $1 million threshold. The term "existing assets"
as used herein includes stock issued by a plan sponsor, shares of Prudential
Mutual Funds and shares of certain unaffiliated mutual funds that participate
in the PruArray or SmartPath Program (Participating Funds). "Existing assets"
also include monies invested in The Guaranteed Interest Account (GIA), a group
annuity insurance product issued by Prudential, and units of The Stable Value
Fund (SVF), an unaffiliated bank collective fund. Class A shares also may be
purchased at NAV by plans that have monies invested in GIA and SVF, provided
(i) the purchase is made with the proceeds of a redemption from either GIA or
SVF and (ii) Class A shares are an investment option of the plan.
PruArray Association Benefit Plans. Class A shares are also offered at NAV to
Benefit Plans or non-qualified plans sponsored by employers which are members
of a common trade, professional or membership association (Association) that
participate in the PruArray Program provided that the Association enters into
a written agreement with Prudential. Such Benefit Plans or non-qualified plans
may purchase Class A shares at NAV without regard to the assets or number of
participants in the individual employer's qualified Plan(s) or non-qualified
plans so long as the employers in the Association (i) have retirement plan
assets in the aggregate of at least $1 million or 250 participants in the
aggregate and (ii) maintain their accounts with the Transfer Agent.
PruArray Savings Program. Class A shares are also offered at NAV to employees
of companies that enter into a written agreement with Prudential Retirement
Services to participate in the PruArray Savings Program. Under this Program, a
limited number of Prudential Mutual Funds are available for purchase at NAV by
Individual Retirement Accounts and Savings Accumulation Plans of the company's
employees. The Program is available only to (i) employees who open an IRA or
Savings Accumulation Plan account with the Transfer Agent and (ii) spouses of
employees who open an IRA account with the Transfer Agent. The program is
offered to companies that have at least 250 eligible employees.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers of the Prudential Mutual Funds (including the Fund), (b) employees of
Prudential Securities and PIFM and their subsidiaries and members of the
families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees of subadvisers of
the Prudential Mutual Funds provided that purchases
22
<PAGE>
at NAV are permitted by such person's employer, (d) Prudential employees and
special agents of Prudential and its subsidiaries and all persons who have
retired directly from active service with Prudential or one of its
subsidiaries, (e) registered representatives and employees of dealers who have
entered into a selected dealer agreement with Prudential Securities provided
that purchases at NAV are permitted by such person's employer, (f) investors
who have a business relationship with a financial adviser who joined
Prudential Securities from another investment firm, provided that (i) the
purchase is made within 180 days of the commencement of the financial
adviser's employment at Prudential Securities, or within one year in the case
of benefit plans, (ii) the purchase is made with proceeds of a redemption of
shares of any open-end, non-money market fund sponsored by the financial
adviser's previous employer (other than a fund which imposes a distribution or
service fee of .25 of 1% or less) and (iii) the financial adviser served as
the client's broker on the previous purchases, and (g) investors in Individual
Retirement Accounts, provided the purchase is made with the proceeds of a tax-
free rollover of assets from a Benefit Plan for which Prudential Investments
serves as the recordkeeper or administrator.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation
of your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES.
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class
B and Class C shares may be subject to a CDSC. See "How to Sell Your Shares--
Contingent Deferred Sales Charges." The Distributor will pay, from its own
resources, sales commissions of up to 4% of the purchase price of Class B
shares to dealers, financial advisers and other persons who sell Class B
shares at the time of sale. This facilitates the ability of the Fund to sell
the Class B shares without an initial sales charge being deducted at the time
of purchase. The Distributor anticipates that it will recoup its advancement
of sales commissions from the combination of the CDSC and the distribution
fee. See "How the Fund is Managed--Distributor." In connection with the sale
of Class C shares, the Distributor will pay, from its own resources, dealers,
financial advisers and other persons which distribute Class C shares a sales
commission of up to 1% of the purchase price at the time of the sale.
CLASS Z SHARES
Class Z shares of the Fund currently are available for purchase by the
following categories of investors:
(i) pension, profit-sharing or other employee benefit plans qualified under
Section 401 of the Internal Revenue Code, deferred compensation and annuity
plans under Sections 457 and 403(b)(7) of the Internal Revenue Code and non-
qualified plans for which the Fund is an available option (collectively,
Benefit Plans), provided such Benefit Plans (in combination with other plans
sponsored by the same employer or group of related employers) have at least
$50 million in defined contribution assets; (ii) participants in any fee-based
program or trust program sponsored by Prudential Securities, The Prudential
Savings Bank, F.S.B. or any affiliate which includes mutual funds as
investment options and for which the Fund is an available option; (iii)
certain participants in the MEDLEY Program (group variable annuity contracts)
sponsored by Prudential for whom Class Z shares of the Prudential Mutual Funds
are an available option; (iv) Benefit Plans for which Prudential Retirement
Services serves as recordkeeper and as of September 20, 1996, (a) were Class Z
shareholders of the Prudential Mutual Funds or (b) executed a letter of intent
to purchase Class Z shares of the Prudential Mutual Funds; (v) current and
former Directors/Trustees of the Prudential Mutual Funds (including the Fund);
and (vi) employees of Prudential and/or Prudential Securities who participate
in a Prudential-sponsored employee savings plan.
23
<PAGE>
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other
persons which distribute shares a finders' fee from its own resources based on
a percentage of the net asset value of shares sold by such persons.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV NEXT DETERMINED
AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE TRANSFER AGENT
OR PRUDENTIAL SECURITIES. See "How the Fund Values Its Shares." In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable contingent deferred sales charge, as described below. See
"Contingent Deferred Sales Charges" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT YOUR PRUDENTIAL
SECURITIES FINANCIAL ADVISER.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACT OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE
REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A
CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY
ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE
ACCEPTED. All correspondence and documents concerning redemptions should be
sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick,
New Jersey 08900-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power, must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Prudential
Preferred Financial Services offices. In the case of redemptions from a
PruArray or Smartpath Plan, if the proceeds of the redemption are invested in
another investment option of the plan, in the name of the record holder and at
the same address as reflected in the Transfer Agent's records, a signature
guarantee is not required.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR
WRITTEN REQUEST EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH
PRUDENTIAL SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE
CREDITED TO YOUR PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on such Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(d) during any other period when the Commission, by order, so permits;
applicable rules and regulations of the Commission will govern as to whether
the conditions prescribed in (b), (c) or (d) exist.
Shareholders who hold their shares through Prudential Securities or through a
dealer which has entered into a selected dealer agreement with the Distributor
must redeem their shares by contacting their financial adviser.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE
FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE
OR BY CERTIFIED OR CASHIERS CHECKS.
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<PAGE>
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the
investment portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Commission. Securities will be readily marketable and
will be valued in the same manner as in a regular redemption. See "How the
Fund Values its Shares". If your shares are redeemed in kind, you would incur
transaction costs in converting the assets into cash. The Fund, however has
elected to be governed by Rule 18f-1 under the Investment Company Act, under
which the Fund is obligated to redeem shares solely in cash up to the lesser
of $250,000 or 1% of the NAV of the Fund during any 90-day period for any one
shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board of
Directors may redeem all of the shares of any shareholder, other than an IRA
or other tax-deferred retirement plan, whose account has a net asset value of
less than $500 due to a redemption. The Fund will give such shareholders 60
days' prior written notice in which to purchase sufficient additional shares
to avoid such redemption. No CDSC will be imposed on any such involuntary
redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares, and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the cash proceeds of such redemption in shares of the Fund at the NAV
next determined after the order is received, which must be within 90 days
after the date of the redemption. No sales charge will apply to such
repurchases. You will receive pro rata credit for any contingent deferred
sales charge paid in connection with the redemption of Class B or Class C
shares. You must notify the Fund's Transfer Agent, either directly or through
Prudential Securities or Prusec, at the time the repurchase privilege is
exercised that you are entitled to credit for the contingent deferred sales
charge previously paid. Exercise of the repurchase privilege will generally
not affect federal income tax treatment of any gain realized upon redemption.
However, if the redemption was made within a 30 day period of the repurchase
and if the redemption resulted in a loss, some or all of the loss, depending
on the amount reinvested, will not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid
to you. The CDSC will be imposed on any redemption by you which reduces the
current value of your Class B or Class C shares to an amount which is lower
than the amount of all payments by you for shares during the preceding six
years, in the case of Class B shares, and one year, in the case of Class C
shares. A CDSC will be applied on the lesser of the original purchase price or
the current value of the shares being redeemed. Increases in the value of your
shares or shares acquired through reinvestment of dividends or distributions
are not subject to a CDSC. The amount of any contingent deferred sales charge
will be paid to and retained by the Distributor. See "How the Fund is
Managed--Distributor" and "Waiver of the Contingent Deferred Sales Charges--
Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The CDSC will be calculated from the first day of the month
after the initial purchase, excluding the time shares were held in a money
market fund. See "How to Exchange Your Shares."
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<PAGE>
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------- -------------------------
<S> <C>
First....................................... 5.0%
Second...................................... 4.0%
Third....................................... 3.0%
Fourth...................................... 2.0%
Fifth....................................... 1.0%
Sixth....................................... 1.0%
Seventh and thereafter...................... None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value above the total amount of
payments for the purchase of Fund shares made during the preceding six years
(five years for Class B shares purchased prior to January 22, 1990); then of
amounts representing the cost of shares held beyond the applicable CDSC
period; then of amounts representing the cost of shares acquired prior to July
1, 1985; and finally, of amounts representing the cost of shares held for the
longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase, you decided
to redeem $500 of your investment. Assuming at the time of the redemption the
net asset value had appreciated to $12 per share, the value of your Class B
shares would be $1,260 (105 shares at $12 per share). The CDSC would not be
applied to the value of the reinvested dividend shares and the amount which
represents appreciation ($260). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be charged at a rate of 4% (the applicable
rate in the second year after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will be
waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), or a trust, at the time of death or
initial determination of disability provided that the shares were purchased
prior to death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a tax-
deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59 1/2; and (iii) a tax-free return of
an excess contribution or plan distributions following the death or disability
of the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service (i.e.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
redemptions otherwise qualify for a waiver as described above. In the case of
Direct Account and PSI or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC
was not previously deducted will thereafter be subject to a CDSC without
regard to the time such amounts were previously invested. In the case of a
401(k) plan, the CDSC will also be waived upon the redemption of shares
purchased with amounts used to repay loans made from the account to the
participant and from which a CDSC was previously deducted.
26
<PAGE>
The contingent deferred sales charge (CDSC) will be waived (or reduced) on
certain redemptions from a Systematic Withdrawal Plan. On an annual basis, up
to 12% of the total dollar amount subject to the CDSC may be redeemed without
charge. The Transfer Agent will calculate the total amount available for this
waiver annually on the anniversary date of your purchase or, for shares
purchased prior to March 1, 1997, on March 1 of the current year. The CDSC
will be waived (or reduced) on redemptions until this threshold 12% is
reached.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Company.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to
waiver of the CDSC and provide the Transfer Agent with such supporting
documentation as it may deem appropriate. The waiver will be granted subject
to confirmation of your entitlement. See "Purchase and Redemption of Fund
Shares--Waiver of the Contingent Deferred Sales Charge--Class B Shares" in the
Statement of Additional Information.
A quantity discount may apply to redemptions of Class B shares purchased
prior to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994" in the Statement
of Additional Information.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES
PruArray or SmartPath Plans. The CDSC will be waived on redemptions from
certain qualified and non-qualified retirement and deferred compensation plans
that participate in the Transfer Agent's PruArray and SmartPath Programs.
CONVERSION FEATURE--CLASS B SHARES
Class B shares automatically convert to Class A shares on a quarterly basis
approximately seven years after purchase. It is currently anticipated that
conversions will occur during the months of February, May, August and
November. Conversions will be effected at relative net asset value without the
imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought on
each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will
be determined on each conversion date in accordance with the following
formula: (i) the ratio of (a) the amounts paid for Class B shares purchased at
least seven years prior to the conversion date to (b) the total amount paid
for all Class B shares purchased and then held in your account (ii) multiplied
by the total number of Class B shares then in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or
amounts representing Class B shares purchased and then held in your account
that were acquired through the automatic reinvestment of dividends and other
distributions will convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible
Shares calculated as described above will generally be either more or less
than the number of shares actually purchased approximately seven years before
such conversion date. For example, if 100 shares were initially purchased at
$10 per share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (47.62%) multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to
shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus,
although the aggregate dollar value will be the same, you may receive fewer
Class A shares than Class B shares converted. See "How the Fund Values its
Shares."
27
<PAGE>
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment or purchase of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund the time period
during which such shares were held in the money market fund will be excluded.
For example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase
of such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B, Class C and Class
Z shares will not constitute "preferential dividends" under the Internal
Revenue Code and (ii) that the conversion of shares does not constitute a
taxable event. The conversion of Class B shares into Class A shares may be
suspended if such opinions or rulings are no longer available. If conversions
are suspended, Class B shares of the Fund will continue to be subject,
possibly indefinitely, to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS (THE EXCHANGE PRIVILEGE) AND ANY SERIES OF THE
COMPANY THAT MAY BE ESTABLISHED FROM TIME TO TIME, AND ONE OR MORE SPECIFIC
MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH
FUNDS. CLASS A, CLASS B, CLASS C AND CLASS Z SHARES MAY BE EXCHANGED FOR CLASS
A, CLASS B, CLASS C AND CLASS Z SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE
BASIS OF THE RELATIVE NAV. No sales charge will be imposed at the time of the
exchange. Any applicable CDSC payable upon the redemption of shares exchanged
will be calculated from the first day of the month after the initial purchase,
excluding the time shares were held in a money market fund. Class B and Class
C shares may not be exchanged into money market funds other than Prudential
Special Money Market Fund, Inc. For purposes of calculating the holding period
applicable to the Class B conversion feature, the time period during which
Class B shares were held in a money market fund will be excluded. See
"Conversion Feature--Class B Shares" above. An exchange will be treated as a
redemption and purchase for tax purposes. See "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may
call the Fund at (800) 225-1852 to execute a telephone exchange of shares, on
weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS,
LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after
the request is received in good order. The Exchange Privilege will be
available only in states where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
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<PAGE>
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS NOTED BELOW.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above). Under this exchange privilege, amounts representing any Class B and
Class C shares held in such a shareholder's account and which are not subject
to a CDSC will be automatically exchanged for Class A shares for shareholders
who qualify to purchase Class A shares at NAV on a quarterly basis, unless the
shareholder elects otherwise. Similarly, shareholders who qualify to purchase
Class Z shares will have their Class B and Class C shares which are not
subject to a CDSC and their Class A shares exchanged for Class Z shares on a
quarterly basis. It is currently anticipated that this exchange will occur
quarterly in February, May, August and November. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange. Amounts representing Class B or Class C shares which are not subject
to a CDSC include the following: (1) amounts representing Class B or Class C
shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C
shares and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities or Prusec that
they are eligible for this special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares
when they elect to have those assets become a part of the fee-based program.
Upon leaving the program (whether voluntarily or not), such Class Z shares
(and, to the extent provided for in the program, Class Z shares acquired
through participation in the program) will be exchanged for Class A shares at
NAV. Similarly, participants in PSI's 401(k) Plan for which the Fund's Class Z
shares is an available option and who wish to transfer their Class Z shares
out of the PSI 401(k) Plan following separation from service (i.e., voluntary
or involuntary termination of employment or retirement) will have their Class
Z shares exchanged for Class A shares at NAV.
The exchange privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.
FREQUENT TRADING. The Fund and the other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, the Fund reserves the right to refuse purchase orders and
exchanges by any person, group or commonly controlled account, if, in the
Manager's sole judgement, such person, group or accounts were following a
market timing strategy or were otherwise engaging in excessive trading (Market
Timers).
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading.
The Fund may notify the Market Timer of rejection of an exchange or purchase
order subsequent to the day on which the order was placed.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:
. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than 5 full business days prior to the record date to have subsequent
29
<PAGE>
dividends and/or distributions sent in cash rather than reinvested.
Shareholders who acquired shares prior to the conversion of the Company from a
closed-end company to an open-end company and who did not elect to participate
in the Fund's dividend reinvestment plan will continue to receive dividends
and distributions in cash unless further election is made to the Fund. If you
hold shares through Prudential Securities, you should contact your financial
adviser.
. AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service you may
contact your Prudential Securities financial adviser, Prusec representative or
the Transfer Agent directly.
. TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both self-
employed individuals and corporate employers. These plans permit either self-
direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.
. SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
. REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In addition,
monthly unaudited financial data are available upon request from the Fund.
. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Company at
Gateway Center Three, Newark, New Jersey 07102, or by telephone, at (800) 225-
1852 (toll free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
30
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential offers a broad range of mutual funds designed to meet your
individual needs. We welcome you to review the investment options available
through our family of funds. For more information on the Prudential Mutual
Funds, including charges and expenses, contact your Prudential Securities
financial adviser or Prusec representative or telephone the Funds at (800)
225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
TAXABLE BOND FUNDS EQUITY FUNDS
Prudential Diversified Bond Fund, Inc. Prudential Balanced Fund
Prudential Distressed Securities
Prudential Government Income Fund, Inc. Fund, Inc.
Prudential Government Securities Trust
Prudential Index Series Fund
Short-Intermediate Term Series Prudential Active Balanced Fund
Prudential High Yield Fund, Inc. Prudential Stock Index Fund
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc. Prudential Bond Market Index
Fund
Income Portfolio
Prudential Europe Index Fund
TAX-EXEMPT BOND FUNDS
Prudential Pacific Index Fund
Prudential California Municipal Fund Prudential Small-Cap Index Fund
California Series Prudential Emerging Growth Fund,
California Income Series Inc.
Prudential Municipal Bond Fund Prudential Equity Fund, Inc.
High Yield Series Prudential Equity Income Fund
Insured Series Prudential Jennison Series Fund,
Intermediate Series Inc.
Prudential Municipal Series Fund
Florida Series Prudential Jennison Active
Balanced Fund
Maryland Series Prudential Jennison Growth Fund
Massachusetts Series Prudential Jennison Growth &
Michigan Series Income Fund
New Jersey Series Prudential Multi-Sector Fund, Inc.
New York Series
North Carolina Series Prudential Small-Cap Quantum Fund,
Inc.
Ohio Series
Pennsylvania Series Prudential Small Company Value
Fund, Inc.
Prudential Utility Fund, Inc.
Prudential National Municipals Fund, Inc. . Taxable Money Market Funds
Nicholas-Applegate Fund, Inc.
Cash Accumulation Trust
Nicholas-Applegate Growth Equity
Fund
GLOBAL FUNDS
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities
Trust
Prudential Europe Growth Fund, Inc. MONEY MARKET FUNDS
Prudential Global Genesis Fund, Inc. Money Market Series
U.S. Treasury Money Market
Series
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Special Money Market
Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc. Money Market Series
Prudential Pacific Growth Fund, Inc. Prudential MoneyMart Assets, Inc.
Prudential World Fund, Inc.
Global Series . Tax-Free Money Market Funds
International Stock Series Prudential Tax-Free Money Fund,
The Global Total Return Fund, Inc. Inc.
Global Utility Fund, Inc. Prudential California Municipal
Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market
Series
New Jersey Money Market Series
New York Money Market Series
. Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
. Institutional Money Market Funds
Prudential Institutional Liquidity
Portfolio, Inc.
Institutional Money Market
Series
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................ 2
What are the Fund's Risk Factors and Special
Characteristics?......................................................... 2
FUND EXPENSES.............................................................. 4
FINANCIAL HIGHLIGHTS....................................................... 5
HOW THE FUND INVESTS....................................................... 8
Investment Objective and Policies......................................... 8
Other Investments and Policies............................................ 9
Investment Restrictions................................................... 12
HOW THE FUND IS MANAGED.................................................... 12
Manager................................................................... 12
Investment Adviser........................................................ 12
Distributor............................................................... 13
Portfolio Transactions.................................................... 14
Fee Waivers and Subsidy................................................... 14
Custodian and Transfer and Dividend Disbursing Agent...................... 14
Year 2000................................................................. 15
HOW THE FUND VALUES ITS SHARES............................................. 15
HOW THE FUND CALCULATES PERFORMANCE........................................ 15
TAXES, DIVIDENDS AND DISTRIBUTIONS......................................... 16
GENERAL INFORMATION........................................................ 17
Description of Common Stock............................................... 17
Additional Information.................................................... 18
SHAREHOLDER GUIDE.......................................................... 18
How to Buy Shares of the Fund............................................. 18
Alternative Purchase Plan................................................. 20
How to Sell Your Shares................................................... 24
Conversion Feature--Class B Shares........................................ 27
How to Exchange Your Shares............................................... 28
Shareholder Services...................................................... 29
The Prudential Mutual Fund Family......................................... A-1
</TABLE>
- --------------------------------------------------------------------------------
MF151A
CUSIP Nos.:
Class A: 653698-20-9
Class B: 653698-30-8
Class C: 653698-40-7
Class Z: 653698-50-6
NICHOLAS APPLEGATE GROWTH
EQUITY FUND
------------------------------------------------------------------------------
PROSPECTUS
MARCH 4, 1998
[LOGO] PRUDENTIAL
INVESTMENTS
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Additional Information
dated March 4, 1998
Nicholas-Applegate Growth Equity Fund (the "Fund") is a series of Nicholas-
Applegate Fund, Inc. (the "Company"), an open-end, diversified management
investment company incorporated under the laws of Maryland. The Fund's
investment objective is long-term capital appreciation. The Fund seeks to
achieve its objective by investing principally in a diversified portfolio of
common stocks and securities convertible into or exercisable for common
stocks, the earnings and securities prices of which its Investment Adviser
expects to grow at a rate above the rate of the Standard & Poor's 500 Stock
Price Index (the "S&P 500"). The Fund intends to invest primarily in companies
having middle market capitalizations and above. Companies which have market
capitalizations of $500 million to approximately $5 billion are generally
referred to as "middle market" Capitalization companies. No assurance can be
given that the Fund's investment objective will be achieved. See "Investment
Objective and Policies".
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 225-1852. The Statement
of Additional Information is not a prospectus and should be read in
conjunction with the Fund's Prospectus dated March 4, 1998, a copy of which
may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
----- ---------------
<S> <C> <C>
General Information...................................... B-2 17
Investment Objective and Policies........................ B-2 8
Investment Restrictions.................................. B-6 12
Directors and Principal Officers......................... B-8 12
Manager.................................................. B-11 12
Investment Adviser....................................... B-12 12
Distributor.............................................. B-14 13
Portfolio Transactions and Brokerage..................... B-16 14
Purchase and Redemption of Fund Shares................... B-18 18
Shareholder Investment Account........................... B-22 30
Net Asset Value.......................................... B-25 15
Dividends, Distributions and Taxes....................... B-26 16
Performance Information.................................. B-29 15
Custodian, Transfer and Dividend Disbursing Agent and In-
dependent Auditors...................................... B-30 14
Financial Statements..................................... B-31 --
Report of Independent Auditors........................... B-41 --
Appendix I--General Investment Information............... I-1 --
Appendix II--Historical Performance Data................. II-1 --
Appendix III--Information Relating to The Prudential..... III-I --
</TABLE>
- -------------------------------------------------------------------------------
MF151B
<PAGE>
GENERAL INFORMATION
The Company began business as a closed-end diversified management investment
company in April 1987 under the name "Nicholas-Applegate Growth Equity Fund,
Inc." Pursuant to its Charter, the Fund converted to an open-end investment
company (commonly referred to as a "mutual fund") on June 10, 1991, at which
time the name of the Company was changed to "Nicholas-Applegate Fund, Inc."
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is capital appreciation. It seeks to achieve
this objective by investing primarily in common stocks and in securities
convertible into or exercisable for common stocks (such as convertible
preferred stocks, convertible debentures and warrants), the earnings and
securities prices of which Nicholas-Applegate Capital Management, the Fund's
investment adviser ("Nicholas-Applegate" or the "Investment Adviser"), expects
to grow at a rate above that of the S&P 500. The Fund's investment objective
and certain other policies described under "Investment Restrictions" are
fundamental policies that may not be changed without the vote of a majority of
the outstanding shares of the Fund, as defined in the Investment Company Act
of 1940, as amended (the "Investment Company Act"). There can be no assurance
that the Fund's investment objective will be achieved. For a further
description of the Fund's investment objective, see "Description of the Fund--
Investment Objective" in the Prospectus.
INVESTMENT POLICIES AND PRACTICES
For a description of the Fund's investment policies and practices, and
certain of the risks associated therewith, see "How the Fund Invests--
Investment Policies and Practices" in the Prospectus.
CONVERTIBLE SECURITIES AND WARRANTS. The Fund may invest in securities which
may be exchanged for, converted into or exercised to acquire a predetermined
number of shares of the issuer's common stock at the option of the Fund during
a specified time period (such as convertible preferred stocks, convertible
debentures and warrants). A convertible security is a fixed-income security (a
bond or preferred stock) which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the
same or a different issuer. Convertible securities are senior to common stocks
in a corporation's capital structure, but are usually subordinated to similar
nonconvertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than
that afforded by a similar nonconvertible security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance
in the convertible security's underlying common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security
is also influenced by the market value of the security's underlying common
stock. The price of a convertible security tends to increase as the market
value of the underlying stock rises, whereas it tends to decrease as the
market value of the underlying stock declines. While no securities investment
is without some risk, investments in convertible securities generally entail
less risk than investments in the common stock of the same issuer.
Investments in warrants involve certain risks, including the possible lack
of a liquid market for resale of the warrants, potential price fluctuations as
a result of speculation or other factors, and failure of the price of the
underlying security to reach or
B-2
<PAGE>
have reasonable prospects of reaching a level at which the warrant can be
prudently exercised (in which event the warrant may expire without being
exercised, resulting in a loss of the Fund's entire investment therein). The
Fund does not contemplate investing more than 5% of its total assets in fixed
income convertible securities and warrants in the coming year.
SHORT-TERM INVESTMENTS. To the extent that the Fund is or becomes a
shareholder in a money market mutual fund, the Fund will bear its ratable
share of such fund's expenses, including management fees, and will remain
subject to payment of the management fee to the Manager with respect to the
Fund's assets so invested.
PUT AND CALL OPTIONS. The Fund is authorized to purchase listed covered
"put" and "call" options with respect to securities which are otherwise
eligible for purchase by the Fund and with respect to the S&P 500, subject to
certain restrictions. The Fund does not presently intend to purchase options
that are not traded on a national securities exchange. See "Description of the
Fund--Investment Policies and Practices--Put and Call Options" in the
Prospectus.
If the Fund purchases a listed put option, it acquires the right to sell the
underlying security at a specified price at any time during the term of the
option. Purchasing put options may be used as a portfolio investment strategy
when the Investment Adviser perceives significant short-term risk but
substantial long-term appreciation for the underlying security. The put option
acts as an insurance policy, as it protects against significant downward price
movement while it allows full participation in any upward movement. If the
Fund is holding a stock which it feels has strong fundamentals, but for some
reason may be weak in the near term, it may purchase a listed put on such
security, thereby giving itself the right to sell such security at a certain
strike price throughout the term of the option. Consequently, the Fund will
exercise the put only if the price of such security falls below the strike
price of the put. The difference between the put's strike price and the market
price of the underlying security on the date the Fund exercises the put, less
transaction costs, will be the amount by which the Fund will be able to hedge
against a decline in the underlying security. If during the period of the
option the market price for the underlying security remains at or above the
put's strike price, the put will expire worthless, representing a loss of the
price the Fund paid for the put, plus transaction costs. If the price of the
underlying security increases, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any
amount for which the put may be sold.
If the Fund purchases a listed call option, it acquires the right to
purchase the underlying security at a specified price at any time during the
term of the option. The purchase of a call option can be either a speculative
practice to realize gains if the market price of the underlying security
increases above the strike price during the term of the option and the option
is sold at that time, or as a type of insurance policy to hedge against losses
that could occur if the Fund has a short position in the underlying security
and the security thereafter increases in price. The Fund will exercise a call
option only if the price of the underlying security is above the strike price
at the time of exercise. If during the option period the market price for the
underlying security remains at or below the strike price of the call option,
the option will expire worthless, representing a loss of the price paid for
the option, plus transaction costs. If the call option has been purchased to
hedge a short position of the Fund in the underlying security and the price of
the underlying security thereafter falls, the profit the Fund realizes on the
cover of the short position in the security will be reduced by the premium
paid for the call option less any amount for which such option may be sold.
The Fund may also purchase "put" and "call" options with respect to the S&P
500. Such options may be purchased as a speculative technique, as a hedge
against changes resulting from market conditions in the values of securities
which are held in the Fund's portfolio or which it intends to purchase or
sell, or when they are economically appropriate for the reduction of risks
inherent in the ongoing management of the Fund. The distinctive
characteristics of options on stock indices create certain risks that are not
present with stock options generally. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss on the purchase
or sale of an option on an index depends upon movements in the level of stock
prices in the stock market generally rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on the
S&P 500 would be subject to the
B-3
<PAGE>
Investment Adviser's ability to predict correctly movements in the direction
of the stock market generally. This requires different skills and techniques
than predicting changes in the price of individual stocks. The Investment
Adviser currently uses such techniques in conjunction with the management of
other accounts.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading of index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number
of stocks included in the index. If this occurred, the Fund would not be able
to close out options which it had purchased, and if restrictions on exercise
were imposed, the Fund might be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the Fund's policy to
purchase put or call options only with respect to the S&P 500, which index it
believes includes a sufficient number of stocks to minimize the likelihood of
a trading halt in the index.
SHORT SALES. The Investment Adviser's growth equity management approach is
aimed principally at identifying equity securities the earnings and prices of
which it expects to grow at a rate above that of the S&P 500. However, the
Investment Adviser believes that its approach also identifies securities the
prices of which can be expected to decline. Therefore, the Fund is authorized
to make short sales of securities it owns or has the right to acquire at no
added cost through conversion or exchange of other securities it owns
(referred to as short sales "against the box") and to make short sales of
securities which it does not own or have the right to acquire.
In a short sale that is not "against the box", the Fund sells a security
which it does not own, in anticipation of a decline in the market value of the
security. To complete the sale, the Fund must borrow the security (generally
from the broker through which the short sale is made) in order to make
delivery to the buyer. The Fund is then obligated to replace the security
borrowed by purchasing it at the market price at the time of replacement. The
Fund is said to have a "short position" in the securities sold until it
delivers them to the broker. The period during which the Fund has a short
position can range from one day to more than a year. Until the security is
replaced, the proceeds of the short sale are retained by the broker, and the
Fund is required to pay to the broker a negotiated portion of any dividends or
interest which accrue during the period of the loan. To meet current margin
requirements, the Fund is also required to deposit with the broker additional
cash or securities so that the total deposit with the broker is maintained
daily at 150% of the current market value of the securities sold short (100%
of the current market value if a security is held in the account that is
convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money). Short sales by the Fund
that are not made "against the box" create opportunities to increase the
Fund's return but, at the same time, involve special risk considerations and
may be considered a speculative technique. Since the Fund in effect profits
from a decline in the price of the securities sold short without the need to
invest the full purchase price of the securities on the date of the short
sale, the Fund's asset value per share will tend to increase more when the
securities it has sold short decrease in value, and to decrease more when the
securities it has sold short increase in value, than would otherwise be the
case if it had not engaged in such short sales. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium,
dividends or interest the Fund may be required to pay in connection with the
short sale. Furthermore, under adverse market conditions the Fund might have
difficulty purchasing securities to meet its short sale delivery obligations,
and might have to sell portfolio securities to raise the capital necessary to
meet its short sale obligations at a time when fundamental investment
considerations would not favor such sales.
If the Fund makes a short sale "against the box", the Fund would not
immediately deliver the securities sold and would not receive the proceeds
from the sale. The seller is said to have a short position in the securities
sold until it delivers the securities sold, at which time it receives the
proceeds of the sale. To secure its obligation to deliver securities sold
short, the Fund would deposit in escrow in a separate account with its
custodian an equal amount of the securities sold short or securities
convertible into or exchangeable for such securities. The Fund could close out
its short position by purchasing and delivering an equal amount of the
securities sold short, rather than by delivering securities already held by
the Fund, because the Fund might want to continue to receive interest and
dividend payments on securities in its portfolio that are convertible into the
securities sold short. The Fund's decision to make a short sale "against the
box" may be a technique to hedge against market risks when the Investment
B-4
<PAGE>
Adviser believes that the price of a security may decline, causing a decline
in the value of a security owned by the Fund or a security convertible into or
exchangeable for such security. In such case, any future losses in the Fund's
long position would be reduced by a gain in the short position. The extent to
which such gains or losses in the long position are reduced will depend upon
the amount of the securities sold short relative to the amount of the
securities the Fund owns, either directly or indirectly, and, in the case
where the Fund owns convertible securities, changes in the investment values
or conversion premiums of such securities. The Investment Adviser has had
experience in using short sales under similar circumstances for its separate
accounts since 1985.
ILLIQUID SECURITIES
The Fund may not invest more than 10% of its total assets in repurchase
agreements which have a maturity of longer than seven days or in other
illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual restrictions on
resale. Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the
potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which
the unregistered security can be readily resold or on an issuer's ability to
honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain institutions may
not be indicative of the liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to
the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. The investment adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper and foreign securities will expand further as a
result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The Investment Adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the Investment Adviser
will consider, among other things, the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers;
(3) dealer undertakings to make a market in the security; and (4) the nature
of the security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer). In addition, in order for commercial paper that is
issued in reliance on Section 4(2) of the Securities Act to be considered
liquid, (i) it must be rated in one of the two highest rating categories by at
least two nationally recognized statistical rating organizations (NRSRO), or
if only one NRSRO rates the securities, by that NRSRO, or, if unrated, be of
comparable quality in the view of the Investment Adviser; and (ii) it must not
be "traded flat" (i.e., without accrued interest) or in default as to
principal or interest. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period.
B-5
<PAGE>
BORROWING POLICY. Although the Fund is authorized to borrow money from time
to time in amounts of up to 30% of the value of its total assets at the time
of such borrowings, the Board of Directors has adopted a policy that the Fund
may borrow an amount equal to no more than 30% of the value of its total
assets (calculated when the loan is made) only for temporary, extraordinary or
emergency purposes or for the clearance of transactions. See "Investment
Restrictions". This Board policy is not a fundamental policy of the Fund and
the Board of Directors may change its current policy in the future, without
shareholder approval, if it concludes that such a change would be in the best
interests of the Fund and its shareholders.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the
Fund's outstanding voting securities," when used in this Statement of
Additional Information, means the lesser of (i) 67% of the voting shares
represented at a meeting at which more than 50% of the outstanding voting
shares are present in person or represented by proxy or (ii) more than 50% of
the outstanding voting shares. All percentage limitations set forth below
apply immediately after a purchase or initial investment, and any subsequent
change in any applicable percentage resulting from market fluctuations will
not require elimination of any security from the Fund's portfolio.
1. The Fund may not invest in securities of any one issuer if more than 5%
of the market value of its total assets would be invested in the securities of
such issuer. However, up to 25% of the Fund's total assets may be invested
without regard to this limitation. In addition, this restriction does not
apply to investments in securities of the U.S. Government and its agencies.
2. The Fund may not purchase more than 10% of the outstanding voting
securities, or of any class of securities, of any one issuer, or purchase the
securities of any issuer for the purpose of exercising control.
3. The Fund may not invest 25% or more of the market value of its total
assets in the securities of issuers in any one particular industry. This
restriction does not apply to investments in securities of the U.S. Government
or its agencies.
4. The Fund may not purchase or sell real estate. However, the Fund may
invest in securities secured by, or issued by companies that invest in, real
estate or interests in real estate.
5. The Fund may not write put or call options or purchase any securities on
margin, except that the Fund may obtain short-term credit necessary for the
clearance of purchases and sales of portfolio securities.
6. The Fund may not make loans of money, except that the Fund may purchase
publicly distributed debt instruments and certificates of deposit and enter
into repurchase agreements. The Fund reserves the authority to make loans of
its portfolio securities in an aggregate amount not exceeding 25% of the value
of its total assets. Any such loans will be made only upon approval of, and
subject to any conditions imposed by, the Company's Board of Directors.
7. The Fund may borrow money on a secured or unsecured basis for any purpose
(including short-term credit referred to in restriction 5 above) in amounts
not exceeding 30% of the value of its total assets at the time of the
borrowing, provided that, pursuant to the Investment Company Act, borrowings
will only be made from banks and will be made only to the extent that the
value of the Fund's total assets, less its liabilities other than borrowings,
is equal to at least 300% of all borrowings (including the proposed
borrowing). If such asset coverage of 300% is not maintained, the Fund will
take prompt action to reduce its borrowings as required by applicable law.
8. The Fund may not pledge or in any way transfer as security for
indebtedness any securities owned or held by it, except to secure indebtedness
permitted by restriction 7 above.
B-6
<PAGE>
9. The Fund may not underwrite securities of other issuers, except insofar
as it may be deemed an underwriter under the Securities Act in selling
portfolio securities.
10. The Fund may not invest more than 10% of the value of its total assets
in securities that at the time of purchase have legal or contractual
restrictions on resale, or more than 20% of the value of its total assets in
securities of foreign issuers and American Depository Receipts.
11. The Fund may not purchase or sell commodities or commodity contracts,
including options contracts and options on futures contracts. For purposes of
this investment restriction, futures contracts are deemed to be commodity
contracts.
12. The Fund may not issue any securities senior to its Common Stock, except
that the Fund may borrow money as permitted by restriction 7 above.
As a matter of policy, the Board of Directors has determined that the Fund's
Investment Adviser will not be authorized to (i) make loans of its portfolio
securities in excess of 10% of the value of its total assets, (ii) make short
sales or maintain a short position if to do so would create liabilities or
require collateral deposits and segregation of assets arising in connection
with short sales aggregating more than 25% of the Fund's total assets, taken
at market value, (iii) invest in listed covered call options in excess of 5%
of the market value of the Fund's assets as of the date of investment, or
invest in listed covered put options in excess of 5% of the market value of
the Fund's assets as of the date of investment or (iv) borrow money for any
purpose. These are not fundamental policies of the Fund and the Company's
Board of Directors reserves the right to change any such determination in the
future, without shareholder approval, if it concludes that such a change would
be in the best interests of the Fund and its shareholders.
B-7
<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS
The names and addresses of the Directors and principal officers of the
Company are set forth below, together with their positions and their principal
occupations during the past five years and, in the case of the Directors,
their positions with certain other organizations and companies.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND AND OTHER AFFILIATIONS
---------------- ------------- ----------------------
<C> <C> <S>
*Arthur E. Nicholas (51) Director, Managing Partner and Chief
600 West Broadway Chairman and Investment Officer, Nicholas-
29th Floor President Applegate Capital Management
(since August 1984), Trustee and
Chairman of the Board of
Trustees, Nicholas-Applegate
Investment Trust (since 1993);
Chairman of Nicholas-Applegate
San Diego, California Securities.
Fred C. Applegate (52) Director President, Hightower Management
885 La Jolla Corona Court Co. (from January 1992 to
La Jolla, California present); President, Nicholas-
Applegate Capital Management
(August 1984-December 1991),
Trustee and Chairman of the
Board of Trustees, Nicholas-
Applegate Mutual Funds (since
1993).
Dann V. Angeloff (62) Director President, The Angeloff Company
727 West Seventh Street (corporate financial advisers)
Los Angeles, California (since 1976); Trustee (1979-
1987) and University Counselor
to the President (since 1987),
University of Southern
California; Director, Public
Storage, Inc. (since 1980) (real
estate investment trust);
Trustee, Nicholas-Applegate
Investment Trust (since 1993).
Theodore J. Coburn (44) Director Partner, Brown, Coburn & Co.
17 Cotswold Road (investment banking firm) (since
Brookline, Massachusetts 1991); research associate at
Harvard Graduate School of
Education (since September
1996); formerly Managing
Director of Global Equity
Transactions Group and Member of
Board of Directors, Prudential
Securities (September 1986-June
1991); Trustee, Nicholas-
Applegate Investment Trust
(since 1993). Director, Emerging
Germany Fund (since 1995);
Moovies, Inc. (since 1991).
*Robert F. Gunia (51) Director and Vice President, Prudential
Gateway Center Three Vice President Investments (since September
100 Mulberry Street 1997); Executive Vice President
Newark, New Jersey 07102-4077 and Treasurer, Prudential
Investment Fund Management LLC
(PIFM); Senior Vice President
(since March 1987) of Prudential
Securities Incorporated
(Prudential Securities);
formerly Chief Administrative
Officer (July 1990-September
1996), Director (January 1989-
September 1996), Executive Vice
President, Treasurer and Chief
Financial Officer (June 1987-
September 1996) of Prudential
Mutual Fund Management, Inc.;
Vice President and Director of
The Asia Pacific Fund, Inc.
(since May 1989); Director of
The High Yield Income Fund, Inc.
(since October 1996).
*+Arthur B. Laffer (57) Director Chairman, Laffer Associates
5405 Morehouse Drive (formerly A.B. Laffer, V.A.
#340 Canto & Associates) (economic
San Diego, California consulting) (since 1979);
Chairman, Laffer Advisors
Incorporated (economic
consulting) (since 1981);
Director U.S. Filter Corporation
(since March 1991); Coinmach
Laundry Corporation (since
September 1996); and MasTec,
Inc. (construction) (since
1994); Chairman, Calport Asset
Management,
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND AND OTHER AFFILIATIONS
---------------- ------------- ----------------------
<C> <C> <S>
Inc. (since 1992);
formerly Distinguished
University Professor and
Director, Pepperdine
University (September
1985-May 1988) and
Professor of Business
Economics, University of
Southern California
(1978-1984); Trustee,
Nicholas-Applegate Mutual
Funds (since 1993).
Charles E. Young (66) Director Chancellor Emeritus (July
10920 Wilshire Blvd. 1987-present);
Ste. 1835 Chancellor, UCLA (from
Los Angeles, California 90024 September 1968 to July
1997); Director of Intel
Corp. (since April 1974),
Academy of Television
Arts and Sciences
Foundation, (since
October 1988), Los
Angeles World Affairs
Council (since October
1977) and Town Hall of
California (since 1982);
Trustee, Nicholas-
Applegate Mutual Funds
(since 1993).
Grace Torres (38) Treasurer and First Vice President
Gateway Center Three Chief Accounting (since December 1996),
100 Mulberry Street Officer PIFM; formerly First Vice
Newark, New Jersey 07102-4077 President of Prudential
Securities (March 1994-
September 1996); Vice
President, Bankers Trust
Corporation (July 1989-
March 1994).
Stephen M. Ungerman (44) Assistant Treasurer Tax Director of Prudential
Gateway Center Three Investments and the
100 Mulberry Street Private Asset Group of
Newark, New Jersey 07102-4077 Prudential (since March
1996); First Vice
President of Prudential
Mutual Fund Management,
Inc. (February 1993-
September 1996); prior
thereto, Senior Tax
Manager of Price
Waterhouse (1981-January
1993).
S. Jane Rose (52) Secretary Senior Vice President
Gateway Center Three (since December 1996) of
100 Mulberry Street PIFM; Senior Vice
Newark, New Jersey 07102-4077 President (January 1991-
September 1996) and
Senior Counsel (June
1987-September 1996) of
Prudential Mutual Fund
Management, Inc.; Senior
Vice President and Senior
Counsel (since July 1992)
of Prudential Securities;
formerly Vice President
and Associate General
Counsel of Prudential
Securities.
Robert E. Carlson (67) Assistant Secretary Partner, Paul, Hastings,
555 South Flower Street Janofsky & Walker LLP
22nd Floor (law firm) since August
Los Angeles, California 1988; formerly Partner
(through his Professional
Corporation), Hufstedler,
Miller, Carlson &
Beardsley (law firm)
(1967-1988).
Deborah A. Docs (40) Assistant Secretary Vice President and
Gateway Center Three Associate General Counsel
100 Mulberry Street (since December 1996) of
Newark, New Jersey 07102-4077 PIFM; Vice President and
Associate General Counsel
(June 1991-September
1996) of Prudential
Mutual Fund Management,
Inc.; Vice President and
Associate General Counsel
of Prudential Securities.
</TABLE>
- ----------
* An "interested" Director of the Company as defined in the Investment Company
Act.
+ Mr. Laffer is considered to be an "interested person" of the Trust because
Laffer Associates (formerly A.B. Laffer, V.A. Canto & Associates), or its
affiliates received material compensation from the Investment Adviser for
consulting services provided from time to time to the Investment Adviser,
and because during the last two fiscal years his son was an employee of the
Investment Adviser.
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities Incorporated.
B-9
<PAGE>
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor", review such actions and decide on general policy.
The Fund pays each of its Directors who is not an affiliated person of PIFM
annual compensation of $10,000 and $1,000 per Board meeting attended, in
addition to certain out-of-pocket expenses. The Chairman of the Audit
Committee receives an additional $1,500 and each member of the Audit Committee
receives an additional $1,000 per meeting attended.
Directors may receive their Director's fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Director's fees, which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury Bills at
the beginning of each calendar quarter or, pursuant to an SEC exemptive order,
at the daily rate of return of the Fund (the Fund rate). Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Director. The Fund's obligation to make payments of deferred Director's
fees, together with interest thereon, is a general obligation of the Fund.
Pursuant to the terms of the Management Agreement with the Trust, the
Manager or Subadviser, as appropriate, pays all compensation of officers and
employees of the Fund as well as the fees and expenses of all Directors of the
Fund who are affiliated persons of the Manager.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended December 31, 1997 to the Directors who are not
affiliated with the Manager or Subadviser and the aggregate compensation paid
to such Directors for service on the Fund's board and that of all other funds
managed by Prudential Investments Fund Management LLC (Fund Complex) for the
calendar year ended December 31, 1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS
----------------- ------------ ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Fred C. Applegate, $11,500 None N/A $11,500(1)*
Director
Dann V. Angeloff, $17,000 None N/A $17,000(1)*
Director
Theodore J. Coburn, $13,500 None N/A $13,500(1)*
Director
Arthur B. Laffer, $14,000 None N/A $14,000(1)*
Director
Charles E. Young, $12,500 None N/A $12,500(1)*
Director
</TABLE>
- ----------
* Indicates number of funds in Fund Complex (including the Fund) to which
aggregate compensation relates.
As of February 6, 1998 the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.
As of February 6, 1998, the only beneficial owner, directly or indirectly,
of more than 5% of the outstanding shares of any class of common stock of the
Fund were Mr. Robert Daniels and Ms. Dorothy M. Poore JT TEN, 6055 E. Lake
Meade Blvd., #202A, Las Vegas, NV which held 3,303 Class Z shares of the Fund
(6%) and Peggy J. Steffen and Bridget A. Roznai JT TEN, 748 Nectarine Ct.,
Henderson, NV which held 2,952 Class Z shares of the Fund (5%).
As of February 6, 1998, Prudential Securities was the record holder for
other beneficial owners of 4,219,913 Class A shares (or 47% of the outstanding
Class A shares), 13,648,995 Class B shares (or 66% of the outstanding Class B
shares), 362,821 Class C shares (or 71% of the outstanding Class C shares) and
58,145 Class Z shares (or 100% of the outstanding Class Z shares) of the Fund.
In the event of any meetings of shareholders Prudential Securities will
forward or cause the forwarding of, proxy materials to the beneficial owners
for which it is record holder.
B-10
<PAGE>
MANAGER
The Manager of the Fund is Prudential Investments Fund Management LLC
("PIFM" or the "Manager"), Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077. PIFM serves as manager to all of the other investment
companies that, together with the Fund, comprise the "Prudential Mutual
Funds." See "How the Fund is Managed--Manager" in the Prospectus. As of
January 31, 1998, PIFM managed and/or administered open-end and closed-end
management investment companies with assets of approximately $63 billion.
According to the Investment Company Institute, as of October 31, 1997 the
Prudential Mutual Funds were the 17th largest family of mutual funds in the
United States.
Pursuant to the Management Agreement with the Company (the "Management
Agreement"), and subject to the supervision of the Company's Board of
Directors and in conformity with the stated policies of the Fund, PIFM is
responsible for managing the investment operations of the Fund and the
composition of the Fund's portfolio, including the purchase, retention and
disposition of portfolio securities. In this regard, PIFM 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 Investment Adviser provides the
foregoing services to PIFM pursuant to the terms of the Subadvisory Agreement
among PIFM, the Investment Adviser and the Company (the "Subadvisory
Agreement"). Under the Management Agreement, PIFM administers the Fund's
corporate affairs, subject to the supervision of the Company's Board of
Directors and, in connection therewith, furnishes the Fund with office
facilities and ordinary clerical and bookkeeping services which are not
furnished by the Fund's transfer and dividend disbursing agent and custodian.
The management services of PIFM for the Fund are not exclusive under the terms
of the Management Agreement and PIFM is free to, and does, render management
services to others.
For its services, PIFM receives, pursuant to the Management Agreement, a fee
at an annual rate equal to .95 of 1% of the average daily net assets of the
Fund. PIFM pays the fees of the Investment Adviser (.75 of 1%) from this
management fee.
In connection with its management of the corporate affairs of the Fund, PIFM
bears the following expenses: (a) the salaries and expenses of all of its and
the Company's personnel except the fees and expenses of Directors who are not
affiliated persons of PIFM or the Fund's Investment Adviser; (b) all expenses
incurred by PIFM or by the Fund in connection with managing the ordinary
course of the Fund's business, other than those assumed by the Fund, as
described below; and (c) the costs and expenses payable to the Investment
Adviser pursuant to its Subadvisory Agreement.
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees and expenses incurred by the
Fund in connection with the management of the investment and reinvestment of
the Fund's assets, (b) the fees and expenses of Directors who are not
affiliated with PIFM or the Investment Adviser, (c) out-of-pocket travel
expenses for all Directors and other expenses of Directors' meetings, (d) the
fees and certain expenses of the Fund's custodian, (e) the fees and expenses
of the Fund's transfer and dividend disbursing agent that relate to the
maintenance of each shareholder account, (f) the charges and expenses of the
Fund's legal counsel and independent accountants, (g) brokerage commissions
and any issue or transfer taxes chargeable to the Fund in connection with its
securities transactions, (h) all taxes and corporate fees payable by the Fund
to federal, state and other governmental agencies, (i) the fees of any trade
association of which the Fund may be a member, (j) the cost of stock
certificates representing, and non-negotiable share deposit receipts
evidencing, shares of the Fund, (k) the cost of fidelity and liability
insurance, (l) the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the Commission including the
preparation and printing of the Fund's registration statement, prospectus and
statement of additional information for such purposes, and paying the fees and
expenses of notice filings made in accordance with state securities laws, (m)
allocable communication expenses with respect to investor services and all
expenses of shareholders' and Board of Directors' meetings and of preparing,
printing and mailing prospectuses and reports to shareholders, (n) litigation
and indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Fund's business and (o) expenses assumed by the
Fund pursuant to the Plans of Distribution adopted in conformity with Rule
12b-1 under the Investment Company Act.
B-11
<PAGE>
The Management Agreement provides that PIFM will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
its duties. The Management Agreement provides that it will terminate
automatically if assigned, and that it may be terminated without penalty by
either PIFM or the Company (by the Board of Directors or vote of a majority of
the outstanding voting securities of the Fund, as defined in the Investment
Company Act) upon not more than 60 days' nor less than 30 days' written
notice. The Management Agreement will continue in effect for a period of more
than two years from the date of execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act. The Management Agreement was last approved by the Board of
Directors of the Company, including a majority of the Directors who are not
parties to the contract or interested persons of any such party as defined in
the Investment Company Act, on May 16, 1997 and by the shareholders of the
Fund on April 22, 1991 effective as of June 10, 1991.
For the fiscal years ended December 31, 1997, 1996, and December 31, 1995,
PIFM received net management and administrative fees of $892,503, $892,788 and
$754,705.
Prudential Investments Fund Management LLC, the Manager of the Fund, is a
subsidiary of Prudential Securities Incorporated (PSI) and The Prudential
Insurance Company of America (Prudential). Prudential Mutual Fund Services LLC
(PMFS or the Transfer Agent) serves as the transfer agent for the Prudential
Mutual Funds and, in addition, provides customer service, record keeping and
management and administration services to qualified plans.
INVESTMENT ADVISER
The Fund's Investment Adviser is Nicholas-Applegate Capital Management, a
California limited partnership, with offices at 600 West Broadway, San Diego,
California 92101. The Investment Adviser was organized in August 1984 to
manage discretionary accounts investing primarily in publicly traded equity
securities and securities convertible into or exercisable for publicly traded
equity securities, with the goal of capital appreciation. Its general partner
is Nicholas-Applegate Capital Management Holdings, L.P., a California limited
partnership of which the general partner is Nicholas-Applegate Capital
Management Holdings, Inc. (a California corporation owned by Mr. Nicholas).
The Investment Adviser currently has twenty-one partners (including Mr.
Nicholas) who manage a staff of approximately 475 employees including 46
portfolio managers.
The Investment Adviser acted as investment adviser to the Fund pursuant to
an Investment Advisory Agreement with the Fund (the "Original Advisory
Agreement") from the commencement of the Fund's operations (as a closed-end
investment company) in April 1987 until its conversion to an open-end company
in June 1991. The Original Advisory Agreement was initially approved by Arthur
E. Nicholas and Fred C. Applegate as the Fund's original shareholders and was
approved by the Fund's public shareholders at the annual meetings of
shareholders held in May 1988, May 1989 and April 1990. The Original Advisory
Agreement was last approved by the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Investment
Adviser or the Fund, as defined in the Investment Company Act, in February
1991.
Pursuant to the conversion of the Fund to an open-end mutual fund, the
Original Advisory Agreement was terminated and the Management Agreement and
the Subadvisory Agreement were entered into effective June 10, 1991. The
Subadvisory Agreement was approved by the shareholders of the Fund on April
22, 1991, effective as of June 10, 1991. The Subadvisory Agreement was last
approved by the Board of Directors, including a majority of the Board of
Directors who are not parties to the contract or interested persons of any
such party as defined in the Investment Company Act, on May 16, 1997. Under
the Subadvisory Agreement, the Manager retains the Investment Adviser to
manage the Fund's investment portfolio, subject to the direction of the
Company's Board of Directors and the Manager. The Investment Adviser is
authorized to determine which securities
B-12
<PAGE>
are to be bought or sold by the Fund and in what amounts. In addition to
providing management and investment advisory services, the Investment Adviser
compensates all Directors and officers of the Fund who are "interested
persons" of the Investment Adviser, as such term is defined in the Investment
Company Act.
The Subadvisory Agreement provides that the Investment Adviser will not be
liable for any error of judgment or for any loss suffered by the Fund or the
Manager in connection with the matters to which the Subadvisory Agreement
relates, except for liability resulting from willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of its reckless
disregard of its duties and obligations or a breach of its fiduciary duty
under the Subadvisory Agreement. The Fund has agreed to indemnify the
Investment Adviser against liabilities, costs and expenses that the Investment
Adviser may incur in connection with any action, suit, investigation or other
proceeding arising out of or otherwise based on any action actually or
allegedly taken or omitted to be taken by the Investment Adviser in connection
with the performance of its duties or obligations under the Subadvisory
Agreement or otherwise as an investment adviser of the Fund. The Investment
Adviser is not entitled to indemnification with respect to any liability to
the Fund or its shareholders by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or of its reckless
disregard of its duties and obligations or of a breach of its fiduciary duty
under the Subadvisory Agreement.
The Subadvisory Agreement further provides that the Fund may use "Nicholas-
Applegate" as part of its name so long as the Subadvisory Agreement is in
effect. Because the name "Nicholas-Applegate" is a property right of the
Investment Adviser, the Investment Adviser, as well as Mr. Nicholas and Mr.
Applegate, may, upon the termination of the Subadvisory Agreement, require the
Fund to refrain from using the name "Nicholas-Applegate" in any form.
The Manager pays to the Investment Adviser, as compensation for the services
provided by the Investment Adviser under the Subadvisory Agreement, a fee at
an annual rate equal to .75 of 1% of the average daily net assets of the Fund.
Under the Original Advisory Agreement, the Investment Adviser's fee for its
services as investment adviser to the Fund was a fee comprised of a basic fee
(the "Basic Fee") and an adjustment to the Basic Fee based on the investment
performance per share of the Fund in relation to the investment record of the
S&P 500 for certain performance periods. The Basic Fee was a monthly fee equal
to 1/12 of .75% (.75% on an annualized basis) of the average of the daily net
assets of the Fund at the end of each month included in the applicable
performance period. The Basic Fee for each such month was subject to increase
or decrease depending on the extent, if any, by which the investment
performance per share of the Fund exceeded or was exceeded by the percentage
change in the investment record of the S&P 500 for such performance period.
The Basic Fee was increased by 1/12 of .25% (to a total of 1/12 of 1.00%) if
the investment performance per share of the Fund exceeded the percentage
change in the S&P 500 for such performance period by nine or more percentage
points, and was decreased by 1/12 of .25% (to a total of 1/12 of .50%) if the
investment performance per share of the Fund was exceeded by the percentage
change in the S&P 500 for such performance period by nine or more percentage
points. If the investment performance per share of the Fund did not exceed, or
was not exceeded by, the percentage change in the S&P 500 for a performance
period by nine or more percentage points, the maximum percentage increase or
decrease in the Basic Fee ( 1/12 of either +.25% or -.25%, respectively) was
prorated for such performance period in the same proportion as the excess of
the investment performance per share of the Fund over the percentage change in
the investment record of the S&P 500, or as the excess of the percentage
change in the investment record of the S&P 500 over the investment performance
per share of the Fund, as the case may be, for such performance period bore to
nine percentage points.
During the years ended December 31, 1995, 1996 and 1997 the Fund and the
Manager paid the Investment Adviser aggregate advisory fees of $2,839,126,
$3,358,584 and $3,357,513, respectively, pursuant to the terms of the
Subadvisory Agreement.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Company (by the Board of Directors or vote of a majority of
the outstanding voting securities of the Fund, as defined in the
B-13
<PAGE>
Investment Company Act), PIFM or the Investment Adviser upon not more than 60
days' nor less than 30 days' written notice, without payment of any penalty.
The Subadvisory Agreement provides that it will continue in effect for a
period of more than two years from its execution only so long as such
continuance is specifically approved at least annually in conformity with the
Investment Company Act.
The Investment Adviser and its affiliated companies have adopted a personal
investment policy consistent with Investment Company Institute guidelines.
This policy includes, among other things, a ban on acquisitions of securities
in an initial public offering; restrictions on acquisitions of securities in
private placements; investment pre-clearance and reporting requirements;
review of duplicate confirmation statements; annual recertification of
compliance with a code of ethics; disclosure of personal holdings by certain
personnel; blackout periods on personal investing for certain personnel;
prohibition of short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
DISTRIBUTOR
Prudential Securities Incorporated, One Seaport Plaza, New York, New York
10292 (Prudential Securities or the Distributor), acts as the distributor of
the shares of the Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively the "Plans") adopted pursuant
to Rule 12b-1 under the Investment Company Act and a distribution agreement
(the "Distribution Agreement"), the Distributor incurs the expenses of
distributing the Fund's Class A, Class B and Class C shares. The Distributor
also incurs the expenses of distributing the Fund's Class Z shares under the
Distribution Agreement, none of which are reimbursed by or paid for by the
Fund. See "How the Fund is Managed--Distributor" in the Prospectus. The Class
A and Class B Distribution Plans were adopted by the Board of Directors,
including a majority of the Directors who have no direct or indirect financial
interest in the operation of the Plans or in any agreement related to either
Plan (the "Rule 12b-1 Directors"), on February 1, 1991, effective as of June
10, 1991. The holders of a majority of the Fund's outstanding Class A shares
approved the Class A Plan on April 22, 1991. PMF, the sole shareholder of the
Fund's Class B shares, approved the Class B Plan on June 10, 1991. The Class B
Plan was approved by Class B shareholders of the Fund on May 18, 1992. On May
17, 1993, the Directors, including a majority of the Rule 12b-1 Directors, at
a meeting called for the purpose of voting on each Plan, approved the
continuance of the Plans and Distribution Agreements and approved
modifications of the Fund's Class A and Class B Plans and Distribution
Agreements to conform them with recent amendments to the National Association
of Securities Dealers, Inc. (NASD) maximum sales charge rule described below.
As so modified, the Class A Plan provides that (i) up to .25 of 1% of the
average daily net assets of the Class A shares may be used to pay for personal
service and/or the maintenance of shareholder accounts (service fee) and (ii)
total distribution fees (including the service fee of .25 of 1%) may not
exceed .30 of 1%. As so modified, the Class B Plan provides that (i) up to .25
of 1% of the average daily net assets of the Class B shares may be paid as a
service fee and (ii) up to .75 of 1% (not including the service fee) may be
used as reimbursement for distribution-related expenses with respect to the
Class B shares (asset-based sales charge). On May 17, 1993, the Board of
Directors, including a majority of the Rule 12b-1 Directors, at a meeting
called for the purpose of voting on each Plan, adopted a plan of distribution
for the Class C shares of the Fund and approved further amendments to the
plans of distribution for the Fund's Class A and Class B shares changing them
from reimbursement type plans to compensation type plans. The Plans were last
approved by the Board of Directors, including a majority of the Rule 12b-1
Directors, on May 16, 1997. The Class A Plan, as amended, was approved by
Class A and Class B shareholders, and the Class B Plan, as amended, was
approved by Class B shareholders on July 19, 1994. The Class C Plan was
approved by the sole shareholder of Class C shares on August 1, 1994.
CLASS A PLAN. For the year ended December 31, 1997, the Distributor received
payments of $251,879, under the Class A Plan. This amount was primarily
expended for payments of account servicing fees to financial advisers and
other persons who sell Class A shares. In addition, for the year ended
December 31, 1997, PSI received approximately $139,800 in initial sales
charges.
B-14
<PAGE>
CLASS B PLAN. For the year ended December 31, 1997, the Distributor received
$3,005,201 from the Fund under the Class B Plan and spent approximately
$1,305,300 in distributing the Fund's Class B shares. It is estimated that of
the latter amount, approximately 1.2% ($15,100) was spent on printing and
mailing of prospectuses and sales material to other than current shareholders;
29.3% ($382,300) was spent on compensation to Pruco Securities Corporation, an
affiliated broker-dealer, for commissions to its representatives and other
expenses, including an allocation on account of overhead and other branch
office distribution related expenses, incurred by it for distribution of Class
B shares; and 69.5% ($907,900) was spent on the aggregate of (i) commission
credits to Prudential Securities branch offices for payments of commissions
and account servicing fees to financial adviser [44.1% ($576,100)] and (ii) an
allocation on account of overhead and other branch office distribution-related
expenses [25.4% ($331,800)]. The term "overhead and other branch office
distribution-related expenses" represents (a) the expenses of operating the
branch offices of Prudential Securities and Prusec 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) travel 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.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class B shares. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus. For the fiscal year ended December 31, 1997 the
Distributor received approximately $538,800 in contingent deferred sales
charges attributable to Class B shares.
CLASS C PLAN. Prudential Securities receives the proceeds of contingent
deferred sales charges paid by investors upon certain redemptions of Class C
shares. See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred
Sales Charges" in the Prospectus.
For the year ended December 31, 1997, the Distributor received $67,962 from
the Fund under the Class C Plan and spent approximately $63,200 in
distributing the Fund's Class C Shares. It is estimated that of the latter
amount, approximately 0.9% ($500) was spent on printing and mailing of
prospectuses to other than current shareholders; 6.1% ($3,900) on compensation
to Prusec for commissions to its representatives and other expenses, including
an allocation of overhead and other branch office distribution-related
expenses, incurred by it for distribution of Fund shares; and 93.0% ($58,800)
on the aggregate of (i) payments of commissions and account servicing fees to
financial advisers (83.7% or $52,900) and (ii) an allocation of overhead and
other branch office distribution-related expenses for payments of related
expenses (9.3% or $5,900). The Distributor also receives the proceeds of
contingent deferred sales charges paid by investors upon certain redemptions
of Class C shares. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges" in the Prospectus. For the fiscal year ended December
31, 1997, the Distributor received approximately $4,800 in contingent deferred
sales charges attributable to Class C shares.
The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Directors, including a majority vote of the Rule 12b-1 Directors,
cast in person at a meeting called for the purpose of voting on such
continuance. The Class A, Class B and Class C Plans may each be terminated at
any time, without penalty, by the vote of a majority of the Rule 12b-1
Directors or by the vote of the holders of a majority of the outstanding
shares of the applicable class on not more than 30 days' written notice to any
other party to the Plans. The Plans may not be amended to increase materially
the amounts to be spent for the services described therein without approval by
the shareholders of the applicable class (by both Class A and Class B
shareholders, voting separately, in the case of material amendments to the
Class A Plan), and all material amendments are required to be approved by the
Board of Directors in the manner described above. Each Plan will automatically
terminate in the event of its assignment. The Fund will not be contractually
obligated to pay expenses incurred under the Class A Plan, Class B Plan or
Class C Plan if such Plan is terminated or not continued.
B-15
<PAGE>
Pursuant to each Plan, the Board of Directors will review at least quarterly
a written report of the distribution expenses incurred on behalf of the Class
A, Class B and Class C shares of the Fund by the Distributor. The report will
include an itemization of the distribution expenses and the purposes of such
expenditures. In addition, as long as the Plans remain in effect, the
selection and nomination of Directors who are not interested persons of the
Company will be committed to the Directors who are not interested persons of
the Company.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1993, as amended. The Restated
Distribution Agreement was last approved by the Directors, including a
majority of the Rule 12b-1 Directors, on May 16, 1997.
NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD Inc., the
Distributor is required to limit aggregate initial sales charges, deferred
sales charges and asset-based sales charges to 6.25% of total gross sales of
each class of shares. Interest charges on unreimbursed distribution expenses
equal to the prime rate plus one percent per annum may be added to the 6.25%
limitation. Sales from the reinvestment of dividends and distributions are not
included in the calculation of the 6.25% limitation. The annual asset-based
sales charge on shares of the Fund may not exceed .75 of 1% per class. The
6.25% limitation applies to the Fund rather than on a per shareholder basis.
If aggregate sales charges were to exceed 6.25% of total gross sales of any
class, all sales charges on shares of all classes would be suspended.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Company's Board of Directors and the
oversight and review of the Manager, the Investment Adviser is primarily
responsible for the execution of the Fund's portfolio transactions and the
allocation of its brokerage business. In executing such transactions, the
Investment Adviser will seek to obtain the best price and execution for the
Fund, taking into account such factors as price, size of order, difficulty and
risk of execution and operational facilities of the firm involved. Securities
in which the Fund invests may be traded in the over-the-counter markets, and
the Fund deals directly with the dealers who make markets in such securities
except in those circumstances where better prices and execution are available
elsewhere. Commission rates are established pursuant to negotiation with
brokers or dealers based on the quality or quantity of services provided in
light of generally prevailing rates, and while the Investment Adviser
generally seeks reasonably competitive commission rates, the Fund does not
necessarily pay the lowest commissions available. The allocation of orders
among brokers and the commission rates paid are reviewed quarterly by the
Board of Directors of the Company.
The Fund has no obligation to deal with any broker or group of brokers in
executing transactions in portfolio securities. Subject to obtaining the best
price and execution, brokers who sell shares of the Fund or provide
supplemental research, market and statistical information and other research
services and products to the Investment Adviser may receive orders for
transactions by the Fund. Such information, services and products are those
which brokerage houses customarily provide to institutional investors, and
include items such as statistical and economic data, research reports on
particular companies and industries, and computer software used for research
with respect to investment decisions. Information, services and products so
received are in addition to and not in lieu of the services required to be
performed by the Investment Adviser under the Subadvisory Agreement and the
expenses of the Investment Adviser are not necessarily reduced as a result of
the receipt of such supplemental information, services and products. Such
information, services and products may be useful to the Investment Adviser in
providing services to clients other than the Fund, and not all such
information, services and products are used by the Investment Adviser in
connection with the Fund. Similarly, such information, services and products
provided to the Investment Adviser by brokers and dealers through whom other
clients of the Investment Adviser effect securities transactions may be useful
to the Investment Adviser in providing services to the Fund. The Investment
Adviser is authorized to pay higher commissions on brokerage transactions for
the Fund to brokers in order to secure information, services and products
described above, subject to review by the Company's Board of Directors from
time to time as to the extent and continuation of this practice. During the
fiscal year ended December 31, 1997, substantially all of the Fund's brokerage
commissions were paid to firms which provided research services to the Fund's
Investment Adviser.
B-16
<PAGE>
Although investment decisions for the Fund are made independently from those
of the other accounts managed by the Investment Adviser, investments of the
kind made by the Fund may often also be made by such other accounts. When a
purchase or sale of the same security is made at substantially the same time
on behalf of the Fund and one or more other accounts managed by the Investment
Adviser, available investments are allocated in the discretion of the
Investment Adviser by such means as, in its judgment, result in fair
treatment. The Investment Adviser aggregates orders for purchases and sales of
securities of the same issuer on the same day among the Fund and its other
managed accounts, and the price paid to or received by the Fund and those
accounts is the average obtained in those orders. In some cases, such
aggregation and allocation procedures may affect adversely the price paid or
received by the Fund or the size of the position purchased or sold by the
Fund.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to
the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments and agency securities may be purchased directly from
the issuer, in which case no commissions or discounts are paid. The Fund will
not deal with Prudential Securities in any transaction in which Prudential
Securities acts as principal. Thus, it will not deal in over-the-counter
securities with Prudential Securities acting as market marker, and it will not
execute a negotiated trade with Prudential Securities if execution involves
Prudential Securities acting as principal with respect to any part of the
Fund's order.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities (or any affiliate), during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the Commission.
This limitation, in the opinion of the Fund, will not significantly affect the
Fund's ability to pursue its present investment objective. However, in the
future in other circumstances, the Fund may be at a disadvantage because of
this limitation in comparison to other funds with similar objectives but not
subject to such limitation.
Subject to the above considerations, Prudential Securities may act as a
broker or dealer for the Fund. In order for Prudential Securities to effect
any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by Prudential Securities must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other such
brokers or dealers in connection with comparable transactions involving
similar securities sold on an exchange during a comparable period of time.
This standard would allow Prudential Securities to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker
or dealer in a commensurate arms-length transaction. Furthermore, the Board of
Directors of the Fund, including a majority of the Directors who are not
"interested" directors, has adopted procedures which are reasonably designed
to provide that any commissions, fees or other remuneration paid to Prudential
Securities are consistent with the foregoing standard. In accordance with
Section 11(a) under 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 in a written contract executed by the Fund and
Prudential Securities. Section 11(a) provides that Prudential Securities must
furnish to the Fund at least annually a statement setting forth the total
amount of all compensation retained by Prudential Securities for transactions
effected by the Fund during the applicable period. Brokerage transactions with
Prudential Securities are also subject to such fiduciary standards as may be
imposed by applicable law.
The table presented below shows certain information regarding the payment of
commissions by the Fund, including the amount of such commissions paid to
Prudential Securities, for the three-year period ended December 31, 1997.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C> <C>
Total brokerage commissions paid by the
Fund................................... $1,554,271 $914,031 $884,934
Total brokerage commissions paid to Pru-
dential Securities..................... $ 0 $ 0 $ 0
Percentage of total brokerage commis-
sions paid to Prudential Securities.... 0% 0% 0%
</TABLE>
B-17
<PAGE>
Of the total brokerage commissions paid during the year ended December 31,
1997 $1,044,840 or (29%) were paid to firms which provided research,
statistical or other services to the Manager. PIFM has not separately
identified a portion of such brokerage commissions as applicable to the
provision of such research, statistical or other services.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value (NAV) per share plus a sales charge which, at the election of
the investor, may be imposed either (i) at the time of the purchase (Class A
shares) or on a deferred basis (Class B or Class C shares). Class Z shares of
the Fund are offered to a limited group of investors at NAV without any sales
charges. See "Shareholder Guide--How to Buy Shares of the Fund" in the
Prospectus.
Each class of shares represents an interest in the same assets of the Fund
and is identical in all respects except that (i) each class is subject to
different sales charges and distribution and/or service fees (except for Class
Z shares, which are not subject to any sales charges and distribution and/or
service fees), which may affect performance, (ii) each class has exclusive
voting rights with respect to any matter submitted to shareholders that
relates solely to its arrangement and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class, (iii) each class has a different exchange
privilege, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to a limited group of investors. See
"Distributor" and "Shareholder Investment Account--Exchange Privilege."
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 5.00% and
Class B, Class C* and Class Z shares are sold at NAV. Using the Fund's NAV at
December 31, 1997, the maximum offering price of the Fund's shares is as
follows:
<TABLE>
<S> <C>
CLASS A
Net asset value.................................................. $14.47
Maximum sales charge (5.00% of offering price)................... .76
------
Offering price to public......................................... $15.23
======
CLASS B
Net asset value, offering price and redemption price per Class B
share*.......................................................... $13.26
======
CLASS C
Net asset value, offering price and redemption price per Class C
share*.......................................................... $13.26
======
CLASS Z
Net asset value, offering price and redemption price per Class Z
share........................................................... $14.53
======
</TABLE>
----------
*Class B and Class C shares are subject to a contingent
deferred sales charge on certain redemptions. See "Shareholder
Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be
B-18
<PAGE>
combined to take advantage of the reduced sales charges applicable to larger
purchases. See the table of breakpoints under "Shareholder Guide--Alternative
Purchase Plan" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
Also, an eligible group of related Fund investors may include an employer
(or group of related employers) and one or more qualified retirement plans of
such employer or employers (an employer controlling, controlled by or under
common control with another employer is deemed related to that employer).
In addition, an eligible group of related Fund Investors may include (i) a
client of a Prudential Securities financial adviser who gives such financial
adviser discretion to purchase the Prudential Mutual Funds for his or her
account only in connection with participation in a market timing program and
for which program Prudential Securities receives a separate advisory fee or
(ii) a client of an unaffiliated registered investment adviser which is a
client of a Prudential Securities financial adviser, if such unaffiliated
adviser has discretion to purchase the Prudential Mutual Funds for the
accounts of his or her customers but only if the client of such unaffiliated
adviser participates in a market timing program conducted by such unaffiliated
adviser; provided such accounts in the aggregate have assets of at least $15
million invested in the Prudential Mutual Funds.
THE DISTRIBUTOR MUST BE NOTIFIED AT THE TIME OF PURCHASE THAT THE INVESTOR
IS ENTITLED TO A REDUCED SALES CHARGE. THE REDUCED SALES CHARGES WILL BE
GRANTED SUBJECT TO CONFIRMATION OF THE INVESTOR'S HOLDINGS. THE COMBINED
PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE DOES NOT APPLY TO INDIVIDUAL
PARTICIPANTS IN ANY RETIREMENT OR GROUP PLANS.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of
related investors, as described above under "Combined Purchase and Cumulative
Purchase Privilege," may aggregate the value of their existing holdings of
shares of the Fund and shares of other Prudential Mutual Funds (excluding
money market funds other than those acquired pursuant to the exchange
privilege) to determine the reduced sales charge. However, the value of shares
held directly with the Transfer Agent and through Prudential Securities will
not be aggregated to determine the reduced sales charge. All shares must he
held either directly with the Transfer Agent or through Prudential Securities.
The value of existing holdings for purposes of determining the reduced sales
charge is calculated using the maximum offering price (NAV plus maximum sales
charge) as of the previous business day. See "How the Fund Values Its Shares"
in the Prospectus. The Distributor must be notified at the time of purchase
that the investor is entitled to a reduced sales charge. The reduced sales
charges will be granted subject to confirmation of the investor's holdings.
Rights of accumulation are not available to individual participants in any
retirement or group plans.
B-19
<PAGE>
LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors), including retirement and group plans,
who enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of the Fund and shares of other Prudential
Mutual Funds (Investment Letter of Intent). Retirement and group plans may
also qualify to purchase Class A shares at net asset value by entering into a
Letter of Intent whereby they agree to enroll, within a thirteen-month period,
a specified number of eligible employees or participants (Participant Letter
of Intent).
For purposes of the Investment Letter of Intent, all shares of the Fund and
shares of Prudential Mutual Funds (excluding money market funds other than
those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction; however, the value of shares held directly with the Transfer Agent
and through Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the
Transfer Agent or through Prudential Securities.
A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number
of investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish a minimum eligible employee or participant
enrollment goal over a thirteen-month period. Each investment made during the
period, in the case of an Investment Letter of Intent, will receive the
reduced sales charge applicable to the amount represented by the goal, as if
it were a single investment. In the case of a Participant Letter of Intent,
each investment made during the period will be made at net asset value.
Escrowed shares totaling 5% of the dollar amount of the Letter of Intent will
be held by the Transfer Agent in the name of the purchaser, except in the case
of retirement and group plans where the employer or plan sponsor will be
responsible for paying any applicable sales charge. The effective date of an
Investment Letter of Intent except in the case of retirement and group plans
may be back-dated up to 90 days, in order that any investments made during
this 90-day period, valued at the purchaser's cost, can be applied to the
fulfillment of the Letter of Intent goal.
The Investment Letter of Intent does not obligate the investor to purchase,
or the Fund to sell, the indicated amount. Similarly, the Participant Letter
of Intent does not obligate the retirement or group plan to enroll the
indicated number of eligible employees or participants. In the event the
Letter of Intent goal is not achieved within the thirteen-month period, the
purchaser (or the employer or plan sponsor in the case of any retirement or
group plan) is required to pay the difference between the sales charge
otherwise applicable to the purchases made during this period and sales
charges actually paid. Such payment may be made directly to the Distributor
or, if not paid, the Distributor will liquidate sufficient escrowed shares to
obtain such difference. If the goal is exceeded in an amount which qualifies
for a lower sales charge, a price adjustment is made by refunding to the
purchaser the amount of excess sales charge, if any, paid during the thirteen-
month period. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will, in the
case of an Investment Letter of Intent, be granted subject to confirmation of
the investor's holdings or, in the case of a Participant Letter of Intent,
subject to confirmation of the number of eligible employees or Participants in
the retirement group or plan. Letters of Intent are not available to
individual participants in retirement or group plans.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES.
The Contingent Deferred Sales Charge is waived under circumstances described
in the Prospectus. See "Shareholder Guide--How to Sell Your Shares--Waiver of
Contingent Deferred Sales Charges--Class B Shares" in the Prospectus. In
connection with these waivers, the Transfer Agent will require you to submit
the supporting documentation set forth below.
<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A copy of the shareholder's death
certificate or, in the case of a trust, a
copy of the grantor's death certificate,
plus a copy of the trust agreement
identifying the grantor.
</TABLE>
B-20
<PAGE>
<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Disability - An individual will be
considered disabled if he or she is unable A copy of the Social Security
to engage in any substantial gainful Administration award letter or a letter
activity by reason of any medically from a physician on the physician's
determinable physical or mental impairment letterhead stating that the shareholder
which can be expected to result in death or (or, in the case of a trust, the grantor)
to be of long-continued and indefinite is permanently disabled. The letter must
duration. also indicate the date of disability.
Distribution from an IRA or 403(b) A Copy of the distribution form from the
Custodial Account custodial firm indicating (i) the date of
birth of the shareholder and (ii) that
the shareholder is over age 59 1/2 and is
taking a normal distribution--signed by
the shareholder.
Distribution from Retirement Plan A letter signed by the plan
administrator/trustee indicating the
reason for the distribution.
Excess Contributions A letter from the shareholder (for an
IRA) or the plan administrator/trustee on
company letterhead indicating the amount
of the excess and whether or not taxes
have been paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO AUGUST 1, 1994
The CDSC is reduced on redemptions of Class B shares of the Fund purchased
prior to August 1, 1994 if immediately after a purchase of such shares, the
aggregate cost of all Class B shares of the Fund owned by you in a single
account exceeded $500,000. For example, if you purchased $100,000 of Class B
shares of the Fund and the following year purchase an additional $450,000 of
Class B shares with the result that the aggregate cost of your Class B shares
of the Fund following the second purchase was $550,000, the quantity discount
would be available for the second purchase of $450,000 but not for the first
purchase of $100,000. The quantity discount will be imposed at the following
rates depending on whether the aggregate value exceeded $500,000 or $1
million:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS INVESTED
OR REDEMPTION PROCEEDS
--------------------------------------
YEAR SINCE PURCHASE
PAYMENT MADE $500,001 TO $1 MILLION OVER $1 MILLION
------------------- ---------------------- ---------------
<S> <C> <C>
First.......................... 3.0% 2.0%
Second......................... 2.0% 1.0%
Third.......................... 1.0% 0%
Fourth and thereafter.......... 0% 0%
</TABLE>
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
B-21
<PAGE>
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for issuance of a certificate. The Fund makes available
to the shareholders the following privileges and plans:
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at net
asset value per share. An investor may direct the Transfer Agent in writing
not less than five full business days prior to the record date to have
subsequent dividends and/or distributions sent in cash rather than reinvested.
In the case of recently purchased shares for which registration instructions
have not been received on the record date, cash payment will be made directly
to the dealer. Any shareholder who receives a cash payment representing a
dividend or distribution may reinvest such distribution at NAV (without a
sales charge) by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. Such investment will be made at the net
asset value per share next determined after receipt of the check or proceeds
by the Transfer Agent. Such shareholder will receive credit for any CDSC paid
in connection with the amount of the proceeds being reinvested.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to
the minimum investment requirements of such funds. Shares of such other
Prudential Mutual Funds may also be exchanged for shares of the Fund. All
exchanges are made on the basis of the relative NAV next determined after
receipt of an order in proper form. An exchange will be treated as a
redemption and purchase for tax purposes. Shares may be exchanged for shares
of another fund only if shares of such fund may legally be sold under
applicable state laws. For retirement and group plans having a limited menu of
Prudential Mutual Funds, the Exchange Privilege is available for those funds
eligible for investment in the particular program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds (including new series of the Company) the shares of which may be
distributed by the Distributor.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Short-Intermediate Term Series) and shares of the
money market funds specified below. No fee or sales load will be imposed upon
the exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the Exchange Privilege only to acquire
Class A shares of the Prudential Mutual Funds participating in the Exchange
Privilege.
The following money market funds participate in the Class A Exchange
Privilege: Prudential California Municipal Fund (California Money Market
Series); Prudential Government Securities Trust (Money Market Series and U.S.
Treasury Money Market Series) (Class A shares); Prudential Municipal Series
Fund (Connecticut Money Market Series, Massachusetts Money Market Series, New
York Money Market Series and New Jersey Money Market Series); Prudential
MoneyMart Assets (Class A shares); and Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund, a
money market fund. No CDSC will be payable upon such exchange, but a CDSC may
be payable upon the redemption of the Class B and Class C shares acquired as a
result of an exchange. The applicable sales charge will be that imposed by the
fund in which shares were initially purchased and the purchase date will be
deemed to be the first day of the month after the initial purchase, rather
than the date of the exchange.
B-22
<PAGE>
Class B and Class C shares of the Fund may also be exchanged for Class B and
Class C shares, respectively, of an eligible money market fund without
imposition of any CDSC at the time of exchange. Upon subsequent redemption
from such money market fund or after re-exchange into the Fund, such shares
will be subject to the CDSC calculated by excluding the time such shares were
held in the money market fund. In order to minimize the period of time in
which shares are subject to a CDSC, shares exchanged out of the money market
fund will be exchanged on the basis of their remaining holding periods, with
the longest remaining holding periods being transferred first. In measuring
the time period shares are held in a money market fund and "tolled" for
purposes of calculating the CDSC holding period, exchanges are deemed to have
been made on the last day of the month. Thus, if shares are exchanged into the
Fund from a money market fund during the month (and are held in the Fund at
the end of the month), the entire month will be included in the CDSC holding
period. Conversely, if shares are exchanged into a money market fund prior to
the last day of the month (and are held in the money market fund on the last
day of the month), the entire month will be excluded from the CDSC holding
period. For purposes of calculating the seven year holding period applicable
to the Class B conversion feature, the time period during which Class B shares
were held in a money market fund will be excluded.
At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C shares
of the Fund without subjecting such shares to any CDSC. Shares of any fund
participating in the Class B or Class C exchange privilege that were acquired
through reinvestment of dividends or distributions may be exchanged for Class
B or Class C shares of other funds without being subject to any CDSC.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Transfer Agent, Prudential
Securities or Prusec. The Exchange Privilege may be modified, terminated or
suspended on sixty days' notice, and any fund, including the Fund, or the
Distributor has the right to reject any exchange application relating to such
fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. A investor buys more
shares when the price is low and fewer shares when the price is high. The
average cost per share is lower than it would be if constant number of shares
were bought at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class beginning in 2011, the cost of four years at
a private college could reach $210,000 and over $90,000 at a public
university./1/
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals./2/
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- -------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 years.................................... $ 110 $ 165 $ 220 $ 275
20 years.................................... 176 264 352 440
15 years.................................... 296 444 592 740
10 years.................................... 555 833 1,110 1,388
5 years..................................... 1,371 2,057 2,742 3,428
</TABLE>
See "Automatic Savings Accumulation Plan."
B-23
<PAGE>
- ----------
/1/Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Information about the costs of private colleges is from the Digest of
Education Statistics, 1992; The National Center for Educational Statistics;
and the U.S. Department of Education. Average costs for private institutions
include tuition, fees and room and board for the 1993-1994 academic year.
/2/The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of the Fund.
The investment return and principal value of investment will fluctuate so that
an investor's shares when redeemed may be worth more or less than their
original cost.
AUTOMATIC SAVINGS ACCUMULATION PLAN ("ASAP")
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account
or Prudential Securities account (including a Command Account) to be debited
to invest specified dollar amounts in shares of the Fund. The investor's bank
must be a member of the Automatic Clearing House System. Stock certificates
are not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. Such withdrawal plan provides for monthly or
quarterly checks in any amount, except as provided below, up to the value of
the shares in the shareholder's account. Withdrawals of Class B or Class C
shares may be subject to a CDSC. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and
(iii) the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at NAV on
shares held under this plan. See "Shareholder Investment Account--Automatic
Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may
be terminated at any time, and the Distributor reserves the right to initiate
a fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares
are inadvisable because of the sales charges applicable to (i) the purchase of
Class A shares and (ii) the withdrawal of Class B and Class C shares. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the plan, particularly if used in connection with a retirement
plan.
TAX-DEFERRED RETIREMENT PLANS
Various tax deferred retirement plans, including a 401(k) Plan, self-
directed individual retirement accounts and "tax-sheltered accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by
B-24
<PAGE>
both self-employed individuals and corporate employers. These plans permit
either self-direction of accounts by participants or a pooled account
arrangement. Information regarding the establishment of these plans, their
administration, custodial fees and other details are available from Prudential
Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of such plan.
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account
until the earnings are withdrawn. The following chart represents a comparison
of the earnings in a personal savings account with those in an IRA, assuming a
$2,000 annual contribution, and 8% rate of return and a 39.6% federal income
tax bracket and shows how much more retirement income can accumulate within an
IRA as opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING/1/
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
------------- -------- ---
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
- ----------
/1/The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings
in a traditional IRA account will be subject to tax when withdrawn from the
account. Distributions from a Roth IRA which meets the conditions required
under the Internal Revenue Code will not be subject to tax upon withdrawal
from the account.
MUTUAL FUND PROGRAMS
From time to time, the Fund may be included in a mutual fund program with
other Prudential Mutual Funds. Under such a program, a group of portfolios
will be selected and thereafter marketed collectively. Typically, these
programs are created with an investment theme, e.g., to seek greater
diversification, protection from interest rate movements or access to
different management styles. In the event such a program is instituted, there
may be a minimum investment requirement for the program as a whole. The Fund
may waive or reduce the minimum initial investment requirements in connection
with such a program.
The mutual funds in the program may be purchased individually or as part of
a program. Since the allocation of portfolios included in the program may not
be appropriate for all investors, individuals should consult their Prudential
Securities Financial Advisor or Prudential/Pruco Securities Representative
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
NET ASSET VALUE
Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at
B-25
<PAGE>
the last sale price on the day of valuation or, if there was no sale on such
day, the mean between the last bid and asked prices on such day, as provided
by a pricing service or principal market maker. Corporate bonds (other than
convertible debt securities) and U.S. Government securities that are actively
traded in the over-the-counter market, including listed securities for which
the primary market is believed to be over-the-counter, are valued on the basis
of valuations provided by a pricing service which uses information with
respect to transactions in bonds, quotations from bond dealers, agency
ratings, market transactions in comparable securities and various
relationships between securities in determining value. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed to be over-the-
counter, are valued at the mean between the last reported bid and asked prices
provided by principal market makers. Options on stock and stock indices traded
on an exchange are valued at the mean between the most recently quoted bid and
asked prices on the respective exchange and futures contracts and options
thereon are valued at their last sale prices as of the close of trading on the
applicable commodities exchange or board of trade. Quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at
the current rate obtained from a recognized bank or dealer and forward
currency exchange contracts are valued at the current cost of covering or
offsetting such contracts. Should an extraordinary event, which is likely to
affect the value of the security, occur after the close of an exchange on
which a portfolio security is traded, such security will be valued at fair
value considering factors determined in good faith by the investment adviser
under procedures established by and under the general supervision of the
Fund's Board of Directors.
Securities or other assets for which reliable market quotations are not
readily available or for which the pricing agent or principal market maker
does not provide a valuation or methodology or provides a valuation or
methodology that, in the judgment of the Manager or Subadviser (or Valuation
Committee or Board of Directors) does not represent fair value, are valued by
the Valuation Committee or Board of Directors in consultation with the Manager
or Subadviser. Short-term debt securities are valued at cost, with interest
accrued or discount amortized to the date of maturity, if their original
maturity was 60 days or less, unless this is determined by the Board of
Directors not to represent fair value. Short-term securities with remaining
maturities of more than 60 days, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or principal market maker. The Fund will compute its
NAV at 4:15 P.M., New York time, on each day the New York Stock Exchange is
open for trading except on days on which no orders to purchase, sell or redeem
Fund shares have been received or days on which changes in the value of the
Fund's portfolio securities do not affect NAV. In the event the New York Stock
Exchange closes early on any business day, the NAV of the Fund's shares shall
be determined at the time between such closing and 4:15 P.M., New York time.
The New York Stock Exchange is closed on the following holidays: New Year's
Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
NAV is calculated separately for each class. The NAV of Class B and Class C
shares will generally be lower than the NAV of Class A shares as a result of
the larger distribution-related fee to which Class B and Class C shares are
subject. The NAV of Class Z shares will generally be higher than the NAV of
Class A, Class B or Class C shares as a result of the fact that the Class Z
shares are not subject to any distribution or service fee. It is expected,
however, that the NAV of the four classes will tend to converge immediately
after the recording of dividends, if any, which will differ by approximately
the amount of the distribution and/or service fee expense accrual differential
among the classes.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDEND AND DISTRIBUTION POLICY. The Fund's present policy, which may be
changed by the Company's Board of Directors, is to make distributions of any
net investment income and capital gains, if any, to shareholders annually.
B-26
<PAGE>
REGULATED INVESTMENT COMPANY. The Fund has elected to qualify and intends to
remain qualified as a regulated investment company under Subchapter M of the
Internal Revenue Code. As a regulated investment company, the Fund will not be
liable for federal income tax on its income and gains provided it distributes
all of its income and gains currently. Qualification as a regulated investment
company under the Internal Revenue Code requires, among other things, that the
Fund (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of securities or foreign currencies, or other income (including,
but not limited to, gains from options, futures or forward contracts) derived
with respect to its business of investing in such securities or currencies;
(b) derive less than 30% of its gross income from the sale or other
disposition of securities held less than three months; and (c) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the Fund's assets is represented by cash, U.S. Government
securities and securities of other regulated investment companies, and other
securities (for purposes of this calculation generally limited, in respect of
any one issuer, to an amount not greater than 5% of the market value of the
Fund's assets and 10% of the outstanding voting securities of such issuer) and
(ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies), or two or more issuers
which the Company controls and which are determined to be engaged in the same
or similar trades or businesses. The Fund generally will be subject to a
nondeductible excise tax of 4% to the extent that it does not meet certain
minimum distribution requirements as of the end of each calendar year. The
Fund intends to make timely distributions of its income in compliance with
these requirements and anticipates that it will not be subject to the excise
tax.
Dividends paid by the Fund from ordinary income, and distributions of the
Fund's net realized short-term capital gains, are taxable to its shareholders
as ordinary income. Distributions to corporate shareholders will be eligible
for the 70% dividends received deduction to the extent that the income of the
Fund is derived from dividends on common or preferred stock. Dividend income
earned by the Fund will be eligible for the dividends received deduction only
if the Fund has satisfied a 46-day holding period requirement with respect to
the underlying portfolio security (91 days in the case of dividends derived
from preferred stock). In addition, a corporate shareholder must have held its
shares in the Fund for not less than 46 days (91 days in the case of dividends
derived from preferred stock) in order to claim the dividend received
deduction. Not later than 60 days after the end of its taxable year, the Fund
will send to its shareholders a written notice designating the amount of any
distributions made during such year which may be taken into account by its
shareholders for purposes of such deduction provisions of the Internal Revenue
Code. Net capital gain distributions are not eligible for the dividends
received deduction.
Under the Internal Revenue Code, any distributions designated as being made
from the Fund's net capital gains are taxable to its shareholders as long-term
capital gains, regardless of the holding period of such shareholders. Such
distributions of net capital gains will be designated by the Fund as a capital
gains distribution in a written notice to its shareholders which accompanies
the distribution payment. Any loss on the sale of shares held for less than
six months will be treated as a long-term capital loss for federal tax
purposes to the extent a shareholder receives net capital gain distributions
on such shares. The maximum federal income tax rate applicable to long-term
capital gains is currently 28% for individual and corporate shareholders.
Dividends and distributions are taxable as described whether received in cash
or reinvested in additional shares of the Fund.
Any loss realized on a sale, redemption or exchange of shares of the Fund by
a shareholder will be disallowed to the extent the shares are replaced within
a 61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes
of calculating gain or loss realized upon a sale or exchange of shares of the
Fund.
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A and Class Z shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions
B-27
<PAGE>
of net capital gains, if any, will be paid in the same amount for Class A,
Class B, Class C and Class Z shares. See "Net Asset Value."
OTHER TAX INFORMATION. The Company may also be subject to state or local
taxes in certain other states where it is deemed to be doing business.
Further, in those states which have income tax laws, the tax treatment of the
Company and of shareholders of the Fund with respect to distributions by the
Fund may differ from federal tax treatment. Distributions to shareholders may
be subject to additional state and local taxes. Shareholders should consult
their own tax advisers regarding specific questions as to federal, state or
local taxes.
B-28
<PAGE>
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Company may from time to time advertise the
Fund's average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z Shares. See "How the Fund
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T)n = ERV
Where:P= a hypothetical initial payment of $1000.
T= average annual total return.
n= number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5, or 10 year periods at the end of the
period (or fractional portion thereof).
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal
or state income taxes that may be payable upon redemption.
The average annual total return for Class A shares for the one year, five
year and, ten year periods ended on December 31, 1997 was 11.46%, 13.13% and
16.13%, respectively. The average annual total return for Class B shares for
the one year, five year and since inception periods ended December 31, 1997
was 11.48%, 13.27% and 15.43%, respectively. The average annual total return
for Class C shares for the one year and since inception periods ended December
31, 1997 was 15.48% and 17.64%, respectively. The average annual total return
for Class Z shares for the since inception (March 18, 1997) period ended
December 31, 1997 was 21.28%.
AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares. See "How the Fund Calculates Performance" in the
Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV - P
T = -------
P
Where:P= a hypothetical initial payment of $1000.
T = aggregate total return.
ERV = ending redeemable value of a hypothetical $1000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof).
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The aggregate total return for Class A shares for the one year, five year
and, ten year periods ended on December 31, 1997 was 17.33%, 95.03% and
369.63%, respectively. The aggregate total return for Class B shares for the
one year, five year and since inception periods ended on December 31, 1997 was
16.48%, 87.45% and 156.29%, respectively. The aggregate total return for Class
C shares for the one year and since inception periods ended December 31, 1997
was 16.48% and 74.20%, respectively. The aggregate total return for Class Z
shares for the since inception (March 18, 1997) period ended December 31, 1997
was 21.28%.
The Fund's 30-day yields for the period ended December 31, 1997 were (.74)%,
(1.58)%, (1.57)% and (0.58)% for Class A, Class B, Class C and Class Z shares,
respectively.
B-29
<PAGE>
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of
inflation./1/
A Look at Performance Over the Long-Term
Average Annual Returns
1/1/26-12/31/97
Common Stocks Long-Term Gov't. Bonds Inflation
11.0% 5.2% 3.1%
/1/Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1997
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. Common stock returns
are based on the Standard & Poor's 500 Stock Index, a market-weighted,
unmanaged index of 500 common stocks in a variety of industry sectors. It is a
commonly used indicator of broad stock price movements. This chart is for
illustrative purposes only, and is not intended to represent the performance
of any particular investment or fund. Investors cannot invest directly in an
index. Past performance is not a guarantee of future results.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND INDEPENDENT AUDITORS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities
and cash and in that capacity maintains certain financial and accounting books
and records pursuant to an agreement with the Fund. Subcustodians provide
custodial services for the Fund's foreign assets held outside the United
States. See "How the Fund is Managed--Custodian and Transfer and Dividend
Disbursing Agent" in the Prospectus.
Prudential Mutual Fund Services LLC ("PMFS"), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the
Fund. PMFS is a wholly-owned subsidiary of PIFM. PMFS provides customary
transfer agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions, and
related functions. For these services, PMFS receives an annual fee per
shareholder account, a new account set-up fee for each manually established
account and a
monthly inactive zero balance account fee of $.20 per shareholder account.
PMFS is also reimbursed for its out-of-pocket expenses, including but not
limited to postage, stationery, printing, allocable communications expenses
and other costs. For the year ended December 31, 1997, the Fund incurred fees
of approximately $624,000 for the services of PMFS.
Ernst & Young LLP serves as the Company's auditors and in that capacity
audits the Company's annual financial statements with respect to the Fund.
B-30
<PAGE>
NICHOLAS-APPLEGATE FUND, INC. Portfolio of Investments
NICHOLAS-APPLEGATE GROWTH EQUITY FUND December 31, 1997
Value
Shares Description (Note 1)
COMMON STOCKS--98.8%
CAPITAL GOODS--25.9%
Construction--1.5%
101,400 Centex Corp................ $ 6,381,863
------------
Drugs & Healthcare--1.6%
145,000 Sybron International
Corp.*................... 6,805,937
------------
Retail/Wholesale Specialty
Chain--18.5%
330,200 Borders Group, Inc.*....... 10,339,388
95,675 Consolidated Stores
Corp.*................... 4,203,720
211,000 Costco Companies, Inc.*.... 9,415,875
204,950 Dollar Tree Stores Inc.*... 8,479,806
191,500 General Nutrition Cos.*.... 6,511,000
121,200 Kohl's Corp.*.............. 8,256,750
258,600 Meyer, (Fred), Inc.*....... 9,406,575
157,400 NBTY, Inc.*................ 5,253,225
173,200 TJX Companies, Inc......... 5,953,750
292,200 U.S. Office Products
Co.*..................... 5,734,425
97,800 Whole Foods Market,
Inc.*.................... 5,000,025
------------
78,554,539
------------
Telecommunication--4.3%
245,100 LCI International, Inc.*... 7,536,825
97,700 Pacific Gateway Exchange,
Inc.*.................... 5,257,481
103,100 Teleport Communications
Group Inc.*.............. 5,657,613
------------
18,451,919
------------
CONSUMER NON-DURABLES--21.1%
Airlines--1.1%
183,000 Southwest Airlines Co...... 4,506,375
------------
Business Services--1.4%
150,000 Robert Half International
Inc.*.................... 6,000,000
------------
Drugs & Healthcare--12.0%
110,300 Centocor, Inc.*............ 3,667,475
161,900 Concentra Managed Care,
Inc.*.................... 5,464,125
200,000 Elan Corp. PLC (ADR)*...... $ 10,237,500
450,000 Health Management Assoc.,
Inc.*.................... 11,362,500
191,500 HEALTHSOUTH Corp.*......... 5,323,030
58,150 McKesson Corporation....... 6,291,103
150,000 Millenium Pharmaceuticals,
Inc.*.................... 2,850,000
186,400 Watson Pharmaceuticals,
Inc.*.................... 6,046,350
------------
51,242,083
------------
Hotels & Restaurants--4.0%
190,000 CKE Restaurants, Inc....... 8,003,750
463,100 Host Marriott Corp.*....... 9,088,337
------------
17,092,087
------------
Leisure And Recreation--2.6%
200,000 Carnival Corp.............. 11,075,000
------------
ENERGY--8.8%
Electrical Utilities--1.4%
126,000 AES Corp.*................. 5,874,750
------------
Oil & Gas-Production/Pipeline--4.4%
147,500 Devon Energy Corp.......... 5,678,750
206,900 Precision Drilling
Corp.*................... 5,043,187
450,000 Santa Fe Energy Resources,
Inc.*.................... 5,062,500
98,100 Valero Energy Corp......... 3,084,019
------------
18,868,456
------------
Oil Services--3.0%
46,200 Camco International,
Inc...................... 2,942,363
297,800 Global Industries, Ltd.*... 5,062,600
73,200 Smith International,
Inc.*.................... 4,492,650
------------
12,497,613
------------
ENVIRONMENTAL--2.2%
Pollution Control Equipment &
Service--2.2%
407,500 Allied Waste Industries,
Inc.*.................... 9,499,844
------------
See Notes to Financial Statements.
B-31
<PAGE>
NICHOLAS-APPLEGATE FUND, INC. Portfolio of Investments
NICHOLAS-APPLEGATE GROWTH EQUITY FUND December 31, 1997
Value
Shares Description (Note 1)
FINANCIAL SERVICES--6.2%
Financial/Business Services--4.7%
213,000 CIT Group*................. $ 6,869,250
85,000 FINOVA Group, Inc.......... 4,223,438
135,200 MGIC Investment Corp....... 8,990,800
------------
20,083,488
------------
Insurance--1.5%
160,000 Provident Cos., Inc........ 6,180,000
------------
GENERAL BUSINESS--11.9%
Advertising--1.8%
200,000 Outdoor Systems, Inc.*..... 7,675,000
------------
Apparel & Textiles--0.5%
49,700 Jones Apparel Group,
Inc.*.................... 2,137,100
------------
Beverages--1.7%
130,000 Canandaigua Brands,
Inc.*.................... 7,198,750
------------
Media--5.3%
142,600 Chancellor Media Corp.*.... 10,641,525
149,400 Clear Channel
Communications, Inc.*.... 11,867,962
------------
22,509,487
------------
Office Furnishings--0.8%
110,000 Knoll, Inc.*............... 3,533,750
------------
Printing & Publishing--1.8%
210,000 Valassis Communications,
Inc.*.................... 7,770,000
------------
TECHNOLOGY--22.7%
Computer-Networks--1.5%
180,000 Network Appliance, Inc.*... 6,390,000
------------
Computers-Services--2.0%
208,300 Saville Systems Ireland PLC
(ADR)*................... 8,644,450
------------
Computer Software--11.3%
230,200 Bay Networks, Inc.*........ 5,884,487
88,100 BMC Software Inc.*......... 5,781,563
302,000 Compuware Corp.*........... 9,664,000
267,800 Industri-Matematik Int'l.
Corp.*................... 7,900,100
125,800 Peoplesoft Inc.*........... 4,906,200
252,800 Platinum Technology,
Inc.*.................... $ 7,141,600
128,900 VERITAS Software Corp.*.... 6,573,900
------------
47,851,850
------------
Electronic Components--4.3%
141,000 Level One Communications,
Inc.*.................... 3,983,250
108,500 Sanmina Corp.*............. 7,350,875
168,000 Uniphase Corp.*............ 6,951,000
------------
18,285,125
------------
Telecommunications Equipment--3.6%
142,500 Advanced Fibre
Communications*.......... 4,150,313
116,900 CIENA Corp.*............... 7,145,512
204,600 PairGain Technologies,
Inc.*.................... 3,964,125
------------
15,259,950
------------
Total common stocks
(cost $345,948,203)...... 420,369,416
------------
Principal
Amount
(000)
- ----------
SHORT-TERM INVESTMENTS--4.2%
Commercial Paper--4.2%
$ 17,725 American Express Co.
6.65%, 1/2/98............ 17,721,726
------------
Other
11 Seven Seas Money Market
Fund..................... 11,173
------------
Total short-term
investments
(cost $17,732,899)....... 17,732,899
------------
Total Investments--103.0%
(cost $363,681,102; Note
4)....................... 438,102,315
------------
Liabilities in excess of
other assets--(3.0)%..... (12,554,981)
------------
Net Assets--100%........... $425,547,334
------------
------------
- ---------------
* Non-income producing.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-32
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets December 31, 1997
-----------------
<S> <C>
Investments, at value (cost $363,681,102)............................................. $ 438,102,315
Cash.................................................................................. 25,341
Receivable for investments sold....................................................... 1,226,691
Receivable for Fund shares sold....................................................... 235,560
Dividends and interest receivable..................................................... 43,089
Other assets.......................................................................... 8,414
-----------------
Total assets...................................................................... 439,641,410
-----------------
Liabilities
Payable for investments purchased..................................................... 11,420,023
Payable for Fund shares reacquired.................................................... 1,852,808
Management fee payable................................................................ 330,884
Distribution fee payable.............................................................. 259,354
Accrued expenses...................................................................... 223,335
Directors' fees payable............................................................... 7,672
-----------------
Total liabilities................................................................. 14,094,076
-----------------
Net Assets............................................................................ $ 425,547,334
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................ $ 312,478
Paid-in capital in excess of par.................................................... 327,085,175
-----------------
327,397,653
Accumulated net realized gain on investments........................................ 23,728,468
Net unrealized appreciation on investments.......................................... 74,421,213
-----------------
Net assets, December 31, 1997......................................................... $ 425,547,334
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($133,973,481 / 9,256,311 shares of common stock issued and outstanding).......... $14.47
Maximum sales charge (5% of offering price)......................................... .76
-----------------
Maximum offering price to public.................................................... $15.23
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($284,190,969 / 21,438,752 shares of common stock issued and outstanding)......... $13.26
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($6,749,676 / 509,191 shares of common stock issued and outstanding).............. $13.26
-----------------
-----------------
Class Z:
Net asset value, offering price and redemption price per share
($633,208 / 43,584 shares of common stock issued and outstanding)................. $14.53
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
B-33
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Operations
Year Ended
December 31,
Net Investment Loss 1997
-------------
Income
Dividends (net of foreign
withholding taxes
of $12,889)...................... $ 1,300,064
Interest........................... 1,148,848
-------------
Total income..................... 2,448,912
-------------
Expenses
Management fees.................... 4,250,016
Distribution fee--Class A.......... 251,879
Distribution fee--Class B.......... 3,005,201
Distribution fee--Class C.......... 67,962
Transfer agent's fees and
expenses........................... 643,000
Custodian's fees and expenses...... 110,000
Reports to shareholders............ 100,000
Directors' fees.................... 77,000
Registration fees.................. 50,000
Audit fees and expense............. 33,000
Insurance expense.................. 28,000
Legal fees and expenses............ 25,000
Miscellaneous...................... 2,284
-------------
Total expenses................... 8,643,342
-------------
Net investment loss.................. (6,194,430)
-------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain on investment
transactions....................... 94,942,716
Net change in unrealized appreciation
of
investments........................ (18,521,412)
-------------
Net gain on investments.............. 76,421,304
-------------
Net Increase in Net Assets
Resulting from Operations............ $ 70,226,874
=============
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Changes in Net Assets
Year Ended Year Ended
Increase (Decrease) December 31, December 31,
in Net Assets 1997 1996
------------------ -------------
Operations
Net investment loss... $ (6,194,430) $ (6,716,644)
Net realized gain on
investment
transactions........ 94,942,716 72,328,335
Net change in
unrealized
appreciation on
investments......... (18,521,412) (173,258)
------------------ -------------
Net increase in net
assets resulting
from operations..... 70,226,874 65,438,433
------------------ -------------
Distributions to
shareholders from net
realized gains on
investments
Class A............. (27,098,267) (18,962,078)
Class B............. (63,813,523) (44,527,983)
Class C............. (1,442,170) (917,000)
Class Z............. (66,424) --
------------------ -------------
(92,420,384) (64,407,061)
------------------ -------------
Fund share transactions
(Note 5)
(net of share
conversions)
Net proceeds from
shares subscribed... 543,622,835 899,616,382
Net asset value of
shares issued to
shareholders in
reinvestment of
distributions....... 84,714,423 58,287,125
Cost of shares
reacquired.......... (650,219,421) (909,300,156)
------------------ -------------
Net increase
(decrease) in net
assets from Fund
share
transactions........ (21,882,163) 48,603,351
------------------ -------------
Total increase
(decrease)............ (44,075,673) 49,634,723
Net Assets
Beginning of year....... 469,623,007 419,988,284
------------------ -------------
End of year............. $ 425,547,334 $ 469,623,007
================== =============
See Notes to Financial Statements.
B-34
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Notes to Financial Statements
Nicholas-Applegate Growth Equity Fund (the 'Fund') is currently the only
series of Nicholas-Applegate Fund, Inc. The Fund commenced operations as a
closed-end, diversified management investment company on April 9, 1987. On June
7, 1991, the Fund ceased operations as a closed-end investment company.
Effective June 10, 1991, trading in the Fund's shares was discontinued on the
New York Stock Exchange and the Fund commenced operations as an open-end,
diversified management investment company.
The Fund's investment objective is capital appreciation. It seeks to achieve
this objective by investing primarily in common stocks and in securities
convertible into or excercisable for common stocks (such as convertible
preferred stocks, convertible debentures and warrants), the earnings and
securities prices of which the investment adviser expects to grow at a rate
above that of the S&P 500.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund in the preparation of
its financial statements.
Security Valuation: Investments are stated at value. Investments for which
market quotations are readily available are valued at the last reported sales
price. If there are no sales on the date of valuation, then investments are
valued at the mean between the most recently quoted bid and asked prices
provided by principal market makers. Securities for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Fund's Board of Directors. Short-term securities are
valued at amortized cost.
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. If the seller defaults and the value of
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Real-
ized and unrealized gains and losses from security transactions are calculated
on the identified cost basis. Dividend income is recorded on the ex-dividend
date and interest income is recorded on an accrual basis. Expenses are recorded
on the accrual basis which may require the use of certain estimates by
management.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Dividends and Distributions: Dividends from net investment income and
distributions of net capital gains in excess of capital loss carryforwards, if
any, are declared and paid annually. Dividends and distributions are recorded on
the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules and rates.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountant's Statement of Position 93-2: Determination,
-------------
Disclosure, and Financial Statement Presentation of Income, Capital Gain and
- ----------------------------------------------------------------------------
Return of Capital Distributions by Investment Companies. For the year ended
- -------------------------------------------------------
December 31, 1997 the Fund decreased accumulated net investment loss by
$6,194,430 and decreased paid-in capital by $6,194,430 due to the Fund
experiencing a net investment loss during the year. Net realized gains and net
assets were not affected by this change.
Note 2. Agreements The Fund has a management
agreement with Prudential Investments Fund
Management LLC ('PIFM'). Pursuant to the management agreement, PIFM has
responsibility for all
B-35
<PAGE>
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with Nicholas-Applegate
Capital Management ('NACM'); NACM furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the services of the
subadviser, the compensation of officers of the Fund who are employees of PIFM,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly at an
annual rate of .95% of the average daily net assets of the Fund. PIFM pays NACM,
as compensation for its services pursuant to the subadvisory agreement, a fee at
the rate of .75% of the average daily net assets of the Fund. During the year
ended December 31, 1997, PIFM earned $4,250,016 in management fees of which it
paid $3,357,513 to NACM under the foregoing agreements.
The Fund has a distribution agreement with Prudential Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund. The Fund compensates PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution, (the 'Class A, B and C Plans') regardless of expenses actually
incurred by them. The distribution fees for Class A, B and C shares are accrued
daily and payable monthly. No distribution or service fees are paid to PSI as
distributor for the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%,
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .18 of 1% of average daily net assets of
Class A shares and 1% of the average daily net assets of both the Class B and
Class C shares, respectively, for the year ended December 31, 1997.
PSI has advised the Fund that it has received approximately $139,800 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1997. From these fees, PSI paid such sales charges to PRUCO
Securities Corporation ('PRUSEC'), an affiliated broker-dealer, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI advised the Fund that for the year ended December 31, 1997, it received
approximately $543,600 in contingent deferred sales charges imposed upon certain
redemptions by Class B and C shareholders.
PSI, PIFM and PRUSEC are (indirect) wholly owned subsidiaries of The
Prudential Insurance Company of America. ('Prudential')
The Fund, along with other affiliated registered investment companies (the
'Funds'), had a credit agreement (the 'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000. Interest on any such
borrowings outstanding will be at market rates. The purposes of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement during the year
ended December 31, 1997. The Funds pay a commitment fee at an annual rate of
.055 of 1% on the unused portion of the credit facility. The commitment fee is
accrued and paid quarterly on a pro rata basis by the Funds. The Agreement
expired on December 30, 1997 and has been extended through December 29, 1998
under the same terms.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices LLC ('PMFS'), a
with Affiliates wholly owned subsidiary of
PIFM, serves as the Fund's transfer agent. During
the year ended December 31, 1997, the Fund incurred fees of approximately
$624,000 for the services of PMFS. As of December 31, 1997, approximately
$49,500 of such fees were due to PMFS. Transfer agent fees and expenses in the
Statement of Operations also include certain out of pocket expenses paid to
nonaffiliates.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the year ended
December 31, 1997 aggregated $787,375,857 and $883,568,917, respectively.
The cost basis of investments for federal income tax purposes at December 31,
1997 was $363,758,696 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $74,343,619 (gross unrealized
appreciation--$83,583,627; gross unrealized depreciation--$9,240,008).
Note 5. Capital The Fund offers Class A,
Class B, Class C and Class Z shares. Class A
shares are sold with a front-end sales charge of
up to 5%. Class B shares are sold with a contingent deferred sales charge which
declines from 5% to zero depending upon the period of time the shares are held.
Class C shares are sold with a contingent deferred sales charge of 1% during the
first year. Class B shares will automatically convert to Class A shares on a
B-36
<PAGE>
quarterly basis approximately seven years after purchase. A special exchange
privilege is also available for shareholders who qualified to purchase Class A
shares at net asset value. Effective March 18, 1997, the Fund commenced offering
Class Z shares. Class Z shares are not subject to any sales or redemption charge
and are offered exclusively for sale to a limited group of investors.
The Fund has authorized 200 million shares of common stock at $.01 par value
per share equally divided into four classes, designated Class A, Class B, Class
C and Class Z shares.Transactions in shares of common stock were as follows:
Class A Shares Amount
- ------------------------------ ----------- -------------
Year ended
December 31, 1997:
Shares sold................... 26,028,147 $ 403,257,239
Shares issued in reinvestment
of dividends and
distributions............... 1,629,888 23,021,141
Shares reacquired............. (28,489,469) (443,979,190)
----------- -------------
Net decrease in shares
outstanding before
conversion.................. (831,434) (17,700,810)
Shares issued upon conversion
from Class B................ 670,378 10,138,513
----------- -------------
Net decrease in shares
outstanding................. (161,056) $ (7,562,297)
----------- -------------
----------- -------------
Year ended
December 31, 1996:
Shares sold................... 45,256,796 $ 735,771,997
Shares issued in reinvestment
of distributions............ 983,300 15,498,673
Shares reacquired............. (45,642,294) (743,356,355)
----------- -------------
Net increase in shares
outstanding before
conversion.................. 597,802 7,914,315
Shares issued upon conversion
from Class B................ 628,501 10,055,961
----------- -------------
Net increase in shares
outstanding................. 1,226,303 $ 17,970,276
----------- -------------
----------- -------------
Class B
- ------------------------------
Year ended
December 31, 1997:
Shares sold................... 9,457,319 $ 135,337,537
Shares issued in reinvestment
of distributions............ 4,638,652 60,246,458
Shares reacquired............. (13,888,004) (200,836,623)
----------- -------------
Net increase in shares
outstanding before
conversion.................. 207,967 (5,252,628)
Shares reacquired upon
conversion into Class A..... (721,300) (10,138,513)
----------- -------------
Net decrease in shares
outstanding................. (513,333) $ (15,391,141)
----------- -------------
----------- -------------
Class B Shares Amount
- ------------------------------ ----------- -------------
Year ended
December 31, 1996:
Shares sold................... 10,219,707 $ 155,199,983
Shares issued in reinvestment
of distributions............ 2,823,157 41,917,160
Shares reacquired............. (10,486,306) (158,450,669)
----------- -------------
Net increase in shares
outstanding before
conversion.................. 2,556,558 38,666,474
Shares reacquired upon
conversion into Class A..... (664,025) (10,055,961)
----------- -------------
Net increase in shares
outstanding................. 1,892,533 $ 28,610,513
----------- -------------
----------- -------------
Class C
- ------------------------------
Year ended
December 31, 1997:
Shares sold................... 297,583 $ 4,319,397
Shares issued in reinvestment
of distributions............ 106,388 1,380,420
Shares reacquired............. (360,051) (5,302,665)
----------- -------------
Net increase in shares
outstanding................. 43,920 $ 397,152
----------- -------------
----------- -------------
Year ended
December 31, 1996:
Shares sold................... 564,965 $ 8,644,402
Shares issued in reinvestment
of distributions............ 58,630 871,292
Shares reacquired............. (496,192) (7,493,132)
----------- -------------
Net increase in shares
outstanding................. 127,403 $ 2,022,562
----------- -------------
----------- -------------
[CAPTION]
Class Z
- ------------------------------
March 18, 1997(a) through
December 31, 1997:
Shares sold................... 45,102 $ 708,662
Shares issued in reinvestment
of distributions 4,760 66,404
Shares reacquired (6,278) (100,943)
----------- -------------
Net increase in shares
outstanding 43,584 $ 674,123
----------- -------------
----------- -------------
(a) Commencement of offering of Class Z shares.
B-37
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
----------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.......... $ 15.41 $ 15.18 $ 11.99 $ 13.56 $ 12.77
----------- -------- -------- ------- -------
Income from investment operations:
Net investment loss......................... (.12) (.14) (.11) (.07) (.07)
Net realized and unrealized gain (loss) on
investment transactions................... 2.60 2.64 3.82 (1.19) 2.63
----------- -------- -------- ------- -------
Total from investment operations.......... 2.48 2.50 3.71 (1.26) 2.56
----------- -------- -------- ------- -------
Less distributions:
Distributions from net realized gains from
investment transactions................... (3.42) (2.27) (.52) (.31) (1.77)
----------- -------- -------- ------- -------
Total distributions....................... (3.42) (2.27) (.52) (.31) (1.77)
----------- -------- -------- ------- -------
Net asset value, end of year................ $ 14.47 $ 15.41 $ 15.18 $ 11.99 $ 13.56
----------- -------- -------- ------- -------
----------- -------- -------- ------- -------
TOTAL RETURN(b):............................ 17.33% 16.45% 31.20% (9.53)% 20.26%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............... $ 133,973 $145,120 $124,340 $88,069 $97,596
Average net assets (000).................... $ 139,933 $136,482 $109,740 $93,620 $90,332
Ratios to average net assets:
Expenses, including distribution fee...... 1.37% 1.41% 1.44% 1.49%(d) 1.42%(d)
Expenses, excluding distribution fee...... 1.19% 1.23% 1.27% 1.32%(d) 1.30%(d)
Net investment loss....................... (.82)% (.93)% (.83)% (.59)% (.53)%
For Class A, B, C and Z shares:
Portfolio turnover rate(c).................. 182% 113% 106% 110% 112%
Average commission rate paid per share $.0590 $.0588 $.0592 N/A N/A
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the
periods due to effects of open-ending, Fund share sales and the resulting
share issuance from the stock rights offering.
(b) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(d) Current year amounts have been restated from prior periods presentation.
See Notes to Financial Statements.
B-38
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Class B
----------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 14.48 $ 14.49 $ 11.56 $ 13.18 $ 12.56
-------- -------- -------- -------- --------
Income from investment operations:
Net investment loss........................... (.23) (.24) (.22) (.17) (.18)
Net realized and unrealized gain (loss) on
investment transactions..................... 2.43 2.50 3.67 (1.14) 2.57
-------- -------- -------- -------- --------
Total from investment operations............ 2.20 2.26 3.45 (1.31) 2.39
-------- -------- -------- -------- --------
Less distributions:
Distributions from net realized gains from
investment transactions..................... (3.42) (2.27) (.52) (.31) (1.77)
-------- -------- -------- -------- --------
Total distributions......................... (3.42) (2.27) (.52) (.31) (1.77)
-------- -------- -------- -------- --------
Net asset value, end of year.................. $ 13.26 $ 14.48 $ 14.49 $ 11.56 $ 13.18
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(b):.............................. 16.48% 15.54% 30.11% (10.20)% 19.21%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $284,191 $317,768 $290,751 $257,059 $252,911
Average net assets (000)...................... $300,520 $304,841 $265,597 $261,285 $179,456
Ratios to average net assets:
Expenses, including distribution fee........ 2.19% 2.23% 2.27% 2.32%(c) 2.30%(c)
Expenses, excluding distribution fee........ 1.19% 1.23% 1.27% 1.32%(c) 1.30%(c)
Net investment loss......................... (1.64)% (1.75)% (1.66)% (1.39)% (1.40)%
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the
periods due to effects of open-ending, Fund share sales and the resulting
share issuance from the stock rights offering.
(b) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions.
(c) Current year amounts have been restated from prior periods presentation.
See Notes to Financial Statements.
B-39
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Class C Class Z
--------------------------------------------------------- -------------
August 1, March 18,
1994(c) 1997(f)
Year Ended December 31, Through Through
--------------------------------------- December 31, December 31,
1997 1996 1995(a) 1994(a) 1997
------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 14.48 $ 14.49 $ 11.56 $ 11.62 $ 14.48
------- -------- ------------ ------------ -------------
Income from investment operations:
Net investment loss..................... (.22) (.22) (.22) (.05) (.22)
Net realized and unrealized gain (loss)
on investment transactions............ 2.42 2.48 3.67 (.01) 3.18
------- -------- ------------ ------------ -------------
Total from investment operations...... 2.20 2.26 3.45 (.06) 2.96
------- -------- ------------ ------------ -------------
Less distributions:
Distributions from net realized gains
from investment transactions.......... (3.42) (2.27) (.52) -- (2.91)
------- -------- ------------ ------------ -------------
Total distributions................... (3.42) (2.27) (.52) -- (2.91)
------- -------- ------------ ------------ -------------
Net asset value, end of period.......... $ 13.26 $ 14.48 $ 14.49 $ 11.56 $ 14.53
------- -------- ------------ ------------ -------------
------- -------- ------------ ------------ -------------
TOTAL RETURN(b):........................ 16.48% 15.54% 30.11% (.52)% 21.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 6,750 $ 6,735 $ 4,897 $ 1,100 $ 633
Average net assets (000)................ $ 6,796 $ 5,862 $ 2,961 $ 225 $ 121
Ratios to average net assets:
Expenses, including distribution
fee................................. 2.19% 2.23% 2.27% 6.23%(d)(e) 1.19%(d)
Expenses, excluding distribution
fee................................... 1.19% 1.23% 1.27% 5.23%(d)(e) 1.19%(d)
Net investment loss................... (1.64)% (1.75)% (1.63)% (3.36)%(d) (.85)%(d)
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the
periods due to effects of open-ending, Fund share sales and the resulting
share issuance from the stock rights offering.
(b) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods less than a full
year are not annualized.
(c) Commencement of offering Class C shares.
(d) Annualized.
(e) Current year amounts have been restated from prior periods presentation.
(f) Commencement of offering Class Z shares.
See Notes to Financial Statements.
B-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Nicholas-Applegate Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Nicholas-Applegate Growth Equity Fund, the only series of Nicholas-Applegate
Fund, Inc., including the portfolio of investments, as of December 31, 1997, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the three years in the period then ended
for Class A, B, C shares, and for the period from March 18, 1997 (commencement
of operations) to December 31, 1997 for Z shares. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights of
Nicholas-Applegate Growth Equity Fund for each of the two years in the period
ended December 31, 1994 for Class A and Class B shares, and for the period from
August 1, 1994 (commencement of investment operations) to December 31, 1994 for
Class C shares, were audited by other auditors whose report dated February 8,
1995 expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Nicholas-Applegate Growth Equity Fund as of December 31, 1997, the results of
its operations for the year then ended, and the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the three years in the period then ended for Class A, B, C shares, and
for the period from March 18, 1997 (commencement of operations) to December 31,
1997 for Z shares in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
February 10, 1998
B-41
<PAGE>
APPENDIX I--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk and providing balance.
Asset allocation among different types of securities within an overall
investment portfolio helps to reduce risk and to potentially provide stable
returns, while enabling investors to work toward their financial goal(s).
Asset allocation is also a strategy to gain exposure to better performing
asset classes while maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable
returns. Owning a portfolio of securities mitigates the individual risks (and
returns) of any one security. Additionally, diversification among types of
securities reduces the risks (and general returns) of any one type of
security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to
changes interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years-the longer
the duration of a bond (or a bond portfolio), the greater the impact of
interest rate changes on the bond's (or the bond portfolio's) price. Duration
differs from effective maturity in that duration takes into account call
provisions, coupon rates and other factors. Duration measures interest rate
risk only and not other risks, such as credit risk and, in the case of non-
U.S. dollar denominated securities, currency risk. Effective maturity measures
the final maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will
fluctuate. However, owning a security for a long period of time may help
investors off-set short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation ( and income
distributions, if elected) are reinvested to contribute to the overall growth
of assets. The long-term investment results of compounding may be greater than
that of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
STANDARD DEVIATION
Standard Deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential.
Standard deviation is only one of several measures of a fund's volatility.
I-1
<PAGE>
APPENDIX II--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This following chart shows the long-term performance of various asset
classes and the rate of inflation.
Each Investment Provides a Different Opportunity
[CHART]
- ----------
Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. This chart is
for illustrative purposes only and is not indicative of the past,
present, or future performance of any asset class or any Prudential
Mutual Fund.
Generally, stock returns are due to capital appreciation and reinvesting any
gains. Bond returns are due mainly to reinvesting interest. Also, stock prices
usually are more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 are those of stocks comprising the 5th quintile of the
New York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the S&P
Composite Index, a market-weighted, unmanaged index of 500 stocks (currently)
in a variety of industries. It is often used as a broad measure of stock
market performance.
Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).
II-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate
bonds, U.S. high yield bonds and world government bonds on an annual basis
from 1987 through 1997. The total returns of the indices include accrued
interest, plus the price changes (gains or losses) of the underlying
securities during the period mentioned. The data is provided to illustrate the
varying historical total returns and investors should not consider this
performance data as an indication of the future performance of the Fund or of
any sector in which the Fund invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information
has not been verified. The figures do not reflect the operating expenses and
fees of a mutual fund. See "Fund Expenses" in the prospectus. The net effect
of the deduction of the operating expenses of a mutual fund on the historical
total returns, including the compounded effect over time, could be
substantial.
Historical Total Returns of Different Bond Market Sectors
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
-------------------------------------------------------------------------------------------------------------------
U.S. Government
Treasury
Bonds/1/ 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% -3.4% 18.4% 2.7% 9.6%
-------------------------------------------------------------------------------------------------------------------
U.S. Government
Mortgage
Securities/2/ 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% -1.6% 16.8% 5.4% 9.5%
-------------------------------------------------------------------------------------------------------------------
U.S. Investment Grade
Corporate Bonds/1/ 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% -3.9% 22.3% 3.3% 10.2%
-------------------------------------------------------------------------------------------------------------------
U.S. High Yield
Corporate Bonds/4/ 5.0% 12.5% 0.8% -9.6% 46.2% 15.8% 17.1% -1.0% 19.2% 11.4% 12.8%
-------------------------------------------------------------------------------------------------------------------
World Government
Bonds/5/ 35.2% 2.3% -3.4% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3%)
-------------------------------------------------------------------------------------------------------------------
Difference between
highest and lowest 33.2% 10.2% 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1%
returns percent
-------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
/1/ Lehman Brothers Treasury Bond Index is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one
year.
/2/ Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgaged-backed securities of
the Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation
(FHLMC).
/3/ Lehman Brothers Corporate Bond Index includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign
governments, municipalities, governmental agencies or international
agencies. All bonds in the index have maturities of at least one year.
/4/ Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by S&P or Fitch Investors
Service). All bonds in the index have maturities of at least one year.
/5/ Salomon Brothers World Government Index (Non U.S.) include 800 bonds issued
by various foreign governments or agencies, excluding those in the U.S., but
including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria.
All bonds in the index have maturities of at least one year.
II-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from December 1985 through December 1997. It does not represent the
performance of any Prudential Mutual Fund.
AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS (12/31/86-12/31/97)
(IN U.S. DOLLARS)
Netherlands 20.5%
Spain 20.4%
Sweden 20.4%
Hong Kong 19.7%
Belgium 19.5%
Switzerland 17.9%
USA 17.1%
UK 16.6%
France 15.6%
Germany 12.1%
Austria 9.6%
Japan 6.6%
- ----------
Source: Morgan Stanley Capital International (MSCI) and Lipper Analytical
Services, Inc. Used with permission. Morgan Stanley Country indices
are unmanaged indices which include those stocks making up the largest
two-thirds of each country's total stock market capitalization.
Returns reflect the reinvestment of all distributions. This chart is
for illustrative purposes only and is not indicative of the past,
present or future performance of any specific investment. Investors
cannot invest directly in stock indices.
This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 stock index with and without reinvested
dividends.
1969-1997 CAPITAL APPRECIATION AND REINVESTING DIVIDENDS-$228,266 CAPITAL
APPRECIATION ONLY-$80,535
[CHART]
- ----------
Source: Stocks, Bonds, Bills, and Inflation 1997 Yearbook, Ibbotson
Associates, Chicago (annually updates work by Rober G. Ibbotson and
Rex A. Sinquefeld). Used with permission. All rights reserved. This
chart is used for illustrative purposes only and is not intended to
represent the past, present or future performance of any Prudential
Mutual Fund. Common stock total return is based on the Standard &
Poor's 500 Stock Index, a market-value-weighed index made up of 500 of
the largest stocks in the U.S. based upon their stock market value.
Investors cannot invest directly in indices.
II-3
<PAGE>
WORLD STOCK MARKET CAPITALIZATION BY REGION
WORLD TOTAL--$9.2 TRILLION
WORLD STOCK MARKET CAPITALIZATION BY REGION
WORLD TOTAL-$9.2 TRILLION
Pacific Basin 15.6%
Europe 32.1%
U.S. 49.8%
Canada 2.5%
- ----------
Source: Morgan Stanley Capital International, December 31, 1997. Used with
permission. This chart represents the capitalization of major world
stock markets as measured by the Morgan Stanley Capital International
(MSCI) World Index. The total market capitalization is based on the
value of approximately 1,600 companies in 22 countries (representing
approximately 60% of the aggregate market value of the stock
exchanges). This chart is for illustrative purposes only and does not
represent the allocation of any Prudential Mutual Fund.
----------------
The chart below shows the historical volatility of general interest rates as
measured by the long U.S. Treasury Bond.
LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1997)
[CHART]
- ----------
Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Singuefield). Used with permission. All rights reserved. This chart
illustrates the historical yield of the long-term U.S. Treasury Bond
from 1926-1996. Yields represent that of an annually renewed one-bond
portfolio with a remaining maturity of approximately 20 years. This
chart is for illustrative purposes only and should not be construed to
represent the yields of any Prudential Mutual Fund.
II-4
<PAGE>
The following chart, although not relevant to share ownership in the Fund,
may provide useful information about the effects of a hypothetical investment
diversified over different asset portfolios. The chart shows the range of
annual total returns for major stock and bond indices for the period from
December 31, 1976 through December 31, 1996. The horizontal "Best Returns
Zone" band shows that a hypothetical blended portfolio constructed of one-
third U.S. stock (S&P 500), one-third foreign stock (EAFE Index), and one-
third U.S. bonds (Lehman Index) would have eliminated the "highest highs" and
"lowest lows" of any single asset class.
The Range of Annual Total Returns for Major Stock &
Bond Indices Over the Past 20 Years
(12/31/76-12/31/96)*
S&P 500 EAFE LEHMAN AGGREGATE
37.6% 69.9% 32.6%
- ----------
* Source: Prudential Investment Corporation based on data from Lipper
Analytical New Application (LANA). Past performance is not
indicative of future results. The S&P 500 Index is a weighted,
unmanaged index comprised of 500 stocks which provides a broad
indication of stock price movements. The Morgan Stanley EAFE Index
is an unmanaged index comprised of 20 overseas stock markets in
Europe, Australia, New Zealand and the Far East. The Lehman
Aggregate Index includes all publicly-issued investment grade debt
with maturities over one year, including U.S. government and agency
issues, 15 and 30 year fixed-rate government agency mortgage
securities, dollar denominated SEC registered corporate and
government securities, as well as asset-back securities. Investors
cannot invest directly in stock or bond market indices.
II-5
<PAGE>
APPENDIX III--INFORMATION RELATING TO PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating
to the Prudential Mutual Funds. See "Management of the Fund--Manager" in the
Prospectus. The data will be used in sales materials relating to the
Prudential Mutual Funds. Unless otherwise indicated, the information is as of
December 31, 1996 and is subject to change thereafter. All information relies
on data provided by The Prudential Investment Corporation (PIC) or from other
sources believed by the Manager to be reliable. Such information has not been
verified by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC/1/ are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December
31, 1996. Principal products and services include life and health insurance,
other healthcare products, property and casualty insurance, securities
brokerage, asset management, investment advisory services and real estate
brokerage. Prudential (together with its subsidiaries) employs more than
81,000 persons worldwide, and maintains a sales force of approximately 11,500
agents and 6,400 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop
innovative products and services to meet consumer needs in each of its
business areas. Prudential uses the rock of Gibraltar as its symbol. The
Prudential rock is a recognized brand name throughout the world.
Insurance. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to nearly 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 22 million
life insurance policies in force today with a face value of $1 trillion.
Prudential has the largest capital base ($12.1 billion) of any life insurance
company in the United States. The Prudential provides auto insurance for
approximately 1.6 million cars and insures approximately 1.2 million homes.
Money Management. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k)
plans. As of December 31, 1996, Prudential had more than $322 billion in
assets under management. Prudential Investments, a business group of
Prudential (of which Prudential Mutual Funds is a key part), manages over $190
billion in assets of institutions and individuals. In Pensions & Investments,
May 12, 1996, Prudential was ranked third in terms of total assets under
management.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers
and agents across the United States./2/
Healthcare. Over two decades ago, Prudential introduced the first federally-
funded, for-profit HMO in the country. Today, approximately 4.6 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has nearly $1 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of October 31, 1997 Prudential Investments Fund Management was the 17th
largest mutual fund company in the country, with over 2.5 million shareholders
invested in more than 50 mutual fund portfolios and variable annuities with
more than 3.7 million shareholder accounts.
- ----------
/1/ Prudential Investments serves as the Subadvisor to substantially all of the
Prudential Mutual Funds. Wellington Management Company serves as the
subadvisor to Global Utility Fund, Inc., Nicholas-Applegate Capital
Management as the subadviser to Nicholas-Applegate Fund, Inc., Jennison
Associates Capital Corp., as the subadvisor to Prudential Jemison Series
Fund, Inc. and Mercator Asset Management LP as the Subadvisor to
International Stock Series, a portfolio of Prudential World Fund, Inc. There
are multiple subadvisors for The Target Portfolio Trust.
/2/ As of December 31, 1996.
III-1
<PAGE>
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser
in national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in
surveys conducted by national and regional publications and media
organizations such as The Wall Street Journal, The New York Times, Barron's
and USA Today.
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual
fund in both bull and bear markets as well as a fund's risk profile.
Prudential Equity Fund is managed with a "value" investment style by PIC. In
1995, Prudential Securities introduced Prudential Jennison Fund, a growth-
style equity fund managed by Jennison Associates Capital Corp., a premier
institutional equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor
approximately 200 issues held in the Prudential High Yield Fund (currently the
largest fund of its kind in the country) along with 100 or so other high yield
bonds, which may be considered for purchase./3/ Non-investment grade bonds,
also known as junk bonds or high yield bonds, are subject to a greater risk of
loss of principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if its important to a Prudential
mutual fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions
in foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).
Trading Data./4/ On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing
over 3.8 million shares with nearly 200 different firms. Prudential Mutual
Funds' bond trading desks traded $157 million in government and corporate
bonds on an average day. That represents more in daily trading than most bond
funds
- ----------
/3/ As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
/4/ Trading date represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-US accounts managed
by Prudential Mutual Fund investment Management, a division of PIC, for the
year ended December 31, 1995.
III-2
<PAGE>
tracked by Lipper even have in assets./5/ Prudential Mutual Funds' money
market desk traded $3.2 billion in money market securities on an average day,
or over $800 billion a year. They made a trade every 3 minutes of every
trading day. In 1994, the Prudential Mutual Funds effected more than 40,000
trades in money market securities and held on average $20 billion of money
market securities./6/
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services LLC, the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On
an annual basis, that represents approximately 1.8 million telephone calls
answered.
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for
its clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI./7/
Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities Financial
Advisor training programs received a grade of A- (compared to an industry
average of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey.
Five Prudential Securities analysts were ranked as first-team finishers./8/
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architects Financial Advisors to evaluate a client's objectives and
overall financial plan, and a comprehensive mutual fund information and
analysis system that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including changes and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ----------
/5/ Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage Funds.
/6/ As of December 31, 1994.
/7/ As of December 31, 1994.
/8/ On an annual basis, Institutional Investor magazine surveys, more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taxing the number of votes awarded to an individual analyst
and weighting them based on the size of the voting institution. In total,
the magazine sends its survey to approximately 2,000 institutions and a
group of European and Asian institutions.
III-3
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
(1) Financial Statements included in the Prospectus constituting Part A
of this Registration Statement:
Selected Per Share Data and Ratios.
(2) (a) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statement of Changes in Net Assets for the Years Ended December 31,
1997 and 1996
Notes to Financial Statements
Financial Highlights
Auditors Report of (of Ernst & Young LLP) dated February 10, 1998
with respect to the fiscal year ended December 31, 1997
(B) EXHIBITS:
1. (a) Articles of Amendment and Restatement of Charter of Registrant.*
(b) Articles of Amendment of Charter of Registrant.*
(c) Certificate of Correction.*
(d) Articles of Amendment of Charter.*
(e) Articles of Amendment of Charter of the Registrant.*
(f) Articles of Amendment of Charter of the Registrant.*
(g) Articles Supplementary, incorporated by reference to Exhibit 1(g)
to Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A (File No. 33-38461) filed via Edgar on March 7, 1997.
2. (a) Amended and Restated By-Laws of the Registrant.*
(b) Amended By-Laws of Registrant.*
3. Not Applicable.
4. (a) Specimen stock certificates for Class A shares.*
(b) Specimen stock certificates for Class B shares.*
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc.*
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation.*
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<PAGE>
6. (a) Distribution Agreement for Class A Shares between the Registrant
and Prudential Mutual Fund Distributors, Inc.*
(b) Distribution Agreement for Class B Shares between the Registrant
and Prudential Securities Incorporated.*
(c) Distribution Agreement for Class C Shares between the Registrant
and Prudential Securities Incorporated.*
(d) Amendment to Distribution Agreements., incorporated by reference
to Exhibit 6(d) to Post Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-38461) filed via
EDGAR on March 7, 1997.
(e) Restated Distribution Agreements., incorporated by reference to
Exhibit 6(e) to Post Effective Amendment No. 10 to the Registration
Statement on Form N-1A (File No. 33-38461) filed via EDGAR on March
7, 1997.
7. Not Applicable.
8. (a) Custodian Contract between the Registrant and State Street Bank
and Trust Company.*
(b) Addendum to Custodian Contract between the Registrant and State
Street Bank and Trust Company.*
9. (a) Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc.*
10. Opinion and consent of Piper & Marbury, Maryland counsel to the
Registrant.*
11. Consent of Ernst & Young LLP.*
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. (a) Distribution and Service Plan for Class A Shares.*
(b) Distribution and Service Plan for Class B Shares.*
(c) Distribution and Service Plan for Class C Shares.*
16. Schedule of Computation of Performance Quotations.*
17. Financial Data Schedules.*
18. Rule 18f-3 Plan. Incorporated by reference to Exhibit 18 to Post
Effective Amendment No. 10 to the Registration Statement on Form N-
1A (File No. 33-38461) filed via EDGAR on March 7, 1997.
- ----------
*Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Fred C. Applegate, Arthur B. Laffer and Charles E. Young, members of the
Board of Directors of Registrant, also comprise all of the members of the
Board of Trustees of Nicholas-Applegate Mutual Funds, a registered investment
company. Accordingly, Registrant and Nicholas-Applegate Mutual Funds may be
deemed to be under common control.
Arthur E. Nicholas, Dann V. Angeloff, and Theodore J. Coburn, members of the
Board of Directors of Registrant, are also members of the Board of Trustees of
Nicholas-Applegate Investment Trust, a registered investment company. As they
constitute 50% of the members of such Board of Trustees, and all of the assets
of Nicholas-Applegate Mutual Funds are invested in Nicholas-Applegate
Investment Trust, Registrant and Nicholas-Applegate Investment Trust may be
deemed to be under common control.
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<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of February 6, 1998 there were 16,315, 37,452, 1,146 and 79, record
holders of Class A, Class B, Class C and Class Z common stock, $.01 par value
per share, of the Registrant, respectively.
ITEM 27. INDEMNIFICATION.
Section 9 of the Management Agreement filed herewith as Exhibit 5A generally
provides that the Manager will not be liable for any error of judgment or for
any loss suffered by the Registrant 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 for
willfull misfeasance, bad faith, gross negligence or reckless disregard of
duty. See "Manager" in the Statement of Additional Information.
Under Section 5 of the Subadvisory Agreement filed herewith as Exhibit 5B
the Investment Adviser is provided with indemnification by the Registrant
against liabilities, costs and expenses that the Investment Adviser may incur
in connection with any action, suit, investigation or other proceeding arising
out of or otherwise based on any action actually or allegedly taken or omitted
to be taken by the Investment Adviser in connection with the performance of
its duties or obligations under the Subadvisory Agreement or otherwise as an
Investment Adviser of the Registrant; provided, however, that no
indemnification shall be provided by the Registrant with respect to any
liability of the Investment Adviser to the Registrant or its shareholders by
reason of the willful misfeasance, bad faith or gross negligence in the
performance of the Investment Adviser's duties, by reason of its reckless
disregard of its duties and obligations or by reason of its breach of
fiduciary duty under the Subadvisory Agreement. See "Investment Adviser" in
the Statement of Additional Information.
Indemnification of Prudential Securities (the "Distributor"), the
Distributor of the Class A, Class B, Class C and Class Z Common Stock,
respectively, of the Fund, is provided in Section 10 of the Distribution
Agreements filed herewith as Exhibits 6A and 6B, respectively, which provision
provides that the Fund will indemnify the named Distributor and its officers,
directors, and control persons for any and all claims, demands, liabilities
and expenses which any of them may incur for untrue statements of fact, or
omissions to state a material fact, in the Registrant's Registration Statement
or Prospectus. such indemnification is only afforded such Distributor or its
officers, directors and control persons if a determination is made that the
person to be indemnified was not liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of such person's duties or by
reason of its reckless disregard of such person's obligations under the
Distributor's Distribution Agreement with the Fund.
Liability of the Registrant's custodian, State Street Bank and Trust
Company, is limited under Section 3.10 of the Custodian Agreement filed
herewith as Exhibit 8A.
Indemnification of the Registrant's transfer agent, Prudential Mutual Fund
Services LLC ("PMFS"), is provided in Article 5 of the Transfer Agent
Agreement filed herewith as Exhibit 9. In Section 5.01 of Article 5 of the
Transfer Agent Agreement, the Fund has agreed to indemnify PMFS for, and hold
it harmless from, any losses, damages, costs, expenses and liability arising
out of or attributable to: (i) the actions of PMFS or its agents and
subcontractors taken pursuant to the Transfer Agent Agreement (provided that
such actions are taken in good faith and without negligence or willful
misconduct); (ii) the Fund's failure to perform its obligations under the
Transfer Agent Agreement; (iii) the reliance by PMFS or its agents on
information, records or documents received by PMFS from or on behalf of the
Fund; (iv) the reliance by PMFS on any instructions or requests of the Fund;
or (v) the offer or sale of shares of the Fund in violation of any
registration requirements imposed under Federal or applicable state securities
laws.
The Registrant, its officers and directors, and the Investment Adviser are
insured under an errors and omissions liability insurance policy which,
generally, covers claims by the Registrant's shareholders based on negligent
acts by the insureds, negligent failure to discover dishonest acts and the
costs and expenses of defending those claims. Such insurance does not
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<PAGE>
protect nor purport to protect the insured parties from liability to the
Registrant or its shareholders to which such person would otherwise be subject
by reason of such person's commission of fraud, dishonesty or malicious acts
or omissions or any willful breach of duty, neglect, misstatement, misleading
statement or other act done or wrongfully attempted in the performance of such
person's duties.
Section 2-418 of the General Corporation Law of the State of Maryland
provides that a corporation may indemnify any director who is made a party to
any proceeding by reason of his or her service as a director, except in
circumstances where the director acted in bad faith or with active and
deliberate dishonesty, or the director received an improper personal benefit,
or in the case of any criminal proceeding, the director had reasonable cause
to believe that the act or omission was unlawful. The indemnification afforded
a director may be made with respect to judgments, penalties, fines,
settlements and reasonable expenses actually incurred by the director in
connection with the proceeding. However, if the proceeding was won by or in
the right of the corporation, indemnification may not be made in respect to
any proceeding in which the director shall have been adjudicated to be liable
to the corporation. The indemnification and advancement of expenses provided
or authorized by Section 2-418 of the Maryland General Corporation Law are not
exclusive of any other rights, by indemnification or otherwise, to which a
director may be entitled under the charter, bylaws, a resolution of
shareholders or directors, an agreement or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office. A corporation, in addition, may indemnify and advance expenses to an
officer, employee or agent who is not a director to the same extent that it
may indemnify directors under Section 2-418 of the Maryland General
Corporation Law. Section 10 of Article Eighth of the Registrant's Charter
filed herewith as Exhibit 1A provides the Directors and officers of the
Registrant with affirmative indemnification rights to the fullest extent
provided by Maryland law or of any other applicable jurisdiction consistent
with applicable law.
In addition, Section 2-405.2 of the Maryland General Corporation Law
provides that the charter of a corporation may include any provision expanding
or limiting the liability of the corporation's directors and officers to the
corporation or its shareholders for money damages except (i) to the extent
that it is proved that the person actually received an improper benefit or
profit in money, property or services, for the amount of the benefit or profit
in money, property or services actually received or (ii) to the extent that a
judgment or other financial adjudication adverse to the person is entered in a
proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. Section 12 of
Article Eighth of the Registrant's Charter filed herewith as Exhibit 1A limits
the personal liability of the Directors and officers of the Registrant for
money damages to the fullest extent permitted by Maryland law, but does not
protect any director or officer against any liability which such person would
otherwise be subject by reason of such person's willful misfeasance, bad
faith, gross negligence or reckless disregard of such person's duties.
Notwithstanding the provisions of the Registrant's Charter which provide or
purport to provide affirmative indemnification rights to the officers and
directors of the Registrant, consistent with the applicability of Section
17(h) of the Investment Company Act of 1940, as amended, to the Registrant and
its activities, such Charter provisions will not be construed to protect the
officers and directors of the Registrant against any liability that any such
person may otherwise be subject to by reason of such person's willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office.
Pursuant to Rule 484 under the Securities Act of 1933, as amended, the
Registrant furnishes the following undertaking:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit of proceeding) is
asserted by such director, officer, or controlling person in connection with
the securities being
C-4
<PAGE>
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER (A)
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
See "How the Fund Is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, Newark, NJ 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIMF PRINCIPAL OCCUPATIONS
---------------- ------------------ ---------------------
<C> <C> <S>
Frank W. Giordano Executive Vice President, Executive Vice President, Secretary and
Secretary and General Counsel General Counsel, PIFM; Senior Vice
President, Prudential Securities
Incorporated (Prudential Securities)
Robert F. Gunia Executive Vice President Vice President, Prudential Investments;
and Treasurer Executive Vice President and Treasurer,
PIFM; Senior Vice President, Prudential
Securities Incorporated
Neil A. McGuinness Executive Vice President Executive Vice President and Director of
Marketing, PMF&A; Executive Vice President,
PIMF.
Brian Storms Officer-In-Charge, President, PMF&A; Officer-In-Charge,
President, President, Chief Executive Officer and Chief
Chief Executive Officer and Operating Officer, PIFM
Chief Operating Officer
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A; Executive
Vice President, PIFM.
</TABLE>
Nicholas-Applegate Capital Management, the Investment Adviser of the
Registrant, is a registered investment adviser primarily engaged in the
investment advisory business. Its general partner is Nicholas-Applegate
Capital Management Holdings, L.P., a California limited partnership, which is
engaged only in the business of acting as such general partner and as general
partner of certain investment limited partnerships.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Prudential Securities Incorporated
Prudential Securities is distributor for Cash Accumulation Trust, Command
Government Fund, Command Money Fund, Command Tax-Free Fund, The Global Total
Return Fund, Inc., Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund, Prudential
California Municipal Fund, Prudential Distressed Securities Fund, Inc.,
Prudential Diversified Bond Fund, Inc., Prudential Emerging Growth Fund, Inc.,
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe
Growth Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global
Limited Maturity Fund, Inc., Prudential Government Income Fund, Inc.,
Prudential Government Securities Trust, Prudential High Yield Fund, Inc.,
Prudential Index Series Fund, Prudential Intermediate Global Income Fund,
Inc., Prudential Institutional Liquidity
C-5
<PAGE>
Portfolio, Inc., Prudential International Bond Fund, Inc., Prudential Jennison
Series Fund, Inc., Prudential MoneyMart Assets, Inc., Prudential Mortgage
Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal
Bond Fund, Prudential Municipal Series Fund, Prudential National Municipals
Fund, Inc., Prudential Natural Resources Fund, Inc., Prudential Pacific Growth
Fund, Inc., Prudential Small-Cap Quantum Fund, Inc., Prudential Small Company
Value Fund, Inc., Prudential Special Money Market Fund, Inc., Prudential
Structured Maturity Fund, Inc., Prudential Tax-Free Money Fund, Inc.,
Prudential Utility Fund, Inc., Prudential World Fund, Inc. and The Target
Portfolio Trust. Prudential Securities is also a depositor for the following
unit investment trusts:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(b) Prudential Securities Incorporated
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(/1/) UNDERWRITER REGISTRANT
- --------- ------------- ----------------
<S> <C> <C>
Alan D. Hogan........... Executive Vice President, Chief Administrative None
Officer and Director
William Horan .......... Chief Financial Officer None
George A. Murray........ Executive Vice President and Director None
Leland B. Paton......... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Martin Pfinsgraff....... Executive Vice President and Director None
Vincent T. Pica, II..... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Hardwick Simmons........ Chief Executive Officer, President and Director None
Lee B. Spencer Jr. ..... General Counsel, Executive Vice President, None
Secretary and Director
Brian Storms............ Director None
Gateway Center Three
Newark, NJ 07162
</TABLE>
- ----------
(/1/)The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
C-6
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171 The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey 07102, the Registrant, Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07192-4077, and Prudential
Mutual Fund Services LLC, Raritan Plaza One, Edison, New Jersey 08837.
Documents required by Rules 31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-
1(f) and Rules 31a-1(b)(4) and (11) and 31a-1(d) will be kept at Three Gateway
Center, and the remaining accounts, books and other documents required by such
other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services LLC.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Fund is Managed--Manager"
and "How the Fund is Managed-Distributor" in the Prospectus and the captions
"Manager" and "Distributor" in the Statement of Additional Information,
constituting Parts A and B, respectively, of this Registration Statement,
Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Newark, and State of New Jersey, on the 27th day of
February, 1998.
NICHOLAS-APPLEGATE FUND, INC.
By: /s/ Arthur C. Nicholas
------------------------------------
ARTHUR C. NICHOLAS, PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ Arthur E. Nicholas Chairman, President and Director February 27, 1998
--------------------------------------
ARTHUR E. NICHOLAS
/s/ Dann V. Angeloff Director February 27, 1998
--------------------------------------
DANN V. ANGELOFF
/s/ Fred C. Applegate Director February 27, 1998
--------------------------------------
FRED C. APPLEGATE
Director February 27, 1998
--------------------------------------
THEODORE J. COBURN
/s/ Robert F. Gunia Director February 27, 1998
--------------------------------------
ROBERT F. GUNIA
/s/ Arthur B. Laffer Director February 27, 1998
--------------------------------------
ARTHUR B. LAFFER
/s/ Charles E. Young Director February 27, 1998
--------------------------------------
CHARLES E. YOUNG
Treasurer and Principal Financial
/s/ Grace Torres and Accounting Officer February 27, 1998
--------------------------------------
GRACE TORRES
</TABLE>
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<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
POST-EFFECTIVE AMENDMENT NO. 11
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
NUMBER NUMBER
1.(a) Articles of Amendment and Restatement of Charter of
Registrant.*
(b) Articles of Amendment of Charter of Registrant.*
(c) Certificate of Correction.*
(d) Articles of Amendment of Charter.*
(e) Articles of Amendment of Charter of the Registrant.*
(f) Articles of Amendment of Charter of the Registrant.*
(g) Articles Supplementary, incorporated by reference to Exhibit
1(g) to Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A (File No. 33-38461) filed via EDGAR on
March 7, 1997.
2.(a) Amended and Restated By-Laws of the Registrant.*
(b) Amended By-Laws of Registrant.*
3. Not Applicable.
4.(a) Specimen stock certificates for Class A shares.*
(b) Specimen stock certificates for Class B shares.*
5.(a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc.*
(b) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation.*
6.(a) Distribution Agreement for Class A Shares between the
Registrant and Prudential Mutual Fund Distributors, Inc.*
(b) Distribution Agreement for Class B Shares between the
Registrant and Prudential Securities Incorporated.*
(c) Distribution Agreement for Class C Shares between the
Registrant and Prudential Securities Incorporated.*
(d) Amendment to Distribution Agreements., incorporated by
reference to Exhibit 6(d) to Post Effective Amendment No. 10 to
the Registration Statement on Form N-1A (File No. 33-38461)
filed via EDGAR on March 7, 1997.
(e) Restated Distribution Agreements., incorporated by reference to
Exhibit 6(e) to Post Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-38461) filed
via EDGAR on March 7, 1997.
7. Not Applicable.
8.(a) Custodian Contract between the Registrant and State Street Bank
and Trust Company.*
(b)Addendum to Custodian Contract between the Registrant and State
Street Bank and Trust Company.*
9.(a) Transfer Agency and Service Agreement between the Registrant
and Prudential Mutual Fund Services, Inc.*
10. Opinion and consent of Piper & Marbury, Maryland counsel to the
Registrant.*
11. Consent of Ernst & Young LLP.*
<PAGE>
XHIBITE DESCRIPTION PAGE
NUMBER NUMBER
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15.(a) Distribution and Service Plan for Class A Shares.*
(b) Distribution and Service Plan for Class B Shares.*
(c) Distribution and Service Plan for Class C Shares.*
16. Schedule of Computation of Performance Quotations.*
17. Financial Data Schedules.*
18. Rule 18f-3 Plan. Incorporated by reference to Exhibit 18 to Post
Effective Amendment No. 10 to the Registration Statement on Form
N-1A (File No. 33-38461) filed via EDGAR on March 7, 1997.
- ----------
*Filed herewith.
<PAGE>
EXHIBIT 99.B1(a)
NICHOLAS-APPLEGATE GROWTH EQUITY FUND, INC.
ARTICLES OF AMENDMENT
AND
RESTATEMENT OF CHARTER
Nicholas-Applegate Growth Equity Fund, Inc., a Maryland corporation, (which
is hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation desires to amend and restate the charter of the
Corporation as currently in effect.
SECOND: These Articles of Amendment and Restatement of Charter were
approved by a majority of the entire Board of Directors and no stock entitled to
be voted on the matter was outstanding or subscribed for at the time of
approval.
THIRD: The charter of the Corporation is hereby amended and restated as
follows:
By (i) changing the number of classes of the Board of Directors: (ii)
granting the stockholders the right to have their shares of Common Stock
redeemed at the right to have their shares of Common Stock redeemed at the net
asset value per share under certain circumstances; and (iii) restating the
charter of the Corporation so that the same may read as follows:
* * * * *
-1-
<PAGE>
NICHOLAS-APPLEGATE GROWTH EQUITY FUND, INC.
ARTICLES OF INCORPORATION
FIRST: THE UNDERSIGNED, Jay A. Radov, whose address is 1100 Charles Center
South, 36 South Charles Street, Baltimore, Maryland 21201, being at least
eighteen years of age, as incorporator, does hereby form a corporation under and
by virtue of the General Laws of the State of Maryland.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
NICHOLAS-APPLEGATE GROWTH EQUITY FUND, INC.
THIRD: The purposes for which and any of which the Corporation is formed
and the business and objects to be carried on and promoted by it are to operate
as and carry on the business of a closed-end management investment company
registered as such with the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940, and, in general, to exercise and enjoy all of
the powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland.
FOURTH: The present address of the principal office of the Corporation in
this State is 32 South Street, Baltimore, Maryland 21202.
FIFTH: The name and address of the resident agent of the Corporation are
The Corporation Trust Company Incorporated, 32 South Street, Baltimore, Maryland
21202. Said resident agent is a Maryland corporation.
SIXTH: (a) The total number of shares of stock of all classes which the
Corporation has authority to issue is 100,000,000 shares of capital stock (par
value $.01 per share), amounting in aggregate par value to $1,000,000. All of
such shares are initially classified as "Common Stock".
(b) The following is a description of the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the Common Stock of the Corporation.
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<PAGE>
(1) Each share of Common Stock shall have one vote, and the exclusive
voting power for all purposes shall be vested in the holders of the Common
Stock.
(2) Subject to the provisions of law, dividends may be paid on the
Common Stock of the Corporation at such time and in such amounts as the
Board of Directors may deem advisable.
(3) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Common
Stock shall be entitled, after payment or provision for payment of the
debts and other liabilities of the Corporation, to share ratably in the
remaining net assets of the Corporation.
SEVENTH: The number of directors of the Corporation shall be no less than
three (3) nor more than nine (9), provided however that in accordance with the
Maryland General Corporation Law, the number of directors may be less than three
(i) if no shares of the Corporation's stock are outstanding, there shall be at
least one director and (ii) if shares of the Corporation's stock are outstanding
and there are less than three stockholders, the number of directors may be less
than three but not less than the number of stockholders. This number may be
changed pursuant to the By-Laws of the Corporation, but shall at no time be less
than the minimum number required under the Maryland General Corporation Law. The
names of the directors who shall act until the first annual meeting of
stockholders or until their successors are duly chosen and qualified are:
Arthur E. Nicholas
Fred C. Applegate
Whenever there shall first be at least three directors, the directors shall
be divided into three classes, as nearly equal in number as possible, with
respect to the time for which they shall severally hold office. Directors of
Class I first chosen shall hold office for one year or until the first annual
election following their election; directors of Class II first chosen shall hold
office for two years or until the second annual election following their
election; and directors of Class III first chosen shall hold office for three
years or until the third annual election following their election; and, in each
case, until their successors are duly elected
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<PAGE>
and qualify. At each future annual meeting of the stockholders, the successors
to the Class of directors whose term shall expire at that time shall be elected
to hold office for a term of three years, so that the term of office of one
Class of directors shall expire in each year. Each director elected shall hold
office until his successor shall be elected and shall qualify.
Newly created directorships resulting from any increase in the authorized
number of directors or any vacancies on the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office, or other
cause shall be filled by a majority vote of the stockholders or the directors
then in office. A director so chosen by the stockholders shall hold office for
the balance of the term then remaining. A director so chosen by the remaining
directors shall hold office for the balance of the term then remaining. No
decrease in the number of directors constituting the Board of Directors shall
affect the tenure of office of any director.
Any director, or the entire Board of Directors, may be removed from office
at any time, but only for cause and then only by the affirmative vote of the
holders of at least 80% of the combined voting power of all classes of shares of
capital stock entitled to vote in the election for directors.
EIGHTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the
directors and stockholders:
(1) Except as provided under the provisions of Section (5) of this Article,
the Board of Directors of the Corporation is hereby empowered to authorize the
issuance from time to time of shares of its stock of any class, whether now or
hereafter authorized, or securities convertible into shares of its stock of any
class or classes, whether now or hereafter authorized, for such consideration as
may be deemed advisable by the Board of Directors and without any action by the
stockholders.
(2) No, holder of any stock or any other securities of the Corporation,
whether now or hereafter authorized, shall have any preemptive right to
subscribe for or purchase any stock or any other securities of the Corporation
other than such, if any, as the Board of
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<PAGE>
Directors, in its sole discretion, may determine and at such price or prices and
upon such other terms as the Board of Directors, in its sole discretion, may
fix; and any stock or other securities which the Board of Directors may
determine to offer for subscription may, as the Board of Directors in its sole
discretion shall determine, be offered to the holders of any class, series or
type of stock or other securities at the time outstanding to the exclusion of
the holders of any or all other classes, series or types of stock or other
securities at the time outstanding.
(3) The Board of Directors of the Corporation shall have power from time to
time and in its sole discretion to determine in accordance with sound accounting
practice what constitutes annual or other net profits, earnings, surplus, or net
assets in excess of capital; to fix and vary from time to time the amount to be
reserved as working capital, or determine that retained earnings or surplus
shall remain in the hands of the Corporation; to set apart out of any funds of
the Corporation such reserve or reserves in such amount or amounts and for such
proper purpose or purposes as it shall determine and to abolish any such reserve
or any part thereof; to distribute and pay distributions or dividends in stock,
cash or other securities or property, out of surplus or any other funds or
amounts legally available therefor, at such times and to the stockholders of
record on such dates as it may, from time to time, determine; and to determine
whether and to what extent and at what times and places and under what
conditions and regulations the books, accounts and documents of the Corporation,
or any of them, shall be open to the inspection of stockholders, except as
otherwise provided by statute or by the By--Laws, and, except as so provided, no
stockholder shall have any right to inspect any book, account or document of the
Corporation unless authorized so to do by resolution of the Board of Directors.
(4) A contract or other transaction between the Corporation and any of its
directors or between the Corporation and any other Corporation, firm or other
entity in which any of its directors is a director or has a material financial
interest is not void or voidable solely because of any one or more of the
following: the common directorship or interest; the presence of the director at
the meeting of the Board of Directors which authorizes, approves, or ratifies
the contract or transaction; or the counting of the vote of the director
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<PAGE>
for the authorization, approval, or ratification of the contract or transaction.
This Section applies if:
(a) the fact of the common directorship or interest is disclosed or
known to: the Board of Directors and the Board authorizes, approves, or
ratifies the contract or transaction by the affirmative vote of a majority
of disinterested directors, even if the disinterested directors constitute
less than a quorum; or the stockholders entitled to vote, and the contract
or transaction is authorized, approved, or ratified by a majority of the
votes cast by the stockholders entitled to vote other than the votes of
shares owned of record or beneficially by the interested director or
Corporation, firm, or other entity; or
(b) the contract or transaction is fair and reasonable to the
Corporation.
Common or interested directors or the stock owned by them or by an
interested Corporation, firm, or other entity may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or at a meeting of
the stockholders, as the case may be, at which the contract or transaction is
authorized, approved, or ratified. If a contract or transaction is not
authorized, approved, or ratified in one of the ways provided for in clause (a)
of the second sentence of this Section, the person asserting the validity of the
contract or transaction bears the burden of proving that the contract or
transaction was fair and reasonable to the Corporation at the time it was
authorized, approved, or ratified. The procedures in this Section do not apply
to the fixing by the Board of Directors of reasonable compensation for a
director, whether as a director or in any other capacity.
(5) The affirmative vote or consent of the holders of more than two--thirds
of the outstanding shares of Common Stock of the Corporation is necessary to
approve any of the following transactions with a person or entity that is
directly or indirectly the beneficial owner of 5% or more of the outstanding
shares of Common Stock of the Corporation:
(a) a merger or consolidation of the Corporation with or into any
other corporation;
(b) the issuance of any capital stock of the Corporation to any such
person or entity for cash;
-6-
<PAGE>
(c) the sale, lease or exchange of all or any substantial part of the
assets of the Corporation to any such person or entity except assets having
an aggregate fair market value of less than $1,000,000; or
(d) the sale, lease or exchange to the Corporation, in exchange for
capital stock of the Corporation, of any assets of any such person or
entity except assets having an aggregate fair market value of less than
$1,000,000;
provided, however, that such vote or consent will not be required if the Board
of Directors authorizes, approves or ratifies the transaction by the affirmative
vote of a majority of disinterested directors, even if the disinterested
directors constitute less than a quorum.
(6) Except for contracts, transactions, or acts required to be approved
under the provisions of Section (4) or (5) of this Article, any contract,
transaction, or act of the Corporation or of the Board of Directors which shall
be ratified by a majority of a quorum of the stockholders having voting powers
at any annual meeting, or at any special meeting called for such purpose, shall
so far as permitted by law be as valid and as binding as though ratified by
every stockholder of the Corporation.
(7) Unless the By--Laws otherwise provide, any officer or employee of the
Corporation (other than a director) may be removed at any time with or without
cause by the Board of Directors or by any committee or superior officer upon
whom such power of removal may be conferred by the By-Laws or by authority of
the Board of Directors.
(8) Commencing with the calendar year of the Corporation which begins on
January 1, 1992, and in each third calendar year thereafter, if (i) the
Corporation has not yet adopted the amendment described in this subsection, and
(ii) shares of the Corporation's Common Stock have traded on the principal
securities exchange where listed at an average discount from net asset value of
more than 5%, determined on the basis of the discount as of the end of the last
trading day in each week during the period of 52 calendar weeks next preceding
January 1 of each such year, the Corporation will submit to its stockholders at
the next succeeding annual meeting of stockholders a proposal, to the extent
consistent with the Investment Company Act of 1940, to amend these Articles of
Incorporation to provide that, upon the adoption of such amendment by the
holders of a majority of the
-7-
<PAGE>
Corporation's outstanding shares of Common Stock, each share of the
Corporation's Common Stock may be presented to the Corporation, at the option of
the holder thereof, as of the last trading day of each calendar quarter, upon
written notice delivered to the Corporation's transfer agent not less than 30
days prior thereto, for payment to the holder at net asset value per share at
the close of business on the day of presentment.
(9) Notwithstanding any provision of law requiring the authorization of any
action by a greater proportion than a majority of the total number of shares of
all classes of capital stock or of the total number of shares of any class of
capital stock, such action shall be valid and effective if authorized by the
affirmative vote of the holders of a majority of the total number of shares of
all classes outstanding and entitled to vote thereon, except as otherwise
provided in the charter.
(10) The Corporation shall indemnify (a) its directors to the full extent
provided by the general laws of the State of Maryland now or hereafter in force,
including the advance of expenses under the procedures provided by such laws;
(b) its officers to the same extent it shall indemnify its directors; and (c)
its officers who are not directors to such further extent as shall be authorized
by the Board of Directors and be consistent with law. The foregoing shall not
limit the authority of the Corporation to indemnify other employees and agents
consistent with law.
(11) The Corporation reserves the right from time to time to make any
amendments of its charter which may now or hereafter be authorized by law,
including any amendments changing the terms or contract rights, as expressly set
forth in its charter, of any of its outstanding stock by classification,
reclassification or otherwise but no such amendment which changes such terms or
contract rights of any of its outstanding stock shall be valid unless such
amendment shall have been authorized by not less than a majority of the
aggregate number of the votes entitled to be cast thereon, by a vote at a
meeting or in writing with or without a meeting.
The enumeration and definition of particular powers of the Board of
Directors included in the foregoing shall in no way be limited or restricted by
reference to or inference from the terms of any other clause of this or any
other Article of the charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any powers conferred
upon the
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<PAGE>
Board of Directors under the General Laws of the State of Maryland now or
hereafter in force.
NINTH: The duration of the Corporation shall be perpetual.
* * * * *
FOURTH: (a) As of immediately before the amendment the total number of
shares of stock of all classes which the Corporation has authority to issue is
100,000,000 shares, all of which are Coninon Stock ($ .01 par value).
(b) As amended the total number of shares of stock of all classes
which the Corporation has authority to issue is 100,000,000 shares, all of
which are Common Stock (par value $ .01 per share).
(c) The aggregate par value of all shares having a par value is
$1,000,000 after the amendment.
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<PAGE>
IN WITNESS WHEREOF, Nicholas-Applegate Growth Equity Fund, Inc., a Maryland
corporation, has caused these presents to be signed in its name and on its
behalf by its President and witnessed by its Secretary on 3-17, 1987.
WITNESS: NICHOLAS-APPLEGATE GROWTH
EQUITY FUND, INC.
/s/ Robert E. Carlson By /s/ Fred C. Applegate
- --------------------------- ----------------------
Secretary President
THE UNDERSIGNED, President of Nicholas-Applegate Growth Equity Fund, Inc.,
who executed on behalf of the Corporation the foregoing Articles of Amendment
and Restatement of Charter of which this certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the foregoing
Articles of Amendment and Restatement of Charter to be the corporate act of said
Corporation and hereby certifies that to the best of his knowledge, information,
and belief the matters and facts set forth therein with respect to the
authorization and approval thereof are true in all material respects under the
penalties of perjury.
By /s/ Fred C. Applegate
----------------------
President
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<PAGE>
EXHIBIT 99B.1(b)
NICHOLAS-APPLEGATE GROWTH EQUITY FUND, INC.
ARTICLES OF AMENDMENTS OF CHARTER
Nicholas-Applegate Growth Equity Fund, Inc., a Maryland corporation
(which is hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: THE Corporation desires to amend the Charter of the
Corporation as currently in effect.
SECOND: These Articles of Amendment of Charter were approved by a
majority of the entire Board of Directors and no stock entitled to be voted on
the matter was outstanding or subscribed for at the time of approval.
THIRD: The Charter of the Corporation is hereby amend as follows:
RESOLVED, that Article EIGHTH (8) of the Articles of
Amendment and Restatement of Charter is hereby amended in
its entirety as follows: "(8) Commencing with the calendar
year of the Corporation which begins on January 1, 1992, and
each third calendar year thereafter, if (i) the Corporation
has not yet adopted the amendment described in this
subsection, and (ii) shares of the Corporation's Common
Stock are traded on the principal securities exchange where
listed at an average discount from net asset value of more
than 5%, determined on the basis of the discount as of the
end of the last trading day in each week during the period
of 52 calendar weeks next proceeding January 1 of each such
year then, subject to the receipt of any necessary
<PAGE>
exemptive or other order of the Securities and Exchange
Commission, the Corporation will submit to its stockholders
at the next succeeding annual meeting of stockholders a
proposal, to the extent consistent with the Investment
Company Act of 1940, to amend these Articles of
Incorporation to provide that, upon the adoption of such
amendment by the holders of a majority of the Corporation's
outstanding shares of Common Stock, each share of the
Corporation's Common Stock may be presented to the
Corporation at the option of the holder thereof, as of the
last trading day of each calendar quarter, upon written
notice delivered to the Corporation's transfer agent not
less than 30 days prior thereto, for payment to the holder
at net asset value per share at the close of business on the
day of presentment."
RESOLVED FURTHER, that Article EIGHTH (10) of the Articles
of Amendment and Restatement of Charter is hereby amended in
its entirety as follows: "(10) The Corporation shall
indemnify (a) its directors to the full extent provided by
the general laws of the State of Maryland, or of any other
applicable jurisdiction, now or hereafter in force,
including the advance of expenses under the procedures
provided by such laws; (b) its officers to the same extent
it shall indemnify its directors; and (c) its officers who
are not directors to such further extent as shall be
authorized by the Board of Directors and be consistent with
applicable law. The foregoing shall not limit the authority
of the Corporation to indemnify other employees and agents
consistent with applicable law."
FOURTH: (a) As of immediately before this Amendment the total number
of shares of stock which the Corporation has authority to issue is One Hundred
Million shares, all of which are Common Stock ($.01 par value).
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<PAGE>
(b) As amended the total number of shares of stock of all classes
which the Corporation has authority to issue is One Hundred Million shares, all
of which are Common Stock ($.01 per share).
(c) The aggregate par value of all shares having a par value is
$1,000,000 after the amendment.
IN WITNESS WHEREOF, Nicholas-Applegate Growth Equity Fund, Inc., a
Maryland corporation has caused these presents to be signed in its name and on
its behalf by its President and witnessed by its Secretary on March 31, 1987.
WITNESS: NICHOlAS -APPLEGATE GROWTH
EQUITY FUND, INC.
/s/ Robert E. Carlson /s/ Fred C. Applegate
- ----------------------------------- --------------------------
Secretary President
The undersigned, President of Nicholas-Applegate Growth Equity Fund,
Inc., who executed on behalf of the Corporation the foregoing Articles of
Amendment of Charter of which this certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the foregoing
Articles of Amendment of Charter to be the corporate act of said corporation and
hereby certifies that to the best of his knowledge, information and belief the
matter and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects under the penalty of perjury.
[SIGNATURE ILLEGIBLE]
--------------------------
President
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<PAGE>
EXHIBIT 99.B1(c)
NICHOLAS-APPLEGATE GROWTH EQUITY FUND, INC.
CERTIFICATE OF CORRECTION
Nicholas-Applegate Growth Equity Fund, Inc., a Maryland corporation, (which
is hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The title of the document being corrected is Articles of Amendment
and Restatement of Charter. The date of such document is March 17, 1987.
SECOND: The name of the only party to the document being corrected is
Nicholas-Applegate Growth Equity fund, Inc.
THIRD: The date that the document being corrected was filed is March 20,
1987.
FOURTH: (A) The provision, Article Eighth paragraph (5), of the document as
previously filed was:
(5) The affirmative vote or consent of the holders of more than two-thirds
of the outstanding shares of Common Stock of the Corporation is necessary to
approve any of the following transactions with a person or entity that is
directly or indirectly the beneficial owner of 5% or more of the outstanding
shares of Common Stock of the Corporation:
(a) a merger or consolidation of the Corporation with or into any other
corporation;
(b) the issuance of any capital stock of the Corporation to any such person
or entity for cash;
(c) the sale, lease or exchange of all or any substantial part of the
assets of the Corporation to any such person or entity except assets having an
aggregate fair market value of less than $1,000,000;
-1-
<PAGE>
(d) the sale, lease or exchange to the Corporation, in exchange for capital
stock of the Corporation, of any assets of any such person or entity except
assets having an aggregate fair market value of less than $1,000,000;
provided, however, that such vote or consent will not be required if the Board
of Directors authorizes, approves or ratifies the transaction by the affirmative
vote of a majority of disinterested directors, even if the disinterested
directors constitute less than a quorum.
(B) The provision, Article Eighth paragraph (5), of the document as
corrected is:
(5) The affirmative vote or consent of the holders of more than two-thirds
of the outstanding shares of Common Stock of the Corporation is necessary to
authorize the conversion of the Corporation from a closed-end to an open-end
investment company or to approve any of the following transactions with a person
or entity that is directly or indirectly the beneficial owner of 5% or more of
the outstanding shares of Common Stock of the Corporation:
(a) a merger or consolidation of the Corporation with or into any other
corporation;
(b) the issuance of any capital stock of the Corporation to any such person
or entity for cash;
(c) the sale, lease or exchange of all or any substantial part of the
assets of the Corporation to any such person or entity except assets having as
aggregate fair market value of less than $1,000,000; or
(d) the sale, lease or exchange to the Corporation, in exchange for capital
stock of the Corporation, of any assets of any such person or entity except
assets having an aggregate fair market value of less than $1,000,000;
provided, however, that such vote or consent will not be required if the Board
of Directors authorizes, approves or ratifies the transaction by the affirmative
vote of a majority of disinterested directors, even if the disinterested
directors constitute less than a quorum.
(C) The execution of the document was not defective.
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<PAGE>
IN WITNESS WHEREOF, Nicholas-Applegate Growth Equity Fund, Inc., a Maryland
corporation, has caused these presents to be signed in its name and on its
behalf by its President and witnessed by its Secretary on August 31, 1987.
WITNESS: NICHOLAS-APPLEGATE GROWTH
EQUITY FUND, INC.
/s/ Robert E. Carlson /s/ Fred C. Applegate
- ------------------------------- ------------------------------------
Robert E. Carlson Fred C. Applegate
Secretary President
THE UNDERSIGNED, President of Nicholas-Applegate Growth Equity Fund, Inc.,
who executed on behalf of the Corporation the foregoing Certificate of
Correction of which this certificate is made a part, hereby acknowledges in the
name and on behalf of said Corporation the foregoing Certificate of Correction
to be the corporate act of said Corporation and hereby certifies that to the
best of his knowledge, information, and belief the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
/s/ Fred C. Applegate
------------------------------------
Fred C. Applegate
President
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<PAGE>
EXHIBIT 99.B1(d)
PROPOSED
NICHOLAS-APPLEGATE GROWTH EQUITY FUND, INC.
ARTICLES OF AMENDMENT
Nicholas-Applegate Growth Equity Fund, Inc., a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Corporation desires to amend its Charter as currently in effect
(the "Charter").
SECOND: These Articles of Amendment of Charter were advised by the Board of
Directors and approved by the stockholders of the Corporation.
THIRD: Article EIGHTH (8) of the Charter of the Corporation is hereby
amended in its entirety to read as follows:
(8) In the event that, in the calendar year of the Corporation that
begins on January 1, 1990, or in any calendar year thereafter until and
including 1994, shares of the Corporation's Common Stock are traded on the
principal securities exchange where listed at an average discount from net
asset value of more than 5%, determined by the Board of Directors of the
Corporation on the basis of the discount as of the end of the last trading
day in each week during such calendar year (which determination shall be
conclusive), then, upon the effectiveness of any necessary regulatory
filings, the Charter shall be further amended by filing Articles of
Amendment thereof substantially in the form attached hereto as Exhibit A.
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<PAGE>
FOURTH: The amendment does not increase the authorized stock of the
Corporation.
IN WITNESS WHEREOF, Nicholas-Applegate Growth Equity Fund, Inc., a Maryland
corporation, has caused these presents to be signed in its name and on its
behalf by its President and witnessed by its Secretary on April 2, 1990.
WITNESS: NICHOLAS-APPLEGATE GROWTH
EQUITY FUND, INC.
/s/Robert E. Carlson /s/Fred C. Applegate
- ------------------------------------- ----------------------------------
Robert E. Carlson, Secretary Fred C. Applegate, President
The undersigned, President of Nicholas-Applegate Growth Equity Fund, Inc.,
who executed on behalf of the Corporation the foregoing Articles of Amendment of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of the Corporation the foregoing Articles of Amendment to be the
corporate act of the Corporation and hereby certifies that to the best of his
knowledge, information and belief, the matter and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalty of perjury.
/s/ Fred C. Applegate
----------------------------------
Fred C. Applegate, President
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<PAGE>
EXHIBIT A
---------
RESOLVED, that Article THIRD of the Charter is hereby amended in its
entirety to read as follows:
THIRD: The purposes for which and any of which the Corporation is
formed and the business and objects to be carried on and promoted by it are
to operate as and carry on the business of an open-end management
investment company registered as such with the Securities and Exchange
Commission pursuant to the Investment Company Act of 1940, and, in general,
to exercise and enjoy all of the powers, rights and privileges granted to,
or conferred upon, corporations by the General Laws of the State of
Maryland.
RESOLVED FURTHER, that Article SIXTH (a) of the Charter is hereby amended
in its entirety to read as follows:
(a) The total number of shares of stock of all classes which the
Corporation has authority to issue is 100,000,000 shares of capital stock
(par value $.01 per share), amounting in aggregate par value to $1,000,000.
All of such shares are initially classified as "Common Stock". The Board of
Directors may classify and reclassify any unissued shares of capital stock
by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such
shares of stock. Any articles supplementary to the Charter that classify or
reclassify any unissued shares of capital stock of the Corporation may,
consistent with law, modify the exclusive voting power of the holders of
the Common Stock.
RESOLVED FURTHER, that Article TENTH is hereby added to the Charter as
follows:
TENTH: To the extent the Corporation has funds or property legally
available therefor, each stockholder of the Corporation shall have the
right at such times as may be permitted by the
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<PAGE>
Corporation to require the Corporation to redeem all or any part of his shares
at a redemption price equal to the net asset value per share of the capital
stock next determined after the shares are properly tendered for redemption
(less such redemption fee as may be determined from time to time by the Board of
Directors); such determination of the net asset value per share shall be made in
accordance with the requirements of the Investment Company Act of 1940 and the
applicable rules and regulations of the Securities and Exchange Commission (or
any succeeding governmental authority) and in conformity with generally accepted
accounting principles.
Notwithstanding the foregoing, the Corporation may but need not postpone
payment or deposit of the redemption price and may suspend the right of the
holders of its capital stock to require the Corporation to redeem shares of such
capital stock during any period when (i) the New York Stock Exchange is closed
for other than weekends and holidays, (ii) the Securities and Exchange
Commission (or any succeeding governmental authority) has by order permitted
such postponement or suspension, (iii) an emergency as defined by the rules of
the Securities and Exchange Commission (or any succeeding governmental
authority) exists, making disposal of portfolio securities or valuation of net
assets of the Corporation not reasonably practicable or (iv) trading on the New
York Stock Exchange is restricted under conditions set forth in the rules and
regulations of the Securities and Exchange Commission (or any succeeding
governmental authority).
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<PAGE>
EXHIBIT 99B.1(e)
NICHOLAS-APPLEGATE FUND, INC.
Articles of Amendment
---------------------
Nicholas-Applegate Fund, Inc., a Maryland corporation, having its principal
office in Baltimore City, Maryland (which is hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: (a) Pursuant to authority expressly vested in the Corporation by
Maryland law, the stockholders have duly divided and classified 50,000,000
shares of the Common Stock of the Corporation designated "Nicholas-Applegate
Growth Equity Fund Series" into a series designated "Nicholas-Applegate Growth
Equity Fund Series--Class B" Common Stock and the Board of Directors has
provided for the issuance of such series.
(b) The terms of the "Nicholas-Applegate Growth Equity Fund
Series--Class B" Common Stock are not changed by the amendment and are described
in Article SIXTH, Section (b)(1) through (14).
(c) The terms of the "Nicholas-Applegate Growth Equity Fund" Common
Stock outstanding as of the date of this amendment ("Nicholas-Applegate Growth
Equity Fund Series--Class A," as renamed pursuant to Article SECOND below) are
not changed by the amendment and are described in Article SIXTH, Section (b)(1)
through (14).
SECOND: The Charter of the Corporation is hereby amended as follows:
(a) Article SIXTH, paragraph (b) of the Charter is amended by
deleting the first paragraph and inserting in lieu thereof the following:
(b) The following is a description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the "Nicholas-
Applegate Growth Equity Fund Series--Class A" Common Stock (of which there
are initially classified 50,000,000 shares) and the "Nicholas-Applegate
Growth Equity Fund Series--Class B" Common Stock (of which there are
initially classified 50,000,000 shares) and any additional class or series
of Common Stock of the Corporation (unless provided otherwise by the Board
of Directors with respect to any such additional class or series at the
time of establishing and designating such additional class or series).
-1-
<PAGE>
THIRD: The amendment does not increase the authorized stock of the
Corporation.
FOURTH: The foregoing amendment to the Charter of the Corporation has been
advised by the Board of Directors and approved by the stockholders of the
Corporation.
IN WITNESS WHEREOF, Nicholas-Applegate Fund, Inc. has caused these presents
to be signed in its name and on its behalf by its President and witnessed by its
Assistant Secretary on May 30, 1991.
WITNESS: NICHOLAS-APPLEGATE FUND, INC.
/s/ Robert E. Carlson By /s/ Fred C. Applegate
- --------------------- ---------------------
Robert E. Carlson Fred C. Applegate
Assistant Secretary President
THE UNDERSIGNED, President of Nicholas-Applegate Fund, Inc., who executed
on behalf of the Corporation the foregoing Articles of Amendment of which this
certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles of Amendment to be the corporate act of
said Corporation and hereby certifies that to the best of his knowledge,
information, and belief the matters and facts set forth therein are true in all
material respects under the penalty of perjury.
/s/ Fred C. Applegate
---------------------
Fred C. Applegate
President
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<PAGE>
EXHIBIT 99B.1(f)
ARTICLES OF AMENDMENT
OF
NICHOLAS-APPLEGATE FUND, INC
NICHOLAS-APPLEGATE FUND, INC., a Maryland corporation having its principal
offices in Baltimore, Maryland and New York, New York (the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The first paragraph of Article SIXTH, paragraph (b) of the
Corporation's Charter is amended and restated as follows:
(b) The following is a description of the
preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the "Nicholas-
Applegate Growth Equity Fund Series - Class A" Common
Stock (of which there are initially classified 33,333,333
shares), the "Nicholas-Applegate Growth Equity Fund Series -
Class B" Common Stock (of which there are initially
classified 33,333,333 shares), and the "Nicholas-
Applegate Growth Equity Fund Series - Class C" Common
Stock (of which there are initially classified 33,333,334
shares) and any additional class or series of Common Stock
of the Corporation (unless provided otherwise by the Board
of Directors with respect to any such additional class or
series at the time of establishing and designating such
additional class or series).
SECOND: Article TENTH is added to the Corporation's Charter as
follows:
TENTH: (a) Each of the Class B Common Stock of
the Corporation shall be converted automatically, and
without any action or choice on the part of the holder
thereof, into shares (including fractions thereof) of the
Class A Common Stock of the
<PAGE>
Corporation (computed in the manner hereinafter
described), at the applicable net asset value of each
Class, at the time of the calculation of the net asset
value of such Class B Common Stock at such times, which
may vary between shares originally issued for cash and
shares purchased through the automatic reinvestment of
dividends and distributions with respect to Class B shares
of Common Stock (each a "Conversion Date"), determined by
the Board of Directors in accordance with applicable laws,
rules, regulations and interpretations of the Securities
and Exchange Commission and the National Association of
Securities Dealers, Inc. and pursuant to such procedures
as may be established from time to time by the Board of
Directors and disclosed in the Corporation's then current
prospectus for such Class A and Class B Common Stock.
(b) The number of shares of the Class A Common Stock
of the Corporation into which a share of the Class B
Common Stock is converted pursuant to Paragraph (a) hereof
shall equal the number (including for this purpose
fractions of a share) obtained by dividing the net asset
value per share of the Class B Common Stock for purposes
of sales and redemptions thereof at the time of the
calculation of the net asset value on the Conversion Date
by the net asset value per share of the Class A common
Stock for purposes of sales and redemptions thereof at the
time of the calculation of the net asset value on the
Conversion Date.
(c) On the Conversion Date, the shares of the Class
B Common Stock of the Corporation converted into shares of
the Class A Common Stock will cease to accrue dividends
and will no longer be outstanding and the rights of the
holders thereof will cease (except the right to receive
declared but unpaid dividends prior to the Conversion
Date).
(d) The Board of Directors shall have full power and
authority to adopt such other terms and conditions
concerning the conversion of shares of the Class B Common
Stock to shares of the Class A Common Stock as they deem
appropriate; provided such terms and conditions are not
inconsistent with the
<PAGE>
terms contained in this Article TENTH and subject
to any restrictions or requirements under the
Investment Company Act of 1940 and the rules,
regulations and interpretations thereof promulgated
or issued by the Securities and Exchange Commission,
any conditions or limitations contained in an order
issued by the Securities and Exchange Commission
applicable to the Corporation or any restrictions or
requirements under the Internal Revenue Code of 1986,
as amended, and the rules, regulations and
interpretations promulgated or issued thereunder.
THIRD: The foregoing amendments to the Charter of the
Corporation do not increase the authorized stock of the Corporation.
FOURTH: The foregoing amendments to the Charter of the
Corporation have been advised by the Board of Directors and approved by a
majority of the shareholders of the Corporation.
FIFTH: The foregoing amendments to the Charter of the
Corporation shall become effective at 9.00 a.m. on August 1, 1994.
IN WITNESS WHEREOF, NICHOLAS-APPLEGATE FUND, INC. has caused these
presents to be signed in its name and on its behalf by its Vice President and
attested by its Secretary on July 28, 1994.
NICHOLAS-APPLEGATE FUND, INC.
By /s/ Robert F. Gunia
-----------------------------
Robert F. Gunia
Vice President
Attest: /s/ S. Jane Rose
-------------------------
S. Jane Rose
Secretary
<PAGE>
The undersigned, Vice President of NICHOLAS-APPLEGATE FUND INC., who
executed on behalf of said corporation the foregoing amendments to the Charter
of which this certificate is made a part, hereby acknowledges in the name and on
behalf of said corporation, the foregoing amendments to the Charter to be the
corporate act of said corporation and further certifies that, to the best of
his knowledge, information and belief, the matters and facts set forth therein
with respect to the approval thereof are true in all material respects, under
the penalties of perjury.
/s/ Robert F. Guina
---------------------------
Robert F. Guina
<PAGE>
EXHIBIT 99B.2(a)
NICHOLAS-APPLEGATE GROWTH EQUITY FUND, INC.
AMENDED AND RESTATED BY-LAWS
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. Annual Meeting. The Corporation shall hold an annual
---------------
meeting of its stockholders to elect directors and transact any other business
within its powers, either at 10:00 a.m. on the second Tuesday of April in each
year beginning in 1988 it not a legal holiday, or at such other time on such
other day falling on or before the 30th day thereafter as shall be set by the
Board of Directors. Except as the Charter or statute provides otherwise, any
business may be considered at an annual meeting without the purpose of the
meeting having been specified in the notice. Failure to hold an annual meeting
does not invalidate the Corporation's existence or affect any otherwise valid
corporate acts.
SECTION 1.02. Special Meeting. At any time in the interval between
---------------
annual meetings, a special meeting of the stockholders may be called by the
chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of the
Corporation) with or without a meeting.
SECTION 1.03. Place of Meetings. Meetings of stockholders shall be
-----------------
held at such place in the United States as is set from time to time by the Board
of Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than ten
-------------------------------------
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The notice
shall state the time and place of the meeting and, if the meeting is a special
meeting or notice of the purpose is required by statute, the purpose of the
meeting. Notice is given to a stockholder when it is personally delivered to
him, left at his residence or usual place of business, or mailed to him at his
address as it appears on the records of the
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<PAGE>
Corporation. Notwithstanding the foregoing provisions, each person who is
entitled to notice waives notice if he before or after the meeting signs a
waiver of the notice which is filed with the records of stockholders' meetings,
or is present at the meeting in person or by proxy.
SECTION 1.05. Quorum; Voting. Unless statute or the Charter provides
--------------
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting, except that a plurality of all the votes cast
at a meeting at which a quorum is present is sufficient to elect a director.
SECTION 1.06. Adjournments. Whether or not a quorum is present, a
------------
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time by the stockholders present in person or by proxy by
a majority vote. Any business which might have been transacted at the meeting
as originally notified may be deferred and transacted at any such adjourned
meeting at which a quorum shall be present. No further notice of an adjourned
meeting other than by announcement shall be necessary if held on a date not more
than 120 days after the original record date.
SECTION 1.07. General Right to Vote; Proxies. Unless the charter
-------------------------------
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is entitled
to one vote on each matter submitted to a vote at a meeting of stockholders. In
all elections for directors, each share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted. A stockholder may vote the stock he owns of
record either in person or by written proxy signed by the stockholder or by his
duly authorized attorney in fact. Unless a proxy provides otherwise, it is not
valid more than 11 months after its date.
SECTION 1.08. List of Stockholders. At each meeting of stockholders, a
---------------------
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by the
Secretary.
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<PAGE>
SECTION 1.09. Conduct of Voting. At all meetings of stockholders,
-----------------
unless the voting is conducted by inspectors, the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes shall be decided,
by the chairman of the meeting. If demanded by stockholders, present in person
or by proxy, entitled to cast 10% in number of votes entitled to be cast, or if
ordered by the chairman, the vote upon any election or question shall be taken
by ballot and, upon like demand or order, the voting shall be conducted by two
inspectors, in which event the proxies and ballots shall be received, and all
questions touching the qualification of voters and the validity of proxies and
the acceptance or rejection of votes shall be decided, by such inspectors.
Unless so demanded or ordered, no vote need be by ballot and voting need not be
conducted by inspectors. The stockholders at any meeting may choose an inspector
or inspectors to act at such meeting, and in default of such election the
chairman of the meeting may appoint an inspector or inspectors. No candidate for
election as a director at a meeting shall serve as an inspector thereat.
SECTION 1.10. Informal Action by Stockholders. Any action required or
-------------------------------
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders meetings an unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and affairs of the
---------------------
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-Laws.
SECTION 2.02. Number of Directors. The Corporation shall have at
--------------------
least three directors; provided that, if there is no stock outstanding, the
number of Directors
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<PAGE>
may be less than three but not less than one, and, if there is stock outstanding
and so long as there are less than three stockholders, the number of Directors
may be less than three but not less than the number of stockholders. The
Corporation shall have the number of directors provided in the Charter until
changed as herein provided. A majority of the entire Board of Directors may
alter the number of directors set by the Charter to not exceeding 25 nor less
than the minimum number then permitted herein, but the action may not affect the
tenure of office of any director.
SECTION 2.03. Election and Tenure of Directors. The directors shall be
--------------------------------
divided into three classes, as nearly equal in number as possible, with the term
of office of the first class to expire at the 1988 Annual Meeting of
Stockholders, the term of office of the second class to expire at the 1989
Annual Meeting of Stockholders, and the term of office of the third class to
expire at the 1990 Annual Meeting of Stockholders. At each annual meeting of
stockholders beginning in 1988, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three year term.
SECTION 2.04. Removal of Director. Unless statute or the Charter
--------------------
provides otherwise, the stockholders may remove any director, with or without
cause, by the affirmative vote of a majority of all the votes entitled to be
cast for the election of directors.
SECTION 2.05. Vacancy on Board. The Stockholders may elect a successor
-----------------
to fill a vacancy on the Board of Directors which results from the removal of a
director. A director elected by the stockholders to fill a vacancy which results
from the removal of a director serves for the balance of the term of the removed
director. A majority of the remaining directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of directors and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number of directors. A director elected by the Board of Directors to fill
a vacancy serves until the next annual meeting of stockholders and until his
successor is elected and qualifies.
SECTION 2.06. Regular Meetings. After each meeting of stockholders at
-----------------
which a Board of Directors shall have been elected, the Board of Directors so
elected
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<PAGE>
shall meet as soon as practicable for the purpose of organization and the
transaction of other business; and in the event that no other time is designated
by the stockholders, the Board of Directors shall meet one hour after the time
for such stockholders' meeting or immediately following the close of such
meeting, whichever is later, on the day of such meeting. Such first regular
meeting shall be held at any place as may be designated by the stockholders, or
in default of such designation at the place designated by the Board of Directors
for such first regular meeting, or in default of such designation at the place
of the holding of the immediately preceding meeting of stockholders. No notice
of such first meeting shall be necessary if held as hereinabove provided. Any
other regular meeting of the Board of Directors shall be held on such date and
at any place as may be designated from time to time by the Board of Directors.
SECTION 2.07. Special Meetings. Special meetings of the Board of
----------------
Directors may be called at any time by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting, or in
writing with or without a meeting. A special meeting of the Board of Directors
shall be held on such date and at any place as may be designated from time to
time by the Board of Directors. In the absence of designation such meeting shall
be held at such place as may be designated in the call.
SECTION 2.08. Notice of Meeting. Except as provided in Section 2.06, the
------------------
Secretary shall give notice to each director of each regular and special meeting
of the Board of Directors. The notice shall state the time and place of the
meeting. Notice is given to a director when it is delivered personally to him,
left at his residence or usual place of business, or sent by telegraph or
telephone, at least 24 hours before the time of the meeting or, in the
alternative by mail to his address as it shall appear on the records of the
Corporation, at least 72 hours before the time of the meeting. Unless the By-
Laws or a resolution of the Board of Directors provides otherwise, the notice
need not state the business to be transacted at or the purposes of any regular
or special meeting of the Board of Directors. No notice of any meeting of the
Board of Directors need be given to any director who attends, or to any director
who, in writing executed and filed with the records of the meeting either before
or after the holding thereof, waives such notice. Any meeting of the Board of
Directors, regular or special, may adjourn from time to time to reconvene at the
same or
-5-
<PAGE>
some other place, and no notice need be given of any such adjourned meeting
other than by announcement.
SECTION 2.09. Action by Directors. Un1ess statute or the Charter or
-----------------------
By-Laws requires a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a quorum
for the transaction of business. In the absence of a quorum, the directors
present by majority vote and without notice other than by announcement may
adjourn the meeting from time to time until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken without a meeting, if an unanimous written consent
which sets forth the action is signed by each member of the Board and filed with
the minutes of proceedings of the Board.
SECTION 2.10. Meeting by Conference Telephone. Members of the Board
-------------------------------
of Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting; provided, however, that such
participation shall not constitute presence in person for purposes of the
Investment Company Act of 1940.
SECTION 2.11. Compensation. By resolution of the board of Directors
------------
a fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. A director who serves the Corporation in
any other capacity also may receive compensation for such other services,
pursuant to a resolution of the directors.
ARTICLE III.
COMMITTEES
SECTION 3.01. Committees. The Board of Directors may appoint from
----------
among its members an Executive Committee and other committees composed of two or
more directors and delegate to these committees any of the powers of the Board
of Directors, except the power to
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<PAGE>
declare dividends or other distributions on stock, elect directors, issue stock
other than as provided in the next sentence, recommend to the stockholders any
action which requires stockholder approval, amend the By-Laws, or approve any
merger or share exchange which does not require stockholder approval. If the
Board of Directors has given general authorization for the issuance of stock, a
committee of the Board, in accordance with a general formula or method specified
by the Board by resolution or by adoption of a stock option or other plan, may
fix the terms of stock subject to classification or reclassification and the
terms on which any stock may be issued, including all terms and conditions
required or permitted to be established or authorized by the Board of Directors.
SECTION 3.02. Committee Procedure. Each committee may fix rules of
-------------------
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee. The members of a committee may conduct any meeting
thereof by conference telephone in accordance with the provisions of Section
2.10.
SECTION 3.03. Emergency. In the event of a state of disaster of
---------
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by the
Charter and the By-Laws, any two or more available members of the then incumbent
Executive Committee shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Corporation in
accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Corporation
in accordance with the aforegoing provisions of this Section. This Section shall
be subject to implementation by resolution of the Board of Directors passed from
time to time for that purpose, and
-7-
<PAGE>
any provisions of the By-Laws (other than this Section) and any resolutions
which are contrary to the provisions of this Section or to the provisions of any
such implementary resolutions shall be suspended until it shall be determined by
any interim Executive Committee acting under this Section that it shall be to
the advantage of the Corporation to resume the conduct and management of its
affairs and business under all the other provisions of the By-Laws.
ARTICLE IV.
OFFICERS
SECTION 4.01. Executive and Other Officers. The Corporation shall have
----------------------------
a President, a Secretary, and a Treasurer who shall be the executive officers of
the Corporation. It may also have a Chairman of the Board; the Chairman of the
Board shall be an executive officer if he is designated as the chief executive
officer of the Corporation. The Board of Directors may designate who shall serve
as chief executive officer, having general supervision of the business and
affairs of the Corporation, or as chief operating officer, having supervision of
the operations of the Corporation; in the absence of designation the President
shall serve as chief executive officer and chief operating officer. It may also
have one or more Vice-Presidents, assistant officers, and subordinate officers
as may be established by the Board of Directors. A person may hold more than one
office in the Corporation but may not serve concurrently as both President and
Vice-President of the Corporation. The Chairman of the Board shall be a
director; the other officers may be directors.
SECTION 4.02. Chairman of the Board. The Chairman of the Board, if one
---------------------
be elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present; and, in general, he shall perform all
such duties as are from time to time assigned to him by the Board of Directors.
SECTION 4.03. President. The President, in the absence of the Chairman
---------
of the Board, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present; he may sign and execute, in the name
of the Corporation, all authorized deeds, mortgages, bonds, contracts or other
instruments, except in cases in which the signing and execution thereof shall
have been expressly delegated to some other officer or
-8-
<PAGE>
agent of the Corporation; and, in general, he shall perform all duties usually
performed by a president of a corporation and such other duties as are from time
to time assigned to him by the Board of Directors or the chief executive officer
of the Corporation.
SECTION 4.04. Vice-Presidents. The Vice-President or Vice-Presidents,
---------------
at the request of the chief executive officer or the President, or in the
President's absence or during his inability to act, shall perform the duties and
exercise the functions of the President, and when so acting shall have the
powers of the President. If there be more than one Vice-President, the Board of
Directors may determine which one or more of the Vice-Presidents shall perform
any of such duties or exercise any of such functions, or if such determination
is not made by the Board of Directors, the chief executive officer, or the
President may make such determination; otherwise any of the Vice-Presidents may
perform any of such duties or exercise any of such functions. The Vice-President
or Vice-Presidents shall have such other powers and perform such other duties,
and have such additional descriptive designations in their titles (if any), as
are from time to time assigned to them by the Board of Directors, the chief
executive officer, or the President.
SECTION 4.05. Secretary. Except as otherwise directed by the Board of
---------
Directors, the Secretary shall keep the minutes of the meetings of the
stockholders, of the Board of Directors and of any committees, in books provided
for the purpose; he shall see that all notices are duly given in accordance with
the provision, of the By-Laws or as required by law; he shall be custodian of
the records of the Corporation; he may witness any document on behalf of the
Corporation, the execution of which is duly authorized, see that the corporate
seal is affixed where such document is required or desired to be under its seal,
and, when so affixed, may attest the same; and, in general, he shall perform all
duties incident to the office of a secretary of a corporation, and such other
duties as are from time to time assigned to him by the Board of Directors, the
chief executive officer, or the President.
SECTION 4.06. Treasurer. Except as otherwise directed by the Board of
---------
Directors, the Treasurer shall have charge of and be responsible for all funds,
securities, receipts and disbursements of the Corporation, and shall deposit, or
cause to be deposited, in the name of the Corporation, all moneys or other
valuable effects in
-9-
<PAGE>
such banks, trust companies or other depositories as shall, from time to time,
be selected by the Board of Directors; he shall render to the President and to
the Board of Directors, whenever requested, an account of the financial
condition of the Corporation; and, in general, he shall perform all the duties
incident to the office of a treasurer of a corporation, and such other duties as
are from time to time assigned to him by the Board of Directors, the chief
executive officer, or the President.
SECTION 4.07. Assistant and Subordinate Officers. The assistant and
----------------------------------
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.08. Election, Tenure and Removal of Officers. The Board of
----------------------------------------
Directors shall elect the officers. The Board of Directors may from time to time
authorize any committee or officer to appoint assistant and subordinate
officers. The President serves for one year. All other officers shall be
appointed to hold their offices, respectively, during the pleasure of the Board.
The Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer authorized by the Board) may remove an officer at any time.
The removal of an officer does not prejudice any of his contract rights. The
Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer authorized by the Board) may fill a vacancy which occurs in
any office for the unexpired portion of the term.
SECTION 4.09. Compensation. The Board of Directors shall have power to
------------
fix the salaries and other compensation and remuneration, of whatever kind, of
all officers of the Corporation. It may authorize any committee or officer, upon
whom the power of appointing assistant and subordinate officers may have been
conferred, to fix the salaries, compensation and remuneration of such assistant
and subordinate officers.
ARTICLE V.
STOCK
SECTION 5.01. Certificates for Stock. Each stockholder is entitled to
----------------------
certificates which represent and certify the shares of stock he holds in the
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<PAGE>
Corporation. Each stock certificate shall include on its face the name of the
corporation that issues it, the name of the stockholder or other person to whom
it is issued, and the class of stock and number of shares it represents. It
shall be in such form, not inconsistent with law or with the Charter, as shall
be approved by the Board of Directors or any officer or officers designated for
such purpose by resolution of the Board of Directors. Each stock certificate
shall be signed by the Chairman of the Board, the President, or a Vice-
President, and counter- signed by the Secretary, an Assistant Secretary, the
Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the
actual corporate seal or a facsimile of it or in any other form and the
signatures may be either manual or facsimile signatures. A certificate is valid
and may be issued whether or not an officer who signed it is still an officer
when it is issued.
SECTION 5.02. Transfers. The Board of Directors shall have power and
---------
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
SECTION 5.03. Record Date and Closing of Transfer Books. The Board of
-----------------------------------------
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be more than 90 days before the date on which
the action requiring the determination will be taken; the transfer books may not
be closed for a period longer than 20 days; and, in the case of a meeting of
stockholders, the record date or the closing of the transfer books shall be at
least ten days before the date of the meeting.
SECTION 5.04. Stock Ledger. The Corporation shall maintain a stock ledger
------------
which contains the name and address of each stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, or, if none, at the principal office in the
State of Maryland or the principal executive offices of the Corporation.
-11-
<PAGE>
SECTION 5.05. Certification of Beneficial Owners. The Board of Directors
----------------------------------
may adopt by resolution a procedure by which a stockholder of the Corporation
may certify in writing to the Corporation that any shares of stock registered in
the name of the stockholder are held for the account of a specified person other
than the stockholder. The resolution shall set forth the class of stockholders
who may certify; the purpose for which the certification may be made; the form
of certification and the information to be contained in it; if the certification
is with respect to a record date or closing of the stock transfer books, the
time after the record date or closing of the stock transfer books within which
the certification must be received by the Corporation; and any other provisions
with respect to the procedure which the Board considers necessary or desirable.
On receipt of a certification which complies with the procedure adopted by the
Board in accordance with this Section, the person specified in the certification
is, for the purpose set forth in the certification, the holder of record of the
specified stock in place of the stockholder who makes the certification.
SECTION 5.06. Lost Stock Certificates. The Board of Directors of the
-----------------------
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
Corporation. In their discretion, the Board of Directors or such officer or
officers may refuse to issue such new certificate save upon the order of some
court having jurisdiction in the premises.
ARTICLE VI.
FINANCE
SECTION 6.01. Checks, Drafts, Etc. All checks, drafts and orders for the
-------------------
payment of money, notes and other evidences of indebtedness, issued in the name
of the Corporation, shall, unless otherwise provided by resolution of the Board
of Directors, be signed by the President, a Vice-President or an Assistant Vice-
President and countersigned by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary.
SECTION 6.02. Annual Statement of Affairs. The President shall prepare
---------------------------
annually a full and correct statement of the affairs of the Corporation, to
include a
-12-
<PAGE>
balance sheet and a financial statement of operations for the preceding fiscal
year. The statement of affairs shall be submitted at the annual meeting of the
stockholders and, within 20 days after the meeting, placed on file at the
Corporation's principal office.
SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall be the
-----------
twelve calendar months period ending December 31 in each year, unless otherwise
provided by the Board of Directors.
SECTION 6.04. Dividends. If declared by the Board of Directors at any
---------
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
ARTICLE VII.
SUNDRY PROVISIONS
SECTION 7.01. Books and Records. The Corporation shall keep correct and
-----------------
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of a Corporation may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be maintained in
the form of a reproduction. The original or a certified copy of the By-Laws
shall be kept at the principal office of the Corporation.
SECTION 7.02. Corporate Seal. The Board of Directors shall provide a
--------------
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule, or regulation relating to a corporate seal to place the word
"Seal" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
-13-
<PAGE>
SECTION 7.03. Bonds. The Board of Directors may require any officer, agent
-----
or employee of the Corporation to give a bond to the Corporation, conditioned
upon the faithful discharge of his duties, with one or more sureties and in such
amount as may be satisfactory to the Board of Directors.
SECTION 7.04. Voting Upon Shares in Other Corporations. Stock of other
----------------------------------------
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 7.O5. Mail. Any notice or other document which is required by
----
these By-Laws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 7.06. Execution of Documents. A person who holds more than one
----------------------
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 7.07. Amendments. Subject to the special provisions of
----------
Section 2.02, (a) any and all provisions of these By-Laws may be altered or
repealed and new by-laws may be adopted at any annual meeting of the
stockholders, or at any special meeting called for that purpose, and (b) the
Board of Directors shall have the power, at any regular or special meeting
thereof, to make and adopt new by-laws, or to amend, alter or repeal any of the
By-Laws of the Corporation.
-14-
<PAGE>
RESOLVED, that Article IV, Section 4.08 of the bylaws of the
Corporation is hereby amended to read in full as follows:
SECTION 4.08. Election, Tenure and Removal of Officers.
----------------------------------------
The Board of Directors shall elect the officers. The Board
of Directors may from time to time authorize any committee
or officer to appoint assistant and subordinate officers.
All officers shall be appointed to hold their offices
respectively, during the pleasure of the Board. The Board of
Directors (or, as to any assistant or subordinate officer,
any committee or officer authorized by the Board) may remove
an officer at any time. The removal of an officer does not
prejudice any of his contract rights. The Board of Directors
(or, as to any assistant or subordinate officer, any
committee or officer authorized by the Board) may fill a
vacancy which occurs in any office for the unexpired portion
of the term.
[NOTE: deleted words are indicated by strike-outs)
<PAGE>
*AMENDMENTS TO SECTION 2.02 OF THE BY-LAWS ADOPTED ON APRIL 9, 1987
RESOLVED, that the final sentence of Section 2.02 of the
Amended and Restated By-Laws of the Corporation is hereby
amended in its entirety as follows: "A majority of the entire
Board of Directors may alter the number of Directors set by
the Charter to not exceeding nine nor less than the minimum
number then permitted herein, but the action may not affect
the tenure of office of any Director."
<PAGE>
Amendment of By-Laws
- --------------------
Sections 1.01 and 1.02 of the Fund's By-laws are amended and restated
to read in their entirety as follows:
Section 1.01. Annual Meetings. Annual or other
---------------
meetings of the stockholders, unless required by the
Investment Company Act of 1940, as amended, or the
Maryland General Corporation Law shall not be required
to be held but may, in the discretion of the directors,
be held notwithstanding the absence of a requirement
under the Investment Company Act of 1940, as amended,
or the Maryland General Corporation Law to hold such a
meeting.
Section 1.02. Special Meeting. At any time in the
----------------
interval between annual meetings, a special meeting of
the stockholders may be called by the Chairman of the
Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed
to the Secretary of the Corporation) with or without a
meeting. Special meetings of stockholders shall also be
called by the Secretary upon the written request of the
holders of shares entitled to vote not less than ten
percent (10%) of all the votes entitled to be cast at
such meeting. Such request shall state the purpose or
purposes of such meeting and the matters proposed to be
acted on thereat. The secretary shall inform such
stockholders of the reasonable estimated cost of
preparing and mailing such notice of the meeting, and
upon payment to the corporation of such costs, the
Secretary shall give notice stating the purpose or
purposes of the meeting to all entitled to a vote at
such meeting. Unless requested by stockholders entitled
to cast a majority of all the votes entitled to be cast
at the meeting, a special meeting need not be called to
consider any matter which is substantially the same as
a matter voted upon at any special meeting of
<PAGE>
stockholders held during the preceding twelve months.
Sections 2.03, 2.04 and 2.05 of the Fund's By-laws are amended and
restated to read in their entirety as follows:
Section 2.03. Election and Tenure of Directors.
--------------------------------
At each meeting called for the purpose of electing
directors, the stockholders shall elect directors to
hold office until their successors are elected and
qualify. Directors need not be stockholders of the
corporation.
Section 2.04. Removal of Director. Any one or more
-------------------
of the directors may be removed, either with or without
cause, at any time, by the affirmative vote of the
stockholders holding a majority of the outstanding
shares entitled to vote for the election of directors.
(For purposes of determining the circumstances and
procedures under which such removal of directors may
take place, the provisions of Section 16(c) of the
Investment Company Act of 1940, as amended, shall be
applicable to the same extent as if the Corporation
were subject to the provisions of that Section.) The
successor or successors of any director or directors so
removed may be elected by the stockholders entitled to
vote thereon at the same meeting to fill any resulting
vacancies for the unexpired term of removed directors.
Except as provided by law, pending, or in the absence
of, such an election, the successor or successors of
any director or directors so removed may be chosen by
the Board of Directors.
Section 2.05. Vacancy on Board. Except as otherwise
----------------
provided by law, any vacancy occurring in the Board of
Directors and newly created directorships, except a
vacancy resulting from an increase in the authorized
number of directors, may be filled by a vote of the
majority of the directors whether or
-2-
<PAGE>
not sufficient to constitute a quorum, and a majority
of the entire Board of Directors may fill a vacancy
which results from an increase in the number of
directors. A director elected by the Board of Directors
to fill a vacancy shall be elected to hold office
until the next meeting of stockholders or
until his successor is elected and qualifies.
Section 2.06. Regular Meetings. Regular meetings of the
-----------------
Board of Directors may be held at such time and place as shall
be determined from time to time by the Board of Directors.
Section 2.08 of the Fund's By-laws is amended by deleting the first
sentence of such section and replacing it with the following:
The Secretary shall give notice to each director of
each regular and special meeting of the Board of
Directors.
Section 5.01 of the Fund's By-laws is amended by deleting the first
sentence of such section and replacing it with the following:
Upon written request, each stockholder of record shall
be entitled to certificates which represent and certify
the shares of stock he holds in the Corporation.
Notwithstanding the foregoing, the Board of
Directors reserves the right to issue certificates of
stock and establish resolutions for the issuance of
such certificate.
Article I of the Fund's By-laws is amended by adding the following as
Section 1.11:
Section 1.11 Access. Ten or more stockholders of
------
record who have been stockholders for at least six (6)
months and who hold, in the aggregate, the Lesser of
either shares having a net asset value of at least
$25,000 or at
-3-
<PAGE>
least 1% of the outstanding shares of the Fund, may
apply to the Board of Directors in writing, stating
that they wish to communicate with other stockholders
in order to obtain signatures to a request for a
special meeting. Within five (5) days' receipt of such
application, accompanied by the form of communication
such stockholders wish to use for such purpose, the
Board of Directors shall either (i) afford to such
applicants access to a list of the names and addresses
of all stockholders as recorded on the books of the
Fund; or (ii) inform such applicants as to the
approximate number of stockholders of record, and the
approximate cost of mailing to them the proposed
communication and form of request. If the procedure set
forth in (ii) above is chosen, the Board of Directors,
upon the written request of the applicants, accompanied
by a tender of the material to be mailed and of the
reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all stockholders of
record at their addresses as recorded on the books,
unless, within five (5) business days after such
tender, the Board of Directors mail shall to such
applicants and file with the Securities and Exchange
Commission, together with a copy of the material to be
mailed, a written statement signed by at least a
majority of the Board of Directors to the effect that,
in their opinion, either such material (i) contains
untrue statements of fact or omits to state facts
necessary to make the statements contained therein not
misleading, or (ii) would be in violation of applicable
law, and specifying the basis of such opinion.
-4-
<PAGE>
Exhibit 99B.2(b)
Amendment to By-Laws Adopted at the Board of Directors
- ------------------------------------------------------
Meeting Held April 22, 1991
- ---------------------------
Section 1.02 of the Fund's Bylaws is amended and restated to read in its
entirety as follows:
Section 1.02. Special Meeting. At any time in the interval between
---------------
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of
the Corporation) with or without a meeting. For the purpose of removing a
director or directors from the Board, special meetings of stockholders
shall be called by the Secretary upon the written request of the holders of
shares entitled to vote not less than ten percent (10%) of all the votes
entitled to be cast at such meeting. For all other purposes, the Secretary
shall call a special meeting of stockholders upon the written request of
not less than twenty-five percent of all the votes entitled to be cast at
such meeting. Such request shall state the purpose or purposes of such
meeting and the matters proposed to be acted on thereat. The Secretary
shall inform such stockholders of the reasonable estimated cost of
preparing and mailing such notice of the meeting, and upon payment by the
stockholders to the Corporation of such costs, the Secretary shall give
notice stating the purpose or purposes of the meeting to all entitled to a
vote at such meeting. Unless requested by stockholders entitled to cast a
majority of all the votes entitled to be cast at the meeting, a special
meeting need not be called to consider any matter which is substantially
the same as a matter voted upon at any special meeting of stockholders held
during the preceding twelve months.
The Fund's Bylaws are amended by adding a new Section 7.08 thereto, to read
in its entirety as follows:
<PAGE>
SECTION 7.08. Insurance. The Board of Directors of the Corporation are
---------
authorized and empowered to cause the Corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Corporation, or who, while a director, officer, employee, or
agent of the Corporation, is or was serving at the request of the Corporation as
a director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, or other enterprise,
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
Corporation would have the power to indemnify such person against liability
under the provisions of applicable law or its Articles of Incorporation;
provided, however, that any such insurance purchased or maintained by the
Corporation shall not contain provisions or provide coverage that protects or
purports to protect any person against any liability that any such person may
otherwise by subject to by reason of such person's fraud, dishonesty, criminal
or malicious acts or omissions.
-2-
<PAGE>
EXHIBIT 99.B4(a)
CLASS A
- ------------- --------------
NUMBER SHARES
- ------------- --------------
NICHOLAS-APPLEGATE FUND, INC.
(NICHOLAS-APPLEGATE GROWTH EQUITY FUND)
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
--------------------
ACCOUNT NO. ALPHA CODE CUSIP
--------------------
See Reverse side for
certain definitions
THIS IS TO CERTIFY THAT
TO THE OWNER OF
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH OF THE
COMMON STOCK OF
_______________________NICHOLAS-APPLEGATE FUND, INC.____________________________
(NICHOLAS-APPLEGATE GROWTH EQUITY FUND)
hereafter called the "Corporation", transferable on the books of the
Corporation by the owner in person or by duly authorized attorney upon surrender
of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be
held subject to the provisions of the Charter and By-Laws of the Corporation and
all amendments thereof, copies of which are on file at the office of the
Corporation, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed in its name by its proper officers and to be sealed with its Corporate
Seal.
Dated:
[SEAL OF NICHOLAS-APPLEGATE FUND, INC. APPEARS HERE]
Secretary President
COUNTERSIGNED:
PRUDENTIAL MUTUAL FUND SERVICES, INC.
(New Jersey)
TRANSFER AGENT,
BY:
AUTHORIZED OFFICER.
<PAGE>
EXHIBIT 99.B4(b)
CLASS B
- ------------- --------------
NUMBER SHARES
- ------------- --------------
NICHOLAS-APPLEGATE FUND, INC.
(NICHOLAS-APPLEGATE GROWTH EQUITY FUND)
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
--------------------
ACCOUNT NO. ALPHA CODE CUSIP
--------------------
See reverse side for
certain definitions
THIS IS TO CERTIFY THAT
TO THE OWNER OF
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH OF THE
COMMON STOCK OF
_______________________NICHOLAS-APPLEGATE FUND, INC.____________________________
(NICHOLAS-APPLEGATE GROWTH EQUITY FUND)
hereafter called the "Corporation", transferable on the books of the
Corporation by the owner in person or by duly authorized attorney upon surrender
of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be
held subject to the provisions of the Charter and By-Laws of the Corporation and
all amendments thereof, copies of which are on file at the office of the
Corporation, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed in its name by its proper officers and to be sealed with its Corporate
Seal.
Dated:
[SEAL OF NICHOLAS-APPLEGATE FUND, INC. APPEARS HERE]
Secretary President
COUNTERSIGNED:
PRUDENTIAL MUTUAL FUND SERVICES, INC.
(New Jersey)
TRANSFER AGENT,
BY:
AUTHORIZED OFFICER.
<PAGE>
EXHIBIT 99.B5(a)
NICHOLAS-APPLEGATE FUND, INC.
MANAGEMENT AGREEMENT
Agreement, made this 10th day of June, 1991 between Nicholas-Applegate
Fund, Inc., a Maryland corporation (the Fund), and Prudential Mutual Fund
Management, Inc., a Delaware corporation (the Manager).
W I T N E S S E T H
WHEREAS, the Fund is diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
1940 Act); and
WHEREAS, the Fund desires to retain the Manager to render or contact
to obtain as hereinafter provided investment advisory services to the Fund and
the Fund also desires to avail itself of the facilities available to the Manager
with respect to the administration of its day to day corporate affairs, and the
Manager is willing to render such investment advisory and administrative
services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of the Fund
and administrator of its corporate affairs for the period and on the terms set
forth in this Agreement. The Manager accepts such appointment and agrees to
render the services herein described, for the compensation herein provided. The
Manager shall enter into an agreement, dated the date hereof, with Nicholas-
Applegate Capital Management (the Subadviser) pursuant to which the Subadviser
shall furnish to the Fund the investment advisory services specified therein in
connection with the management of the Fund. Such agreement in the form attached
as Exhibit A is hereinafter referred to as the "Subadvisory Agreement." The
Manager shall continue to have responsibility for all investment advisory
services furnished pursuant to the Subadvisory Agreement.
2. Subject to the supervision of the Board of Directors of the Fund,
the Manager shall administer the Fund's corporate affairs and, in connection
therewith, shall furnish the Fund with office facilities and with clerical,
bookkeeping and recordkeeping services at such office facilities and, subject to
Section 1 hereof and the
1
<PAGE>
Subadvisory Agreement, the Manager shall manage the investment operations of the
Fund and the composition of the Fund's portfolio, including the purchase,
retention and disposition thereof, in accordance with the Fund's investment
objectives, policies and restrictions as stated in the Prospectus (hereinafter
defined) and subject to the following understandings:
(a) The Manager shall provide supervision of the Fund's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or loaned by the Fund, and what portion of the assets
will be invested or held uninvested as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles of
Incorporation, By-laws and Prospectus (hereinafter defined) of the Fund and
with the instructions and directions of the Board of Directors of the Fund and
shall conform to and comply with the requirements of the 1940 Act and all other
applicable federal and state laws and regulations.
(c) The Manager shall determine the securities to be purchased or
sold by the Fund and shall place orders pursuant to its determinations with or
through such persons, brokers or dealers (including but not limited to
Prudential Securities Incorporated) in conformity with the policies with respect
to brokerage as set forth in the Fund's Registration Statement and Prospectus
(hereinafter defined) or as the Board of Directors may direct from time to time.
In providing the Fund with investment supervision, it is recognized that the
Manager will give primary consideration to securing the most favorable price and
efficient execution. Consistent with this policy, the Manager and the Subadviser
may consider the financial responsibility, research and investment information
and other research services and products provided by brokers or dealers who may
effect or be a party to any such transaction or other transactions to which
other clients of the Manager or the Subadviser may be a party. It is understood
that Prudential Securities Incorporated may be used as principal broker for
securities transactions but that no formula has been adopted for allocation of
the Fund's investment transaction business. It is also understood that it is
desirable for the Fund that the Manager and the Subadviser have access to
supplemental investment and market research services and products and security
and economic analysis provided by brokers and that such brokers may execute
brokerage transactions at a higher cost to the Fund than may
2
<PAGE>
result when allocating brokerage to other brokers on the basis of seeking the
most favorable price and efficient execution. Therefore, the Manager and the
Subadviser are authorized to pay higher brokerage commissions for the purchase
and sale of securities for the Fund to brokers who provide such research
services and products and analysis, subject to review by the Fund's Board of
Directors from time to time with respect to the extent and continuation of this
practice. It is understood that the services provided by such broker may be
useful to the Manager and the Subadviser in connection with its services to
other clients.
On occasions when the Manager or the Subadviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Manager or the Subadviser, the Manager or the Subadviser, to the
extent permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be so sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the Manager or
the Subadviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such other clients.
(d) The Manager shall maintain all books and records with respect to
the Fund's portfolio transactions and shall render to the Fund's Board of
Directors such periodic and special reports as the Board may reasonably request.
(e) The Manager shall be responsible for the financial and accounting
records to be maintained by the Fund (including those being maintained by the
Fund's Custodian).
(f) The Manager shall provide the Fund's Custodian on each business
day with information relating to all transactions concerning the Fund's assets.
(g) The investment management services of the Manager to the Fund
under this Agreement are not to be deemed exclusive, and the Manager shall be
free to render similar services to others.
3. The Fund has delivered to the Manager copies of each of the following
documents and will deliver to it all future amendments and supplements, if any:
3
<PAGE>
(a) Articles of Incorporation of the Fund, as filed with the
Secretary of State of Maryland (such Articles of Incorporation, as in effect on
the date hereof and as amended from time to time, are herein called the
"Articles of Incorporation");
(b) By-laws of the Fund (such By-laws, as in effect on the date
hereof and as amended from time to time, are herein called the By-laws);
(c) Certified resolutions of the Board of Directors of the Fund
authorizing the appointment of the Manager and approving the form of this
Agreement;
(d) Registration Statement under the 1940 Act and the Securities
Act of 1933, as amended, on Form N-1A (the Registration Statement), as filed
with the Securities and Exchange Commission (the Commission) relating to the
Fund and shares of the Fund's Common Stock and all amendments thereto;
(e) Notification of Registration of the Fund under the 1940 Act
on Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus and Statement of Additional Information of the
Fund (such Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time, being herein called the
"Prospectus").
4. The Manager shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of the Fund
to serve in the capacities in which they are elected. All services to be
furnished by the Manager under this Agreement may be furnished through the
medium of any such directors, officers or employees of the Manager.
5. The Manager shall keep the Fund's books and records required to
be maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the Fund are the property of the Fund and it
shall surrender promptly to the Fund any such records upon the Fund's request,
provided however that the Manager may retain a copy of such records. The Manager
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act any such records as are required to be maintained by the Manager
pursuant to Paragraph 2 hereof.
4
<PAGE>
6. During the term of this Agreement, the Manager shall pay the following
expenses:
(a) the salaries and expenses of all personnel of the Fund and the
Manager except the fees and expenses of directors who are not affiliated persons
of the Manager or the Subadviser,
(b) all expenses incurred by the Manager or by the Fund in connection
with managing the ordinary course of the Fund's business other than those
assumed by the Fund herein, and
(c) the costs and expenses payable to the Subadviser pursuant to the
Subadvisory Agreement.
The Fund assumes and will pay the expenses described below:
(a) the fees and expenses incurred by the Fund in connection with the
management of the investment and reinvestment of the Fund's Assets,
(b) the fees and expenses of directors who are not affiliated persons
of the Manager or the Fund's Subadviser,
(c) out-of-pocket travel expenses for all Directors and other
expenses of Directors' meetings,
(d) the fees and expenses of the Custodian that relate to (i) the
custodial function and the recordkeeping connected therewith, (ii) preparing and
maintaining the general accounting records of the Fund and the providing of any
such records to the Manager useful to the Manager in connection with the
Manager's responsibility for the accounting records of the Fund pursuant to
Section 31 of the 1940 Act and the rules promulgated thereunder, (iii) the
pricing of the shares of the Fund, including the cost of any pricing service or
services which may be retained pursuant to the authorization of the Board of
Directors of the Fund, and (iv) for both mail and wire orders, the cashiering
function in connection with the issuance and redemption of the Fund's
securities,
(e) the fees and expenses of the Fund's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the maintenance of
each shareholder account,
5
<PAGE>
(f) the charges and expenses of legal counsel and independent
accountants for the Fund,
(g) brokers' commissions and any issue or transfer taxes
chargeable to the Fund in connection with its securities and futures
transactions,
(h) all taxes and corporate fees payable by the Fund to federal,
state or other governmental agencies,
(i) the fees of any trade associations of which the Fund may be
a member,
(j) the cost of stock certificates representing, and/or
non-negotiable share deposit receipts evidencing, shares of the Fund,
(k) the cost of fidelity, directors and officers and errors and
omissions insurance,
(l) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the Commission,
registering the Fund as a broker or dealer and qualifying its shares under state
securities laws, including the preparation and printing of the Fund's
registration statements, prospectuses and statements of additional information
for filing under federal and state securities laws for such purposes,
(m) allocable communications expenses with respect to investor
services and all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing reports to shareholders in the amount necessary
for distribution to the shareholders,
(n) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business, and
(o) any expenses assumed by the Fund pursuant to a Plan of
Distribution adopted in conformity with Rule 12b-1 under the 1940 Act.
7. In the event the expenses of the Fund for any fiscal year
(including the fees payable to the Manager but excluding interest, taxes,
brokerage commissions, distribution fees, litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Fund's business) exceed the lowest applicable annual expense limitation
established and
6
<PAGE>
enforced pursuant to the statute or regulations of any jurisdiction in which
shares of the Fund are then qualified for offer and sale, the compensation due
the Manager shall be reduced by the amount of such excess, or, if such reduction
exceeds the compensation payable to the Manager, the Manager will pay to the
Fund the amount of such reduction which exceeds the amount of such compensation.
8. For the services provided and the expenses assumed pursuant to this
Agreement, the Fund shall pay to the Manager as full compensation therefor a fee
at an annual rate of .95 of 1% of the Fund's average daily net assets computed
daily and payable monthly.
9. The Manager shall not be liable for any error of judgment or for any
loss suffered by the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any reward of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
10. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in a conformity with the requirements of the 1940
Act; provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Directors of the Fund
or by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Fund, or by the Manager at any time, without the payment of any
penalty, on not more than 60 days' nor less than 30 days' written notice to the
other party. This Agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act).
11. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Manager who may also be a director, officer
or employee of the Fund to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.
7
<PAGE>
12. Except as otherwise provided herein or authorized by the Board of
Directors of the Fund from time to time, the Manager shall for all purposes
herein be deemed to be an independent contractor and shall have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
13. During the term of this Agreement, the Fund agrees to furnish the
Manager at its principal office all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
shareholders of the Fund or the public, which refer in any way to the Manager,
prior to use thereof and not to use such material if the Manager reasonably
objects in writing within five business days (or such other time as may be
mutually agreed) after receipt thereof. In the event of termination of this
Agreement, the Fund shall continue to furnish to the Manager copies of any of
the above mentioned materials which refer in any way to the Manager. Sales
literature may be furnished to the Manager hereunder by first class or overnight
mail, facsimile transmission equipment or hand delivery. The Fund shall furnish
or otherwise make available to the Manager such other information relating to
the business affairs of the Fund as the Manager at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
14. This Agreement may be amended by mutual consent, but the consent of the
Fund must be obtained in conformity with the requirements of the 1940 Act.
15. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (1) to the Manager at One Seaport Plaza, New York, N.Y.
10292, Attention: Secretary; or (2) to the Fund at One Seaport Plaza, New York,
N.Y. 10292, Attention: President.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
17. The Fund may use the name "Nicholas-Applegate Fund, Inc." or any name
including the words "Nicholas" or "Applegate" only for so long as the
Subadvisory Agreement or any extension, renewal or amendment thereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to the Subadviser's business as Subadviser or any extension, renewal
or amendment.
8
<PAGE>
thereof. At such time as such an agreement shall no longer be in effect, the
Fund shall (to the extent that it lawfully can) cease to use such a name or any
other name indicating that it is advised by, managed by or otherwise connected
with the Subadviser, or any organization which shall have so succeeded to such
businesses.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
NICHOLAS-APPLEGATE FUND, INC.
By: /s/ Fred C. Applegate
-------------------------
Fred C. Applegate
President
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By: /s/ Robert F. Gunia
--------------------------
Robert F. Gunia
Executive Vice President
9
<PAGE>
EXHIBIT 99.B5(b)
NICHOLAS-APPLEGATE FUND, INC.
SUBADVISORY AGREEMENT
Agreement made as of this 10th day of June, 1991 by and among Prudential
Mutual Fund Management Inc., a Delaware corporation (PMF or the Manager),
Nicholas-Applegate Capital Management, a California limited partnership (the
Subadviser), and Nicholas-Applegate Fund, Inc., a Maryland corporation (the
Fund).
WHEREAS, the Manager has entered into a Management Agreement, dated June
10, 1991 (the Management Agreement), with the Fund, a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended (the 1940 Act), pursuant to which PMF will act as Manager of
the Fund.
WHEREAS, PMF desires to retain the Subadviser to provide investment
advisory services to the Fund in connection with the management of the Fund and
the Subadviser is willing to render such investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board of
Directors of the Fund, the Subadviser shall manage the investment operations of
the Fund and the composition of the Fund's portfolio, including the purchase,
retention and disposition thereof, in accordance with the Fund's investment
objectives, policies and restrictions as stated in the Prospectus (such
Prospectus and Statement of Additional Information as currently in effect and
as amended or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(i) The Subadviser shall provide supervision of the Fund's
investments and determine from time to time what investments and securities will
be purchased, retained, sold or loaned by the Fund, and what portion of the
assets will be invested or held uninvested as cash.
(ii) In the performance of its duties and obligations under this
Agreement, the Subadviser shall act in conformity with the Charter, By-laws and
Prospectus of the Fund and with the instructions and directions of the Manager
and of the Board of Directors of the Fund and shall conform
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<PAGE>
to and comply with the requirements of the 1940 Act, the Internal Revenue Code
of 1986, as amended, and all other applicable federal and state laws and
regulations.
(iii) The Subadviser shall determine the securities to be purchased or
sold by the Fund and shall place orders with or through such persons, brokers or
dealers (including but not limited to Prudential Securities Incorporated) as may
be necessary or desirable to carry out the policy with respect to brokerage as
set forth in the Fund's Registration Statement and Prospectus or as the Board of
Directors may direct from time to time. In providing the Fund with investment
supervision, it is recognized that the Subadviser will give primary
consideration to securing the most favorable price and efficient execution.
Within the framework of this policy, the Subadviser may consider the financial
responsibility, research and investment information and other research services
and products provided by brokers or dealers who may effect or be a party to any
such transaction or other transactions to which the Subadviser's other clients
may be a party. It is understood that Prudential Securities Incorporated may be
used as principal broker for securities transactions but that no formula has
been adopted for allocation of the Fund's investment transaction business. It
is also understood that it is desirable for the Fund that the Subadviser have
access to supplemental investment and market research services and products and
security and economic analysis provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, the Subadviser is authorized to place orders
for the purchase and sale of securities for the Fund with such brokers, subject
to review by the Fund's Board of Directors from time to time with respect to the
extent and continuation of this practice. It is understood that the
information, services and products provided by such brokers may be useful to the
Subadviser in connection with the Subadviser's services to other clients.
On occasions when the Subadviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients of the
Subadviser, the Subadviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so
2
<PAGE>
purchased or sold, as well as the expenses incurred in the transaction, shall be
made by the Subadviser in the manner the Subadviser considers to be the most
equitable and consistent with its fiduciary obligations to the Fund and to such
other clients.
(iv) The Subadviser shall maintain all books and records with respect
to the Fund's portfolio transactions required by subparagraphs (b) (5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act and
shall render to the Fund's Board of Directors such periodic and special reports
as the Board may reasonably request.
(v) The Subadviser shall provide the Fund's Custodian on each
business day with information relating to all transactions concerning the Fund's
assets and shall provide the Manager with such information upon request of the
Manager.
(vi) The investment management services provided by the Subadviser
hereunder are not to be deemed exclusive, and the Subadviser shall be free to
render similar services to others.
(b) The Subadviser shall authorize and permit any of its officers who are
officers of the Fund to serve in the capacities in which they are elected.
Services to be furnished by the Subadviser under this Agreement may be furnished
through the medium of any of such officers or employees.
(c) The Subadviser shall keep the Fund's books and records required to be
maintained by the Subadviser pursuant to paragraph 1(a) hereof and shall timely
furnish to the Manager all information relating to the Subadviser's services
hereunder needed by the Manager to keep the other books and records of the Fund
required by Rule 31a-1 under the 1940 Act. The Subadviser agrees that all
records which it maintains for the Fund are the property of the Fund and the
Subadviser shall surrender promptly to the Fund any of such records upon the
Fund's request, provided however that the Subadviser may retain a copy of such
records. The Subadviser further agrees to preserve for the periods prescribed
by Rule 31a-2 of the Securities and Exchange Commission (the Commission) under
the 1940 Act any such records as are required to be maintained by it pursuant to
paragraph 1(a) hereof.
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<PAGE>
2. The Manager shall continue to have responsibility for all services to
be provided to the Fund pursuant to the Management Agreement and shall oversee
and review the Subadviser's performance of its duties under this Agreement.
3. The Manager shall pay the Subadviser, as compensation for the services
provided and the expenses assumed pursuant to this Subadvisory Agreement, a fee
at an annual rate of .75 of 1% of the Fund's average daily net assets.
4. In the event the expenses of the Fund for any fiscal year (including
the fees payable to the Manager but excluding interest, taxes, brokerage
commissions, distribution fees and litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business) exceed the lowest applicable annual expense limitation established and
enforced pursuant to the statute or regulation of any jurisdiction in which
shares of the Fund are then qualified for offer and sale, the compensation due
the Subadviser shall be reduced by 60% of the amount of such excess. Any such
reduction in the fee payable to the Subadviser shall be made monthly and shall
be subject to readjustment during the year.
5. The Subadviser shall not be liable for any error of judgment or for
any loss suffered by the Fund or the Manager in connection with the matters to
which this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the Subadvisers' part in the performance of
its duties or from its reckless disregard of its obligations and duties under
this Agreement. The Fund shall indemnify the Subadviser and hold it harmless
from and against all damages, liabilities, costs and expenses (including
reasonable attorneys' fees and amounts reasonably paid in settlement) incurred
by the Subadviser in or by reason of any pending, threatened or completed
action, suit, investigation or other proceeding (including an action or suit by
or in the right of the Fund or its security holders) arising out of or otherwise
based upon any action actually or allegedly taken or omitted to be taken by the
Subadviser in connection with the performance of any of its duties or
obligations under this Agreement or otherwise as an investment adviser of the
Fund. Determinations of whether and the extent to which the Subadviser is
entitled to indemnification hereunder shall be made by reasonable and fair
means, including (a) a final decision on the merits by a court or other body
before whom the action, suit or other proceeding was brought that the Subadviser
was or was not liable by reason of willful
4
<PAGE>
misfeasance, bad faith, gross negligence, reckless disregard of its duties or
breach of its fiduciary duty or (b) in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that the Subadviser
was or was not liable by reason of such misconduct by (i) the vote of a majority
of a quorum of the directors of the Fund who are neither "interested persons" of
the Fund (as defined in Section 2(a)(19) of the 1940 Act) nor parties to the
action, suit or other proceeding or (ii) an independent legal counsel in a
written opinion.
If any person who is a director, officer or employee of the
Subadviser is or becomes a director, officer or employee of the Fund and acts as
such in any business of the Fund pursuant to this Agreement, then such director,
officer or employee of the Subadviser shall be deemed to be acting in such
capacity solely for the Fund, and not as a director, officer or employee of the
Subadviser or under the control or direction of the Subadviser, although paid by
the Subadviser.
6. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Directors of the Fund
or by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Fund, or by the Manager or the Subadviser at any time, without
the payment of any penalty, on not more than 60 days' nor less than 30 days'
written notice to the other party. This Agreement shall terminate automatically
in the event of its assignment (as defined in the 1940 Act) or upon the
termination of the Management Agreement.
7. Nothing in this Agreement shall limit or restrict the right of any of
the Subadviser's partners, officers or employees who may also be a director,
officer or employee of the Fund to engage in any other business or to devote his
or her time and attention in part to the management or other aspects of any
business, whether of a similar or a dissimilar nature, nor limit or restrict the
Subadviser's right to engage in any other business or to render services of any
kind to any other corporation, firm, individual or association.
8. During the term of this Agreement, the Manager agrees to furnish to
Subadviser at its principal office all prospectuses, proxy statements, reports
to stockholders, sales literature or other material prepared for distribution to
5
<PAGE>
stockholders of the Fund or the public, which refer to the Subadviser in any
way, prior to use thereof and not to use material if the Subadviser reasonably
objects in writing five business days (or such other time as may be mutually
agreed) after receipt thereof. Sales literature may be furnished to the
Subadviser hereunder by first-class or overnight mail, facsimile transmission
equipment or hand delivery.
9. During the term of this Agreement the Subadviser shall notify the
Manager of any change in the membership of the Subadviser's partnership within a
reasonable time after such change.
10. The Subadviser agrees that the Fund may, so long as this Agreement
remains in effect, use "Nicholas-Applegate" as part of its name. The Manager
hereby acknowledges that the name "Nicholas-Applegate" is a property right of
the Subadviser. The Subadviser, Arthur E. Nicholas or Fred C. Applegate may,
upon termination of this Agreement, require the Fund to refrain from using the
name "Nicholas-Applegate" in any form or combination in its name or in its
business, and the Fund shall, as soon as practicable following its receipt of
any such request from the Subadviser, Arthur E. Nicholas or Fred C. Applegate,
so refrain from using such name.
11. This Agreement may be amended by mutual consent, but the consent of
the Fund must be obtained in conformity with the requirements of the 1940 Act.
12. This Agreement shall be governed by the laws of the State of New York.
6
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By /s/ Robert F. Gunia
--------------------------------
Robert F. Gunia
Executive Vice President
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
By /s/ Arthur E. Nicholas
--------------------------------
Arthur E. Nicholas
Chairman and Chief Investment Officer
NICHOLAS-APPLEGATE FUND, INC.
By /s/ Fred C. Applegate
-------------------------------
Fred C. Applegate
President
7
<PAGE>
EXHIBIT 99B.6(a)
NICHOLAS APPLEGATE FUND, INC.
Distribution Agreement
(Class A Shares)
----------------
Agreement made as of June 10, 1991, and amended and restated as of
August 1, 1994, between Nicholas Applegate Fund, Inc., a Maryland Corporation
(the Fund) and Prudential Mutual Fund Distributors, Inc., a Delaware Corporation
(the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer
its Class A shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class A
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class A shares; and
WHEREAS, upon approval by the Class A shareholders of the Fund it is
contemplated that the Fund will adopt a plan of distribution pursuant to Rule
12b-1 under the Investment Company Act (the Plan) authorizing payments by the
Fund to the Distributor with respect to the distribution of Class A shares of
the Fund and the maintenance of Class A shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
------------------------------
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class A shares of the Fund to sell Class A shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class A shares of the Fund to the Distributor on the terms and conditions set
forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
--------------------------
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class A shares,
except that:
2.1 The exclusive rights granted to the Distributor to purchase Class
A shares from the Fund shall not apply to Class A shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class A shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class A shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean the
Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class A Shares from the Fund
----------------------------------------
3.1 The Distributor shall have the right to buy from the Fund the
Class A shares needed, but not more than the Class A shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class A shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which the
Distributor shall pay for the Class A shares so purchased from the Fund shall be
the net asset value, determined as set forth in the Prospectus.
3.2 The Class A shares are to be resold by the Distributor or selected
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
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<PAGE>
3.3 The Fund shall have the right to suspend the sale of its Class A
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale of its Class A
shares if a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class A shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class A shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class A shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class A Shares by the Fund
------------------------------------------------------
4.1 Any of the outstanding Class A shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class A
shares so tendered in accordance with its Article of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class A shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh calendar day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of Class A
shares shall be paid by the Fund to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions of the
Prospectus.
4.3 Redemption of Class A shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. Duties of the Fund
------------------
5.1 Subject to the possible suspension of the sale of Class A
shares as provided herein, the Fund agrees to sell its Class A shares so long as
it has Class A shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class A
shares, and this shall include one certified copy, upon request by the
Distributor, of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its Prospectus and annual and interim reports as the Distributor
shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class A shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class A shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement,
or necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class A shares for sale under the
securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class A shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
A shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
-------------------------
6.1 The Distributor shall devote reasonable time and effort to
affect sales of Class A shares of the Fund, but shall not be obligated to sell
any specific number of Class A shares. Sales of the Class A shares shall be on
the terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class A shares, the Distributor shall use its
best efforts in all respects duly to conform with the requirements of all
federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer nor any other person is authorized by the
Fund to give any information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales literature
approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class A shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class A shares only to such
selected dealers as are members in good standing of the NASD. Class A shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
---------------------------
The Distributor shall receive and may retain any portion of any
front-end sales charge which is imposed on sales of Class A shares and not
reallocated to selected dealers as set forth in the Prospectus, subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of the Plan.
Section 8. Payment of the Distributor under the Plan
-----------------------------------------
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of .30
of 1% (including an asset-based sales charge of .05 of 1% and a service fee of
.25 of 1%) per annum
5
<PAGE>
of the average daily net assets of the Class A shares of the Fund. Amounts
payable under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors 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 dealer
agreements with the Distributor. So long as the Plan (or any amendment thereto)
is in effect, at the request of the Board of Directors or any agent or
representative of the Fund, the Distributor shall provide such additional
information as may reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such activities.
8.3 Expenses of distribution with respect to the Class A shares of the
Fund 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) sales commissions and 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.
(d) amounts paid to, or an account of, account executives of Prudential
Securities, Prusec, or of other broker-dealers or financial
6
<PAGE>
institutions for personal service and/or the maintenance of
shareholder accounts; and
(e) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund Prospectuses,
and periodic financial reports and sales literature to persons other
than current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (a) and (b) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
----------------------
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class A shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class A shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class A shares, so long as the
Plan is in effect.
Section 10. Indemnification
---------------
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given by letter or telegram addressed to the Fund at its
principal business office. The Fund agrees promptly to notify the Distributor of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issue and sale of any Class A
shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, it officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification being given to the Distributor at
its principal business office.
Section 11. Duration and Termination of this Agreement
------------------------------------------
11.1 This Agreement shall become effective as of the date first
above written and shall remain if force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to
this Agreement or interested persons of any such parties and who have no direct
or indirect financial interest in this Agreement or in the operation of the
Fund's Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in
person at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class A shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting securities", when used
in this Agreement, shall have the respective meanings specified in the
Investment Company Act.
Section 12. Amendments to this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment
is specifically approved by (a) the Board of Directors of the Fund, or by the
vote of a majority of the outstanding voting securities of the Class A shares of
the Fund, and (b) by the vote of a majority of the Rule 12b-1 Directors cast in
person at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
-------------
The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of New York as at the time in effect
and the applicable provisions of the Investment Company Act. To the extent that
the applicable law of the State of New York, or any of the provisions herein,
conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the latter shall
control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: /s/ Robert F. Gunia
------------------------
Robert F. Gunia
Executive Vice President,
Treasurer and Comptroller
Nicholas Applegate Fund, Inc.
By: /s/ Jack C. Marshall
------------------------
Jack C. Marshall
President
10
<PAGE>
EXHIBIT 99B.6(b)
NICHOLAS APPLEGATE FUND, INC.
Distribution Agreement
(Class B Shares)
----------------
Agreement made as of June 10, 1991 and amended and restated as of
August 1, 1994, between Nicholas Applegate Fund, Inc., a Maryland Corporation
(the Fund) and Prudential Securities Incorporated, a Delaware Corporation (the
Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class B shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class B
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class B shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant
to Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments
by the Fund to the Distributor with respect to the distribution of Class B
shares of the Fund and the maintenance of Class B shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
------------------------------
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class B shares of the Fund to sell Class B shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class B shares of the Fund to the Distributor on the terms and conditions set
forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
--------------------------
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class B shares,
except that:
2.1 The exclusive rights granted to the Distributor to purchase Class
B shares from the Fund shall not apply to Class B shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class B shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class B shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean the
Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class B Shares from the Fund
----------------------------------------
3.1 The Distributor shall have the right to buy from the Fund the
Class B shares needed, but not more than the Class B shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class B shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which the
Distributor shall pay for the Clams B shares so purchased from the Fund shall be
the net asset value, determined as set forth in the Prospectus.
3.2 The Class B shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its Class B
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale of its Class B
shares if a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class B shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class B shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class B shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class B Shares by the Fund
------------------------------------------------------
4.1 Any of the outstanding Class B shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class B
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class B shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the
3
<PAGE>
Fund fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
------------------
5.1 Subject to the possible suspension of the sale of Class B
shares as provided herein, the Fund agrees to sell its Class B shares so long as
it has Class B shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class B
shares, and this shall include one certified copy, upon request by the
Distributor, of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its Prospectus and annual and interim reports as the Distributor
shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class B shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class B shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement,
or necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class B shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class B shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
B shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
-------------------------
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class B shares of the Fund, but shall not be obligated to sell any
specific number of Class B shares. Sales of the Class B shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class B shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Class B shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Class B shares only to such selected dealers as
are members in good standing of the NASD. Class B shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
---------------------------
The Distributor shall receive and may retain any contingent deferred
sales charge which is imposed with respect to repurchases and redemptions of
Class B shares as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. Payment of the Distributor under the Plan
-----------------------------------------
8.1 The Fund shall pay to the Distributor as compensation for services
under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales
5
<PAGE>
charge of .75 of 1% and a service fee of .25 of 1%) per annum of the average
daily net assets of the Class B shares of the Fund. Amounts payable under the
Plan shall be accrued daily and paid monthly or at such other intervals as
Directors may determine. Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer 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. So long
as the Plan (or any amendment thereto) is in effect, at the request of the Board
of Directors or any agent or representative of the Fund, the Distributor shall
provide such additional information as may reasonably be requested concerning
the activities of the Distributor hereunder and the costs incurred in performing
such activities.
8.3 Expenses of distribution with respect to the Class B shares of
the Fund 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) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other than
Prusec) which have entered into selected dealer agreements which the
Distributor with respect to Class B shares of the Fund;
(e) amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial institutions for
6
<PAGE>
personal service and/or the maintenance of
shareholder accounts; and
(f) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
Prospectuses, and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses,
(vi) expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
----------------------
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class B shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class B shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class B shares, so long as the
Plan is in effect.
Section 10. Indemnification
---------------
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and Directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, Directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, Director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class B shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, its officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing at its principal business office.
Section 11. Duration and Termination of this Agreement
------------------------------------------
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment
of any penalty, by a majority of the Rule 12b-1 Directors or by vote of a
majority of the outstanding voting securities of the Class B shares of the Fund,
or by the Distributor, on sixty (60) days' written notice to the other party.
This Agreement shall automatically terminate in the event of its assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class B shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
-------------
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the latter shall
control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities Incorporated
By: /s/ Robert F. Gunia
------------------------
Robert F. Gunia
Senior Vice President
Nicholas Applegate Fund, Inc.
By: /s/ Jack C. Marshall
------------------------
Jack C. Marshall
President
10
<PAGE>
EXHIBIT 99B.6(c)
NICHOLAS APPLEGATE FUND, INC.
Distribution Agreement
(Class C Shares)
----------------
Agreement made as of August 1, 1994, between Nicholas Applegate Fund,
Inc., a Maryland Corporation (the Fund) and Prudential Securities Incorporated,
a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer
its Class C shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class C
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class C shares; and
WHEREAS, the Fund has adopted a distribution and service plan
pursuant to Rule 12b-1 under the Investment Company Act (the Plan) authorizing
payments by the Fund to the Distributor with respect to the distribution of
Class C shares of the Fund and the maintenance of Class C shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
------------------------------
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class C shares of the Fund to sell Class C shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class C shares of the Fund to the Distributor on the terms and conditions set
forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
--------------------------
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class C shares,
except that:
2.1 The exclusive rights granted to the Distributor to purchase Class
C shares from the Fund shall not apply to Class C shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class C shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class C shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean the
Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class C Shares from the Fund
----------------------------------------
3.1 The Distributor shall have the right to buy from the Fund the
Class C shares needed, but not more than the Class C shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class C shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which the
Distributor shall pay for the Class C shares so purchased from the Fund shall be
the net asset value, determined as set forth in the Prospectus.
3.2 The Class C shares are to be resold by the Distributor or selected
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its Class C
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale of its Class C
shares if a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class C shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class C shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class C shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class C Shares by the Fund
------------------------------------------------------
4.1 Any of the outstanding Class C shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class C
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class C shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class C shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class C shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the
3
<PAGE>
Fund fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
------------------
5.1 Subject to the possible suspension of the sale of Class C
shares as provided herein, the Fund agrees to sell its Class C shares so long as
it has Class C shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class C
shares, and this shall include one certified copy, upon request by the
Distributor, of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its Prospectus and annual and interim reports as the Distributor
shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class C shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class C shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement,
or necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class C shares for sale under the
securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class C shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
C shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
-------------------------
6.1 The Distributor shall devote reasonable time and effort to
affect sales of Class C shares of the Fund, but shall not be obligated to sell
any specific number of Class C shares. Sales of the Class C shares shall be on
the terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class C shares, the Distributor shall use its
best efforts in all respects duly to conform with the requirements of all
federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer nor any other person is authorized by the
Fund to give any information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales literature
approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class C shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class C shares only to such
selected dealers as are members in good standing of the NASD. Class C shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
---------------------------
The Distributor shall receive and may retain any contingent deferred
sales charge which is imposed with respect to repurchases and redemptions of
Class C shares as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. Payment of the Distributor under the Plan
-----------------------------------------
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales
5
<PAGE>
charge of .75 of 1% and a service fee of .25 of 1%) per annum of the average
daily net assets of the Class C shares of the Fund. Amounts payable under the
Plan shall be accrued daily and paid monthly or at such other intervals as
Directors may determine. Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer 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. So long
as the Plan (or any amendment thereto) is in effect, at the request of the Board
of Directors or any agent or representative of the Fund, the Distributor shall
provide such additional information as may reasonably be requested concerning
the activities of the Distributor hereunder and the costs incurred in performing
such activities.
8.3 Expenses of distribution with respect to the Class C shares of the
Fund include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of distribution activities, including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected dealer
agreement between Prusec and the Distributor for sale of Class C
shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with distribution activities;
(d) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other than
Prusec) which have entered into selected dealer agreements with the
Distributor with respect to Class C shares of the Fund;
(e) amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial institutions for
6
<PAGE>
personal service and/or the maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund Prospectuses,
and periodic financial reports and sales literature to persons other
than current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
----------------------
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class C shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class C shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class C shares, so long as the
Plan is in effect.
Section 10. Indemnification
---------------
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and Directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, Directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, Director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class C shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, it officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing at its principal business office.
Section 11. Duration and Termination of this Agreement
------------------------------------------
11.1 This Agreement shall become effective as of the date first
above written and shall remain if force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class C shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to
this Agreement or interested persons of any such parties and who have no direct
or indirect financial interest in this Agreement or in the operation of the
Fund's Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in
person at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class C shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting securities", when used
in this Agreement, shall have the respective meanings specified in the
Investment Company Act.
Section 12. Amendments to this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment
is specifically approved by (a) the Board of Directors of the Fund, or by the
vote of a majority of the outstanding voting securities of the Class C shares of
the Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
-------------
The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of New York as at the time in effect
and the applicable provisions of the Investment Company Act. To the extent that
the applicable law of the State of New York, or any of the provisions herein,
conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the latter shall
control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities
Incorporated
By: /s/ Robert F. Gunia
------------------------
Robert F. Gunia
Senior Vice President
Nicholas Applegate Fund, Inc.
By: /s/ Jack C. Marshall
------------------------
Jack C. Marshall
President
10
<PAGE>
EXHIBIT 99B.8(a)
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES INDICATED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Employment of Custodian and Property to be
Held By It...................................................... 1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States............. 2
2.1 Holding Securities....................................... 2
2.2 Delivery of Securities................................... 3
2.3 Registration of Securities............................... 8
2.4 Bank Accounts............................................ 8
2.5 Availability of Federal Funds............................ 9
2.6 Collection of Income..................................... 10
2.7 Payment of Fund Monies................................... 10
2.8 Liability for Payment in Advance of
Receipt of Securities in Purchased....................... 13
2.9 Appointment of Agents.................................... 14
2.10 Deposit of Securities in Securities System............... 14
2.10A Fund Assets Held in the Custodian's Direct
Paper System............................................. 17
2.11 Segregated Account....................................... 19
2.12 Ownership Certificates for Tax Purposes.................. 20
2.13 Proxies.................................................. 20
2.14 Communications Relating to Fund
Portfolio Securities..................................... 20
2.15 Reports to Fund by Independent Public
Accountants.............................................. 21
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States...................... 22
3.1 Appointment of Foreign Sub-Custodians.................... 22
3.2 Assets to be Held........................................ 22
3.3 Foreign Securities Depositories.......................... 23
3.4 Segregation of Securities................................ 23
3.5 Agreements with Foreign Banking Institutions............. 24
3.6 Access of Independent Accountants of the Fund............ 24
3.7 Reports by Custodian..................................... 25
3.8 Transactions in Foreign Custody Account.................. 25
3.9 Liability of Foreign Sub-Custodians...................... 26
3.10 Liability of Custodian................................... 27
3.11 Reimbursement for Advances............................... 28
3.12 Monitoring Responsibilities.............................. 28
3.13 Branches of U.S. Banks................................... 29
4. Payments for Repurchases or Redemptions and Sales
of Shares of the Fund........................................... 29
5. Proper Instructions............................................. 30
6. Actions Permitted Without Express Authority..................... 32
7. Evidence of Authority........................................... 32
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8. Duties of Custodian with Respect to the Books of
Account and Calculations of Net Asset Value and
Net Income........................................................ 33
9. Records........................................................... 33
10. Opinion of Fund's Independent Accountant.......................... 34
11. Compensation of Custodian......................................... 34
12. Responsibility of Custodian....................................... 34
13. Effective Period, Termination and Amendment....................... 37
14. Successor Custodian............................................... 38
15. Interpretive and Additional Provisions............................ 40
16. Massachusetts Law to Apply........................................ 40
17. Prior Contracts................................................... 40
18. The Parties....................................................... 40
19. Limitation of Liability........................................... 41
</TABLE>
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian", and each Fund listed on Appendix A which evidences its agreement to
be bound hereby by executing a copy of this Contract (each such Fund
individually hereinafter referred to as the "Fund").
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It.
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation/ Declaration of Trust. The Fund agrees to deliver to the Custodian
all securities and cash owned by it, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Fund from time to time, and the cash consideration received by it
for such new or treasury shares of capital stock, ("Shares") of the Fund as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to the
Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall from time to time employ one or more sub-custodians
located in the United States, but only in accordance with an applicable vote by
the Board of Directors/Trustees of the Fund, and provided that the Custodian
shall have the same responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed as any such sub-custodian
has to the Custodian, provided that the Custodian agreement with any such
domestic sub-custodian shall impose on such sub-custodian responsibilities and
liabilities similar in nature and scope to those imposed by this Agreement with
respect to the functions to be performed by such sub-custodian. The Custodian
may employ as sub-custodians for the Fund's securities and other assets the
foreign banking institutions and foreign securities depositories designated in
Schedule "A" hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
---------------------------------------------------------------------
the Custodian in the United States
- ----------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate
------------------
for the account of the Fund all non-cash property, to be held by it in
the United States, including all domestic securities owned by the
Fund, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S. Department
of the Treasury,
-2-
<PAGE>
collectively referred to herein as "Securities System" and (b)
commercial paper of an issuer for which State Street Bank and Trust
Company acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the
Custodian pursuant to Section 2.l0A.
2.2 Delivery of Securities. The Custodian shall release and deliver
----------------------
domestic securities owned by the Fund held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book-entry system account ("Direct Paper System") only
upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Fund
and receipt of payment therefor:
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into
by the Fund:
3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund:
5) To the issuer thereof or its agent when such securities
are called, redeemed, retired or
-3-
<PAGE>
otherwise become payable: provided that, in any such case,
the cash or other consideration is to be delivered to the
Custodian:
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any
agent appointed pursuant to Section 2.9 or into the name or
nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
--------
any such case, the new securities are to be delivered to the
Custodian:
7) Upon the sale of such securities for the account of the
Fund, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
delivery" custom: provided that in any such case, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise
from the
-4-
<PAGE>
Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement: provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts
or temporary securities for definitive securities; provided
that, in any such case, the new securities and cash, if any,
are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
--- ----
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
-5-
<PAGE>
instrumentalities, except that in connection with any
loans for which collateral is to be credited to the
Custodian's account in the book-entry system authorized by
the U.S. Department of the Treasury, the Custodian will
not be held liable or responsible for the delivery of
securities owned by the Fund prior to the receipt of such
collateral;
11) For delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, but
---
only against receipt of amounts borrowed;
----
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-
dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating
to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund,
-6-
<PAGE>
the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits
in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such
Transfer Agent or to the holders of shares in connection
with distributions in kind, as may be described from time
to time in the Fund's currently effective prospectus and
statement of additional information ("prospectus"), in
satisfaction of requests by holders of Shares for
repurchase or redemption; and
15) For any other proper business purpose, but only upon
--- ----
receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board of
Directors/Trustees or of the Executive Committee signed by
an officer of the Fund and certified by the Secretary or
an Assistant Secretary, specifying the securities to be
delivered, setting forth the purpose for which such
-7-
<PAGE>
delivery is to be made, declaring such purpose to be a
proper business purpose, and naming the person or persons
to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
--------------------------
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of
the Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
------
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee
name of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian on behalf of the Fund under the
terms of this Contract shall be in "street name" or other good
delivery form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best
efforts to timely collect income due the Fund on such securities and
to notify the Fund on a best efforts basis of relevant corporate
actions including, without limitation, pendency of calls, maturities,
tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
-------------
account or accounts in the United States in
-8-
<PAGE>
the name of the Fund, subject only to draft or order by the Custodian
acting pursuant to the terms of this Contract, and shall hold in such
account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940.
Funds held by the Custodian for the Fund may be deposited by it to its
credit as Custodian in the Banking Department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
--------
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall be approved by vote of a majority of the Board of
Directors/Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by
the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
-----------------------------
and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in
the amount of checks received in payment for Shares of the Fund which
are deposited into the Fund's account.
-9-
<PAGE>
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
--------------------
Custodian shall collect on a timely basis all income and other
payments with respect to registered securities held hereunder to which
the Fund shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income
and other payments with respect to bearer securities if, on the date
of payment by the issuer, such securities are held by the Custodian or
its agent thereof and shall credit such income, as collected, to the
Fund's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when they
become due and shall collect interest when due on securities held
hereunder. Income due the Fund on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the
Fund. The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or
data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Fund is
properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may
----------------------
be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases
only:
-10-
<PAGE>
1) Upon the purchase of securities held domestically, options,
futures contracts or options on futures contracts for the account
of the Fund but only (a) against the delivery of such securities,
or evidence of title to such options, futures contracts or
options on futures contracts, to the Custodian (or any bank,
banking firm or trust company doing business in the United States
or abroad which is qualified under the Investment Company Act of
1940, as amended, to act as a custodian and has been designated
by the Custodian as its agent for this purpose) registered in the
name of the Fund or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for transfer;
(b) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Section
2.10 hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.10A; (d) in the case of repurchase agreements entered
into between the Fund and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery of
the securities either in certificate form or
-11-
<PAGE>
through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Fund of securities owned by
the Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Fund or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected prior
to receipt of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Fund as defined in
Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Fund as
set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the
account of the Fund interest, taxes, management, accounting,
transfer agent and legal fees, and operating expenses of the
-12-
<PAGE>
Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect
of securities sold short;
7) For any other proper purpose, but only upon receipt of, in
--- ----
addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors/Trustees or of the
Executive Committee of the Fund signed by an officer of the
Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming
the person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
-------------------------------------------------------------------
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of securities for the account of
the Fund is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written
-13-
<PAGE>
instructions from the Fund to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as
if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
---------------------
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
--------
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Securities in Securities Systems. The Custodian may deposit
-------------------------------------------
and/or maintain domestic securities owned by the Fund in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that
-14-
<PAGE>
such securities are represented in an account ("Account") of
the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic
securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities
belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased
for the account of the Fund upon (i) receipt of advice from
the Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer domestic securities sold for the account of the
Fund upon (i) receipt of advice from the Securities System
that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of
the Custodian to reflect such transfer and payment for the
account of the Fund. Copies
-15-
<PAGE>
of all advices from the Securities System of transfers of
domestic securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund confirmation
of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish
promptly to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System
for the account of the Fund.
4) The Custodian shall provide the Fund with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 13
hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for any loss or
damage to the Fund resulting from use of the Securities
System by reason of any negligence,
-16-
<PAGE>
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure
of the Custodian or any such agent to enforce effectively
such rights as it may have against the Securities System; at
the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to
any claim against the Securities System or any other person
which the Custodian may have as a consequence of any such
loss or damage if and to the extent that the Fund has not
been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System
-------------------------------------------------------
The Custodian may deposit and/or maintain securities owned by the Fund
in the Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper
Instructions;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or
otherwise for customers;
-17-
<PAGE>
3) The records of the Custodian with respect to securities of
the Fund which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to
the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the
records of the Custodian to reflect such payment and
transfer of securities to the account of the Fund. The
Custodian shall transfer securities sold for the account of
the Fund upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment
for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of
a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to
the Fund copies of daily transaction sheets reflecting each
day's transaction in the Direct Paper System for the account
of the Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting
-18-
<PAGE>
control as the Fund may reasonably request from time to
time;
2.11 Segregated Account. The Custodian shall upon receipt of Proper Instructions
------------------
establish and maintain a segregated account or accounts for and on behalf
of the Fund, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the Custodian
pursuant to Section 2.10 hereof, (i) in accordance with the provisions of
any agreement among the Fund, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating
cash, government securities or liquid, high-grade debt obligations in
connection with options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund, (iii)
for the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission
-19-
<PAGE>
relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but
---
only, in the case of clause (iv), upon receipt of, in addition to Proper
----
Instructions, a certified copy of a resolution of the Board of
Directors/Trustees or of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
---------------------------------------
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of the Fund held by it and in connection
with transfers of such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
-------
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Fund or a nominee of the Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver
to the Fund such proxies, all proxy soliciting materials and all notices
relating to such securities.
2.14 Communications Relating to Fund Portfolio Securities. Subject to the
----------------------------------------------------
provisions of Section 2.3, the Custodian
-20-
<PAGE>
shall transmit promptly to the Fund all, written information
(including, without limitation, pendency of calls and maturities of
securities held domestically and expirations of rights in connection
therewith and notices of exercise of call and put options written by
the Fund and the maturity of futures contracts purchased or sold by
the Fund) received by the Custodian from issuers of the securities
being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to the Fund all written
information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Fund desires to take
action with respect to any tender offer, exchange offer or any other
similar transaction, the Fund shall notify the Custodian at least
three business days prior to the date on which the Custodian is to
take such action.
2.15 Reports to Fund by Independent Public Accountants. The Custodian shall
-------------------------------------------------
provide the Fund, at such times as the Fund may reasonably require,
with reports by independent public accountants on the accounting
system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this
Contract; such reports shall be of sufficient scope and in
-21-
<PAGE>
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by
such examination, and, if there are no such inadequacies, the reports shall
so state.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
-------------------------------------------------------------------------
of the United States
- --------------------
3.1 Appointment of Foreign Sub-Custodians
-------------------------------------
The Fund hereby authorizes and instructs the Custodian to employ as sub-
custodians for the Fund's securities and other assets maintained outside
the United States the foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ("foreign sub-custodians").
Upon receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Directors/Trustees, the Custodian and the Fund may agree to amend Schedule
A hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-custodian.
Upon receipt of Proper Instructions, the Fund may instruct the Custodian to
cease the employment of any one or more such sub-custodians for maintaining
custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
-----------------
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities",
-22-
<PAGE>
as defined in paragraph (c)(l) of Rule 17f-5 under the Investment Company
Act of 1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to effect
the Fund's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
-------------------------------
writing by the Custodian and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 Segregation of Securities
-------------------------
The Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian. Each
agreement pursuant to which the Custodian employs a foreign banking
institution shall require that such institution establish a custody account
for the Custodian on behalf of the Fund and physically segregate in that
account, securities and other assets of the Fund, and, in the event that
such institution deposits the Fund's securities in a foreign securities
depository, that it shall identify on its books as belonging to the
Custodian, as agent for the Fund, the securities so deposited.
-23-
<PAGE>
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
--------------------------------------------
foreign banking institution shall be substantially in the form set forth
in Exhibit 1. hereto and shall provide that: (a) the Fund's assets will not
be subject to any right, charge, security interest, lien or claim of any
kind in favor of the foreign banking institution or its creditors or agent,
except a claim of payment for their safe custody or administration; (b)
beneficial ownership of the Fund's assets will be freely transferable
without the payment of money or value other than for custody or
administration; (c) adequate records will be maintained identifying the
assets as belonging to the Fund; (d) officers of or auditors employed by,
or other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for the
Fund, will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the Custodian;
and (e) assets of the Fund held by the foreign sub-custodian will be
subject only to the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
---------------------------------------------
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian insofar
as such books and records relate to
-24-
<PAGE>
the performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
--------------------
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Fund's
securities and other assets and advices or notifications of any transfers
of securities to or from each custodial account maintained by a foreign
banking institution for the Custodian on behalf of the Fund indicating, as
to securities acquired for the Fund, the identity of the entity having
physical possession of such securities.
3.8 Transactions in Foreign Custody Account
---------------------------------------
(a) Except as otherwise provided in paragraph (b) of this Section 3.8, the
provision of Sections 2.2 and 2.7 of this Contract shall apply, in their
entirety to the foreign securities of the Fund held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the Fund
and delivery of securities maintained for the account of the Fund may be
effected in accordance with the customary established securities trading or
securities processing practices and procedures in the jurisdiction or
market in which the transaction
-25-
<PAGE>
occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer. (c) Securities
maintained in the custody of a foreign sub-custodian may be maintained in
the name of such entity's nominee to the same extent as set forth in
Section 2.3 of this Contract, and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
-----------------------------------
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and each Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
-26-
<PAGE>
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
----------------------
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
Custodian shall not he liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph 3.10, in
delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses
(excluding a bankruptcy or insolvency of State Street London Ltd. not
caused by political risk) due to Acts of God, nuclear incident or
other losses under circumstances where the Custodian and State Street
London Ltd. have exercised reasonable care.
-27-
<PAGE>
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
--------------------------
advance cash or securities for any purpose including the purchase or
sale of foreign exchange or of contracts for foreign exchange, or in
the event that the Custodian or its nominee shall incur or be assessed
any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may
arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held
for the account of the Fund shall be security therefor and should the
Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Fund assets
to the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
---------------------------
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns
of a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive
order from the Securities
-28-
<PAGE>
and Exchange Commission is notified by such foreign sub-custodian that
there appears to be a substantial likelihood that its shareholders'
equity will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 Branches of U.S. Banks
----------------------
(a) Except as otherwise set forth in this Contract, the provisions of
Article 3 shall not apply where the custody of the Fund assets are
maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification Set forth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained
in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
4. Payments for Repurchases or Redemptions and Sales of Shares of the
------------------------------------------------------------------
Fund
- ----
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation Declaration of Trust and any
applicable votes of the Board of
-29-
<PAGE>
Directors/Trustees of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. Proper Instructions
-------------------
Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the officers of the Fund shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of
-30-
<PAGE>
transaction involved, including a specific statement of the purpose for which
such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
It is understood and agreed that the Board of Directors/Directors/Trustees has
authorized (i) Prudential Mutual Fund Management, Inc., as Manager of the Fund,
and (ii) The Prudential Investment Corporation (or Prudential-Bache Securities
Inc.), as Subadviser to the Fund, to deliver proper instructions with respect to
all matters for which proper instructions are required by this Article 5. The
Custodian may rely upon the certificate of an officer of the Manager or
Subadviser, as the case may be, with respect to the person or persons authorized
on behalf of the Manager and Subadviser, respectively, to sign, initial or give
proper instructions for the purpose of this Article 5. Proper Instructions may
include communications effected directly between electro-mechanical or
electronic devices provided that the Fund and the Custodian are satisfied that
such procedures afford adequate safeguards for the Fund's assets. For purposes
of this Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a segregated
asset account in accordance with Section 2.11.
-31-
<PAGE>
6. Actions Permitted Without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund:
(1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund;
- --------
(2) surrender securities in temporary form for securities in definitive
form;
(3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
(4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Fund except as otherwise directed by the Board of
Directors/Trustees of the Fund.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors/Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors/Trustees pursuant to the Articles of
Incorporation/
-32-
<PAGE>
Declaration of Trust as described in such vote, and such vote may be considered
as in full force and effect until receipt by the Custodian of written notice to
the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
---------------------------------------------------------------------------
Net Asset Value and Net Income
- ------------------------------
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors/Trustees of the Fund to
keep the books of account of the Fund and/or compute the net asset value per
share of the outstanding shares of the Fund or, if directed in writing to do so
by the Fund, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate daily
the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of the Fund shall be made at the time or
times described from time to time in the Fund's currently effective prospectus.
9. Records
-------
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to
-33-
<PAGE>
Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall
be the property of the Fund and shall at all times during the regular business
hours of the Custodian be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by the Fund and held by the Custodian and
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations.
10. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1A, Form N-2 (in the case of a closed
end Fund) and Form N-SAR or other periodic reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
11. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
12. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for
-34-
<PAGE>
the title, validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Contract and shall be held
harmless in acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options agreement. The
Custodian shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for
-35-
<PAGE>
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or each of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement provided, however that,
prior to disposing of Fund assets hereunder, the Custodian shall give the Fund
notice of its intention to dispose
-36-
<PAGE>
of assets identifying such assets and the Fund shall have one business day from
receipt of such notice to notify the Custodian if the Fund wishes the Custodian
to dispose of Fund assets of equal value other than those identified in such
notice.
13. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing; provided, however that the Custodian
--------
shall not act under Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Directors/Trustees of the Fund has approved the initial use of a particular
Securities System and the receipt of an annual certificate of the Secretary or
an Assistant Secretary that the Board of Directors/Trustees has reviewed the use
by the Fund of such Securities System, as required in each case by Rule 17f-4
under the Investment Company Act of 1940, as amended and that the Custodian
shall not act under Section 2.10A hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Directors/Trustees has approved the initial use of the Direct Paper System and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Directors/Trustees has reviewed the
-37-
<PAGE>
use by the Fund of the Direct Paper System: provided further, however, that the
-------- -------
Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Articles of
Incorporation/Declaration of Trust, and further provided, that the Fund may at
any time by action of its Board of Directors/Trustees (i) substitute another
bank or trust company for the Custodian by giving notice as described above to
the Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
14. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of
Directors/Trustees of the Fund, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities then held by it hereunder and shall
transfer to an account of the successor custodian all of the Fund's securities
held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon-receipt of a certified copy of a vote of the Board of
Directors/Trustees of the Fund, deliver
-38-
<PAGE>
at the office of the Custodian and transfer such securities, funds and other
properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors/Trustee shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors/Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
the Custodian shall remain in full force and effect.
-39-
<PAGE>
15. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
--------
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation/Declaration of Trust of the Fund. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
16. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
17. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
18. The Parties
-----------
All references herein to the "Fund" are to each of the Funds listed on
Appendix A individually, as if this Contract were between such individual Fund
and the Custodian. With respect to any Fund listed on Appendix A which is
organized as a
-40-
<PAGE>
Massachusetts Business Trust, references to Board of Directors and Articles of
Incorporation shall be deemed a reference to Board of Directors/Trustees and
Articles of Incorporation/Declaration of Trust respectively and reference to
shares of capital stock shall be deemed a reference to shares of beneficial
interest.
19. Limitation of Liability
-----------------------
Each Fund listed on Appendix A that is referenced as a Massachusetts
Business Trust is the designation of the Directors/Trustees under a Articles of
Incorporation/Declaration of Trust, dated (see Appendix A) and all persons
dealing with the Fund must look solely to the property of the Fund for the
enforcement of any claims against the Fund as neither the Directors/Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the dates set forth on Appendix A.
ATTEST STATE STREET BANK AND TRUST COMPANY
[SIGNATURE ILLEGIBLE] By [SIGNATURE ILLEGIBLE]
- ------------------------ -----------------------------------
Assistant Secretary Vice President
ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A
[SIGNATURE ILLEGIBLE] By [SIGNATURE ILLEGIBLE]
- ------------------------ -----------------------------------
Secretary Vice President
-41-
<PAGE>
Appendix A
----------
<TABLE>
<CAPTION>
Fund Name Execution Date of
- ---------
Date Declaration of Trust
---- --------------------
(if applicable)
<S> <C> <C>
Command Government Fund July 1, 1990 August 19, 1981
Command Money Fund July 1, 1990 June 5, 1981
Command Tax-Free Money Fund July 1, 1990 June 5, 1981
The Global Yield Fund, Inc. September 5, 1990
Nicholas-Applegate Fund, Inc. June 10, 1991
Prudential; California Municipal Fund August 1, 1990 May 18, 1984
Prudential-Bache Equity Fund, Inc. August 1, 1990
Prudential-Bache Global Fund, Inc. June 7, 1990
Prudential-Bache GNMA Fund, Inc. August 1, 1990
Prudential-Bache Government Plus Fund Inc. July 31, 1990
Prudential Government Securities Trust July 26, 1990 September 22, 1981
Prudential-Bache Growth Opportunity Fund, Inc. July 26, 1990
Prudential-Bache High Yield Fund, Inc. July 26, 1990
Prudential-Bache IncomeVertible Plus Fund, Inc. June 6, 1990
Prudential-Bache MoneyMart Assets Inc. July 25, 1990
Prudential-Bache Multi-Sector Fund, Inc. June 1, 1990
Prudential Municipal Series Fund August 1, 1990 May 18, 1984
Prudential-Bache National Municipals Fund, Inc. July 26, 1990
Prudential-Bache Option Growth Fund, Inc. July 31, 1990
Prudential-Bache Research Fund, Inc. July 25, 1990
Prudential-Bache Short-Term Global Income Fund, Inc. October 25, 1990
Prudential-Bache Special Money Market Fund, Inc. January 12, 1990
Prudential-Bache Strategic Income Fund, Inc. September 4, 1990
Prudential-bache Structured Maturity Fund, Inc. July 25, 1989
Prudential-Bache Tax-Free Money Fund, Inc. July 26, 1990
Prudential U.S. Government Fund June 7, 1990 September 22, 1986
Prudential-Bache Utility Fund, Inc. June 6, 1990
</TABLE>
<PAGE>
EXHIBIT 99.8B
ADDENDUM
The Custodian Agreement between Nicholas-Applegate Growth Equity Fund, Inc.
(the "Fund") and State Street Bank and Trust Company (the "Custodian") dated
April 10, 1987 (the "Agreement") is hereby amended.
WHEREAS, the Fund is converting from a closed-end investment company to an
open-end investment company as defined under the Investment Company Act of 1940,
as amended (the "Investment Company Act");
NOW THEREFORE, the Agreement is amended as follows:
I. In Section 2.1 of the Agreement continue the sentence therein as
follows:
"and commercial paper of an issuer for which the Custodian acts as
issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to Section
2.10A."
II. In Section 2.2 insert a new Section 2.2(15) which is listed below:
"2.2(15) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind, as may be
described from time to time in the Fund's currently effective prospectus and
statement of additional information ("prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption."
III. Following Section 2.10 insert a new Section 2.10A which is listed
below:
"2.10A Fund Assets Held in the Custodian's Direct Paper System
-------------------------------------------------------
The Custodian may deposit and/or maintain securities owned by the Fund
in the Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which
shall not include any assets of the Custodian other
<PAGE>
than assets held as a fiduciary, custodian or otherwise for
customers;
3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account
of the Fund upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to
the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt
of payment for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund, in the form of a written
advice or notice, of Direct Paper on the next business day
following such transfer and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's transaction in the
Securities System for the account of the Fund;
6) The Custodian shall provide the Fund with any report on its system
of internal accounting control as the Fund may reasonably request
from time to time."
IV. Following Section 2.17 insert the Sections 2.18 and 2.19 which are
listed below:
"2.18 Payments for Shares. The Custodian shall receive from the
-------------------
distributor for the Fund's Shares or from the Transfer Agent of the Fund
and deposit into the Fund's account such payments as are received for
Shares of the Fund issued or sold from time to time by the Fund. The
Custodian will provide timely notification to the Fund and the Transfer
Agent of any receipt by it of payments for Shares of the Fund."
"2.19 Payments for Repurchases or Redemptions of Shares of the Fund.
-------------------------------------------------------------
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of
the Board of Directors of the Fund pursuant thereto, the Custodian shall,
upon receipt of instructions from the Transfer Agent, make funds available
for payment to holders of Shares who have delivered to the Transfer Agent a
request for redemption or repurchase of their Shares. In
-2-
<PAGE>
connection with the redemption or repurchase of Shares of the Fund, the
Custodian is authorized upon receipt of instructions from the Transfer
Agent to wire funds to or through a commercial bank designated by the
redeeming shareholders. In connection with the redemption or repurchase of
Shares of the Fund, the Custodian shall honor checks drawn on the Custodian
by a holder of Shares, which checks have been furnished by the Fund to the
holder of Shares, when presented to the Custodian in accordance with such
procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian."
V. In Section 3 delete the word "weekly" throughout and insert the word
"daily" in lieu thereof. All calculations shall be daily in this Section.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of ,
1991.
ATTEST NICHOLAS-APPLEGATE GROWTH EQUITY
FUND, INC.
/s/ S. Jane Rose By /s/ Eugene S. Stark
- ------------------------------- ---------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ By /s/
- ------------------------------- ---------------------------------
Assistant Secretary Vice President
-3-
<PAGE>
EXHIBIT 99.B9(a)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
NICHOLAS-APPLEGATE FUND, INC.
and
PRUDENTIAL MUTUAL FUND SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
Article 1 Terms of Appointment; Duties of the Agent................ 1
Article 2 Fees and Expenses........................................ 7
Article 3 Representations and Warranties of the Agent.............. 7
Article 4 Representations of Warranties of the Fund................ 8
Article 5 Duty of Care and Indemnification......................... 9
Article 6 Documents and Covenants of the Fund and the Agent........ 12
Article 7 Termination of Agreement................................. 14
Article 8 Assignment............................................... 14
Article 9 Affiliations............................................. 15
Article 10 Amendment................................................ 16
Article 11 Applicable Law........................................... 16
Article 12 Miscellaneous............................................ 16
Article 13 Merger of Agreement...................................... 17
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the 10th day of June, 1991 by and between
NICHOLAS-APPLEGATE FUND, INC., Maryland corporation, having its principal office
and place of business at One Seaport Plaza, New York, New York 10292 (the Fund),
and PRUDENTIAL MUTUAL FUND SERVICES, INC., a New Jersey corporation, having its
principal office and place of business at Raritan Plaza One, Edison, New Jersey
08837 (the Agent or PMFS).
WHEREAS, the Fund desires to appoint PMFS as its transfer agent,
dividend disbursing agent and shareholder servicing agent in connection with
certain other activities, and PMFS desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of PMFS
------------------------------------
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints PMFS to act as, and PMFS agrees
to act as, the transfer agent for the authorized and issued shares of the common
stock of each series of the Fund, $.001 par value (Shares), dividend disbursing
agent and shareholder servicing agent in connection with any accumulation, open-
account or similar plans provided to the shareholders of the Fund or any series
thereof (Shareholders) and set out in the currently effective prospectus and
statement of additional
<PAGE>
information (prospectus) of the Fund, including without limitation any periodic
investment plan or periodic withdrawal program.
1.02 PMFS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and PMFS, PMFS shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor to the Custodian
of the Fund authorized pursuant to the Articles of Incorporation of the Fund
(the Custodian);
(ii) Pursuant to purchase orders, issue the appropriate number of Shares
and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption directions
and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it by
the Custodian with respect to any redemption, pay over or cause to be paid over
in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on purchases
and/or redemptions or Shares of the Fund as such charges may be reflected in the
prospectus;
<PAGE>
(viii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain pursuant to
Rule 17Ad-10(e) under the Securities Exchange Act of 1934 (1934 Act) a record of
the total number of Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. PMFS shall also provide
to the Fund on a regular basis the total number of Shares which are authorized,
issued and outstanding and shall notify the Fund in case any proposed issue of
Shares by the Fund would result in an overissue. In case any issue of Shares
would result in an overissue, PMFS shall refuse to issue such Shares and shall
not countersign and issue any certificates requested for such Shares. When
recording the issuance of Shares, PMFS shall have no obligation to take
cognizance of any Blue Sky laws relating to the issue or sale of such shares,
which functions shall be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), PMFS shall: (i) perform all of the customary services of a
transfer agent, dividend disbursing agent and, as relevant, shareholder
servicing agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder
-5-
<PAGE>
reports and prospectuses to current Shareholders, withholding taxes on non-
resident alien accounts, preparing and filing appropriate forms required with
respect to dividends and distributions by federal tax authorities for all
Shareholders, preparing and mailing confirmation forms and statements of account
to Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and mailing activity
statements for Shareholders and providing Shareholder account information and
(ii) provide a system which will enable the Fund to monitor the total number of
Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall (i) identify to PMFS in writing those
transactions and assets to be treated as exempt from Blue Sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
state. The responsibility of PMFS for the Fund's registration status under the
Blue Sky or securities laws of any State or other jurisdiction is solely limited
to the initial establishment of transactions subject to Blue Sky compliance by
the Fund and the reporting of such transactions to the Fund as provided above
and as agreed from time to time by the Fund and PMFS.
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Fund and set forth in Schedule B hereto.
Procedures applicable to certain of these services may be
-6-
<PAGE>
established form time to time by agreement between the Fund and PMFS.
Article 2 Fees and Expenses
-----------------
2.01 For performance by PMFS pursuant to this Agreement, the Fund
agrees to pay PMFS an annual maintenance fee for each Shareholder account and
certain transactional fees as set out in the fee schedule attached hereto as
Schedule A. Such fees and out-of-pocket expenses and advances identified under
Section 2.02 below may be changed from time to time subject to mutual written
agreement between the Fund and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the
Fund agrees to reimburse PMFS for out-of-pocket expenses or advances incurred by
PMFS for the items set out in Schedule A attached hereto. In addition, any other
expenses incurred by PMFS at the request or with the consent of the Fund will be
reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses
within a reasonable period of time following the mailing of the respective
billing notice. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all Shareholder accounts shall be advanced to PMFS by the Fund
upon request prior to the mailing date of such materials.
Article 3 Representations and Warranties of PMFS
--------------------------------------
PMFS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing
-7-
<PAGE>
and in good standing under the laws of New Jersey and it is duly qualified to
carry on its business in New Jersey.
3.02 It is and will remain registered with the U.S. Securities and
Exchange Commission (SEC) as a Transfer Agent pursuant to the requirements of
Section 17A of the 1934 Act.
3.03 It is empowered under applicable laws and by its charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to PMFS that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is an investment company registered with the SEC under the
Investment Company Act of 1940, as amended (the 1940 Act).
4.05 A registration statement under the Securities Act.
-8-
<PAGE>
of 1933 (the 1933 Act) is currently effective and will remain effective, and
appropriate state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale.
Article 5 Duty of Care and Indemnification
--------------------------------
5.01 PMFS shall not be responsible for, and the Fund shall indemnify
and hold PMFS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of PMFS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by PMFS or its agents or subcontractors of
information, records and documents which (i) are received by PMFS or its agents
or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or maintained by the Fund or any other person or firm on
behalf of the Fund.
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors of, any instructions or requests of the Fund.
-9-
<PAGE>
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities or Blue Sky laws of any
State or other jurisdiction that such Shares be registered in such State or
other jurisdiction or in violation of any stop order or other determination or
ruling by any federal agency or any State or other jurisdiction with respect to
the offer or sale of such Shares in such State or other jurisdiction.
5.02 PMFS shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by PMFS as a result of PMFS' lack of good faith, negligence or willful
misconduct.
5.03 At any time PMFS may apply to any officer of the Fund for
instructions, and may consult with legal counsel, with respect to any matter
arising in connection with the services to be performed by PMFS under this
Agreement, and PMFS and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. PMFS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to PMFS or its
agents or
-10-
<PAGE>
subcontractors by machine readable input, telex, CRT data entry or other similar
means authorized by the Fund, and shall not be held to have notice of any change
of authority of any person, until receipt of written notice thereof from the
Fund. PMFS, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signature of the officers of the Fund, and
the proper countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
5.06 In order that the indemnification provisions contained in this Article
5 shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate
-11-
<PAGE>
with the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
Article 6 Documents and Covenants of the Fund and PMFS
--------------------------------------------
6.01 The Fund shall promptly furnish to PMFS the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of PMFS and the execution and delivery or this
Agreement;
(b) A certified copy of the Articles of Incorporation and By-Laws of the
Fund and all amendments thereto;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the 1933
Act and the 1940 Act;
(d) A specimen of the certificate for Shares of the Fund in the form
approved by the Board of Directors, with a certificate of the Secretary of the
Fund as to such approval;
(e) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan program or service offered or
to be offered by the Fund; and
(f) Such other certificates, documents or opinions as the Agent deems to
be appropriate or necessary for the proper performance of its duties.
6.02 PMFS hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for
-12-
<PAGE>
safekeeping of stock certificates, check forms and facsimile signature
imprinting devices, if any; and for the preparation or use, and for keeping
account of, such certificates, forms and devices.
6.03 PMFS shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, PMFS agrees that all such records prepared or maintained by PMFS
relating to the services to be performed by PMFS hereunder are the property of
the Fund and will be preserved, maintained and made available in accordance with
such Section 31 of the 1940 Act, and the Rules and Regulations thereunder, and
will be surrendered promptly to the Fund on and in accordance with its request.
6.04 PMFS and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential and shall not be voluntarily disclosed to any other person except
as may be required by law or with the prior consent of PMFS and the Fund.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, PMFS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. PMFS reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
-13-
<PAGE>
for the failure to exhibit the Shareholder records to such person.
Article 7 Termination of Agreement
------------------------
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Fund. Additionally, PMFS reserves the right to charge for any other
reasonable fees and expenses asociated with such termination.
Article 8 Assignment
----------
8.01 Except as provided in Section 8.03 below, neither this Agreeement
nor any rights or obligations hereunder may be assigned be either party without
the writtten consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding-upon
the parties and their respective permitted successors and assigns.
8.03 PMFS may, in its sole discretion and without further consent by
the Fund, subcontract, in whole or in part, for the performance of its
obligations and duties hereunder with any person or entity including but not
limited to: (i) Prudential Securities Incorporated (Prudential Securities), a
registered broker-dealer, (ii) The Prudential Insurance Company of America
(Prudential), (iii) Pruco Securities Corporation a registered broker-dealer.
(iv) any Prudential Securities or Prudential subsidiary or affiliate duly
registered as a broker-dealer and/or
-14-
<PAGE>
a transfer agent pursuant to the 1934 Act or (vi) any other Prudential
Securities or Prudential affiliate or subsidiary; provided, however, that PMFS
shall be as fully responsible to the Fund for the acts and omissions of any
agent or subcontractor as it is for its own acts and omissions.
Article 9 Affiliations
------------
9.01 PMFS may now or hereafter, without the consent of or notice to
the Fund, function as Transfer Agent and/or Shareholder Servicing Agent for any
other investment company registered with the SEC under the 1940 Act, including
without limitation any investment company whose adviser, administrator, sponsor
or principal underwriter is or may become affiliated with Prudential Securities
and/or Prudential or any of its or their direct or indirect subsidiaries or
affiliates.
9.02 It is understood and agreed that the directors, officers,
employees, agents and Shareholders of the Fund, and the directors, officers,
employees, agents and shareholders of the Fund's investment adviser and/or
distributor, are or may be interested in the Agent as directors, officers,
employees, agents, shareholders or otherwise, and that the directors, officers,
employees, agents or shareholders of the Agent may be interested in the Fund as
directors, officers, employees, agents, Shareholders or otherwise, or in the
investment adviser and/or distributor as officers, directors, employees, agents,
shareholders or otherwise.
Article 10 Amendments
----------
10.01 This Agreement may be amended or modified by a
-15-
<PAGE>
written agreement executed by both parties and authorized or approved by a
resolution of the Board of Directors of the Fund.
Article 11 Applicable Law
--------------
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New Jersey.
Article 12 Miscellaneous
-------------
12.01 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to PMFS an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to PMFS and the Fund issued by a
surety company satisfactory to PMFS, except that PMFS may accept an affidavit of
loss and indemnity agreement executed by the registered holder (or legal
representative) without surety in such fort as PMFS deems appropriate
indemnifying PMFS and the Fund for the issuance of a replacement certificate, in
cases where the alleged loss as in the amount of $1000 or less.
12.02 In the event that any check or other order for payment of money
on the account of any Shareholder or new investor is returned unpaid for any
reason, PMFS will (a) give prompt notification to the Fund's distributor
(Distributor) of such non-payment, and (b) take such other action, including
imposition of a reasonable processing or handling fee, as PMFS may, in its sole
discretion, deem appropriate or as the Fund and the
-16-
<PAGE>
Distributor may instruct PMFS.
12.03 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to PMFS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund.
Nicholas-Applegate Fund, Inc.
one Seaport Plaza
New York, NY 10292
Attention: President
To PMFS:
Prudential Mutual Fund Services, Inc.
Raritan Plaza one
Edison, NJ 08837
Attention: President
Article1 13 Merger of Agreement
-------------------
13.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in their names and on their behalf under their seals by and
through their authorized officers, as of the day and year first above written.
-17-
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
BY: [SIGNATURE ILLEGIBLE]
-----------------------
ATTEST:
[SIGNATURE ILLEGIBLE]
- -----------------------
PRUDENTIAL MUTUAL FUND
SERVICES, INC.
BY: [SIGNATURE ILLEGIBLE]
-----------------------
ATTEST:
[SIGNATURE ILLEGIBLE]
- -----------------------
GEF-TA>AGR
-18-
<PAGE>
Schedule A
----------
Prudential Mutual Fund Services, Inc.
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
NICHOLAS-APPLEGATE FUND, INC.
General - Fees are based on an annual per shareholder account charge for account
- -------
maintenance plus out-of-pocket expenses. In addition, there if an one time set-
up charge per account for manually established accounts and a monthly charge for
inactive zero balance accounts. The effective period of this fee schedule is
June 10, 1991 through December 31, 1991 and shall continue thereafter from year
to year, unless otherwise amended.
Annual Maintenance Charges - The annual maintenance charge includes the
- --------------------------
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/2 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
Basic Annual Per Account Fee $9.00
New Account Set-up Fee for Manually $2.00
Established Accounts
Inactive Account Fee $ .20
Out-of-Pocket Expenses - Out-of-Pocket expenses include but are not limited to:
- ----------------------
postage, stationery and printing, allocable communication costs, microfilm,
microfiche, and expenses incurred at the specific direction of the Fund.
Payment - An invoice will be presented to the Fund on a monthly basis assessing
- -------
the Fund the appropriate fee and out-of-pocket expenses.
NICHOLAS-APPLEGATE PRUDENTIAL MUTUAL FUND
FUND, INC. SERVICES, INC.
NAME: [SIGNATURE ILLEGIBLE] NAME: [SIGNATURE ILLEGIBLE]
----------------------- ----------------------
TITLE: President TITLE: President
----------------------- ----------------------
DATE: June 10, 1991 DATE: June 10, 1991
----------------------- ----------------------
GEF-Fees.TA
<PAGE>
EXHIBIT 99B.10
[LETTERHEAD OF PIPER & MARBURY APPEARS HERE]
April 22, 1991
Nicholas--Applegate Growth Equity Fund, Inc.
One Seaport Plaza
New York, New York 10290
Dear Sirs:
We have acted as Maryland counsel for Nicholas--Applegate Growth
Equity Fund, Inc. (the "Company") in connection with the Company's Registration
Statement on Form N-IA (the "Registration Statement") relating to the
registration of shares off stockholders of the Company upon its conversion to an
open-end investment company under the Investment Company Act of 1940 (File No.
811-5019) and the registration of the offering and sale of an indefinite number
of shares of capital stock (par value $.01 per share) of the Company under the
Securities Act of 1933 (File No 33-38461).
In that capacity we have examined such statutes, regulations and
corporate records and documents that we deemed necessary or advisable for
purposes of the following opinion. Based upon the foregoing, having due regard
for such legal considerations as we deem relevant, and limited in all respects
to applicable Maryland law, we are of the opinion and advise you that:
1. The 11,869,000 shares of common stock of the Company
outstanding as of this date are legally issued, fully paid and nonassessable.
2. The 99,881,310 remaining unissued shares authorized for
issuance by the Company's charter, have been duly and validly authorized for
issuance by the Board of Directors and, upon acceptance for record by the
Maryland State Department of Assessments and Taxation of amendments to the
charter of the Company converting the Company to an open-end investment company
and reclassifying 50,000,000 million shares
<PAGE>
Nicholas--Applegate Growth PIPER & MARBURY
Equity Fund, Inc.
April 22, 1991
of the Company's common stock into each of a Class A series and a Class B
series, and upon the issuance and sale of such shares as described in the
Registration Statement, will be legally issued, fully paid and nonassessable.
We hereby consent to the incorporation of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
/s/
<PAGE>
EXHIBIT 11
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights"and "Custodian, Transfer and Dividend Disbursing Agent and
Independent Auditors", to the use of our report dated February 10, 1998, in
Post-Effective Amendment No. 11 under the Securities Act of 1933 and Amendment
No. 13 under the Investment Company Act of 1940 to the Registration Statement
(Form N-1A, No. 33-38461) and related Prospectus and Statement of Additional
Information of Nicholas-Applegate Fund, Inc.
Los Angeles, California
March 4, 1998
<PAGE>
EXHIBIT 99B.15(a)
NICHOLAS APPLEGATE FUND, INC.
Distribution and Service Plan
(Class A Shares)
--------------
August 1, 1994
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 Nicholas Applegate Fund, Inc. (the Fund) and by
Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors of the Fund, including a majority of
those Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable
<PAGE>
likelihood that adoption of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
A shares of the Fund within the meaning of paragraph (a) (2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
distribution networks of Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities corporation (Prusec), including sales personnel
and 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
<PAGE>
2. Payment of Service Fee
----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class A
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2 hereof),
of .30 of 1% per annum of the average daily net assets of the Class A shares of
the Fund for the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
3
<PAGE>
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) 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 shares of the Fund.
4
<PAGE>
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as the
Board shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and financial institutions
which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of
5
<PAGE>
the Rule 12b-1 Directors by votes cast in person at a meeting called for the
purpose of voting on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-l Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class A shares of the Fund.
7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors of the Fund and a majority of the Rule 12b-1 Directors by votes cast
in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors
--------------------
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors shall be committed to the discretion of the Rule 12b-1 Directors.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for
6
<PAGE>
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.
7
<PAGE>
EXHIBIT 99.15(b)
NICHOLAS APPLEGATE FUND, INC.
Distribution and Service Plan
(Class B Shares)
--------------
August 1, 1994
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 Nicholas Applegate Fund, Inc. (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will continue to employ the Distributor to distribute Class B shares issued
by the Fund (Class B shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class B shares.
A majority of the Board of Directors of the Fund including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Directors or Trust),
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.
<PAGE>
Expenditures under this Plan by the Fund for Distribution Activities (defined
below) are primarily intended to result in the sale of Class B shares of the
Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the
Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class B shares of the Fund are referred to
herein a "Distribution Activities."
2. Payment of Service Fee
2
<PAGE>
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class B
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of 1% per annum of the average daily net assets of the Class B
shares of the Fund for the performance of Distribution Activities. The Fund
shall calculate and accrue daily amounts payable by the Class B shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Director may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class B shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of Shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among classes will be subject
to the review of the Board of Directors.
3
<PAGE>
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and branch
expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class B shares
of the Fund, including sales commissions and trailer commissions paid to, or on
account of, agents and indirect and overhead costs associated with Distribution
Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses, statements
of additional information and periodic financial reports and sales literature to
persons other than current shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other than Prusec)
which have entered into selected dealer agreements with the Distributor with
respect to shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as
they shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be
4
<PAGE>
undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purposes of voting
on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class B shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service and
5
<PAGE>
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class B shares of the Fund.
All material amendments of the Plan shall be approved by a majority of the Board
of Directors of the Fund and a majority of the Rule 12b-l Directors by votes
cast in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-l Directors
--------------------
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors shall be committed to the discretion of the Rule 12b-1 Directors.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
6
<PAGE>
EXHIBIT 99.B15(c)
NICHOLAS APPLEGATE FUND, INC.
Distribution and Service Plan
(Class C Shares)
--------------
August 1, 1994
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 Nicholas Applegate Fund, Inc. (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will continue to employ the Distributor to distribute Class C shares issued
by the Fund (Class C shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class C shares.
A majority of the Board of Directors of the Fund including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Directors), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders. Expenditures
<PAGE>
under this Plan by the Fund for Distribution Activities (defined below) are
primarily intended to result in the sale of Class C shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class C shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class C shares of the Fund are referred to herein as
"Distribution Activities."
2. Payment of Service Fee
2
<PAGE>
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of 1% per annum of the average daily net assets of the Class C
shares of the Fund for the performance of Distribution Activities. The Fund
shall calculate and accrue daily amounts payable by the Class C shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class C shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among classes will be subject
to the review of the Board of Directors.
3
<PAGE>
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives or the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
C shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as
they shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be
4
<PAGE>
undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class C shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class C shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service and
5
<PAGE>
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class C shares of the Fund.
All material amendments of the Plan shall be approved by a majority of the Board
of Directors of the Fund and a majority of the Rule 12b-1 Directors by votes
cast in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors shall be committed to the discretion of the Rule 12b-1 Directors.
9. Records
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
6
<PAGE>
EXHIBIT 16
NICHOLAS-APPLEGATE FUND
CLASS "A"
EXHIBIT
AGGREGATE TOTAL RETURN
CALCULATION
ERV - P
T = -------
P
P = hypothetical initial payment of $1,000
ERV = ending redeemable value
T = Aggregate total return
================================================================================
<TABLE>
<CAPTION>
1 Year 5 Years Inception
ended ended through
December 31, December 31, December 31
1992 1992 1992
------------ ------------ ------------
<S> <C> <C> <C>
P = $ 1,000.00 $ 1,000.00 $ 1,000.00
ERV = $ 1,089.60 $ 2,407.90 $ 1,934.70
T = 8.96% 140.79% 93.47%
</TABLE>
<PAGE>
NICHOLAS-APPLEGATE FUND
CLASS "B"
EXHIBIT
AGGREGATE TOTAL RETURN
CALCULATION
ERV - P
T = -------
P
P = hypothetical initial payment of $1,000
ERV = ending redeemable value
T = Aggregate total return
================================================================================
<TABLE>
<CAPTION>
1 Year Inception
ended through
December 31, December 31
1992 1992
------------ ------------
<S> <C> <C>
P = $ 1,000.00 $ 1,000.00
ERV = $ 1,078.10 $ 1,371.60
T = 7.81% 37.16%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> NICHOLAS APPLEGATE FUND, INC. (CLASS A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 363,681,102
<INVESTMENTS-AT-VALUE> 438,102,315
<RECEIVABLES> 1,505,340
<ASSETS-OTHER> 33,755
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 11,420,023
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,674,053
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 327,397,653
<SHARES-COMMON-STOCK> 31,247,838
<SHARES-COMMON-PRIOR> 31,834,723
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 23,728,468
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 74,421,213
<NET-ASSETS> (63,082,561)
<DIVIDEND-INCOME> 1,300,064
<INTEREST-INCOME> 1,148,848
<OTHER-INCOME> 0
<EXPENSES-NET> 8,643,342
<NET-INVESTMENT-INCOME> (6,194,430)
<REALIZED-GAINS-CURRENT> 94,942,716
<APPREC-INCREASE-CURRENT> (18,521,412)
<NET-CHANGE-FROM-OPS> 70,226,874
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (92,420,384)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 543,622,835
<NUMBER-OF-SHARES-REDEEMED> (650,219,421)
<SHARES-REINVESTED> 84,714,423
<NET-CHANGE-IN-ASSETS> (44,075,673)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 21,206,136
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,250,016
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,643,342
<AVERAGE-NET-ASSETS> 139,933,000
<PER-SHARE-NAV-BEGIN> 15.41
<PER-SHARE-NII> 2.48
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (3.42)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.47
<EXPENSE-RATIO> 1.37
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> NICHOLAS APPLEGATE FUND, INC. (CLASS B)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 363,681,102
<INVESTMENTS-AT-VALUE> 438,102,315
<RECEIVABLES> 1,505,340
<ASSETS-OTHER> 33,755
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 11,420,023
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,674,053
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 327,397,653
<SHARES-COMMON-STOCK> 31,247,838
<SHARES-COMMON-PRIOR> 31,834,723
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 23,728,468
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 74,421,213
<NET-ASSETS> (63,082,561)
<DIVIDEND-INCOME> 1,300,064
<INTEREST-INCOME> 1,148,848
<OTHER-INCOME> 0
<EXPENSES-NET> 8,643,342
<NET-INVESTMENT-INCOME> (6,194,430)
<REALIZED-GAINS-CURRENT> 94,942,716
<APPREC-INCREASE-CURRENT> (18,521,412)
<NET-CHANGE-FROM-OPS> 70,226,874
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (92,420,384)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 543,622,835
<NUMBER-OF-SHARES-REDEEMED> (650,219,421)
<SHARES-REINVESTED> 84,714,423
<NET-CHANGE-IN-ASSETS> (44,075,673)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 21,206,136
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,250,016
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,643,342
<AVERAGE-NET-ASSETS> 300,520,000
<PER-SHARE-NAV-BEGIN> 14.48
<PER-SHARE-NII> 2.20
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (3.42)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.26
<EXPENSE-RATIO> 2.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> NICHOLAS APPLEGATE FUND, INC. (CLASS C)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 363,681,102
<INVESTMENTS-AT-VALUE> 438,102,315
<RECEIVABLES> 1,505,340
<ASSETS-OTHER> 33,755
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 11,420,023
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,674,053
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 327,397,653
<SHARES-COMMON-STOCK> 31,247,838
<SHARES-COMMON-PRIOR> 31,834,723
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 23,728,468
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 74,421,213
<NET-ASSETS> (63,082,561)
<DIVIDEND-INCOME> 1,300,064
<INTEREST-INCOME> 1,148,848
<OTHER-INCOME> 0
<EXPENSES-NET> 8,643,342
<NET-INVESTMENT-INCOME> (6,194,430)
<REALIZED-GAINS-CURRENT> 94,942,716
<APPREC-INCREASE-CURRENT> (18,521,412)
<NET-CHANGE-FROM-OPS> 70,226,874
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (92,420,384)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 543,622,835
<NUMBER-OF-SHARES-REDEEMED> (650,219,421)
<SHARES-REINVESTED> 84,714,423
<NET-CHANGE-IN-ASSETS> (44,075,673)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 21,206,136
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,250,016
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,643,342
<AVERAGE-NET-ASSETS> 6,796,000
<PER-SHARE-NAV-BEGIN> 14.48
<PER-SHARE-NII> 2.20
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (3.42)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.26
<EXPENSE-RATIO> 2.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> NICHOLAS APPLEGATE FUND, INC. (CLASS Z)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 363,681,102
<INVESTMENTS-AT-VALUE> 438,102,315
<RECEIVABLES> 1,505,340
<ASSETS-OTHER> 33,755
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 11,420,023
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,674,053
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 327,397,653
<SHARES-COMMON-STOCK> 31,247,838
<SHARES-COMMON-PRIOR> 31,834,723
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 23,728,468
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 74,421,213
<NET-ASSETS> (63,082,561)
<DIVIDEND-INCOME> 1,300,064
<INTEREST-INCOME> 1,148,848
<OTHER-INCOME> 0
<EXPENSES-NET> 8,643,342
<NET-INVESTMENT-INCOME> (6,194,430)
<REALIZED-GAINS-CURRENT> 94,942,716
<APPREC-INCREASE-CURRENT> (18,521,412)
<NET-CHANGE-FROM-OPS> 70,226,874
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (92,420,384)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 543,622,835
<NUMBER-OF-SHARES-REDEEMED> (650,219,421)
<SHARES-REINVESTED> 84,714,423
<NET-CHANGE-IN-ASSETS> (44,075,673)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 21,206,136
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,250,016
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,643,342
<AVERAGE-NET-ASSETS> 121,000
<PER-SHARE-NAV-BEGIN> 14.48
<PER-SHARE-NII> 2.96
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (2.91)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.53
<EXPENSE-RATIO> 1.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
