<PAGE>
As filed with the Securities and Exchange Commission on January 12, 1999
Registration No. 33-38461
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [_]
[X]
Post-Effective Amendment No. 12
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
[X]
Amendment No. 14
(Check appropriate box or boxes)
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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
Deborah A. Docs, 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):
[_] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[X] 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.
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<PAGE>
FUND TYPE:
_________________________________
Stock
INVESTMENT OBJECTIVE:
_________________________________
Capital Appreciation
NICHOLAS-APPLEGATE
GROWTH EQUITY FUND, INC.
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PROSPECTUS: MARCH , 1999
As with all mutual funds, filing this pro-
spectus with the Securities and Exchange
Commission does not mean that the SEC has
judged this Fund a good investment, nor
has the SEC determined that this pro-
spectus is complete or accurate. It is a
criminal offense to state otherwise.
[LOGO OF PRUDENTIAL INVESTMENTS APPEARS HERE]
<PAGE>
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TABLE OF CONTENTS
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<TABLE>
<C> <S>
1 Risk/Return Summary
1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Shareholder Fees and Expenses
5 How the Fund Invests
5 Investment Objective and Policies
5 Other Investments
6 Additional Strategies
7 Investment Risks
9 How the Fund is Managed
9 Manager
9 Investment Adviser
9 Portfolio Manager
10 Distributor
10 Year 2000 Readiness Disclosure
11 Fund Distributions and Tax Issues
11 Distributions
12 Tax Issues
13 If You Sell or Exchange Your Shares
14 How to Buy, Sell and Exchange Shares of the Fund
14 How to Buy Shares
22 How to Sell Your Shares
26 How to Exchange Your Shares
28 Financial Highlights
28 Class A Shares
31 Class B Shares
33 Class C Shares
34 Class Z Shares
35 The Prudential Mutual Fund Family
For More Information (Back Cover)
</TABLE>
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NICHOLAS APPLEGATE GROWTH EQUITY FUND (800) 225-1852
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RISK/RETURN SUMMARY
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This section highlights key information about the NICHOLAS-APPLEGATE GROWTH
EQUITY FUND, which we refer to as "the Fund." Additional information follows
this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is CAPITAL APPRECIATION. This means we seek
investments that will increase in value. We normally invest primarily in the
common stock of U.S. companies.
To achieve our objective, we look for securities that will provide investment
returns above those of the Standard & Poor's 500 Stock Index (the S&P 500). We
intend to invest primarily in stocks from a universe of U.S. companies with
market capitalizations corresponding to the middle 90% of the Russell Midcap
Growth Index at time of purchase. [As of December 30, 1998, the middle 90%
included companies with market capitalizations between approximately $1.6
billion and $10.7 billion.] Market capitalization of a Company is the total
market price of its publicly traded equity securities, and the market
capitalization of companies in the index will change over time. While we make
every effort to achieve our objective, we can't guarantee success.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests primarily in stocks, there is the risk that the price of any stock we
own could go down, or pay lower-than-expected dividends. Generally, the stock
prices of medium-sized and small companies are less stable than large
companies, although this is not always the case. The Fund's net asset value may
be subject to above average fluctuations.
In addition to an individual stock losing value, there is the risk that the
value of the equity markets as a whole could go down, which could affect the
value of all of the Fund's stock investments. Some of our investment strategies
also involve risk. Like any mutual fund, an investment in the Fund could lose
value, and you could lose money. For more detailed information about the risks
associated with the Fund, see "Investment Risks."
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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WE'RE GROWTH EQUITY
INVESTORS
In deciding which stocks to buy, we use what is known as a growth equity
investment style. That is, we invest in stocks of companies that we expect 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.
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1
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RISK/RETURN SUMMARY
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EVALUATING PERFORMANCE
A number of factors--including risk--affect how the Fund performs. The fol-
lowing bar chart and table show the Fund's performance for each full calendar
year of operation for the last 10 years. They demonstrate the risk of investing
in the Fund and how returns can change. Past performance does not mean that the
Fund will achieve similar results in the future.
ANNUAL RETURNS (CLASS B SHARES/1/)
[BAR GRAPH]
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
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1 These annual returns do not include sales charges. If the sales charges were
included, the annual returns would be lower than those shown.
AVERAGE ANNUAL RETURNS (AS OF 12-31-98/1/)
1 YR 5 YRS 10 YRS SINCE INCEPTION
Class A shares - -% - -% n/a - -% (since 4-9-87)
Class B shares - -% - -% - -% - -% (since 6-10-91)
Class C shares - -% n/a n/a - -% (since 8-1-94)
Class Z shares - -% n/a n/a - -% (since 3-18-97)
S&P 500/2/ - -% - -% - -% n/a
Lipper Average/3/ - -% - -% - -% n/a
1 The Fund's returns are after deduction of sales charges and expenses.
2 The Standard & Poor's 500 Stock Index--an unmanaged index of 500 stocks of
large U.S. companies--gives a broad look at how stock prices have performed.
These returns do not include the effect of any sales charges, and would be
lower if they did. S&P 500 returns since the inception at each class are %
for Class A, % for Class B, % for Class C and % for Class Z shares.
Source: Lipper, Inc.
3 The Lipper Mid-Cap Funds Average gives the average return of all mutual funds
in the Lipper Mid-Cap Fund category. These returns do not include the effect
of any sales charges, and would be lower if they did. Lipper returns since
the inception of each class are % for Class A, % for Class B, % for Class
C and % for Class Z shares. Source: Lipper, Inc.
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NICHOLAS-APPLEGATE GROWTH EQUITY FUND (800) 225-1852
2
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RISK/RETURN SUMMARY
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SHAREHOLDER FEES AND EXPENSES
This table shows the sales charges, fees and expenses for each share class of
the Fund--Class A, B, C and Z. Each share class has different sales charges--
known as loads--and expenses, but represents an investment in the same fund.
Class Z shares are available only to a limited group of investors. For more
information about which share class may be right for you, see "How to Buy, Sell
and Exchange Shares of the Fund."
SHAREHOLDER FEES/1/ (PAID DIRECTLY FROM YOUR INVESTMENT)
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<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Maximum sales charge (load) on purchases (as 5% None 1% None
a percentage of offering price)/1/
Maximum deferred sales charge (load) on None 5%/2/ 1%/3/ None
sales (as a percentage of the lower of
original purchase price or sale proceeds)
Maximum sales charge (load) on reinvested None None None None
dividends and other distributions
Redemption fees None None None None
Exchange fee None None None None
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
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<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Management fees .95% .95% .95% .95%
+ Distribution (12b-1) and service fees .30%/4/ 1.00% 1.00% None
+ Other expenses - - - - - - - -
= TOTAL ANNUAL FUND OPERATING EXPENSES - - - - - - - -
</TABLE>
1 Your broker may charge you a separate or additional fee for purchases and
sales of shares.
2 The Contingent Deferred Sales Charge (CDSC) for Class B shares decreases by
1% annually to 1% in the fifth and sixth years and 0% in the seventh year.
Class B shares convert to Class A shares approximately seven years after
purchase.
3 The CDSC for Class C shares is 1% for shares redeemed within 18 months of
purchase.
4 The Distributor of the Fund has voluntarily reduced its distribution and
service fees for Class A shares to .25 of 1% of the average daily net assets
of the Class A shares. It may terminate this voluntary reduction at any time
without notice. With this reduction, Total annual Fund operating expenses for
class A shares are . %.
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3
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RISK/RETURN SUMMARY
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EXAMPLE
This example will help you compare the fees and expenses of the Fund's dif-
ferent share classes and compare the cost of investing in the Fund with the
cost of investing in other mutual Funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
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<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $- - $- - $- - $- -
Class B shares/1/ $- - $- - $- - $- -
Class C shares $- - $- - $- - $- -
Class Z shares $- - $- - $- - $- -
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
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<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $- - $- - $- - $- -
Class B shares/1/ $- - $- - $- - $- -
Class C shares $- - $- - $- - $- -
Class Z shares $- - $- - $- - $- -
</TABLE>
1 Class B shares will automatically convert to Class A shares approximately
seven years after purchase.
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NICHOLAS-APPLEGATE GROWTH EQUITY FUND (800) 225-1852
4
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HOW THE FUND INVESTS
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is CAPITAL APPRECIATION. This means we seek
investments that will increase in value. While we make every effort to achieve
our objective, we can't guarantee success.
In pursuing our objective, we normally invest at least 90% of the Fund's
total assets in a diversified portfolio of equity securities--primarily in the
COMMON STOCK of companies that we believe will provide investment returns above
those of the S&P 500. This means that we focus on securities whose increase in
price plus dividends, as a percentage of the current stock price, are higher
than the average for the stocks that make up the S&P 500.
We buy common stock of companies with market capitalizations (total market
price of publicly traded equity securities) corresponding to the middle 90% of
the Russell Midcap Growth Index at time of purchase. As of December 30, 1998,
the middle 90% included companies with capitalization between approximately
$1.6 billion and $10.7 billion. Capitalizations of companies in the Index will
change with market conditions and company prospects.
For more information, see "Investment Risks" and the Statement of Additional
Information, "Description of the Fund, Its Investments and Risks." The State-
ment of Additional Information--which we refer to as the SAI--contains addi-
tional information about the Fund. To obtain a copy, see the back cover page of
this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Fund can change invest-
ment policies that are not fundamental.
OTHER INVESTMENTS
We may also make the following investments to increase the Fund's returns or
protect its assets if market conditions warrant.
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WE USE A GROWTH-EQUITY MANAGEMENT APPROACH
Our growth equity investment strategy uses a bottom-up (company-by-company)
stock selection process. Our portfolio management team uses three strict
criteria in selecting stocks: evidence of positive fundamental change,
sustainable earnings growth and timeliness of investment. Our sell discipline
is non-emotional. When a stock fails to meet these three criteria, it is
replaced with a more appropriate candidate. Using these guidelines, we focus on
companies with the potential to generate the earnings growth necessary to
provide long-term capital appreciation.
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5
<PAGE>
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HOW THE FUND INVESTS
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MONEY MARKET INSTRUMENTS
Under normal circumstances, the Fund may invest up to 10% of its total assets
in MONEY MARKET INSTRUMENTS. Money-market instruments include the commercial
paper of U.S. corporations, short-term obligations of U.S. banks, certificates
of deposit and short-term obligations issued or guaranteed by the U.S. govern-
ment or its agencies.
If we believe it is necessary, we may temporarily invest up to 100% of the
Fund's assets in money market instruments. Investing heavily in these securi-
ties limits our ability to achieve capital appreciation, but may help to pre-
serve the Fund's assets when the equity markets are unstable. The Fund will
only purchase money market instruments in one of the two highest short-term
quality ratings of a nationally recognized statistical rating organization.
REPURCHASE AGREEMENTS
The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund.
ADDITIONAL STRATEGIES
The Fund is also authorized to hold foreign securities and illiquid securities,
purchase put and call options, borrow money, lend its securities, and use cer-
tain other strategies. The Fund is subject to certain investment restrictions
that are fundamental policies, which means they cannot be changed without
shareholder approval. For more information about these strategies and restric-
tions, see the SAI.
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NICHOLAS-APPLEGATE GROWTH EQUITY FUND (800) 225-1852
6
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HOW THE FUND INVESTS
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INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no excep-
tion. This chart outlines the key risks and potential rewards of the Fund's
principal investments. See, too, "Description of the Fund, Its Investments and
Risks" in the SAI.
INVESTMENT TYPE
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS
COMMON STOCK OF . Individual stocks . Historically,
U.S. COMPANIES could lose value stocks have
outperformed
other investments
over the long
term
. The equity markets
At least 65%, but could go down . Generally, eco-
normally 90% resulting in a nomic growth
decline in value of means higher cor-
the Fund's invest- porate profits,
ments which leads to an
increase in stock
. Companies that pay prices, known as
dividends may not capital apprecia-
do so if they don't tion
have profits or . May be one source
adequate cash flow of dividend
income
. Changes in economic
or political condi-
tions, both
domestic and
international
resulting in a
decline in value of
the Fund's invest-
ments
. The Fund's net
asset value may be
subject to above-
average fluctua-
tions because
greater than
average risk will
be assumed in
investing in compa-
nies to achieve
higher than average
capital growth
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PORTFOLIO . The Fund's invest- . May result in
TURNOVER ment policies may increased short-
result in high term capital
Percentage varies portfolio turnover gains
rates, increased
brokerage commis-
sions and other
transaction costs
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7
<PAGE>
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HOW THE FUND INVESTS
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INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS
MONEY MARKET . Limits potential . May preserve the
INSTRUMENTS for capital appre- Fund's assets
ciation
Up to 100% on a . Credit Risk -- the
temporary basis risk that the bor-
rower can't pay
back the money bor-
rowed or make
interest payments
. Market Risk -- the
risk that bonds or
other debt instru-
ments may lose
value in the market
because interest
rates change or
there is lack of
confidence in the
borrower
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NICHOLAS-APPLEGATE GROWTH EQUITY FUND (800) 225-1852
8
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HOW THE FUND IS MANAGED
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MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077
Under a management agreement with the Fund, PIFM supervises the Fund's
investment operations and administers its business affairs. For the fiscal year
ended December 31, 1998, the Fund paid PIFM management fees of .95% of the
Fund's average net assets.
As of December 31, 1998, PIFM served as the Manager to all [46] of the Pru-
dential Mutual Funds, and as Manager or administrator to closed-end investment
companies, with aggregate assets of approximately $[22] billion.
INVESTMENT ADVISER
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT (NACM)
600 WEST BROADWAY
SAN DIEGO, CA 92101-3311
Under a sub-advisory agreement with the Fund, NACM manages the investment
operations of the Fund. It is compensated by PIFM, not the Fund. For the fiscal
year ended December 31, 1998, PIFM paid NACM sub-advisory fees of .75% of the
Fund's average net assets.
As of December 31, 1998, NACM served as investment adviser to a variety of
institutional and individual clients, with aggregate assets of approximately
$31 billion.
PORTFOLIO MANAGERS
The Fund is managed under the general supervision of Arthur E. Nicholas (who
has been the Chief Investment Officer of NACM since its organization) and Cath-
erine Somhegyi, NACM's Chief Investment Officer--Global Equity, who has been
employed by NACM since 1987. NACM uses a team management approach for the day-
to-day management of the Fund's portfolio. The members of the team are Andrew
B. Gallagher, William H. Chenoweth, Emmy Sobieski and Thomas J. Sullivan. Mr.
Gallagher has been employed by NACM since 1992. Mr. Chenoweth has been employed
by NACM since 1998; he was previously employed by Turner Investment Partners,
Inc. Ms. Sobieski has been employed by NACM since 1998; she was previously
employed by Farmers Insurance Investment Division. Mr. Sullivan has been
employed by NACM since 1994; he was previously employed by Donaldson, Lufkin &
Jenrette Securities Corporation.
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9
<PAGE>
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HOW THE FUND IS MANAGED
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DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. As authorized by the
Agreement, you may pay sales charges to PIMS as shown in "How to Buy, sell and
exchange shares of the Fund." The Fund also has Distribution and Service Plans
under Rule 12b-1 of the Investment Company Act. Under the Plans and the Distri-
bution Agreement, PIMS pays the expenses of distributing the Fund's Class A, B,
C and Z shares and provides certain shareholder support services. The Fund pays
distribution and other fees to PIMS as compensation for its services for each
class of shares other than Class Z. These fees--known as 12b-1 fees--are shown
in the "Fees and Expenses" table.
YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the Dis-
tributor, the Transfer Agent and the Custodian depend on the smooth functioning
of their computer systems and those of 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 divi-
dends, pricing and account services. 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. The Fund and its Directors receive and have received since early 1998
satisfactory quarterly reports from the principal service providers as to their
preparations for year 2000 readiness, although there can be no assurance that
the service providers (or other securities market participants) will success-
fully complete the necessary changes in a timely manner or that there will be
no adverse impact on the Fund. Moreover, the Fund at this time has not consid-
ered retaining alternative service providers or directly undertaken efforts to
achieve year 2000 readiness, the latter of which would involve substantial
expenses without an assurance of success.
Additionally, issuers of securities generally as well as those purchased by
the Fund may confront Year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and result in a decline in the value of the securities
held by the Fund.
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NICHOLAS-APPLEGATE GROWTH EQUITY FUND (800) 225-1852
10
<PAGE>
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FUND DISTRIBUTIONS AND TAX ISSUES
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Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund pays DIVIDENDS of ordinary income and distributes
LONG-TERM CAPITAL GAINS, if any, to shareholders. These distributions are sub-
ject to federal income taxes, unless you hold your shares in a 401(k) plan, an
Individual Retirement Account (IRA) or some other qualified tax-deferred plan
or account. Dividends and distributions from the Fund may also be subject to
state income tax in the state where you live.
Also, if you sell shares of the Fund for a profit, you may have to pay cap-
ital gains taxes on the amount of your profit, unless you hold your shares in a
qualified tax-deferred plan or account.
The following briefly discusses some of the important federal income tax
issues you should be aware of, but is not meant to be tax advice. For tax
advice, please speak with your tax adviser.
DISTRIBUTIONS
The Fund pays DIVIDENDS out of any net investment income plus short-term cap-
ital gains to shareholders, typically once a year. For example, if the Fund
owns an ACME Corp. stock and the stock pays a dividend, the Fund will pay out a
portion of this dividend to its shareholders, assuming the Fund's income is
more than its costs and expenses. The dividends you receive from the Fund will
be taxed as ordinary income, whether or not they are reinvested in the Fund.
The Fund also distributes long-term CAPITAL GAINS to shareholders (typically
once a year). Long-term capital gains are generated when the Fund sells assets
which it held for more than 12 months for a profit.
For your convenience, dividends and distributions of capital gains are AUTO-
MATICALLY REINVESTED in the Fund without any sales charge. If you ask us to pay
the distributions in cash, we will send you a check if your account is with the
Transfer Agent. Otherwise, if your account is with a broker you will receive a
credit to your account. Either way, the distributions may be subject to taxes,
unless your shares are held in a qualified tax-deferred plan or account. For
more information about automatic reinvestment and other shareholder services,
see "Step 4: Additional Shareholder Services" under "How to Buy, Sell and
Exchange Shares of the Fund."
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11
<PAGE>
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FUND DISTRIBUTIONS AND TAX ISSUES
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TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own
shares of the Fund as part of a qualified tax-deferred plan or account, your
taxes are deferred, so you will not receive a Form 1099. However, you will
receive a Form 1099 when you receive any distributions from your qualified tax-
deferred plan or account.
Fund distributions are generally taxable to you in the year they are
received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the divi-
dends are treated as if they were paid on December 31 of the prior year. Corpo-
rate shareholders are eligible for the 70% dividends-received deduction for
certain dividends.
WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your tax identifica-
tion number and certifications as to your tax status, and you fail to do this,
we will withhold and pay to the U.S. Treasury 31% of your distributions and
sale proceeds. If you are subject to backup withholding, we will withhold and
pay to the U.S. Treasury 31% of your distributions. Dividends of net investment
income and short-term capital gains paid to a nonresident foreign shareholder
generally will be subject to a U.S. withholding tax of 30%. This rate may be
lower, depending on any tax treaty the U.S. may have with the shareholder's
country.
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date for a distribution
(the date that determines who receives the distribution), we will pay that dis-
tribution to you. As explained above, the distribution may be subject to income
or capital gains taxes. You may think you've done well, since you bought shares
one day, and soon thereafter received a distribution. That is not so because,
when dividends are paid out, the value of each share of the Fund decreases by
the amount of the dividend to reflect the payout. The distribution you receive
makes up for the decrease in share value. However, the timing of your purchase
means that part of your investment came back to you as taxable income.
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NICHOLAS-APPLEGATE GROWTH EQUITY FUND (800) 225-1852
12
<PAGE>
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FUND DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------
QUALIFIED RETIREMENT PLANS
Qualified Retirement plans and accounts allow you to defer paying taxes on
investment income and capital gains. Contributions to these plans may also be
tax deductible, although distributions from these plans generally are taxable.
In the case of Roth IRA accounts, contributions are not tax deductible, but
distributions from the plan may be tax-free. Please contact your financial
adviser for information on a variety of retirement plans offered by Prudential.
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have realized a capital
gain, which is subject to tax unless you hold shares in a qualified tax-
deferred plan or account. For individuals, the maximum capital gains tax rate
is 20% for shares held more than twelve months. If you sell shares of the Fund
for a loss, you may have a capital loss, which you may use to offset certain
capital gains you have and a limited amount of ordinary income.
Exchanging your shares of the Fund for the shares of another Prudential
Mutual Fund is considered a sale for tax purposes. In other words, it's a "tax-
able event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the
taxes described above.
Any gain or loss you may have from selling or exchanging Fund shares will not
be reported on the Form 1099. Therefore, unless you hold your shares in a qual-
ified tax-deferred plan or account, you or your financial adviser should keep
track of the dates on which you buy and sell--or exchange--Fund shares, as well
as the amount of any gain or loss on each transaction. For tax advice, please
see your tax adviser.
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event". This opinion, however, is not binding on
the Internal Revenue Service (IRS). For more information about the automatic
conversion of Class B shares, see "Class B Shares Convert to Class A Shares
After Approximately Seven Years" in the next section.
- ----------------------------------------
CAPITAL GAIN
(taxes owed)
RECEIPTS FROM SALE OR
CAPITAL LOSS
(offset against gain)
- ----------------------------------------
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13
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EXCHANGE SHARES OF THE FUND
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HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services
LLC (PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Fund, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Fund) or suspend or modify the Fund's sale of
its shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share classes let you choose a cost structure that better meets your
needs. With Class A shares, you pay the sales charge at the time of purchase,
but the operating expenses each year are lower than the expenses of Class B and
Class C shares. With Class B shares, you only pay a sales charge if you sell
your shares within six years (that is why it is called a Contingent Deferred
Sales Charge, or CDSC), but the operating expenses each year are higher than
the Class A share expenses. With Class C shares, you pay a 1% front-end sales
charge and a 1% CDSC if you sell within 18 months of purchase, but the oper-
ating expenses are also higher than the expenses for Class A shares.
WHEN CHOOSING A SHARE CLASS, YOU SHOULD CONSIDER THE FOLLOWING:
. The amount of your investment
. The length of time you expect to hold the shares and the impact of the
varying distribution fees
. The different sales charges that apply to each share class--Class A's
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front-end sales charge vs. Class B's CDSC vs. Class C's low front-end
sales charge and low CDSC
. Whether you qualify for any reduction or waiver of sales charges
. The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
. Whether you qualify to purchase Class Z shares
See "How to Sell Your Shares" for a description of the impact of CDSCs.
Share Class Comparison. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you
are entitled to a reduction or waiver of any sales charges.
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<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Minimum purchase $1,000 $1,000 $2,500 None
amount/1/
Minimum amount for $100 $100 $100 None
subsequent purchases/1/
Maximum initial 5% of the public None 1% of the public None
sales charge offering price offering price
Contingent Deferred None If Sold During: 1% on sales None
Sales Charge Year 1 5% made within
(CDSC)/2/ Year 2 4% 18 months of
Year 3 3% purchase/2/
Year 4 2%
Years 5/6 1%
Year 7 0%
Annual distribution .30 of 1%; 1% 1% None
(12b-1) and service (.25 of 1%
fees (shown as a currently)
percentage of average
net assets)/3/
</TABLE>
1 The minimum investment requirements do not apply to certain retirement and
employee savings plans and custodial accounts for minors. The minimum initial
and subsequent investment for purchases made through the Automatic Investment
Plan is $50. For more information, see "Additional Shareholder Services-
Automatic Investment Plan."
2 For more information about the CDSC and how it is calculated, see "Contingent
Deferred Sales Charges (CDSC)." Class C shares bought before November 2, 1998
have a 1% CDSC if sold within one year.
3 These distribution fees are paid from the Fund's assets on a continuous
basis. Over time, the fees will increase the cost of your investment and may
cost you more than paying other types of sales charges. The service fee for
Class A, Class B and Class C shares is .25%. The distribution fee for Class A
shares is limited to .30% (including the .25% service fee) and is 1% for
Class B and Class C shares.
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15
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REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid paying
Class A's initial sales charge.
Increase the Amount of Your Investment. You can reduce Class A's sales charge
by increasing the amount of your investment. This table shows you how the sales
charge decreases as the amount of your investment increases.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED REALLOWANCE
<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 million and above/1/ None None None
</TABLE>
1 If you invest $1 million or more, you can buy only Class A shares, unless you
qualify to buy Class Z shares.
To satisfy the purchase amounts above, you can:
. invest with an eligible group of related investors;
. buy the Class A shares of two or more Prudential Mutual Funds at the
same time;
. use your RIGHTS OF ACCUMULATION, which allow you to combine the value of
Prudential Mutual Fund shares you already own with the value of the
shares you are purchasing to determine the applicable sales charge
(note: you must notify the transfer Agent if you qualify for Rights of
Accumulation); or
. sign a LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will purchase a certain amount of shares in
the Fund and other Prudential Mutual Funds within 13 months.
Benefit Plans. Benefit Plans can avoid Class A's initial sales charges if the
Benefit Plan has existing assets of at least $1 million invested in shares of
Prudential Mutual Funds (excluding money market funds other than those acquired
under the exchange privilege) or 250 eligible employees or participants. For
these purposes, a Benefit Plan is a pension, profit-sharing or other
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employee benefit plan qualified under Section 401 of the Internal Revenue Code,
a deferred compensation or annuity plan under Sections 403(b) and 457 of the
Internal Revenue Code, a "rabbi" trust or a non-qualified deferred compensation
plan sponsored by an employer that has a tax qualified benefit plan with Pru-
dential participants who are repaying loans from Benefit Plans where Prudential
(or its affiliates) provides administrative or recordkeeping services, sponsors
the product or provides account services.
Certain Prudential retirement programs--such as PruArray Association Benefit
Plans and PruArray Savings Programs--may also be exempt from Class A's sales
charge. For more information, see the SAI or contact your financial adviser. In
addition, waivers are available to investors in certain programs sponsored by
brokers, investment advisers and financial planners who have agreements with
Prudential Investments Advisory Group relating to:
. Mutual fund "wrap" or asset allocation programs where the sponsor places
Fund trades and charges its clients a management, consulting or other
fee for its services; and
. Mutual fund "supermarket" programs where the sponsor links its custom-
ers' accounts to a master account in the sponsor's name and the sponsor
charges a fee for its services.
Other Types of Investors. Certain other investors pay no sales charges,
including certain officers, employees or agents of Prudential and its affili-
ates, Prudential Mutual Funds, the subadvisers of the Prudential Mutual Funds
and clients of brokers that have entered into a selected dealer agreement with
the Distributor. To qualify for a reduction or waiver of the sales charge, you
must notify the Transfer Agent or your broker at the time of purchase. For more
information about reducing or eliminating Class A's sales charge, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Reduction and Waiver of Ini-
tial Sales Charges--Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
Benefit Plans. Benefit Plans (as defined above) may purchase Class C shares
without paying an initial sales charge. Participants who are repaying loans
from Benefit Plans where Prudential (or its affiliates) provides administrative
or recordkeeping services, sponsors the product or provides account services
may also purchase Class C Shares without an initial sales charge.
- --------------------------------------------------------------------------------
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HOW TO BUY, SELL AND
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Prudential Retirement Plans. The initial sales charge will be waived for pur-
chases of Class C shares by both qualified and non-qualified retirement and
deferred compensation plans participating in the PruArray Plan and other plans
if Prudential also provides administrative or recordkeeping services.
Investment of Redemption Proceeds from Other Investment Companies. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential Secu-
rities Incorporated or one of its affiliates. Such purchases must be made
within 60 days of the redemption. To qualify for this waiver, you must:
. purchase your shares through an account at Prudential Securities
. purchase your shares through an ADVANTAGE Account or an Investor Account
with Pruco Securities Corporation
. purchase your shares through other brokers
This waiver is not available to investors who purchase shares directly from the
Transfer Agent. If you are entitled to the waiver, you must notify either the
Transfer Agent or your broker. The Transfer Agent may require any supporting
documents it considers to be appropriate.
QUALIFYING FOR CLASS Z SHARES
Class Z shares of the Fund can be purchased by any of the following:
. Any Benefit Plan as defined above, and certain nonqualified plans, pro-
vided the Benefit Plan--in combination with other plans sponsored by the
same employer or group of related employers--has at least $50 million in
defined contribution assets
. Participants in any fee-based program or trust program sponsored by Pru-
dential or an affiliate which includes mutual funds as investment
options and the Fund as an available option
. Certain participants in the MEDLEY Program (group variable annuity con-
tracts) sponsored by Prudential for whom Class Z shares of the Pruden-
tial Mutual Funds are an available option
. Benefit Plans for which an affiliate of the Distributor provides admin-
istrative or recordkeeping services and as of September 20, 1996, were
either Class Z shareholders of the Prudential Mutual Funds or
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executed a letter of intent to purchase Class Z shares of the Prudential
Mutual Funds
. The Prudential Securities Cash Balance Pension Plan, an employee-
defined benefit plan sponsored by Prudential Securities
. Current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund)
. Employees of Prudential and/or Prudential Securities who participate in
a Prudential-sponsored employee savings plan
. Prudential with an investment of $10 million or more
In connection with the sale of shares, the Manager, the Distributor or one of
their affiliates may pay brokers, financial advisers and other persons a com-
mission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class Z shares from
their own resources based on a percentage of the net asset value of shares sold
or otherwise.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested divi-
dends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Fund
expenses.
When we do the conversion, you will get fewer Class A shares than the number
of Class B shares converted if the price of the Class A shares is higher than
the price of Class B shares. The total dollar value will be the same, so you
will not have lost any money by getting fewer Class A shares. We do the conver-
sions quarterly, not on the anniversary date of your purchase. For more infor-
mation, see the SAI, "Purchase, Redemption and Pricing of Fund Shares--Conver-
sion Feature--Class B Shares."
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is deter-
mined by a simple calculation--it's the total value of the Fund (assets minus
liabilities) divided by the total number of shares outstanding. For exam-
- --------------------------------------------------------------------------------
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<PAGE>
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MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds ACME Corp. stock
in its portfolio and the price of ACME stock goes up, while the value of the
fund's other holdings remains the same and expenses don't change, the NAV of
Fund XYZ will increase.
- --------------------------------------------------------------------------------
ple, if the value of the investments held by Fund XYZ (minus its liabilities)
is $1,000 and there are 100 shares of Fund XYZ owned by shareholders, the price
of one share of the fund--or the NAV--is $10 ($1,000 divided by 100). We value
portfolio securities based upon market quotations or, if not readily available,
at fair value as determined in good faith under procedures established by the
Fund's Board. Most national newspapers report the NAVs of most mutual funds,
which allows investors to check the prices of mutual funds daily.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York Time on days that the New York Stock Exchange is open for trading. We do
not determine NAV on days when we have not received any orders to purchase,
sell or exchange Fund shares, or when changes in the value of the Fund's port-
folio do not materially affect the NAV.
WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class A and Class C shares, you'll pay the public offering price, which is
the NAV next determined after we receive your order to purchase, plus an ini-
tial sales charge (unless you're entitled to a waiver). For Class B and Class Z
shares, you will pay the NAV next determined after we receive your order to
purchase (remember, there are no up-front sales charges for these share clas-
ses). Your broker may charge you a separate or additional fee for purchases of
shares.
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
Automatic Reinvestment. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will automat-
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ically reinvest your distributions in the Fund at NAV, without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date
we determine who receives dividends:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
Automatic Investment Plan. You can make regular purchases of Fund shares for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.
Retirement Plan Services. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs, or SEP-IRAs for a one-person busi-
ness, please contact your financial adviser. If you are interested in opening a
401(k) or other company-sponsored retirement plan (SIMPLES, SEP plans, Keoghs,
403(b)(7) plans, pension and profit-sharing plans), your financial adviser will
help you determine which retirement plan best meets your needs. Complete
instructions about how to establish and maintain your plan and how to open
accounts for you and your employees will be included in the retirement plan kit
you receive in the mail.
The PruTector Program. Optional group term life insurance--which protects the
value of your Prudential Mutual Fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and
is not available in all states.
Systematic Withdrawal Plan. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks. Remember, the sale of Class B and
Class C shares may be subject to a CDSC.
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Reports to Shareholders. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer
Agent, the Distributor or your broker receives your order to sell (less any
applicable CDSC). If your broker holds your shares, he must receive your order
to sell by 4:15 p.m. New York Time to process the sale on that day. Otherwise,
contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, we will credit payment to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to 10
days from purchase date. You can avoid the delay if you purchase shares by
wire, certified check or cashier's check. Your broker may charge you a separate
or additional fee for sales of shares.
RESTRICTIONS ON SALES
At certain times you may not be able to sell shares of the Fund, or we may
delay paying you the proceeds from a sale. This may happen during unusual
market conditions or emergencies when the Fund can't determine the value of its
assets or sell its holdings. For more information, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Sale of Shares."
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If you are selling more than $50,000 of shares, you want the check sent to
someone or some place that is not in our records or you are a business or a
trust, and if you hold your shares directly with the Transfer Agent, you may
have to have the signature on your sell order guaranteed by a financial insti-
tution. For more information, see the SAI, "Purchase, Redemption and Pricing of
Fund Shares--Sale of Shares--Signature Guarantee."
CONTINGENT DEFERRED SALES CHARGES (CDSC)
If you sell Class B shares within six years of purchase or Class C shares
within 18 months of purchase (one year for Class C shares purchased before
November 2, 1998), you will have to pay a CDSC. To keep the CDSC as low as pos-
sible, we will sell amounts representing shares in the following order:
^ Amounts representing shares you purchased with reinvested dividends and
distributions
^ Amounts representing shares that represent the increase in NAV above the
total amount of your payments for shares made during the past six years
for Class B shares (five years for Class B shares purchased before
January 22, 1990) and 18 months for Class C shares
^ Amounts representing the cost of shares held beyond the CDSC period (six
years for Class B shares and 18 months for Class C shares)
Since shares that fall into any of the categories listed above are not sub-
ject to the CDSC, selling them first helps you to avoid--or at least minimize--
the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the
cost of shares held for the longest period of time within the applicable CDSC
period.
As we noted before in the "Share Class Comparison" chart, the CDSC for Class
B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in the
fourth and 1% in the fifth and sixth years. The rate decreases on the first day
of the month following the anniversary date of your purchase, not on the anni-
versary date itself. The CDSC is 1% for Class C shares--which is applied to
shares sold within 18 months of purchase (or one year for Class C shares pur-
chased before November 2, 1998). For both Class B
- --------------------------------------------------------------------------------
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and Class C shares, the CDSC is the lesser of the original purchase price or
the redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding
any time shares were held in a money market fund.
WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
. After a shareholder dies or is disabled (or, in the case of a trust
account, the death or disability of the grantor). This waiver applies to
individual shareholders, as well as shares owned in joint tenancy (with
rights of survivorship), provided the shares were purchased before the
death or disability
. To provide for certain distributions--made without IRS penalty--from a
tax-deferred retirement plan, IRA or Section 403(b) custodial account
. On certain sales from a Systematic Withdrawal Plan
For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred Sales
Charges--Class B Shares."
WAIVER OF THE CDSC--CLASS C SHARES
Prudential Retirement Plans. The CDSC will be waived for purchases of Class C
shares by both qualified and nonqualified retirement and deferred compensation
plans participating in the PruArray Plan and other plans if Prudential also
provides administrative or recordkeeping services. The CDSC will also be waived
on redemptions sponsored by Prudential and its affiliates to the extent that
the redemption proceeds are invested in the Guaranteed Investment Account, a
group annuity insurance product sponsored by Prudential, the Guaranteed Insu-
lated Separate Account, a separate account offered by Prudential, and shares of
the Stable Value Fund, an unaffiliated bank collective fund.
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Other Benefit Plans. The CDSC will be waived on redemptions from Benefit Plans
holding shares through a broker not affiliated with Prudential and for which
the broker provides administrative or recordkeeping services.
REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your
account. We would do this to minimize the Fund's expenses paid by other share-
holders. We will give you 60 days' notice, during which time you can purchase
additional shares to avoid this action. This involuntary sale does not apply to
shareholders who own their shares as part of a 401(k) plan, an IRA or some
other tax-deferred plan or account.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you may reinvest any of the redemption proceeds
in shares of the same Fund for 90 days without paying an initial sales charge.
Also, if you paid a CDSC when you redeemed your shares, we will credit your new
account with the appropriate number of shares to reflect the amount of the CDSC
you paid. To take advantage of this one-time privilege, you must notify the
Transfer Agent or your broker at the time of the repurchase. See the SAI, "Pur-
chase, Redemption and Pricing of Fund Shares--Sale of Shares."
RETIREMENT PLANS
To sell shares and receive a distribution from your retirement account, call
your broker or the Transfer Agent for a distribution request form. Special dis-
tribution and income tax withholding requirements apply to distributions from
retirement plans and you must submit a withholding form with your request to
avoid delay. If your retirement plan account is held by your employer or
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plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Fund for shares of the same class in cer-
tain other Prudential Mutual Funds--including certain money market funds--if
you satisfy the minimum investment requirements. For example, you can exchange
Class A shares of the Fund for Class A shares of another Prudential Mutual
Fund, but you can't exchange Class A shares for Class B, Class C or Class Z
shares. Class B and Class C shares may not be exchanged into money market funds
other than Prudential Special Money Market Fund, Inc. After an exchange, at
redemption, the CDSC will be calculated from the first day of the month after
your initial purchase, excluding any time shares were held in a money market
fund. We may change the terms of the exchange privilege after giving you 60
days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
If you exchange--and then sell--Class B shares within approximately six years
of your original purchase or Class C shares within 18 months of your original
purchase, you must still pay the applicable CDSC. If you have exchanged Class B
or Class C shares into a money market fund, the time you hold the shares in the
money market account will not be counted for purposes of calculating the
required holding periods for CDSC liability.
Remember, as we explained in the section entitled "Fund Distributions and Tax
Issues--If You Sell or Exchange Your Shares," exchanging shares is considered a
sale for tax purposes. Therefore, if the shares you exchange are worth more
than you paid for them, you may have to pay capital gains tax. For additional
information about exchanging shares, see the SAI, "Shareholder Investment
Account--Exchange Privilege."
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If you own Class B or Class C shares and qualify to purchase either Class A
shares without paying an initial sales charge or Class Z shares, we will auto-
matically exchange your Class B or Class C shares which are not subject to a
CDSC for Class A or Class Z shares, as appropriate. We make such exchanges on a
quarterly basis, if you qualify for this exchange privilege. We have obtained a
legal opinion that this exchange is not a "taxable event" for federal income
tax purposes. This opinion is not binding on the IRS.
FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Fund's investments. Also when market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any secu-
rities, so the Fund's performance may be hurt. When large dollar amounts are
involved, market timing can also make it difficult to use long-term investment
strategies because we cannot predict how much cash the Fund will have to
invest. When in our opinion such activity would have a disruptive effect on
portfolio management, the Fund reserves the right to refuse purchase orders and
exchanges into the Fund by any person, group or commonly controlled accounts.
The Fund may notify a market timer of rejection of an exchange or purchase
order after the day on which the order is placed. If the Fund allows a market
timer to trade Fund shares, it may require the market timer to enter into a
written agreement to follow certain procedures and limitations.
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights will help you evaluate the Fund's financial perfor-
mance. The TOTAL RETURN in each chart represents the rate that a shareholder
earned on an investment in that share class of the Fund, assuming reinvestment
of all dividends and other distributions. The information is for each share
class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants, which appear in the annual report and the SAI and are available
upon request. Additional performance information for each share class is con-
tained in the annual report, which you can receive at no charge.
CLASS A SHARES
The financial highlights for the four years ended December 31, 1998 were
audited by , and the financial highlights for the year ended December
31, 1994 were audited by other independent auditors, whose reports were unqual-
ified.
<TABLE>
<CAPTION>
CLASS A SHARES (FISCAL YEARS ENDED 12-31-98)
- -----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995(C) 1994(C)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $- - $15.41 $15.18 $11.99 $13.56
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income - - (.12) (0.14) (.011) (.07)
Net realized and unrealized
gain (loss) on investment
transactions - - 2.60 2.64 3.82 (1.19)
TOTAL FROM INVESTMENT
OPERATIONS - - 2.48 2.50 3.71 (1.26)
- -----------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income - - - - - - - - - -
Distributions from net realized
gains - - (3.42) (2.27) (0.52) (0.31)
TOTAL DISTRIBUTIONS - - (3.42) (2.27) (0.52) (0.31)
NET ASSET VALUE, END OF YEAR $- - $14.47 $15.41 $15.18 $11.99
TOTAL RETURN/1/ - -% 17.33% 16.45% 31.20% (9.53)%
- -----------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995(C) 1994(C)
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $- - $133,973 $145,120 $124,340 $86,069
Average net assets (000) $- - $139,933 $136,482 $109,740 $93,620
RATIOS TO AVERAGE NET ASSETS:
Expenses, including
distribution fees - -% 137% 1.41% 1.44% 1.49%(g)
Expenses, excluding
distribution fees - -% 119% 1.23% 1.27% 1.32%(g)
Net investment income - -% (.82)% (0.93)% (0.83)% (0.59)%
Portfolio turnover - -% 182% 113% 106% 110%
Asset coverage or borrowing - - - - - - - - - -
Total debt outstanding (000
omitted) - - - - - - - - - -
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[GRAPHIC]
NICHOLAS-APPLEGATE GROWTH EQUITY FUND (800) 225-1852
28
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares (fiscal years ended 12-31-98) (continued)
- --------------------------------------------------------------------------------
Per Share Operating Performance
1993(c) 1992(c) 1991(c) 1990(c) 1989(b)(c) 1988(b)(c)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 12.77 $11.73 $10.19 $11.42 $8.55 $7.40
Income from investment
operations:
Net investment income (0.07) (0.07) (0.10) 0.02 (0.25) (0.14)
Net realized and
unrealized gain (loss)
on investment
transactions 2.63 1.11 5.50 (0.66) 3.39 1.21
Total from investment
operations 2.56 1.04 5.40 (0.64) 3.14 1.07
- ------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- -- -- (0.02) -- --
Distributions from net
realized gains (1.77) -- (3.86) (0.06) (0.28) --
Total distributions (1.77) -- (3.86) (0.08) (0.28) --
Net asset value, end of
year $ 13.56 $12.77 $11.73 $10.19 $11.42 $8.55
Total return/1/ 20.26% 8.87% 55.50% (10.03)% 36.83% 15.54%
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data 1993(c) 1992(c) 1991(c) 1990(c) 1989(b)(c) 1988(b)(c)
<S> <C> <C> <C> <C> <C> <C>
Net assets, end of year
(000) $ 97,596 $84,169 $63,028 $120,987 $108,415 $81,559
Average net assets (000) $ 90,332 $74,005 $104,819 $116,094 $98,874 $79,103
Ratios to average net
assets:
Expenses, including
distribution fees 1.42%(f) 1.54%(f) 1.94%(e)(f) 1.63%(e)(f) 4.55%(e)(f) 4.60%(e)(f)
Expenses, excluding
distribution fees 1.30%(f) 1.44%(f) 1.90%(f) 1.63%(f) 4.55%(f) 4.60%(f)
Net investment income (0.53)% (0.63)% (0.83)% 0.24% (2.36)% (1.64)%
Portfolio turnover(d) 112% 107% 115% 149% 120% 183%
Asset coverage or
borrowing -- -- -- -- 371% 372%
Total debt outstanding
(000 omitted) -- -- -- -- $ 40,000 $ 30,000
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
29
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
1 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported.
(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
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) Ratios of expenses, before loan interest, commitment fees and nonrecurring
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.
(f) Current year amounts have been restated from prior periods presentation.
N/A--Not applicable.
- --------------------------------------------------------------------------------
[GRAPHIC]
Nicholas-Applegate Growth Equity Fund (800) 225-1852
30
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
CLASS B SHARES
The financial highlights for the four years ended December 31, 1998 were
audited by , and the financial highlights for the year ended December
31, 1994 were audited by other independent auditors, whose reports were unqual-
ified.
<TABLE>
<CAPTION>
Class B Shares (fiscal years ended 12-31-98)
- --------------------------------------------------------------------------
Per Share Operating Performance 1998 1997 1996 1995(c)
<S> <C> <C> <C> <C>
Net asset value, beginning of year $- - $14.48 $14.49 $11.56
Income from investment operations:
Net investment income - - (0.23) (0.24) (0.22)
Net realized and unrealized gain (loss)
on investment transactions - - 2.43 2.50 3.67
Total from investment operations - - 2.28 2.26 3.45
- --------------------------------------------------------------------------
Less distributions:
Dividends from net investment income - - - - - - - -
Distributions from net realized gains - - (3.42) (2.27) (0.52)
Total distributions - - - - - - - -
Net asset value, end of year $- - $13.26 $14.48 $14.49
Total return/1/ - -% 16.48% 15.54% 30.11%
- --------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data 1998 1997 1996 1995(c)
<S> <C> <C> <C> <C>
Net assets, end of year (000) $- - $284,191 $317,768 $290,751
Average net assets (000) $- - $300,520 $304,841 $265,597
Ratios to average net assets:
Expenses, including distribution fees - -% 2.19% 2.23% 2.27%
Expenses, excluding distribution fees - -% 1.19% 1.23% 1.27%
Net investment income - -% (1.64)% (1.75)% (1.66)%
Portfolio turnover(d) - -% 182% 113% 106%
</TABLE>
- --------------------------------------------------------------------------------
1 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported.
(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.
- --------------------------------------------------------------------------------
31
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares (fiscal years ended 12-31-98)
(continued)
- ------------------------------------------------------------------------------
Per Share Operating Performance 1994(c) 1993(c) 1992(c) 1991(c)
<S> <C> <C> <C> <C>
Net asset value, beginning of
year $13.18 $12.56 $11.65 $12.43
Income from investment
operations:
Net investment income (0.17) (0.18) (0.16) (0.08)
Net realized and unrealized gain
(loss) on investment
transactions (1.14) 2.57 1.07 3.16
Total from investment operations (1.31) 2.39 0.91 3.08
- ------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income - - - - - - - -
Distributions from net realized
gains (0.31) (1.77) -- (3.86)
Total distributions - - - - - - - -
Net asset value, end of year $11.55 $13.18 $12.56 $11.65
Total return/1/ 16.20% 19.21% 7.81% 26.82%
- ------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data 1994 1993 1992 1991
<S> <C> <C> <C> <C>
Net assets, end of year (000) $257,059 $252,911 $123,306 $12,877
Average net assets (000) $261,285 $179,456 $80,531 $1,922
Ratios to average net assets:
Expenses, including distribution
fees 2.32%(h) 2.30%(h) 2.44%(h) 3.77%(a)(g)(h)
Expenses, excluding distribution
fees 1.32%(h) 1.30%(h) 1.44%(h) 2.77%(a)(h)
Net investment income (1.39)% (1.40)% (1.56)% (3.17)%(a)
Portfolio turnover 110% 112% 107% 115%
</TABLE>
- --------------------------------------------------------------------------------
1 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported.
(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.
- --------------------------------------------------------------------------------
[GRAPHIC]
Nicholas-Applegate Growth Equity Fund (800) 225-1852
32
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS C SHARES
The financial highlights for the four years ended October 31, 1998 were audited
by , and the financial highlights for the year ended October 31, 1994
and the period from August 1, 1994 through December 31, 1994 were audited by
other independent auditors, whose reports were unqualified.
<TABLE>
<CAPTION>
CLASS C SHARES (FISCAL YEARS ENDED 12-31-98)
- -------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994/1/
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $- - $14.48 $14.49 $11.56 $11.62
INCOME FROM INVESTMENT OPERATIONS:
Net investment income - - (0.22) (0.22) (0.22) (0.05)
Net realized and unrealized gain
(loss) on investment transactions - - 2.42 2.48 3.57 (0.07)
TOTAL FROM INVESTMENT OPERATIONS - - 2.20 2.26 2.45 (0.06)
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income - - - - - - - - - -
Distributions from net realized
gains - - (3.42) (2.27) (0.52) - -
TOTAL DISTRIBUTIONS - - - - - - - - - -
NET ASSET VALUE, END OF PERIOD $- - $13.26 $14.49 $14.49 $11.58
TOTAL RETURN/2/ - -% 16.48% 15.54% 30.11% (0.52)%
- -------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $- - $6,750 $6,735 $4,897 $1,100
Average net assets (000) $- - $ 6,796 $5,862 $2,961 $226
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees - -% 1.19% 2.33% 2.27% 6.23%/3/,/4/
Expenses, excluding distribution
fees - -% 1.19% 1.23% 1.27% 5.23%/3/,/4/
Net investment income - -% (1.64)% (1.75)% (1.63)% (3.36)%/3/
Portfolio turnover - -% 182% 111 105% 110%
</TABLE>
- --------------------------------------------------------------------------------
1 Information shown is for the period 8-1-94, when Class C shares were first
offered, through 10-31-94.
2 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each period
reported. Total return for periods of less than a full year is not
annualized.
3 Annualized.
4 Current year amounts have been restated from prior period presentation.
- --------------------------------------------------------------------------------
[GRAPHIC]
NICHOLAS-APPLEGATE GROWTH EQUITY FUND (800) 225-1852
33
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS Z SHARES
The financial highlights for the two years ended December 31, 1998 and for the
period from March 1, 1997 through December 31, 1997 were audited by ,
whose reports were unqualified.
<TABLE>
<CAPTION>
CLASS Z SHARES (FISCAL YEARS ENDED 12-31-98)
- -------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997/1/
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $- - $14.48
INCOME FROM INVESTMENT OPERATIONS:
Net investment income - - (0.22)
Net realized and unrealized gain (loss) on
investment transactions - - 3.18
Total from investment operations - - 2.96
- -------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income - -
Distributions from net realized gains - - (2.91)
TOTAL DISTRIBUTIONS - -
NET ASSET VALUE, END OF PERIOD $- - $14.53
TOTAL RETURN/2/ - -% 21.90%
- -------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1998 1997
<S> <C> <C>
NET ASSETS, END OF PERIOD (000) $- - $633
Average net assets (000) $- - $121
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees - -% 1.19%/3/
Expenses, excluding distribution fees - -% 1.19%/3/
Net investment income - -% (.85)%/3/
Portfolio turnover - -% 182%
</TABLE>
- --------------------------------------------------------------------------------
1 Information shown is for the period 3-18-97, when Class Z shares were first
offered, through 12-31-97.
2 Total return assumes reinvestment of dividends and any other distributions.
It is calculated assuming shares are purchased on the first day and sold on
the last day of each period reported. Total return for periods of less than a
full year is not annualized.
3 Annualized.
- --------------------------------------------------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prudential offers a broad range of mutual funds designed to meet your
individual needs. For information about these funds, contact your financial
adviser or call us at (800) 225-1852. Read the prospectus carefully before you
invest or send money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL UTILITY FUND, INC.
NICHOLAS-APPLEGATE FUND, INC.
Nicholas-Applegate Growth Equity Fund
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Prudential Active Balanced Fund
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
Prudential Europe Index Fund
Prudential Pacific Index Fund
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
Global Series
International Stock Series
GLOBAL UTILITY FUND, INC.
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
Limited Maturity Portfolio
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.
- --------------------------------------------------------------------------------
[GRAPHIC]
NICHOLAS APPLEGATE GROWTH EQUITY FUND (800) 225-1852
35
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Short-Intermediate Term Series
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
Prudential Bond Market Index Fund
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Income Portfolio
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
California Series
California Income Series
PRUDENTIAL MUNICIPAL BOND FUND
High Income Series
Insured Series
PRUDENTIAL MUNICIPAL SERIES FUND
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
Liquid Assets Fund
National Money Market Fund
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Money Market Series
U.S. Treasury Money Market Series
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
Money Market Series
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
California Money Market Series
PRUDENTIAL MUNICIPAL SERIES FUND
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Institutional Money Market Series
- --------------------------------------------------------------------------------
36
<PAGE>
FOR MORE INFORMATION
________________________________________________________________
Please read this prospectus before you invest in the Fund and keep it for
future reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- --------------------------------------------------------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- --------------------------------------------------------------------------------
Visit Prudential's Web Site At:
HTTP://WWW.PRUDENTIAL.COM
- --------------------------------------------------------------------------------
Additional information about the Fund can be obtained without charge and can be
found in the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance)
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in Washington, DC
(For hours of operation, call 1(800) SEC-0330)
Via the Internet:
http://www.sec.gov
- --------------------------------------------------------------------------------
CUSIP NUMBERS:
CLASS A: 653698-20-9
CLASS B: 653698-30-8
CLASS C: 653698-40-7
CLASS Z: 653698-50-6
Investment Company Act File No:
33-38461
Printed on Recycled Paper
[RECYCLE LOGO APPEARS HERE]
MF151A
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Additional Information
dated March , 1999
Nicholas-Applegate Growth Equity Fund (the "Fund") is a series of Nicholas-
Applegate Fund, Inc. (the "Company"), an open-end, diversified management
investment company. 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, 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 stocks from a universe of U.S. companies with
market capitalizations corresponding to the middle 90% of the Russell Midcap
Growth Index at the time of purchase. As of December 30, 1998, the middle 90%
included companies with capitalizations between approximately $1.6 billion and
$10.7 billion. Capitalizations of companies in the Index will change with
market conditions and new developments. 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 , 1999, a copy of which
may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Fund History.............................................................. B-2
Description of the Fund, Its Investments and Risks........................ B-2
Investment Restrictions................................................... B-5
Management of the Fund.................................................... B-6
Control Persons and Principal Holders of Securities....................... B-
Investment Advisory and Other Services.................................... B-8
Brokerage Allocation and Other Practices.................................. B-14
Capital Shares, Other Securities and Organization......................... B-15
Purchase, Redemption and Pricing of Fund Shares........................... B-16
Shareholder Investment Account............................................ B-27
Net Asset Value........................................................... B-32
Dividends, Distributions and Taxes........................................ B-33
Performance Information................................................... B-34
Financial Statements...................................................... B-
Report of Independent Auditors............................................ B-
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>
FUND HISTORY
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.
DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS
CLASSIFICATION. The Fund is a diversified, open-end, management investment
company.
INVESTMENT STRATEGIES, POLICIES AND RISKS. The Fund's investment objective
is capital appreciation. While the principal investment policies and
strategies for seeking to achieve this objective are described in the Fund's
Prospectus, the Fund may from time to time also use the securities,
instruments, policies and strategies described below in seeking to achieve its
objective. The Fund may not achieve its objective and you could lose money.
FOREIGN SECURITIES. The Fund is authorized to invest up to 20% of its total
assets in foreign securities, ADRs and other similar receipts or shares,
although it currently intends to do so only occasionally. Any such securities
will be traded on U.S. exchanges or the NASDAQ National Market System.
Foreign securities involve certain risks, which should be considered
carefully by an investor in the Fund. These risks include political or
economic instability in the country of the issuer, the difficulty of
predicting international trade patterns, the possibility of imposition of
exchange controls and the risk of currency fluctuations. Such securities may
be subject to greater fluctuations in price than securities issued by U.S.
corporations. In addition, there may be less publicly available information
about a foreign company than about a domestic company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies.
There is generally less government regulation of securities exchanges, brokers
and listed companies abroad than in the United States, and, for certain
foreign countries, there is a possibility of expropriation, confiscatory
taxation or diplomatic developments which could affect investment in those
countries.
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, although it currently intends to do so only occasionally
and only for hedging purposes. The Fund does not presently intend to purchase
options that are not traded on a national securities exchange.
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.
B-2
<PAGE>
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 is a type of insurance
policy to hedge against a substantial increase in the market price of a
security it intends to purchase. 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.
The Fund may also purchase "put" and "call" options with respect to the S&P
500. Such options may be purchased 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 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.
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.
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 (the 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.
B-3
<PAGE>
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and privately placed commercial paper for which there is a
readily available market are treated as liquid only when deemed liquid under
procedures established by the Directors. The Fund's investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. 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 others, 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 (for example, 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, (a) 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 (b) 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.
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. [Add description of
joint credit facility]. 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. [Add a section on securities lending].
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. 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.
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, 1998 and December 31, 1997 were % and 182%, 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
"Brokerage Allocation and Other Practices" and "Dividends, Distributions and
Taxes."
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.
B-4
<PAGE>
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 (1) 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 (2) 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.
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-5
<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 DURING PAST FIVE YEARS
---------------- ------------- ----------------------
<C> <C> <S>
*Arthur E. Nicholas (52) Director, Managing Partner and Chief
600 West Broadway Chairman and Investment Officer, Nicholas-
29th Floor President Applegate Capital Management
San Diego, California (since August 1984), Trustee and
Chairman of the Board of
Trustees, Nicholas-Applegate
Investment Trust (since 1993);
Chairman/President of Nicholas-
Applegate Securities.
Fred C. Applegate (53) Director Private Investor. Formerly
885 La Jolla Corona Court President, Nicholas-Applegate
La Jolla, California Capital Management (August 1984-
December 1991). Trustee and
Chairman of the Board of
Trustees, Nicholas-Applegate
Mutual Funds (since 1993).
Dann V. Angeloff (63) 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 (45) 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 1991),
Moovies, Inc. (since 1995).
*Robert F. Gunia (52) Director and Vice President, The Prudential
Gateway Center Three Vice President Insurance Company of America
100 Mulberry Street (Prudential) (since September
Newark, New Jersey 07102-4077 1997); Executive Vice President
and Treasurer, Prudential
Investment Fund Management LLC
(PIFM); Senior Vice President
(since March 1987), 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), Prudential
Mutual Fund Management, Inc.;
Vice President and Director, The
Asia Pacific Fund, Inc. (since
May 1989); Director, The High
Yield Income Fund, Inc. (since
October 1996).
*+Arthur B. Laffer (58) Director Chairman of 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, Inc. (since 1992);
formerly Distinguished
University Professor and
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
---------------- ------------- ----------------------
<C> <C> <S>
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 (67) Director Chancellor Emeritus (July
10920 Wilshire Blvd. 1987-present), Chancellor
Ste. 1835 (from September 1968 to
Los Angeles, California 90024 July 1997), University of
California at Los Angeles;
Director, 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 (39) Treasurer and First Vice President (since
Gateway Center Three Chief Accounting December 1996), PIFM;
100 Mulberry Street Officer formerly First Vice
Newark, New Jersey 07102-4077 President, Prudential
Securities (March 1994-
September 1996); Vice
President, Bankers Trust
Corporation (July 1989-
March 1994).
Stephen M. Ungerman (45) Assistant Treasurer Tax Director, 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, Prudential
Mutual Fund Management,
Inc. (February 1993-
September 1996); prior
thereto, Senior Tax
Manager, Price Waterhouse
(1981-January 1993).
Deborah A. Docs (41) Secretary Vice President and
Gateway Center Three Associate General Counsel
100 Mulberry Street (since December 1996),
Newark, New Jersey 07102-4077 PIFM; Vice President and
Associate General Counsel
(June 1991-September
1996), Prudential Mutual
Fund Management, Inc.;
Vice President and
Associate General Counsel,
Prudential Securities.
Robert E. Carlson (68) Assistant Secretary Partner, Paul, Hastings,
555 South Flower Street Janofsky & Walker LLP (law
22nd Floor firm) (since August 1988);
Los Angeles, California formerly Partner (through
his Professional
Corporation), Hufstedler,
Miller, Carlson &
Beardsley (law firm)
(1967-1988).
</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 of portion of last two fiscal years his son was an
employee of the Investment Adviser.
Some 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. The officers conduct and supervise the
daily business operations of the Fund, while the Directors review such actions
and decide on general policy.
The Fund pays each of its Directors who is not an affiliated person of PIFM
or the Adviser 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
B-7
<PAGE>
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, 1998 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, 1998.
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 , 1999 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 , 1999, the only beneficial owners, 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 , 1999, Prudential Securities was the record holder for
other beneficial owners of Class A shares (or % of the outstanding Class A
shares), Class B shares (or % of the outstanding Class B shares),
Class C shares (or % of the outstanding Class C shares) and Class Z shares
(or % 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.
INVESTMENT ADVISORY AND OTHER SERVICES
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 , 1999, PIFM managed
and/or administered open-end and closed-end management investment companies
with assets of approximately $ billion. According to the Investment Company
Institute, as of November 30, 1998 the Prudential Mutual Funds were the th
largest family of mutual funds in the United States.
B-8
<PAGE>
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.
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.
For the fiscal years ended December 31, 1998, 1997 and 1996, PIFM received
net management and administrative fees of $ , $892,503 and $892,788.
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
B-9
<PAGE>
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 23 partners (including Mr. Nicholas)
who manage a staff of approximately 530 employees including 47 portfolio
managers.
Under the terms of the Subadvisory Agreement with the Company and PIFM, 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 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.
During the years ended December 31, 1996, 1997 and 1998, the Fund and the
Manager paid the Investment Adviser aggregate advisory fees of $3,358,584,
$3,357,513 and $ 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 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.
B-10
<PAGE>
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.
PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12B-1 PLANS
Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund. Prior to June 1, 1998,
Prudential Securities Incorporated (Prudential Securities) was the Fund's
distributor. PIMS and Prudential Securities are subsidiaries of Prudential.
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 expenses incurred under the Plans include commissions and account
servicing fees paid to, or on account of, brokers or financial institutions
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 the Distributor associated with the sale of
Fund shares, including lease, utility, communications and sales promotion
expenses. The distribution and/or service fees may also be used by the
Distributor to compensate on a continuing basis brokers in consideration for
the distribution, marketing, administrative and other services and activities
provided by brokers with respect to the promotion of the sale of the Fund's
shares and the maintenance of related shareholder accounts.
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.
The distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis dealers in consideration for the
distribution, marketing, administrative and other services and activities
provided by dealers with respect to the promotion of the sale of the Fund's
shares and the maintenance of related shareholder accounts.
CLASS A PLAN. 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 1% of the average daily net assets of the Class A
shares. The Class A Plan provides that (1) 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 (2) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30
of 1%. The Distributor has voluntarily limited its distribution-related fees
payable under the Class A Plan to .25 of 1% of the average daily net assets of
the Class A shares. This voluntary waiver may be terminated at any time
without notice.
For the fiscal year ended December 31, 1998, the Distributor and Prudential
Securities received payments of $ and $ , respectively, under the
Class A Plan and spent approximately $ and $ , respectively, in
distributing the Fund's shares. This amount was primarily expended for
payments of account servicing fees to financial advisers and other persons who
sell Class A shares. For the fiscal year ended December 31, 1998, the
Distributor and Prudential Securities also received approximately $ and
$ , respectively, in initial sales charges.
CLASS B AND CLASS C PLANS. 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
B-11
<PAGE>
of the Class B and Class C shares. The Class B Plan provides that (1) up to
.25 of 1% of the average daily net assets of the Class B shares may be paid as
a service fee and (2) up to .75 of 1% (not including the service fee) of the
average daily net assets of the Class B shares (asset-based sales charge) may
be paid for distribution-related expenses with respect to the Class B shares.
The Class C Plan provides that (1) up to .25 of 1% of the average daily net
assets of the Class C shares may be paid as a service fee for providing
personal service and/or maintaining shareholder accounts and (2) up to .75 of
1% of the average daily net assets of the Class C shares may be paid for
distribution-related expenses with respect to Class C shares. The service fee
(.25 of 1% of average daily net assets) 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.
CLASS B PLAN. For the fiscal year ended December 31, 1998, the Distributor
and Prudential Securities received $ and $ , respectively, from the
Fund under the Class B Plan and spent approximately $ and $ ,
respectively, in distributing the Fund's Class B shares. It is estimated that
of the latter total amount, approximately % ($ ) was spent on printing and
mailing of prospectuses to other than current shareholders; % ($ ) on
compensation to broker-dealers for commissions to representatives and other
expenses, including an allocation of overhead and other branch office
distribution-related expenses, incurred for distribution of Fund shares; and
% ($ ) on the aggregate of (1) payments of commissions and account
servicing fees to financial advisers ( % or $ ) and (2) an allocation of
overhead and other branch office distribution-related expenses for payments of
related expenses ( % or $ ). The term "overhead and other branch office
distribution-related expenses" represents (a) the expenses of operating
Prudential Securities' and Pruco Securities Corporation's (Prusec's) branch
offices in connection with the sale of Fund shares, including lease costs, the
salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(b) the costs of client sales seminars, (c) expenses of mutual fund sales
coordinators to promote the sale of Fund shares and (d) other incidental
expenses relating to branch promotion of Fund sales.
The Distributor (and Prudential Securities as its predecessor) also receive
the proceeds of contingent deferred sales charges paid by investors upon
certain redemptions of Class B shares. For the fiscal year ended December 31,
1998, the Distributor and Prudential Securities received approximately $
and $ , respectively, in contingent deferred sales charges attributable to
Class B shares.
CLASS C PLAN. For the fiscal year ended December 31, 1998, the Distributor
and Prudential Securities received $ under the Class C Plan and spent
approximately $ in distributing Class C shares. Of the latter total
amount, approximately % ($ ) was spent on printing and mailing of
prospectuses to other than current shareholders; % ($ ) on compensation to
broker-dealers for commissions to representatives and other expenses,
including an allocation of overhead and other branch office distribution-
related expenses, incurred for distribution of Fund shares; and % ($ ) on
the aggregate of (i) payments of commissions and account servicing fees to
financial advisers ( % or $ ) and (ii) an allocation of overhead and other
branch office distribution-related expenses for payments of related expenses
( % or $ ). The Distributor (and Prudential Securities as its predecessor)
also receive the proceeds of contingent deferred sales charges paid by
investors upon certain redemptions of Class C shares. For the fiscal year
ended December 31, 1998, the Distributor and Prudential Securities received
approximately $ and $ , respectively, in contingent deferred sales
charges attributable to Class C shares.
Distribution expenses attributable to the sale of Class A, Class B and Class
C shares of the Fund are allocated to each such class based upon the ratio of
sales of each such class to the sales of Class A, Class B and Class C shares
of 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.
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 Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the Class A, Class B or Class C Plan or in any agreement related
to the Plans (Rule 12b-1 Directors), cast in person at a meeting called for
the purpose of voting on such continuance. A Plan may be terminated at any
time, without penalty, by the vote of a majority of the Rule 12b-1 Directors
or by the vote of the holders of a majority of the outstanding shares of the
applicable class of the Fund on not more than 30 days' written notice to any
other party to the Plan. 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
B-12
<PAGE>
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.
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.
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 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.
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. In addition,
the Distributor has waived a portion of its distribution fees for the Class A
shares as described under "Distributor" above. Fee waivers and subsidies will
increase the Fund's total return. These voluntary waivers may be terminated at
any time without notice. See "Performance Information" in the Statement of
Additional Information and "Fund Expenses" above.
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.
OTHER SERVICE PROVIDERS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Fund. Subcustodians
provide custodial services for any foreign assets of the Fund held outside the
United States.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the transfer and dividend disbursing agent of the
Fund. PMFS is a wholly-owned subsidiary of PIFM. PMFS provides customary
transfer agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee of $10.00
per shareholder account and a new account set-up fee of $2.00 for each
manually established shareholder account. PMFS is also reimbursed for its out-
of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communication expenses and other costs.
Ernst & Young LLP, 515 Flower Street, Los Angeles, California 90071, serves
as the Fund's independent accountants and in that capacity audits the Fund's
annual financial statements.
B-13
<PAGE>
BROKERAGE ALLOCATION AND OTHER PRACTICES
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.
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
B-14
<PAGE>
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, 1998.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
---- ------------- ---------
<S> <C> <C> <C>
Total brokerage commissions paid by the
Fund.................................... $ $3,677,411.02 $914,031
Total brokerage commissions paid to
Prudential Securities................... $ $ 0 $ 0
Percentage of total brokerage commissions
paid to Prudential Securities........... % 0% 0%
</TABLE>
Of the total brokerage commissions paid during the year ended December 31,
1998 $ (or %) 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.
The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company
Act) and their parents at December 31, 1998. As of December 31, 1998, the Fund
held securities of in the amount of $ .
CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION
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 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.
B-15
<PAGE>
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 debts 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.
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value (NAV) per share plus a sales charge which, at the election of
the investor, may be imposed either (1) 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.
Each class of shares represents an interest in the same assets of the Fund
and is identical in all respects except that (1) 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, (2) 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, (3) each class has a different exchange
privilege, (4) only Class B shares have a conversion feature and (5) Class Z
shares are offered exclusively for sale to a limited group of investors.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must complete an application and telephone PMFS at (800) 225-1852 (toll-free)
to receive an account number. PMFS will request the following information:
your name, address, tax identification number, class election, dividend
distribution election, amount being wired and wiring bank. You should then
give instructions to your bank to transfer funds by wire to State Street Bank
and Trust Company (State Street), Boston, Massachusetts, Custody and
Shareholder Services Division, Attention: Prudential Equity Income Fund,
specifying on the wire the account number assigned by PMFS and your name and
identifying the class in which you are eligible to invest (Class A, Class B,
Class C or Class Z shares).
If you arrange for receipt by State Street of federal funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Nicholas-Applegate Fund,
Inc., Class A, Class B, Class C or Class Z shares and your name and individual
account number. You do not need to call PMFS to make subsequent purchase
orders utilizing Federal Funds. The minimum amount which may be invested by
wire is $1,000.
ISSUANCE OF FUND SHARES FOR SECURITIES
Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (i) reorganizations, (ii) statutory mergers, or
(iii) other acquisitions of portfolio securities that meet the investment
objective and policies of the Fund, are
B-16
<PAGE>
liquid and not subject to restrictions on resale, have a value that is readily
ascertainable via listing on or trading in a recognized United States or
international exchange or market, and are approved by the Fund's investment
adviser.
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, the Distributor sells Class A shares at a maximum sales charge of
5%, sells Class C* shares with a 1% sales charge, and sells Class B* and Class
Z shares at NAV. Using the NAV at December 31, 1998, the maximum offering
price of the Fund's shares is as follows:
<TABLE>
<S> <C>
CLASS A
Net asset value.................................................... $
Maximum sales charge (5.00% of offering price).....................
----
Offering price to public........................................... $
====
CLASS B
Net asset value, offering price and redemption price per Class B
share*............................................................ $
====
CLASS C
Net asset value, offering price and redemption price per Class C
share*............................................................ $
Sales charges (1% of offering price) ..............................
Offering price to public........................................... $
====
CLASS Z
Net asset value, offering price and redemption price per Class Z
share............................................................. $
====
</TABLE>
----------
*Class B and Class C shares are subject to a contingent
deferred sales charge on certain redemptions.
SELECTING A PURCHASE ALTERNATIVE
The following will assist you in determining which method of purchase best
suits your individual circumstances, based on the Fund's current fees and
expenses:
If you intend to hold your investment in the Fund for less than 4 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to an initial sales charge of 5% and Class B shares are
subject to a CDSC of 5% which declines to zero over a 6 year period, you
should consider purchasing Class C shares over either Class A or Class B
shares.
If you intend to hold your investment for longer than 4 years, but less than
5 years, and do not qualify for a reduced sales charge on Class A shares, you
should consider purchasing Class B or Class C shares over Class A shares. This
is because the initial sales charge plus the cumulative annual distribution-
related fee on Class A shares would exceed those of the Class B and Class C
shares if you redeem your investment during this time period. In addition,
more of your money would be invested initially in the case of Class C shares,
because of the relatively low initial sales charge, and all of your money
would be invested initially in the case of Class B shares, which are sold at
NAV.
If you qualify for a reduced sales charge on Class A shares, you may benefit
by purchasing 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
shares, you would not have all of your money invested initially because the
sales charge on Class A shares is deducted at the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and 5 years in the case of
Class C shares for the higher cumulative annual distribution-related fee on
those shares plus, in the case of Class C shares, the 1% initial sales charge
to exceed the initial sales charge plus the cumulative annual distribution-
related fees on Class A shares. This does not take into account the time value
of money, which further reduces the impact of the higher Class B or Class C
distribution-related fee on the investment, fluctuations in NAV, the effect of
the return on the investment over this period of time or redemptions when the
CDSC is applicable.
B-17
<PAGE>
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
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 or annuity plans under Sections 403(b) and 457 of the Internal
Revenue Code, "rabbi" trusts and non-qualified deferred compensation plans
that are sponsored by any employer that has a tax qualified plan with
Prudential (collectively, Benefit Plans), provided that the Benefit Plan has
existing assets of at least $1 million invested in shares of Prudential Mutual
Funds (excluding money market funds other than those acquired pursuant to the
exchange privilege) or 250 eligible employees or participants. In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account recordkeeping (Direct Account Benefit
Plans) and Benefit Plans sponsored by 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 provides
administrative or recordkeeping services, provided that (1) the plan has at
least $1 million in existing assets or 250 eligible employees and (2) 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 PruArray Program (benefit plan recordkeeping service) (hereafter referred
to as a PruArray Plan). All Benefit Plans of a company (or affiliated
companies under common control) for which Prudential serves as plan
administrator or recordkeeper are aggregated in meeting the $1 million
threshold, provided that Prudential has been notified in advance of the
entitlement to the waiver of the sales charge based on the aggregated assets.
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 Plan (Participating Fund).
"Existing assets" also include monies invested in The Guaranteed Investment
Account (GIA), a group annuity insurance product issued by Prudential, The
Guaranteed Insulated Separate Account, a separate account offered by
Prudential and units of The Stable Value Fund (SVF), an unaffiliated bank
collective fund. Class A shares may also be purchased at NAV by plans that
have monies invested in GIA and SVF, provided (1) the purchase is made with
the proceeds of a redemption from either GIA or SVF and (2) 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 Plan 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 (1)
have retirement plan assets in the aggregate of at least $1 million or 250
participants in the aggregate and (2) 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 (1)
employees who open an IRA or Savings Accumulation Plan account with the
Transfer Agent and (2) 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
the Distributor or the Transfer Agent, by:
. officers of the Prudential Mutual Funds (including the Fund),
. employees of the Distributor, Prudential Securities, PIFM and their
subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer
Agent,
B-18
<PAGE>
. employees of subadvisers of the Prudential Mutual Funds provided that
purchases at NAV are permitted by such person's employer,
. 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,
. registered representatives and employees of brokers who have entered
into a selected dealer agreement with the Distributor provided that
purchases at NAV are permitted by such person's employer,
. investors who have a business relationship with a financial adviser who
joined Prudential Securities from another investment firm, provided that
(1) 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, (2) 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 (3) the financial adviser served as the client's broker on the
previous purchase,
. investors in Individual Retirement Accounts, provided the purchase is
made in a directed rollover to such individual Retirement Account with
the proceeds of a tax-free rollover of assets from a Benefit Plan for
which Prudential provides administrative or recordkeeping services and
further provided that such purchase is made within 60 days of receipt of
the Benefit Plan distribution,
. orders placed by broker-dealers, investment advisors or financial
planners who have entered into an agreement with the Distributor, who
place trades for their own accounts or the accounts of their clients and
who charge a management, consulting or other fee for their services
(e.g. mutual fund "wrap" or asset allocation programs), and
. orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for customer accounts if the
accounts are linked to the master account of such broker-dealer,
investment adviser or financial planner and the broker-dealer,
investment adviser or financial planner charges its clients a separate
fee for its services (e.g. mutual fund "supermarket programs").
For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the broker
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation
of your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions.
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases. See "How to Buy, Sell and Exchange Shares of
the Fund--Reducing or Waiving Class A's Initial Sales Charge" in the
Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
. an individual;
. the individual's spouse, their children and their parents;
. the individual's and spouse's Individual Retirement Account (IRA);
. 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);
. a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
. a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
. one or more employee benefit plans of a company controlled by an
individual.
B-19
<PAGE>
In addition, 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).
The Transfer Agent, the Distributor or your broker 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 your broker will not be
aggregated to determine the reduced sales charge. 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. The Distributor or the Transfer Agent must be notified
at the time of purchase that the investor is entitled to a reduced sales
charge. The reduced sales 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.
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,
Prudential or its affiliates, and through your broker will not be aggregated
to determine the reduced sales charge.
A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number
of investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish 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. If 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)
must 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
B-20
<PAGE>
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.
CLASS B SHARES
The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following
receipt of an order in proper form by the Transfer Agent, your broker or the
Distributor. Although there is no sales charge imposed at the time of
purchase, redemptions of Class B shares may be subject to a CDSC. See "Sale of
Shares--Contingent Deferred Sales Charges" below.
The Distributor will pay, from its own resources, sales commissions of up to
4% of the purchase price of Class B shares to brokers, 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.
CLASS C SHARES
The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, financial advisers and other
persons which distribute Class C shares a sales commission of up to 2% of the
purchase price at the time of the sale.
WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES
BENEFIT PLANS. Class C shares may be purchased at NAV, without payment of an
initial sales charge, by Benefit Plans (as defined above). In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account recordkeeping (Direct Account Benefit
Plans) and Benefit Plans sponsored by Prudential. Prudential Securities or its
subsidiaries (Prudential Securities or Subsidiary Prototype Benefit Plans).
Class C shares may be purchased at NAV by participants who are repaying the
loans made from such plans to the participant.
PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived with
respect to purchases of Class C shares by qualified and non-qualified
retirement and deferred compensation plans participating in the PruArray Plan
and other plans for which Prudential provides administrative or recordkeeping
services.
INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT
COMPANIES. Investors may purchase Class C shares at NAV, without the initial
sales charge, with the proceeds from the redemption of shares of any
unaffiliated registered investment company which were not held through an
account with any Prudential affiliate. Such purchases must be made within 60
days of the redemption. Investors eligible for this waiver include: (i)
investors purchasing shares through an account at Prudential Securities; (ii)
investors purchasing shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation (Prusec); and (iii) investors
purchasing shares though other Dealers. This waiver is not available to
investors who purchase shares directly from the Transfer Agent. You must
notify the Transfer Agent directly or through your Dealer if you are entitled
to this waiver and provide the Transfer Agent with such supporting documents
as it may deem appropriate.
CLASS Z SHARES
Class Z shares of the Fund currently are available for purchase by the
following categories of investors:
. 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,
. participants in any fee-based program or trust program sponsored by an
affiliate of the Distributor which includes mutual funds as investment
options and for which the Fund is an available option,
B-21
<PAGE>
. 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 investment option,
. Benefit Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services 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,
. the Prudential Securities Cash Balance Pension Plan, an employee defined
benefit plan sponsored by Prudential Securities,
. current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund);
. employees of Prudential and/or Prudential Securities who participate in
a Prudential-sponsored employee savings plan and
. Prudential with an investment of $10 million or more.
After a Benefit Plan qualifies to purchase Class Z shares, all subsequent
purchases will be for Class Z shares.
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.
Class Z shares of the Fund may also be purchased by certain savings,
retirement and deferred compensation plans, qualified or non-qualified under
the Internal Revenue Code of 1986, as amended (the Internal Revenue Code),
provided that (1) the plan purchases shares of the Fund pursuant to an
investment management agreement with The Prudential Insurance Company of
America or its affiliates, (2) the Fund is an available investment option
under the agreement and (3) the plan will participate in the PruArray and
SmartPath Programs (benefit plan recordkeeping services) sponsored by PMFS
LLC. [These plans include pension, profit-sharing, stock-bonus or other
employee benefit plans under Section 401 of the Internal Revenue Code and
deferred compensation and annuity plans under Sections 457 or 403(b)(7) of the
Internal Revenue Code.
SALE OF SHARES
You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Transfer Agent, the Distributor or your broker. In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable CDSC, as described in "Contingent Deferred Sales Charges" below. If
you are redeeming your shares through a broker, your broker must receive your
sell order before the Fund computes its NAV for that day (that is, 4:15 P.M.,
New York time) in order to receive that day's NAV. Your broker will be
responsible for furnishing all necessary documentation to the Distributor and
may charge you for its services in connection with redeeming shares of the
Fund.
If you hold shares of 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 face of the
certificates, must be received by the Transfer Agent, the Distributor or your
broker in order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written evidence
of authority acceptable to the Transfer Agent must be submitted before such
request will be accepted. All correspondence and documents concerning
redemptions should be sent to the Fund in care of its Transfer Agent,
Prudential Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010, the Distributor or to your
broker.
SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed $50,000,
(2) are to be paid to a person other than the record owner, (3) are to be sent
to an address other than the address on the Transfer Agent's records, or (4)
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
B-22
<PAGE>
manager of most Prudential Insurance and Financial Services or Preferred
Services offices. In the case of redemptions from a PruArray Plan, if the
proceeds of the redemption are invested in another investment option of the
plan in the name of the record holder and at the same address as reflected in
the Transfer Agent's records, a signature guarantee is not required.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent, the Distributor or your broker
of the certificate and/or written request, except as indicated below. If you
hold shares through a broker, payment for shares presented for redemption will
be credited to your account at your broker, unless you indicate otherwise.
Such payment may be postponed or the right of redemption suspended at times
(1) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (2) when trading on such Exchange is restricted, (3)
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
(4) during any other period when the Commission, by order, so permits;
provided that applicable rules and regulations of the Commission shall govern
as to whether the conditions prescribed in (2), (3) or (4) exist.
Payment for redemption of recently purchased shares will be delayed until
the Fund or its Transfer Agent has been advised that the purchase check has
been honored, which may take up to 10 calendar days from the time of receipt
of the purchase check by the Transfer Agent. Such delay may be avoided by
purchasing shares by wire or by certified or cashier's check.
REDEMPTION IN KIND. If the Trustees determine that it would be detrimental
to the best interests of the remaining shareholders of the 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. 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 Fund
may redeem all of the shares of any shareholder, other than a shareholder
which is an IRA or other tax-deferred retirement plan, whose account has a net
asset value of less than $500 due to a redemption. The Fund will give such
shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No CDSC will be imposed on any
such involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. Any CDSC paid in connection with such redemption will
be credited (in shares) to your account. (If less than a full repurchase is
made, the credit will be on a pro rata basis.) You must notify the Transfer
Agent, either directly or through the Distributor or your broker, at the time
the repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales
Charges" below. Exercise of the repurchase privilege will generally not affect
federal tax treatment of any gain realized upon redemption. However, if the
redemption was made within a 30 day period of the repurchase and if the
redemption resulted in a loss, some or all of the loss, depending on the
amount reinvested, may not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within 18 months of purchase (or one year in the case of
shares purchased prior to November 2, 1998), 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 18 months, in the case of Class C
shares (one year for Class C shares purchased before November 2, 1998). A CDSC
will be applied on the lesser of the original purchase price or the current
value of the shares being redeemed. Increases in the value of your shares or
shares acquired through reinvestment of dividends or distributions are not
subject to a CDSC. The amount of any CDSC will be paid to and retained by the
Distributor.
B-23
<PAGE>
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The CDSC will be calculated from the first day of the month
after the initial purchase, excluding the time shares were held in a money
market fund. See "Shareholder Investment Account--Exchange Privilege."
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...................................... 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 NAV 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; and
finally, of amounts representing the cost of shares held for the longest
period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided
to redeem $500 of your investment. Assuming at the time of the redemption the
NAV had appreciated to $12 per share, the value of your Class B shares would
be $1,260 (105 shares at $12 per share). The CDSC would not be applied to the
value of the reinvested dividend shares and the amount 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), 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 are:
(1) in the case of a tax-deferred retirement plan, a lump-sum or other
distribution after retirement;
(2) in the case of an IRA (including a Roth IRA), a lump-sum or other
distribution after attaining age 59 1/2 or a periodic distribution based on
life expectancy;
(3) in the case of a Section 403(b) custodial account, a lump sum or other
distribution after attaining age 59 1/2; and
(4) 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.
B-24
<PAGE>
(5) Finally, the CDSC will be waived to the extent that the proceeds from
shares redeemed are invested in Prudential Mutual Funds. The Guaranteed
Investment Account, the Guaranteed Insulated Separate Account, or units of The
Stable Value Fund.
The waiver does not apply in the case of a tax-free rollover or transfer of
assets, other than one following a separation from service (i.e., following
voluntary or involuntary termination of employment or following retirement).
Under no circumstances will the CDSC be waived on redemptions resulting from
the termination of a tax-deferred retirement plan, unless such redemptions
otherwise qualify for a waiver as described above. In the case of Direct
Account and Prudential Securities or Subsidiary Prototype Benefit Plans, the
CDSC will be waived on redemptions which represent borrowings from such plans.
Shares purchased with amounts used to repay a loan from such plans on which a
CDSC was not previously deducted will thereafter be subject to a CDSC without
regard to the time such amounts were previously invested. In the case of a
401(k) plan, the CDSC will also be waived upon the redemption of shares
purchased with amounts used to repay loans made from the account to the
participant and from which a CDSC was previously deducted.
Finally, the CDSC will be waived to the extent that the proceeds from shares
redeemed are invested in Prudential Mutual Funds, The Guaranteed Investment
Account, the Guaranteed Insulated Separate Account or units of The Stable
Value Fund.
Systematic Withdrawal Plan. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12%
of the total dollar amount subject to the CDSC may be redeemed without charge.
The Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase or, for shares purchased
prior to March 1, 1997, on March 1 of the current year. The CDSC will be
waived (or reduced) on redemptions until this threshold 12% is reached.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
You must notify the Fund's Transfer Agent either directly or through your
broker, 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.
In connection with these waivers, the Transfer Agent will require you to
submit the supporting documentation set forth below.
<TABLE>
<S> <C>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
Death A copy of the shareholder's death
certificate or, in the case of a
trust, a copy of the grantor's death
certificate, plus a copy of the
trust agreement identifying the
grantor.
Disability--An individual will be A copy of the Social Security
considered disabled if he or she is Administration award letter or a
unable to engage in any substantial letter from a physician on the
gainful activity by reason of any physician's letterhead stating that
medically determinable physical or the shareholder (or, in the case of
mental impairment which can be a trust, the grantor) is permanently
expected to result in death or to be disabled. The letter must also
of long-continued and indefinite indicate the date of disability.
duration.
Distribution from an IRA or 403(b) A copy of the distribution form from
Custodial Account the 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>
B-25
<PAGE>
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 purchased 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 Distributor or Transfer Agent either directly or
through Prudential Securities or Prusec, at the time of redemption, that you
are entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES
Prudential Retirement Plans. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in the PruArray Plan and other plans for which Prudential provides
administrative or recordkeeping services. The CDSC will also be waived on
redemptions from Benefit Plans sponsored by Prudential and its affiliates to
the extent that the redemption proceeds are invested in The Guaranteed
Investment Account, the Guaranteed Insulated Separate Account and units of The
Stable Value Fund.
Other Benefit Plans. The CDSC will be waived on redemptions from Benefit
Plans holding shares through a Dealer not affiliated with Prudential and for
whom the Dealer provides administrative or recordkeeping services.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected
at relative net asset value without the imposition of any additional sales
charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will
be determined on each conversion date in accordance with the following
formula: (i) the ratio of (a) the amounts paid for Class B shares purchased at
least seven years prior to the conversion date to (b) the total amount paid
for all Class B shares purchased and then held in your account (ii) multiplied
by the total number of Class B shares purchased and then held in your account.
Each time any Eligible Shares in your account convert to Class A shares, all
shares or amounts representing Class B shares then in your account that were
acquired through the automatic reinvestment of dividends and other
distributions will convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible
Shares calculated as described
B-26
<PAGE>
above will generally be either more or less than the number of shares actually
purchased approximately seven years before such conversion date. For example,
if 100 shares were initially purchased at $10 per share (for a total of
$1,000) and a second purchase of 100 shares was subsequently made at $11 per
share (for a total of $1,100), 95.24 shares would convert approximately seven
years from the initial purchase (i.e., $1,000 divided by $2,100 (47.62%),
multiplied by 200 shares equals 95.24 shares). The Manager reserves the right
to modify the formula for determining the number of Eligible Shares in the
future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share NAV of the Class A shares may be higher than
that of the Class B shares at the time of conversion. Thus, although the
aggregate dollar value will be the same, you may receive fewer Class A shares
than Class B shares converted.
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment for purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such shares were held in the money market fund will be excluded.
For example, Class B shares held in a money market fund for one year would not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase
of such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) 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 (2) 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.
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 broker. 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
B-27
<PAGE>
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.
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.
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.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange of
shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services LLC, at the address noted above.
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.
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
B-28
<PAGE>
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.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for
shareholders who qualify to purchase Class Z shares. Under this exchange
privilege, amounts representing any Class B and Class C shares which are not
subject to a CDSC held in such a shareholder's account will be automatically
exchanged for Class A shares for shareholders who qualify to purchase Class A
shares at NAV on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends
and distributions, (2) amounts representing the increase in the net asset
value above the total amount of payments for the purchase of Class B or Class
C shares and (3) amounts representing Class B or Class C shares held beyond
the applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities, Prusec or
another broker 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
net asset value. Similarly, participants in Prudential Securities' 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 Prudential Securities 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 Prudential Securities Cash Balance Pension Plan may only exchange its
Class Z shares for Class Z shares of those Prudential Mutual Funds which
permit investment by the Prudential Securities Cash Balance Pension Plan.
Additional details about the exchange privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent, the
Distributor or your broker. 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
B-29
<PAGE>
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 Investment Plan."
- ----------
/1/Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. 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 INVESTMENT PLAN ("AIP")
Under AIP, 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 brokerage account (including a Prudential Securities 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 AIP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.
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.
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.
The Transfer Agent, the Distributor or your broker acts 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
B-30
<PAGE>
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 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 the Distributor 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.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account
until the earnings are withdrawn. The following chart represents a comparison
of the earnings in a personal savings account with those in an IRA, assuming a
$2,000 annual contribution, and 8% rate of return and a 39.6% federal income
tax bracket and shows how much more retirement income can accumulate within an
IRA as opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING/1/
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
---------- ------- ---
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
- ----------
/1/The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings
in 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 financial
advisor concerning the appropriate blend of portfolios for them. If investors
elect to purchase the individual mutual funds that constitute the program in
an investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
B-31
<PAGE>
NET ASSET VALUE
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.
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 the
last sale price on such exchange or system on the day of valuation or, if
there was no sale on such day, the mean between the last bid and asked prices
on such day, or at the bid price on such day in the absence of an asked price.
Corporate bonds (other than convertible debt securities) and U.S. Government
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed by the Manager in
consultation with the Investment Adviser to be over-the-counter, are valued on
the basis of valuations provided by an independent pricing agent or principal
market maker which uses information with respect to transactions in bonds,
quotations from bond dealers, agency ratings, market transactions in
comparable securities and various relationships between securities in
determining value. Convertible debt securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at the mean between the
last reported bid and asked prices provided by principal market makers.
Options on stock and stock indices traded on an exchange are valued at the
mean between the most recently quoted bid and asked prices on the respective
exchange and futures contracts and options thereon are valued at their last
sale prices as of the close of trading on the applicable commodities exchange
or board of trade or, if there was no sale on the applicable commodities
exchange or board of trade on such day, at the mean between the most recently
quoted bid and asked prices on such exchange or board of trade. Quotations of
foreign securities in a foreign currency are converted to U.S. dollar
equivalents at the current rate obtained from a recognized bank or dealer and
forward currency forward 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 Investment Adviser (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 Investment Adviser including its portfolio manager, traders,
and its research and credit analysts, on the basis of the following factors:
cost of the security, transactions in comparable securities, relationships
among various securities and such other factors as may be determined by the
Manager, Investment Adviser, Board of Directors or Valuation Committee to
materially affect the value of the security. Short-term debt securities are
valued at cost, with interest accrued or discount amortized to the date of
maturity, if their original maturity was 60 days or less, unless this is
determined by the 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.
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. 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.
B-32
<PAGE>
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.
TAXES, DIVIDENDS AND DISTRIBUTIONS. 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 capital 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; and (b) 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 20% for individual shareholders and 35% for
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 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."
B-33
<PAGE>
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.
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.
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.
Below are the average annual total returns for the Fund's share classes for
the periods ended December 31, 1998.
<TABLE>
<CAPTION>
1 5 10 SINCE
YEAR YEARS YEARS INCEPTION
---- ----- ----- ---------
<S> <C> <C> <C> <C> <C>
Class A.............................. % % N/A % (4-9-87)
Class B.............................. % (6-10-91)
Class C.............................. N/A N/A (8-1-94)
Class Z.............................. N/A N/A (3-18-97)
</TABLE>
The average annual total return for Class A shares for the one year, five
year and, ten year periods ended on December 31, 1998 was %, and
respectively. The average annual total return for Class B shares for the one
year, five year and since inception periods ended December 31, 1998 was %,
% and %, respectively. The average annual total return for Class C shares
for the one year and since inception periods ended December 31, 1998 was %
and %, respectively. The average annual total return for Class Z shares for
the one year and since inception periods ended December 31, 1998 were % and
%, respectively.
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).
B-34
<PAGE>
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.
Below are the aggregate total returns for the Fund's share classes for the
periods ended December 31, 1998.
<TABLE>
<CAPTION>
1 5 10 SINCE
YEAR YEARS YEARS INCEPTION
---- ----- ----- ---------
<S> <C> <C> <C> <C> <C>
Class A............................. ( )% % N/A % (4-9-87)
Class B............................. ( ) % (6-10-91)
Class C............................. ( ) N/A N/A (8-1-94)
Class Z............................. ( ) N/A N/A (3-18-97)
</TABLE>
YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A, Class B, Class C
and Class Z shares. The yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
a - b
YIELD = 2[(-------+1)/6/-1 ]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements). the
average daily number of shares outstanding during the period
that were entitled to receive
c = dividends.
d = the maximum offering price per share on the last day of the
period.
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period.
The Fund's 30-day yields for the period ended December 31, 1998 were ( )%,
( )%, ( )% and ( )% for Class A, Class B, Class C and Class Z shares,
respectively.
B-35
<PAGE>
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. 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/
[BAR CHART APPEAR HERE]
Common Stocks 11.0%
Long-Term Gov't Bonds 5.2%
Inflation 3.1%
/1/Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1998
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.
B-36
<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.
HISTORICAL PERFORMANCE DATA
[LINE GRAPH APPEARS HERE]
Value of $1.00 invested on 1/1/26 through 12/31/97.
Small Stocks -- $5,519.97 Long-Term Bonds -- $39.07
Common Stocks -- $1,828.33 Treasury Bills -- $14.25
Inflation -- $ 9.02
- ----------
Source:Stocks, Bonds, Bills and Inflation 1998 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>
YEAR 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS/1/ 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% -3.4% 18.4% 2.7% 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/3/ 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
RETURNS PERCENT 33.2% 10.2% 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1%
</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 This chart shows the growth of a
performance of major world stock hypothetical $10,000 investment
markets for the period from made in the stocks representing
December 31, 1986 through December the S&P 500 stock index with and
31, 1997. It does not represent without reinvested dividends.
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% [LINE GRAPH APPEARS HERE]
USA 17.1%
UK 16.6% Capital Appreciation and
France 15.6% Reinvesting Dividends -- $304,596
Germany 12.1% Capital Appreciation only -- $105,413
Austria 9.6%
Japan 6.6%
Source: Morgan Stanley Capital Source: Stocks, Bonds, Bills, and
International (MSCI) and Lipper Inflation 1998 Yearbook, Ibbotson
Analytical Services, Inc. as of Associates, Chicago (annually updates
12/31/97. Used with permission. work by Roger G. Ibbotson and Rex A.
Morgan Stanley Country indices are Sinquefield). Used with permission.
unmanaged indices which include All rights reserved. This chart is used
those stocks making up the largest for illustrative purposes only and is not
two-thirds of each country's total intended to represent the past, present
stock market capitalization. or future performance of any Prudential
Returns reflect the reinvestment Mutual Fund. Common stock total return is
of all distributions. This chart based on the Standard & Poor's 500 Stock
is for illustrative purposes only Index, a market-value-weighted index made
and is not indicative of the past, up of 500 of the largest stocks in the
present or future performance of U.S. based upon their stock market value.
any specific investment. Investors Investors cannot invest directly in
cannot invest directly in stock indices.
indices.
II-3
<PAGE>
------------------------------------------
WORLD STOCK MARKET CAPITALIZATION BY REGION
World Total: $12.5 Trillion
U.S. 49.8%
Europe 32.1%
Pacific Basin 15.6%
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 1577 companies in 22
countries (representing approximately
60% of the aggregate market value of
the stock exchanges). This chart is for
illustrative purposes only and does not
represent the allocation of any
Prudential Mutual Fund.
II-4
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1997)
[LINE GRAPH APPEARS HERE]
- ------------------------------------------
Source: Stocks, Bonds, Bills, and Inflation 1998 Yearbook, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. The chart illustrates
the historical yield of the long-term U.S. Treasury Bond from 1926-1997.
Yields represent that of an annually renewed one-bond portfolio with a
remaining maturity of approximately 20 years. This chart is for illustrative
purposes and should not be construed to represent the yields of any Prudential
Mutual Fund.
II-5
<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, 1997. 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
(12/31/77 - 12/31/97)*
S&P 37.6 -7.2
EAFE 69.9 -23.2
Lehman Aggregate 32.6 -2.9
"Best Returns Zone"
With a Diversified Blend
1/3 S&P 500 Index
1/3 EAPE Index
1/3 Lehman Aggregate Index
- ----------
* Source: Prudential Investment Corporation based on data from Lipper
Analytical New Application (LANA). Past performance is not indicative of
future results. The S&P 500 Index is a weighted, unmanaged index comprised of
500 stocks which provides a broad indication of stock price movements. The
Morgan Stanley EAFE Index is an unmanaged index comprised of 20 overseas
stock markets in Europe, Australia, New Zealand and the Far East. The Lehman
Aggregate Index includes all publicly-issued investment grade debt with
maturities over one year, including U.S. government and agency issues, 15 and
30 year fixed-rate government agency mortgage securities, dollar denominated
SEC registered corporate and government securities, as well as asset-backed
securities. Investors cannot invest directly in stock or bond market indices.
II-6
<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, 1997 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, 1997. 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
[79,000] persons worldwide, and maintains a sales force of approximately
10,100 agents and 6,500 domestic and international financial advisors.
Prudential is a major issuer of annuities, including variable annuities.
Prudential seeks to develop innovative products and services to meet consumer
needs in each of its business areas. Prudential uses the rock of Gibraltar as
its symbol. The Prudential rock is a recognized brand name throughout the
world.
Insurance. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to nearly 40 million people
worldwide. Long one of the largest issuers of life insurance, Prudential has
25 million life insurance policies in force today with a face value of almost
$1 trillion. Prudential has the largest capital base ($12.1 billion) of any
life insurance company in the United States. The Prudential provides auto
insurance for more than 1.5 million cars and insures more than 1.2 million
homes.
Money Management. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k)
plans. As of December 31, 1997, Prudential had more than $370 billion in
assets under management. Prudential Investments, a business group of
Prudential (of which Prudential Mutual Funds is a key part), manages over $211
billion in assets of institutions and individuals. In Pensions & Investments,
May 12, 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 and more than 1,100 offices throughout the United States./2/
[Healthcare. Over two decades ago, Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.9
million Americans receive healthcare from a Prudential managed care
membership.]
Financial Services. The Prudential Savings Bank FSB, 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 December 30, 1997 Prudential Investments Fund Management is the 18th
largest mutual fund company in the country, with over 2.5 million shareholders
invested in more than 50 mutual fund portfolios and variable annuities with
more than 3.7 million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
- ----------
/1/ PIC 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 one of the subadvisors to Prudential Investment Portfolios,
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>
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 LLC, 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 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
- ----------
/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.
/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.
III-2
<PAGE>
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 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1997, assets held by Prudential Securities for
its clients approximated $235 billion. During 1997, over 29,000 new customer
accounts were opened each month at Prudential Securities./7/
Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey.
Three 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.
- ----------
/6/ As of December 31, 1994.
/7/ As of December 31, 1997.
/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 23.
Exhibits:
(a) (1) Articles of Amendment and Restatement of Charter of Registrant,
incorporated by reference to Exhibit 1(a) to Post Effective
Amendment No. 11 to the Registration Statement on Form N-1A (File
No. 33-38461) filed via Edgar on March 4, 1998.
(2) Articles of Amendment of Charter of Registrant, incorporated by
reference to Exhibit 1(b) to Post Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-38461) filed via
Edgar on March 4, 1998.
(3) Certificate of Correction, incorporated by reference to Exhibit
1(c) to Post Effective Amendment No. 11 to the Registration Statement
on Form N-1A (File No. 33-38461) filed via Edgar on March 4, 1998.
(4) Articles of Amendment of Charter, incorporated by reference to
Exhibit 1(d) to Post Effective Amendment No. 11 to the Registration
Statement on Form N-1A (File No. 33-38461) filed via Edgar on March
4, 1998.
(5) Articles of Amendment of Charter of the Registrant, incorporated
by reference to Exhibit 1(e) to Post Effective Amendment No. 11 to
the Registration Statement on Form N-1A (File No. 33-38461) filed via
Edgar on March 4, 1998.
(6) Articles of Amendment of Charter of the Registrant, incorporated
by reference to Exhibit 1(f) to Post Effective Amendment No. 11 to
the Registration Statement on Form N-1A (File No. 33-38461) filed via
Edgar on March 4, 1998.
(7) 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.
(8) Articles Supplementary.*
(b) (1) Amended and Restated By-Laws of the Registrant, incorporated by
reference to Exhibit 2(a) to Post Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-38461) filed via
Edgar on March 4, 1998.
(2) Amended By-Laws of Registrant, incorporated by reference to
Exhibit 2(b) to Post Effective Amendment No. 11 to the Registration
Statement on Form N-1A (File No. 33-38461) filed via Edgar on March
4, 1998.
(c) (1) Specimen stock certificates for Class A shares, incorporated by
reference to Exhibit 4(a) to Post Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-38461) filed via
Edgar on March 4, 1998.
(2) Specimen stock certificates for Class B shares, incorporated by
reference to Exhibit 4(b) to Post Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-38461) filed via
Edgar on March 4, 1998.
(d) (1) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc., incorporated by reference to Exhibit
5(a) to Post Effective Amendment No. 11 to the Registration
Statement on Form N-1A (File No. 33-38461) filed via Edgar on March
4, 1998.
(2) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and Nicholas-Applegate Capital Management, incorporated by
reference to Exhibit 5(b) to Post Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-38461) filed via
Edgar on March 4, 1998.
(e) (1) Distribution Agreement with Prudential Investment Management
Services LLC.*
(2) Selected Dealer Agreement.*
(f) Not Applicable.
(g) (1) Custodian Contract between the Registrant and State Street Bank
and Trust Company, incorporated by reference to Exhibit 8(a) to
Post-Effective Amendment No. 11 to the Registration Statement on
Form N-1A (File No. 33-38461) filed via Edgar on March 4, 1998.
C-1
<PAGE>
(2) Addendum to Custodian Contract between the Registrant and State
Street Bank and Trust Company, incorporated by reference to Exhibit
8(b) to Post-Effective Amendment No. 11 to the Registration statement
on Form N-1A (File No. 33-38461) filed via Edgar on March 4, 1998.
(h) (1) Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit 9(a) to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A (File No. 33-38461) filed via Edgar on March
4, 1998.
(2) Credit Facility Agreement between the Registrant and
Deutschebank.**
(i) Opinion of counsel, incorporated by reference to Exhibit 10 to Post-
Effective Amendment No. 11 to the Registration Statement on Form N-
1A (File No. 33-38461) filed via Edgar on March 4, 1998.
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m) (1) Amended and Restated Distribution and Service Plan for Class A
Shares.*
(2) Amended and Restated Distribution and Service Plan for Class B
Shares.*
(3) Amended and Restated Distribution and Service Plan for Class C
Shares.*
(n) Financial Data Schedules.**
(o) Amended Rule 18f-3 Plan.*
- ----------
*Filed herewith.
**To be filed by amendment.
Item 24. 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.
Item 25. Indemnification.
Section 9 of the Management Agreement filed herewith as Exhibit (a)(1)
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
(a)(2) 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
Agreement filed herewith as Exhibit (e),
C-2
<PAGE>
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 (g) (1) and (2).
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 (h). 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 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.
C-3
<PAGE>
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 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(A) PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
See "How the Fund Is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Investment Advisory and Other Services" 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>
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,
PIFM.
Brian M. 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.
C-4
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Prudential Investment Management Services LLC (PIMS)
PIMS is distributor for Cash Accumulation Trust, Command Government Fund,
Command Money Fund, Command Tax-Free Fund, 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 High Yield Total Return
Fund, Inc., Prudential Index Series Fund, Prudential Institutional Liquidity,
Prudential Intermediate Global Income Fund, Inc., Portfolio, Inc., Prudential
International Bond Fund, Inc., Prudential Mid-CapValue Fund, Prudential
MoneyMart Assets, Inc., Prudential Mortgage Income 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 Real Estate Securities Fund, Prudential
Small-Cap Quantum Fund, Inc., Prudential Small Company Value Fund, Inc.,
Prudential Special Money Market Fund, Inc., Prudential Structured Maturity
Fund, Inc., Prudential 20/20 Focus Fund, Prudential Tax-Free Money Fund, Inc.,
Prudential Utility Fund, Inc., Prudential World Fund, Inc. and The Target
Portfolio Trust.
(b) Information concerning the directors and officers of PIMS is set forth
below.
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------- ------------- -------------
<S> <C> <C>
E. Michael Caulfield.... President None
Mark R. Fetting......... Executive Vice President None
Gateway Center Three
100 Mulberry Street
Newark, New Jersey
07102
Jean D. Hamilton........ Executive Vice President None
Ronald P. Joelson....... Executive Vice President None
Brian M. Storms......... Executive Vice President None
Gateway Center Three
100 Mulberry Street
Newark, New Jersey
07102
John R. Strangfeld...... Executive Vice President None
Mario A. Mosse ......... Senior Vice President and Chief Operating Officer None
Scott S. Wallner........ Vice President, Secretary and Chief Legal Officer None
Michael G. Williamson... Vice President, Comptroller and Chief Financial Officer None
C. Edward Chaplin....... Treasurer None
</TABLE>
- ----------
(/1/)The address of each person named is Prudential Plaza, 751 Broad Street,
Newark, New Jersey 07102 unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices
of State Street Bank and Trust Company, 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, 100 Mulberry Street, Newark, New Jersey 07102-
C-5
<PAGE>
4077 and the remaining accounts, books and other documents required by such
other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services LLC.
ITEM 29. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Fund is Managed--
Manager" and "How the Fund is Managed-Distributor" in the Prospectus and the
caption "Investment Advisory and Other Services" in the Statement of
Additional Information, constituting Parts A and B, respectively, of this
Post-Effective Amendment to the Registration Statement, Registrant is not a
party to any management-related service contract.
ITEM 30. UNDERTAKINGS
Not applicable.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Newark, and
State of New Jersey, on the 12th day of January, 1999.
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 January 12, 1999
--------------------------------------
Arthur E. Nicholas
/s/ Dann V. Angeloff Director January 12, 1999
--------------------------------------
Dann V. Angeloff
/s/ Fred C. Applegate Director January 12, 1999
--------------------------------------
Fred C. Applegate
Director January 12, 1999
--------------------------------------
Theodore J. Coburn
/s/ Robert F. Gunia Director January 12, 1999
--------------------------------------
Robert F. Gunia
/s/ Arthur B. Laffer Director January 12, 1999
--------------------------------------
Arthur B. Laffer
/s/ Charles E. Young Director January 12, 1999
--------------------------------------
Charles E. Young
/s/ Grace Torres Treasurer and Principal Financial January 12, 1999
-------------------------------------- and Accounting Officer
Grace Torres
</TABLE>
C-7
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
POST-EFFECTIVE AMENDMENT NO. 12
EXHIBIT INDEX
Exhibit Number Description
(a) (1) Articles of Amendment and Restatement of Charter of Registrant,
incorporated by reference to Exhibit 1(a) to Post-Effective
Amendment No. 11 to the Registration Statement on Form N-1A (File
No. 33-38461) filed via EDGAR on March 4, 1998.
(2) Articles of Amendment of Charter of Registrant, incorporated by
reference to Exhibit 1(b) to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-38461) filed via
EDGAR on March 4, 1998.
(3) Certificate of Correction, incorporated by reference to Exhibit
1(c) to Post-Effective Amendment No. 11 to the Registration Statement
on Form N-1A (File No. 33-38461) filed via EDGAR on March 4, 1998.
(4) Articles of Amendment of Charter, incorporated by reference to
Exhibit 1(d) to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A (File No. 33-38461) filed via EDGAR on March
4, 1998.
(5) Articles of Amendment of Charter of the Registrant, incorporated
by reference to Exhibit 1(e) to Post-Effective Amendment No. 11 to
the Registration Statement on Form N-1A (File No. 33-38461) filed via
EDGAR on March 4, 1998.
(6) Articles of Amendment of Charter of the Registrant, incorporated
by reference to Exhibit 1(f) to Post-Effective Amendment No. 11 to
the Registration Statement on Form N-1A (File No. 33-38461) filed via
EDGAR on March 4, 1998.
(7) 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.
(8) Articles Supplementary.*
(b) (1) Amended and Restated By-Laws of the Registrant, incorporated by
reference to Exhibit 2(a) to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-38461) filed via
EDGAR on March 4, 1998.
(2) Amended By-Laws of Registrant, incorporated by reference to
Exhibit 2(b) to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A (File No. 33-38461) filed via EDGAR on March
4, 1998.
(c) (1) Specimen stock certificates for Class A shares, incorporated by
reference to Exhibit 4(a) to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-38461) filed via
EDGAR on March 4, 1998.
(2) Specimen stock certificates for Class B shares, incorporated by
reference to Exhibit 4(b) to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-38461) filed via
EDGAR on March 4, 1998.
(d) (1) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc., incorporated by reference to Exhibit
5(a) to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A (File No. 33-38461) filed via EDGAR on March
4, 1998.
(2) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and Nicholas-Applegate Capital Management, incorporated by
reference to Exhibit 5(b) to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-38461) filed via
EDGAR on March 4, 1998.
(e) (1) Distribution Agreement with Prudential Investment Management
Services LLC.*
(2)Selected Dealer Agreement.*
(g) (1) Custodian Contract between the Registrant and State Street Bank
and Trust Company, incorporated by reference to Exhibit 8(a) to
Post-Effective Amendment No. 11 to the Registration Statement on
Form N-1A (File No. 33-38461) filed via EDGAR on March 4, 1998.
<PAGE>
Exhibit Description
Number
(2) Addendum to Custodian Contract between the Registrant and State
Street Bank and Trust Company, incorporated by reference to Exhibit
8(b) to Post-Effective Amendment No. 11 to the Registration Statement
on Form N-1A (File No. 33-38461) filed via EDGAR on March 4, 1998.
(h) (1) Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit 9(a) to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A (File No. 33-38461) filed via EDGAR on March
4, 1998.
(2) Credit Facility Agreement between the Registrant and
Deutschebank.**
(i) Opinion of counsel, incorporated by reference to Exhibit 10 to Post-
Effective Amendment No. 11 to the Registration Statement on Form N-
1A (File No. 3-38461) filed via EDGAR on March 4, 1998.
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m) (1) Amended and Restated Distribution and Service Plan for Class A
Shares.*
(2) Amended and Restated Distribution and Service Plan for Class B
Shares.*
(3) Amended and Restated Distribution and Service Plan for Class C
Shares.*
(n) Financial Data Schedules.**
(o) Amended Rule 18f-3 Plan.*
----------
* Filed herewith.
**To be filed by amendment.
<PAGE>
EXHIBIT (a)(8)
ARTICLES SUPPLEMENTARY
of
NICHOLAS-APPLEGATE FUND, INC.
Nicholas-Applegate Fund, Inc., a Maryland corporation having its
principal office in Baltimore, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: In accordance with Article V1 of the Charter of the Corporation
and the Maryland General Corporation Law, the Board of Directors has
reclassified the unissued shares of its Class C Common Stock (par value $.01 per
share) by changing certain terms and conditions as follows:
Effective November 2, 1998, all newly-issued Class C Shares of Common
Stock shall be subject to a front-end sales charge, a contingent deferred sales
charge, and a Rule 12b-1 distribution fee as determined by the Board of
Directors from time to time in accordance with the Investment Company Act of
1940, as amended, and as disclosed in the current prospectus for such shares.
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 Secretary on October 21, 1998.
WITNESS: NICHOLAS-APPLEGATE
FUND, INC.
/s/ S. Jane Rose By:/s/ Arthur E. Nicholas
- --------------------------- ------------------------------
S. Jane Rose, Secretary Arthur E. Nicholas, President
THE UNDERSIGNED, President of Nicholas-Applegate Fund, Inc,, who executed
on behalf of the Corporation Articles Supplementary of which this Certificate is
made a part, hereby acknowledges in the name and on behalf of said Corporation
the foregoing Articles Supplementary to be in the corporate act of said
Corporation and hereby certifies that the matters and facts set forth herein
with respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ Arthur E. Nicholas
------------------------------
Arthur E. Nicholas, President
<PAGE>
EXHIBIT (e)(1)
NICHOLAS-APPLEGATE FUND, INC.
Distribution Agreement
Agreement made as of June 1, 1998, between Nicholas-Applegate Fund, Inc.
(the Fund), and Prudential Investment Management Services LLC, a Delaware
limited liability company (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the Investment Company Act), as a diversified, open-end, management
investment company and it is in the interest of the Fund to offer its shares for
sale continuously;
WHEREAS, the shares of the Fund may be divided into classes and/or series
(all such shares being referred to herein as Shares) and the Fund currently is
authorized to offer Class A, Class B, Class C and Class Z Shares;
WHEREAS, the Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, and is engaged in the business of selling
shares of registered investment companies either directly or through other
broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other, with respect to the continuous offering of the Fund's Shares from
and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Shares; and
WHEREAS, the Fund has adopted a plan (or plans) of distribution pursuant to
Rule 12b-1 under the Investment Company Act with respect to certain of its
classes and/or series of Shares (the Plans) authorizing payments by the Fund to
the Distributor with respect to the distribution of such classes and/or series
of Shares and the maintenance of related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
------------------------------
The Fund hereby appoints the Distributor as the principal underwriter and
distributor of the Shares of the Fund to sell Shares to the public on behalf of
the Fund and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Shares of the Fund through the Distributor on the terms and conditions set forth
below.
<PAGE>
Section 2. Exclusive Nature of Duties
--------------------------
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the Fund's Shares, except that:
2.1 The exclusive rights granted to the Distributor to sell Shares of the
Fund shall not apply to Shares of the Fund issued in connection with the merger
or consolidation of any other investment company or personal holding company
with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund.
2.2 Such exclusive rights shall not apply to Shares issued by the Fund
pursuant to reinvestment of dividends or capital gains distributions or through
the exercise of any conversion feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares issued by the Fund
pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean the
Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Shares from the Fund
--------------------------------
3.1 The Distributor shall have the right to buy from the Fund on behalf of
investors the Shares needed, but not more than the Shares needed (except for
clerical errors in transmission) to fill unconditional orders for Shares placed
with the Distributor by investors or registered and qualified securities dealers
and other financial institutions (selected dealers).
3.2 The Shares shall be sold by the Distributor on behalf of the Fund and
delivered by the Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of any or all classes-
and/or series of its Shares at times when redemption is suspended pursuant to
2
<PAGE>
the conditions in Section 4.3 hereof or at such other times as may be determined
by the Board. The Fund shall also have the right to suspend the sale of any or
all classes and/or series of its Shares if a banking moratorium shall have been
declared by federal or New Jersey authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by the Fund; provided, however, that the
Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Shares. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts
for such Shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds or federal funds. The
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by the Fund
----------------------------------------------
4.1 Any of the outstanding Shares may be tendered for redemption at any
time, and the Fund agrees to repurchase or redeem the Shares so tendered in
accordance with its Declaration of Trust as amended from time to time, and in
accordance with the applicable provisions of the Prospectus. The price to be
paid to redeem or repurchase the Shares shall be equal to the net asset value
determined as set forth in the Prospectus. All payments by the Fund hereunder
shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Shares shall be
paid by the Fund as follows: (i) in the case of Shares subject to a contingent
deferred sales charge, any applicable contingent deferred sales charge shall be
paid to the Distributor, and the balance shall be paid to or for the account of
the redeeming shareholder, in each case in accordance with applicable provisions
of the Prospectus: and (ii) in the case of all other Shares, proceeds shall be
paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus.
4.3 Redemption of any class and/or series of Shares or payment may be
suspended at times when the New York Stock Exchange is closed for other than
customary weekends and holidays, when trading on said Exchange is restricted,
when an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order, so permits.
3
<PAGE>
Section 5. Duties of the Fund
------------------
5.1 Subject to the possible suspension of the sale of Shares as provided
herein, the Fund agrees to sell its Shares so long as it has Shares of the
respective class and/or series available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of its Prospectus
and annual and interim reports as the Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Board and the shareholders, all necessary action to register the
same under the Securities Act, to the end that there will be available for sale
such number of Shares as the Distributor reasonably may expect to sell. The Fund
agrees to file from time to time such amendments, reports and other documents as
may be necessary in order that there will be no untrue statement of a material
fact in the Registration Statement, or necessary in order that there will be no
omission to state a material fact in the Registration Statement which omission
would make the statements therein misleading.
5.4 The Fund shall use its best efforts to notify such states as the
Distributor and the Fund may approve of its intention to sell any appropriate
number of its Shares; provided that the Fund shall not be required to amend its
Declaration of Trust or By-Laws to comply with the laws of any state, to
maintain an office in any state, to change the terms of the offering of its
Shares in any state from the terms set forth in its Registration Statement, to
qualify as a foreign corporation in any state or to consent to service of
process in any state other than with respect to claims arising out of the
offering of its Shares. Any such notification may be withheld, terminated or
withdrawn by the Fund at any time in its discretion. As provided in Section 9
hereof, the expense of notification and maintenance of notification shall be
borne by the Fund. The Distributor shall furnish such information and other
material relating to its affairs and activities as may be required by the Fund
in connection with such notifications.
4
<PAGE>
Section 6. Duties of the Distributor
-------------------------
6.1 The Distributor shall devote reasonable time and effort to effect sales
of Shares, but shall not be obligated to sell any specific number of Shares.
Sales of the Shares shall be on the terms described in the Prospectus. The
Distributor may enter into like arrangements with other investment companies.
The Distributor shall compensate the selected dealers as set forth in the
Prospectus.
6.2 In selling the Shares, the Distributor shall use its best efforts in all
respects duly to conform with the requirements of all federal and state laws
relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of Securities
Exchange Act Rule 10b-10 and the rules of the National Association of Securities
Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Shares, provided that the Fund shall
approve the forms of such agreements. Within the United States, the Distributor
shall offer and sell Shares only to such selected dealers as are members in good
standing of the NASD or are institutions exempt from registration under
applicable federal securities laws. Shares sold to selected dealers shall be for
resale by such dealers only at the offering price determined as set forth in the
Prospectus.
Section 7. Payments to the Distributor
---------------------------
7.1 With respect to classes and/or series of Shares which impose a front-end
sales charge, the Distributor shall receive and may retain any portion of any
front-end sales charge which is imposed on such sales and not reallocated to
selected dealers as set forth in the Prospectus, subject to the limitations of
Rule 2830 of the Conduct Rules of the NASD. Payment of these amounts to the
Distributor is not contingent upon the adoption or continuation of any
applicable Plans.
7.2 With respect to classes and/or series of Shares which impose a
contingent deferred sales charge, the Distributor shall receive and may retain
any contingent deferred sales charge which is imposed on such sales as set forth
in the Prospectus, subject to the limitations of Rule 2830 of the Conduct Rules
of the NASD.
5
<PAGE>
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of any Plan.
Section 8. Payment of the Distributor under the Plan
-----------------------------------------
8.1 The Fund shall pay to the Distributor as compensation for services
under any Plans adopted by the Fund and this Agreement a distribution and
service fee with respect to the Fund's classes and/or series of Shares as
described in each of the Fund's respective Plans and this Agreement.
8.2 So long as a Plan or any amendment thereto is in effect, the Distributor
shall inform the Board of the commissions and account servicing fees with
respect to the relevant class and/or series of Shares to be paid by the
Distributor to account executives of the Distributor and to broker-dealers,
financial institutions and investment advisers which have dealer agreements with
the Distributor. So long as a Plan (or any amendment thereto) is in effect, at
the request of the Board or any agent or representative of the Fund, the
Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities with respect to the relevant class and/or
series of Shares.
Section 9. Allocation of Expenses
----------------------
The Fund shall bear all costs and expenses of the continuous offering of its
Shares (except for those costs and expenses borne by the Distributor pursuant to
a Plan and subject to the requirements of Rule 12b-1 under the Investment
Company Act), including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required Registration
Statements and/or Prospectuses under the Investment Company Act or the
Securities Act, and all amendments and supplements thereto, and preparing and
mailing annual and periodic reports and proxy materials to shareholders
(including but not limited to the expense of setting in type any such
Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of making notice
filings for the Shares for sale, and, if necessary or advisable in connection
therewith, of qualifying the Fund as a broker or dealer, in such states of the
United States or other jurisdictions as shall be selected by the Fund and the
Distributor pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing notification therein until the Fund decides to
discontinue such notification pursuant to Section 5.4 hereof. As set forth in
Section 8 above, the Fund shall also bear the expenses it assumes pursuant to
any Plan, so long as such Plan is in effect.
6
<PAGE>
Section 10. Indemnification
---------------
10.1 The Fund agrees to indemnify, defend and hold the Distributor, its
officers and directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Distributor,
its officers, members or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any alleged omission to state a material fact required to be stated in either
thereof or necessary to make the statements in either thereof not misleading,
except insofar as such claims, demands, liabilities or expenses arise out of or
are based upon any such untrue statement or omission or alleged untrue statement
or omission made in reliance upon and in conformity with information furnished
by the Distributor to the Fund for use in the Registration Statement or
Prospectus; provided, however, that this indemnity agreement shall not inure to
the benefit of any such officer, member or controlling person unless a court of
competent jurisdiction shall determine in a final decision on the merits, that
the person to be indemnified was not liable by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
its reckless disregard of its obligations under this Agreement (disabling
conduct), or, in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnified person was not liable by
reason of disabling conduct, by (a) a vote of a majority of a quorum of
directors or directors who are neither "interested persons" of the Fund as
defined in Section 2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion. The Fund's
agreement to indemnify the Distributor, its officers and members and any such
controlling person as aforesaid is expressly conditioned upon the Fund's being
promptly notified of any action brought against the Distributor, its officers or
members, or any such controlling person, such notification to be given by letter
or telegram addressed to the Fund at its principal business office. The Fund
agrees promptly to notify the Distributor of the commencement of any litigation
or proceedings against it or any of its officers or directors in connection with
the issue and sale of any Shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund, its
officers and directors and any person who controls the Fund, if any, within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Fund, its
officers and directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its
7
<PAGE>
directors or officers or such controlling person resulting from such claims or
demands shall arise out of or be based upon any alleged untrue statement of a
material fact contained in information furnished by the Distributor to the Fund
for use in the Registration Statement or Prospectus or shall arise out of or be
based upon any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement or Prospectus or
necessary to make such information not misleading. The Distributors agreement to
indemnify the Fund, its officers and directors and any such controlling person
as aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and directors or
any such controlling person, such notification being given to the Distributor at
its principal business office.
Section 11. Duration and Termination of this Agreement
------------------------------------------
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of the Fund, or by the vote of a majority of the
outstanding voting securities of the applicable class and/or series of the Fund,
and (b) by the vote of a majority of those directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of any of the
Fund's Plans or in any agreement related thereto (independent directors), cast
in person at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the independent directors or by vote of a majority
of the outstanding voting securities of the applicable class and/or series of
the Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of the Fund, or by the vote of a majority
of the outstanding voting securities of the applicable class and/or series of
the Fund, and (b) by the vote of a majority of the independent directors cast in
person at a meeting called for the purpose of voting on such amendment.
8
<PAGE>
Section 13. Separate Agreement as to Classes and/or Series
----------------------------------------------
The amendment or termination of this Agreement with respect to any class
and/or series shall not result in the amendment or termination of this
Agreement with respect to any other class and/or series unless explicitly so
provided.
Section 14. Governing Law
-------------
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New Jersey as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New Jersey, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year above written.
Prudential Investment Management Services LLC
By: /s/ Mark R. Fetting
-------------------
Mark R. Fetting
Executive Vice President
Nicholas-Applegate Fund, Inc.
By: /s/ Robert F. Gunia
-------------------
Robert F. Gunia
Vice President
9
<PAGE>
EXHIBIT (e)(2)
DEALER AGREEMENT
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
Prudential Investment Management Services LLC ("Distributor") and ___________
("Dealer") have agreed that Dealer will participate in the distribution of
shares ("Shares") of all the funds and series thereof (as they may exist from
time to time) comprising the Prudential Mutual Fund Family (each a "Fund" and
collectively the "Funds") and any classes thereof for which Distributor now or
in the future serves as principal underwriter and distributor, subject to the
terms of this Dealer Agreement ("Agreement"). Any such additional Funds will be
included in this Agreement upon Distributor's written notification to Dealer.
1. Licensing
---------
a. Dealer represents and warrants that it is: (i) a broker-dealer
registered with the Securities and Exchange Commission ("SEC"); (ii) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
and (iii) licensed by the appropriate regulatory agency of each state or other
jurisdiction in which Dealer will offer and sell Shares of the Funds, to the
extent necessary to perform the duties and activities contemplated by this
Agreement.
b. Dealer represents and warrants that each of its partners, directors,
officers, employees, and agents who will be utilized by Dealer with respect to
its duties and activities under this Agreement is either appropriately licensed
or exempt from such licensing requirements by the appropriate regulatory agency
of each state or other jurisdiction in which Dealer will offer and sell Shares
of The Funds.
c. Dealer agrees that: (i) termination or suspension of its
registration with the SEC; (ii) termination or suspension of its membership with
the NASD, or (iii) termination or suspension of its license to do business by
any state or other jurisdiction or federal regulatory agency shall immediately
cause the termination of this Agreement. Dealer further agrees to immediately
notify Distributor in writing of any such action or event.
d. Dealer agrees that this Agreement is in all respects subject to the
Conduct Rules of the NASD and such Conduct Rules shall control any provision to
the contrary in this Agreement.
e. Dealer agrees to be bound by and to comply with all applicable
state and federal laws and all rules and regulations promulgated thereunder
generally affecting the sale or distribution of mutual fund shares.
2. Orders
------
a. Dealer agrees to offer and sell Shares of the Funds (including
those of each of its classes) only at the regular public offering price
applicable to such Shares and in effect at the time of each transaction. The
procedures relating to all orders and the handling of each order (including the
manner of computing the net asset value of Shares and the effective time of
orders received from Dealer) are subject to: (i) the terms of the then current
prospectus and statement of
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<PAGE>
additional information (including any supplements, stickers or amendments
thereto) relating to each Fund, as filed with the SEC ("Prospectus"); (ii) the
new account application for each Fund, as supplemented or amended from time to
time; and (iii) Distributor's written instructions and multiple class pricing
procedures and guidelines, as provided to Dealer from time to time. To the
extent that the Prospectus contains provisions that are inconsistent with this
Agreement or any other document, the terms of the Prospectus shall be
controlling.
b. Distributor reserves the right at any time, and without notice to
Dealer, to suspend the sale of Shares or to withdraw or limit the offering of
Shares. Distributor reserves the unqualified right not to accept any specific
order for the purchase or sale of Shares.
c. In all offers and sales of the Shares to the public, Dealer is not
authorized to act as broker or agent for, or employee of, Distributor, any Fund
or any other dealer, and Dealer shall not in any manner represent to any third
party that Dealer has such authority or is acting in such capacity. Rather,
Dealer agrees that it is acting as principal for Dealer's own account or as
agent on behalf of Dealer's customers in all transactions in Shares, except as
provided in Section 3.i. hereof. Dealer acknowledges that it is solely
responsible for all suitability determinations with respect to sales of Shares
of the Funds to Dealer's customers and that Distributor has no responsibility
for the manner of Dealer's performance of, or for Dealer's acts or omissions in
connection with, the duties and activities Dealer provides under this Agreement.
d. All orders are subject to acceptance by Distributor in its sole
discretion and become effective only upon confirmation by Distributor.
c. Distributor agrees that it will accept from Dealer orders placed
through a remote terminal or otherwise electronically transmitted via the
National Securities Clearing Corporation ("NSCC") Fund/Serv Networking program,
provided, however, that appropriate documentation thereof and agreements
relating thereto are executed by both parties to this Agreement, including in
particular the standard NSCC Networking Agreement and any other related
agreements between Distributor and Dealer deemed appropriate by Distributor, and
that all accounts opened or maintained pursuant to that program will be governed
by applicable NSCC rules and procedures. Both parties further agree that, if the
NSCC Fund/Serv Networking program is used to place orders, the standard NSCC
Networking Agreement will control insofar as there is any conflict between any
provision of the Dealer Agreement and the standard NSCC Networking Agreement.
3. Duties of Dealer
----------------
a. Dealer agrees to purchase Shares only from Distributor or from
Dealer's customers.
b. Dealer agrees to enter orders for the purchase of Shares only from
Distributor and only for the purpose of covering purchase orders Dealer has
already received from its customers or for Dealer's own bona fide investment.
c. Dealer agrees to date and time stamp all orders received by Dealer
and promptly, upon receipt of any and all orders, to transmit to Distributor
all orders received prior to
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<PAGE>
the time described in the Prospectus for the calculation of each Fund's net
asset value so as to permit Distributor to process all orders at the price next
determined after receipt by Dealer, in accordance with the Prospectus. Dealer
agrees not to withhold placing orders for Shares with Distributor so as to
profit itself as a result of such inaction.
d. Dealer agrees to maintain records of all purchases and sales of
Shares made through Dealer and to furnish Distributor or regulatory authorities
with copies of such records upon request. In that regard, Dealer agrees that,
unless Dealer holds Shares as nominee for its customers or participates in the
NSCC Fund/Serv Networking program, at certain matrix levels, it will provide
Distributor with all necessary information to comply properly with all federal,
state and local reporting requirements and backup and nonresident alien
withholding requirements for its customer accounts including, without
limitation, those requirements that apply by treating Shares issued by the Funds
as readily tradable instruments. Dealer represents and agrees that all Taxpayer
Identification Numbers ("TINs") provided are certified, and that no account that
requires a certified TIN will be established without such certified TIN. With
respect to all other accounts, including Shares held by Dealer in omnibus
accounts and Shares purchased or sold through the NSCC Fund/Serv Networking
program, at certain matrix levels, Dealer agrees to perform all federal, state
and local tax reporting with respect to such accounts, including without
limitation redemptions and exchanges.
e. Dealer agrees to distribute or cause to be delivered to its
customers Prospectuses, proxy solicitation materials and related information and
proxy cards, semi-annual and annual shareholder reports and any other materials
in compliance with applicable legal requirements, except to the extent that
Distributor expressly undertakes to do so in writing.
f. Dealer agrees that if any Share is repurchased by any Fund or is
tendered for redemption within seven (7) business days after confirmation by
Distributor of the original purchase order from Dealer, Dealer shall forfeit its
right to any concession or commission received by Dealer with respect to such
Share and shall forthwith refund to Distributor the full concession allowed to
Dealer or commission paid to Dealer on the original sale. Distributor agrees to
notify Dealer of such repurchase or redemption within a reasonable time after
settlement. Termination or cancellation of this Agreement shall not relieve
Dealer from its obligation under this provision.
g. Dealer agrees that payment for Shares ordered from Distributor
shall be in Fed Funds, New York clearinghouse or other immediately available
funds and that such funds shall be received by Distributor by the earlier of
(i) the end of the third (3rd) business day following Dealer's receipt of the
customer's order to purchase such Shares, or (ii) the settlement date
established in accordance with Rule 15c6-1 under the Securities Exchange Act of
1934, as amended. If such payment is not received by Distributor by such date,
Dealer shall forfeit its right to any concession or commission with respect to
such order, and Distributor reserves the right, without notice, forthwith to
cancel the sale, or, at its option, to sell the Shares ordered back to the Fund,
in which case Distributor may hold Dealer responsible for any loss, including
loss of profit, suffered by Distributor resulting from Dealer's failure to make
payment as aforesaid. If a purchase is made by check, the purchase is deemed
made upon conversion of the purchase instrument into Fed Funds, New York
clearinghouse or other immediately available funds.
A-3
<PAGE>
h. Dealer agrees that it: (i) shall assume responsibility for any loss
to the Fund caused by a correction to any order placed by Dealer that is made
subsequent to the trade date for the order, provided such order correction was
not based on any negligence on Distributor's part; and (ii) will immediately pay
such loss to the Fund upon notification.
i. Dealer agrees that in connection with orders for the purchase of
Shares on behalf of any IRAs, 401(k) plans or other retirement plan accounts, by
mail, telephone, or wire, Dealer shall act as agent for the custodian or trustee
of such plans (solely with respect to the time of receipt of the application and
payments), and Dealer shall not place such an order with Distributor until it
has received from its customer payment for such purchase and, if such purchase
represents the first contribution to such a retirement plan account, the
completed documents necessary to establish the retirement plan. Dealer agrees to
indemnify Distributor and its affiliates for any claim, loss, or liability
resulting from incorrect investment instructions received by Distributor from
Dealer.
j. Dealer agrees that it will not make any conditional orders for the
purchase or redemption of Shares and acknowledges that Distributor will not
accept conditional orders for Shares.
k. Dealer agrees that all out-of-pocket expenses incurred by it in
connection with its activities under this Agreement will be borne by Dealer.
1. Dealer agrees that it will keep in force appropriate broker's
blanket bond insurance policies covering any and all acts of Dealer's partners,
directors, officers, employees, and agents adequate to reasonably protect and
indemnify the Distributor and the Funds against any loss which any party may
suffer or incur, directly or indirectly, as a result of any action by Dealer or
Dealer's partners, directors, officers, employees, and agents.
m. Dealer agrees that it will maintain the required net capital as
specified by the rules and regulations of the SEC, NASD and other regulatory
authorities.
4. Dealer Compensation
-------------------
a. On each purchase of Shares by Dealer from Distributor, the total
sales charges and dealer concessions or commissions, if any, payable to Dealer
shall be as stated on Schedule A to this Agreement, which may be amended by
Distributor from time to time. Distributor reserves the right, without prior
notice, to suspend or eliminate such dealer concession or commissions by
amendment, sticker or supplement to the then current Prospectus for each Fund.
Such sales charges and dealer concessions or commissions, are subject to
reduction under a variety of circumstances as described in each Fund's then
current Prospectus. For an investor to obtain any reduction, Distributor must be
notified at the time of the sale that the sale qualifies for the reduced sales
charge. If Dealer fails to notify Distributor of the applicability of a
reduction in the sales charge at the time the trade is placed, neither
Distributor nor any Fund will be liable for amounts necessary to reimburse any
investor for the reduction that should have been effected. Dealer acknowledges
that no sales charge or concession or commission will be paid to Dealer on the
reinvestment of dividends or capital gains reinvestment or on Shares acquired in
exchange for Shares of another Fund, or class thereof, having the same sales
charge structure as the Fund, or class thereof, from which the exchange was
made, in accordance with the Prospectus.
A-4
<PAGE>
b. In accordance with the Funds' Prospectuses, Distributor or any
affiliate may, but is not obligated to, make payments to dealers from
Distributor's own resources as compensation for certain sales that are made at
net asset value ("Qualifying Sales"). If Dealer notifies Distributor of a
Qualifying Sale, Distributor may make a contingent advance payment up to the
maximum amount available for payment on the sale. If any of the Shares purchased
in a Qualifying Sale are redeemed within twelve (12) months of the end of the
month of purchase, Distributor shall be entitled to recover any advance payment
attributable to the redeemed Shares by reducing any account payable or other
monetary obligation Distributor may owe to Dealer or by making demand upon
Dealer for repayment in cash. Distributor reserves the right to withhold
advances to Dealer, if for any reason Distributor believes that it may not be
able to recover unearned advances from Dealer.
c. With respect to any Fund that offers Shares for which distribution
plans have been adopted under Rule l2b-1 under the Investment Company Act of
1940, as amended ("Rule l2b-1 Plans"), Distributor also is authorized to pay the
Dealer continuing distribution and/or service fees, as specified in Schedule A
and the relevant Fund Prospectus, with respect to Shares of any such Fund, to
the extent that Dealer provides distribution, marketing, administrative and
other services and activities regarding the promotion of such Shares and the
maintenance of related shareholder accounts.
d. In connection with the receipt of distribution fees and/or service
fees under Rule l2b-1 Plans applicable to Shares purchased by Dealer's
customers, Distributor directs Dealer to provide enhanced shareholder services
such as: processing purchase and redemption transactions; establishing
shareholder accounts; and providing certain information and assistance with
respect to the Funds. (Redemption levels of shareholder accounts assigned to
Dealer will be considered in evaluating Dealer's continued ability to receive
payments of distribution and/or service fees.) In addition, Dealer agrees to
support Distributor's marketing efforts by, among other things, granting
reasonable requests for visits to Dealer's office by Distributor's wholesalers
and marketing representatives, including all Funds covered by a Rule 12b-1 Plan
on Dealer's "approved," "preferred" or other similar product lists, if
applicable, and otherwise providing satisfactory product, marketing and sales
support. Further, Dealer agrees to provide Distributor with supporting
documentation concerning the shareholder services provided, as Distributor may
reasonably request from time to time.
e. All Rule l2b-1 Plan distribution and/or servicing fees shall be
based on the value of Shares attributable to Dealer's customers and eligible for
such payment, and shall be calculated on the basis of and at the rates set forth
in the compensation schedule then in effect. Without prior approval by a
majority of the outstanding shares of a Fund, the aggregate annual fees paid to
Dealer pursuant to any Rule l2b-1 Plan shall not exceed the amounts stated as
the "annual maximums" in each Fund's Prospectus, which amount shall be a
specified percent of the value of the Fund's net assets held in Dealer's
customers' accounts that are eligible for payment pursuant to the Rule 12b-1
Plans (determined in the same manner as each Fund uses to compute its net assets
as set forth in its then current Prospectus).
f. The provisions of any Rule l2b-1 Plan between the Funds and the
Distributor shall control over this Agreement in the event of any inconsistency.
Each Rule l2b-1 Plan in effect on the date of this Agreement is described in the
relevant Fund's Prospectus. Dealer
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<PAGE>
hereby acknowledges that all payments under Rule 12b-1 Plans are subject to
limitations contained in such Rule 12b-1 Plans and may be varied or discontinued
at any time.
5. Redemptions, Repurchases and Exchanges
--------------------------------------
a. The Prospectus for each Fund describes the provisions whereby the
Fund, under all ordinary circumstances, will redeem Shares held by shareholders
on demand. Dealer agrees that it will not make any representations to
shareholders relating to the redemption of their Shares other than the
statements contained in the Prospectus and the underlying organizational
documents of the Fund, to which it refers, and that Dealer will pay as
redemption proceeds to shareholders the net asset value, minus any applicable
deferred sales charge or redemption fee, determined after receipt of the order
as discussed in the Prospectus.
b. Dealer agrees not to repurchase any Shares from its customers at a
price below that next quoted by the Fund for redemption or repurchase, i.e., at
the net asset value of such Shares, less any applicable deferred sales charge,
or redemption fee, in accordance with the Fund's Prospectus, Dealer shall,
however, be permitted to sell Shares for the account of the customer or record
owner to the Funds at the repurchase price then currently in effect for such
Shares and may charge the customer or record owner a fair service fee or
commission for handling the transaction, provided Dealer discloses the fee or
commission to the customer or record owner. Nevertheless, Dealer agrees that it
shall not under any circumstances maintain a secondary market in such
repurchased Shares.
c. Dealer agrees that, with respect to a redemption order it has made,
if instructions in proper form, including any outstanding certificates, are not
received by Distributor within the time customary or the time required by law,
the redemption may be canceled forthwith without any responsibility or liability
on Distributor's part or on the part of any Fund, or Distributor, at its option,
may buy the shares redeemed on behalf of the Fund, in which latter case
Distributor may hold Dealer responsible for any loss, including loss of profit,
suffered by Distributor resulting from Distributor's failure to settle the
redemption.
d. Dealer agrees that it will comply with any restrictions and
limitations on exchanges described in each Fund's Prospectus, including any
restrictions or prohibitions relating to frequent purchases and redemptions
(i.e., market timing).
6. Multiple Classes of Shares
--------------------------
Distributor may, from time to time, provide Dealer with written
guidelines or standards relating to the sale or distribution of Funds offering
multiple classes of Shares with different sales charges and distribution-related
operating expenses.
7. Fund Information
----------------
a. Dealer agrees that neither it nor any of its partners, directors,
officers, employees, and agents is authorized to give any information or make
any representations concerning Shares of any Fund except those contained in the
Fund's then current Prospectus or in materials provided by Distributor.
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<PAGE>
b. Distributor will Supply to Dealer Prospectuses, reasonable
quantities of sales literature, sales bulletins, and additional sales
information as provided by Distributor. Dealer agrees to use only advertising or
sales material relating to the Funds that: (i) is supplied by Distributor, or
(ii) conforms to the requirements of all applicable laws or regulations of any
government or authorized agency having jurisdiction over the offering or sale
of Shares of the Funds and is approved in writing by Distributor in advance of
its use. Such approval may be withdrawn by Distributor in whole or in part upon
written notice to Dealer, and Dealer shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales bulletins and
advertising. Dealer is not authorized to modify or translate any such materials
without Distributor's prior written consent.
8. Shares
------
a. Distributor acts solely as agent for the Fund and Distributor shall
have no obligation or responsibility with respect to Dealer's right to purchase
or sell Shares in any state or jurisdiction.
b. Distributor shall periodically furnish Dealer with information
identifying the states or jurisdictions in which it is believed that all
necessary notice, registration or exemptive filings for Shares have been made
under applicable securities laws such that offers and sales of Shares may be
made in such states or jurisdictions. Distributor shall have no obligation to
make such notice, registration or exemptive filings with respect to Shares in
any state or jurisdiction.
c. Dealer agrees not to transact orders for Shares in states or
jurisdictions in which it has been informed that Shares may not be sold or in
which it and its personnel are not authorized to sell Shares.
d. Distributor shall have no responsibility, under the laws regulating
the sale of securities in the United States or any foreign jurisdiction, with
respect to the qualification or status of Dealer or Dealer's personnel selling
Fund Shares. Distributor shall not, in any event, be liable or responsible for
the issue, form, validity, enforceability and value of such Shares or for any
matter in connection therewith.
e. Dealer agrees that it will make no offers or sales of Shares in any
foreign jurisdiction, except with the express written consent of Distributor.
9. Indemnification
---------------
a. Dealer agrees to indemnify, defend and hold harmless Distributor
and the Funds and their predecessors, successors, and affiliates, each current
or former partner, officer, director, employee, shareholder or agent and each
person who controls or is controlled by Distributor from any and all losses,
claims, liabilities, costs, and expenses, including attorney fees, that may be
assessed against or suffered or incurred by any of them howsoever they arise,
and as they are incurred, which relate in any way to; (i) any alleged violation
of any statute or regulation (including without limitation the securities laws
and regulations of the United States or any state or foreign country) or any
alleged tort or breach of contract, related to the offer or sale by Dealer of
Shares of the Funds pursuant to this Agreement (except to the extent that
Distributor's negligence or failure to follow correct instructions received from
Dealer is the cause. of such loss,
A-7
<PAGE>
claim, liability, cost or expense), (ii) any redemption or exchange pursuant to
instructions received from Dealer or its partners, affiliates, officers,
directors, employees or agents; or (iii) the breach by Dealer of any of its
representations and warranties specified herein or the Dealer's failure to
comply with the terms and conditions of this Agreement, whether or not such
action, failure, error, omission, misconduct or breach is committed by Dealer or
its predecessor, successor, or affiliate, each current or former partner,
officer, director, employee or agent and each person who controls or is
controlled by Dealer.
b. Distributor agrees to indemnify, defend and hold harmless Dealer
and its predecessors, successors and affiliates, each current or former partner,
officer, director, employee or agent, and each person who controls or is
controlled by Dealer from any and all losses, claims, liabilities, costs and
expenses, including attorney fees, that may be assessed against or suffered or
incurred by any of them which arise, and which relate to any untrue statement of
or omission to state a material fact contained in the Prospectus or any written
sales literature or other marketing materials provided by the Distributor to the
Dealer, required to be stated therein or necessary to make the statements
therein not misleading.
c. Dealer agrees to notify Distributor, within a reasonable time, of
any claim or complaint or any enforcement action or other proceeding with
respect to Shares offered hereunder against Dealer or its partners, affiliates,
officers, directors, employees or agents, or any person who controls Dealer,
within the meaning of Section 15 of the Securities Act of 1933, as amended.
d. Dealer further agrees promptly to send Distributor copies of (i)
any report filed pursuant to NASD Conduct Rule 3070, including, without
limitation quarterly reports filed pursuant to Rule 3070(c), (ii) reports filed
with any other self-regulatory organization in lieu of Rule 3070 reports
pursuant to Rule 3070(c) and (iii), amendments to Dealer's Form BD.
e. Each party's obligations under these indemnification provisions
shall survive any termination of this Agreement.
10. Termination; Amendment
----------------------
a. In addition to the automatic termination of this Agreement
specified in Section 1.c. of this Agreement, each party to this Agreement may
unilaterally cancel its participation in this Agreement by giving thirty (30)
days prior written notice to the other party. In addition, each party to this
Agreement may terminate this Agreement immediately by giving written notice to
the other party of that other party's material breach of this Agreement. Such
notice shall be deemed to have been given and to be effective on the date on
which it was either delivered personally to the other party or any officer or
member thereof, or was mailed postpaid or delivered to a telegraph office for
transmission to the other party's designated person at the addresses shown
herein or in the most recent NASD Manual.
b. This Agreement shall terminate immediately upon the appointment of
a Trustee under the Securities Investor Protection Act or any other act of
insolvency by Dealer.
c. The termination of this Agreement by any of the foregoing means
shall have no effect upon transactions entered into prior to the effective date
of termination and shall
A-8
<PAGE>
not relieve Dealer of its obligations, duties and indemnities specified in this
Agreement. A trade placed by Dealer subsequent to its voluntary termination of
this Agreement will not serve to reinstate the Agreement, Reinstatement except
in the case of a temporary suspension of Dealer, will only be effective upon
written notification by Distributor.
d. This Agreement is not assignable or transferable and will terminate
automatically in the event of its "assignment," as defined in the Investment
Company Act of 1940, as amended and the rules, regulations and interpretations
thereunder. The Distributor may, however, transfer any of its duties under this
Agreement to any entity that controls or is under common control with
Distributor.
e. This Agreement may be amended by Distributor at any time by written
notice to Dealer. Dealer's placing of an order or accepting payment of any kind
after the effective date and receipt of notice of such amendment shall
constitute Dealer's acceptance of such amendment.
11. Distributor's Representations and Warranties
--------------------------------------------
Distributor represents and warrants that:
a. It is a limited liability company duty organized and existing and
in good standing under the laws of the state of Delaware and is duty registered
or exempt from registration as a broker-dealer in all states and Jurisdictions
in which it provides services as principal underwriter and distributor for the
Funds.
b. It is a member in good standing of the NASD.
c. It is empowered under applicable laws and by Distributor's charter
and bylaws to enter into this Agreement and perform all activities and services
of the Distributor provided for herein and that there are no impediments, prior
or existing, regulatory, self-regulatory, administrative, civil or criminal
matters affecting Distributor's ability to perform under this Agreement.
d. All requisite actions have been taken to authorize Distributor to
enter into and perform this Agreement.
12. Additional Dealer Representations and Warranties
------------------------------------------------
In addition to the representations and warranties found elsewhere in
this Agreement, Dealer represents and warrants that:
a. It is duly organized and existing and in good standing under the
laws of the state, commonwealth or other jurisdiction in which Dealer is
organized and that Dealer will not offer Shares of any Fund for sale in any
state or jurisdiction where such Shares may not be legally sold or where Dealer
is not qualified to act as a broker-dealer.
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<PAGE>
b. It is empowered under applicable laws and by Dealer's organizational
documents to enter into this Agreement and perform all activities and services
of the Dealer provided for herein and that there are no impediments, prior or
existing, regulatory, self-regulatory, administrative, civil or criminal matters
affecting Dealer's ability to perform under this Agreement.
c. All requisite actions have been taken to authorize Dealer to enter
into and perform this Agreement.
d. It is not, at the time of the execution of this Agreement, subject to
any enforcement or other proceeding with respect to its activities under state
or federal securities laws, rules or regulations.
13. Setoff; Dispute Resolution; Governing Law
-----------------------------------------
a. Should any of Dealer's concession accounts with Distributor have a
debit balance, Distributor shall be permitted to offset and recover the amount
owed from any other account Dealer has with Distributor, without notice or
demand to Dealer.
b. In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted to binding
arbitration under the commercial arbitration rules and procedures of the NASD.
The parties agree that, to the extent permitted under such arbitration rules and
procedures, the arbitrators selected shall be from the securities industry.
Judgment upon any arbitration award may be entered by any state or federal court
having jurisdiction.
c. This Agreement shall be governed and construed in accordance with the
laws of the state of New Jersey, not including any provision which would require
the general application of the law of another jurisdiction.
14. Investigations and Proceedings
------------------------------
The parties to this Agreement agree to cooperate fully in any securities
regulatory investigation or proceeding or judicial proceeding with respect to
each's activities under this Agreement and promptly to notify the other party of
any such investigation or proceeding.
15. Captions
--------
All captions used in this Agreement are for convenience only, are not a
party hereof, and are not to be used in construing or interpreting any aspect
hereof
16. Entire Understanding
--------------------
This Agreement contains the entire understanding of the panics hereto
with respect to the subject matter contained herein and supersedes all previous
agreements. This Agreement shall be binding upon the parties hereto when signed
by Dealer and accepted by Distributor.
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<PAGE>
17. Severability
------------
Whenever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law. If, however,
any provision of this Agreement is held under applicable law to be invalid,
illegal, or unenforceable in any respect, such provision shall be ineffective
only to the extent of such invalidity, and the validity, legality and
enforceability of the remaining provisions of this Agreement shall not be
affected or impaired in any way.
18. Entire Agreement
----------------
This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements and/or understandings of the parties. This Agreement shall be binding
upon the parties hereto when signed by Dealer and accepted by Distributor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year set forth below.
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
By:_____________________________
Name:___________________________
Title:__________________________
Date:___________________________
DEALER:_________________________
By:_____________________________
(Signature)
Name:___________________________
Title:__________________________
Address:________________________
________________________
________________________
Telephone:______________________
NASD CRD #______________________
Prudential Dealer #_____________
(Internal Use Only)
Date:___________________________
A-11
<PAGE>
EXHIBIT (m)(1)
Nicholas-Applegate Fund, Inc.
Amended and Restated
Distribution and Service Plan
(Class A Shares)
--------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Nicholas-Applegate Fund, Inc. (the Fund) and by Prudential Investment
Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors/Trustees of the Fund, including a
majority of those Directors/Trustees who are not "interested persons" of the
Fund (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors/Trustees), have determined by votes cast
in person at a meeting called for the purpose of voting on this Plan that there
is a reasonable likelihood that adoption and continuation of this Plan will
benefit the Fund and its shareholders. Expenditures under this Plan by the Fund
for Distribution Activities (defined below) are primarily
1
<PAGE>
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
Distributor's distribution network, including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class A
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service
fee). The Fund shall
2
<PAGE>
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/Trustees may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2 hereof),
of .30 of 1% per annum of the average daily net assets of the Class A shares of
the Fund for the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine. Amounts payable under the Plan shall
be subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class A shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors/Trustees, The allocation of distribution expenses among
classes will be subject to the review of the Board of Directors/Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
3
<PAGE>
(a) sales commissions and trailer commissions paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
Distribution Activities, including central office and branch
expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class A shares
of the Fund, including sales commissions, trailer commissions paid
to, or on account of, agents and indirect and overhead costs
associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than current
shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other than
Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class A
shares of the Fund.
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of
Directors/Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors/Trustees 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.
4
<PAGE>
The Distributor will inform the Board of Directors/Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
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/Trustees of the Fund and a majority of the
Rule 12b-1 Directors/Trustees by votes cast in person at a meeting called for
the purpose of voting on the Continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors/Trustees, or by vote of a majority of the outstanding
voting securities (as defined in the Investment Company Act) of the Class A
shares of the Fund.
7. Amendments
----------
The Plan may not be amended to change the combined service and
distribution 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
5
<PAGE>
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/Trustees of the Fund and a majority of the Rule 12b-1
Directors/Trustees by votes cast in person at a meeting called for the purpose
of voting on the Plan.
8. Rule 12b-1 Directors/Trustees
-----------------------------
While the Plan is in effect, the selection and nomination of the
Directors/Trustees shall be committed to the discretion of the Rule 12b-1
Directors/Trustees.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: June 1, 1998
6
<PAGE>
EXHIBIT (m)(2)
Nicholas-Applegate Fund, Inc.
Amended and Restated
Distribution and Service Plan
(Class B Shares)
--------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc, (NASD) has been
adopted by Nicholas-Applegate Fund, Inc. (the Fund) and by Prudential Investment
Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class B shares issued by the Fund
(Class B shares). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class B shares.
A majority of the Board of Directors/Trustees of the Fund, including a
majority who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors/Trustees), have determined by votes cast in person at a meeting called
for the purpose of voting on this Plan that there is a reasonable likelihood
that adoption and continuation of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
B shares
1
<PAGE>
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
Distributor's distribution network including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class B
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25
of 1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall
2
<PAGE>
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/Trustees may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class B shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors/Trustees. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors/Trustees. Payments hereunder
will be applied to distribution expenses in the order in which they are
incurred, unless otherwise determined by the Board of Directors/Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
3
<PAGE>
(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 Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential Securities
or Prusec and the Distributor for sale of Class B shares of the Fund,
including sales commissions and trailer commissions paid to, or on
account of, agents and indirect and overhead costs associated with
Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports and
sales literature to persons other than current shareholders of the Fund,
and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other than
Prudential Securities or Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class B shares of the
Fund.
4. Quarterly Reports: Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of
Directors/Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors/Trustees of the Fund such
additional information as they shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
4
<PAGE>
The Distributor will inform the Board of Directors/Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities
of the Class B shares of the Fund, the Plan shall, unless earlier terminated in
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/Trustees of the Fund and a majority of the
Rule 12b-1 Directors/Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors/Trustees, or by vote of a majority of the outstanding
voting securities (as defined in the Investment Company Act) of the Class B
shares of the Fund.
7. Amendments
----------
The Plan may not be amended to change the combined service and
distribution expenses to be paid as provided for in Sections 2 and 3 hereof so
as to increase materially the amounts payable under this Plan unless such
amendment shall be
5
<PAGE>
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/Trustees of the Fund and a majority of the Rule 12b-1
Directors/Trustees by votes cast in person at a meeting called for the purpose
of voting on the Plan.
8. Rule 12b-1 Directors/Trustees
-----------------------------
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors/Trustees shall be committed to the discretion of the Rule 12b-1
Directors/Trustees.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: June 1, 1998
6
<PAGE>
EXHIBIT (m)(3)
Nicholas-Applegate Fund, Inc.
Distribution and Service Plan
(Class C Shares)
--------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc, (NASD) has been
adopted by Nicholas-Applegate Fund, Inc.(the Fund) and by Prudential Investment
Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class C shares issued by the Fund
(Class C shares). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class C shares.
A majority of the Board of Directors/Trustees of the Fund, including a
majority who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors/Trustees), have determined by votes cast in person at a meeting called
for the purpose of voting on this Plan that there is a reasonable likelihood
that adoption and continuation of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of
Class C shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under
1
<PAGE>
the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to, distribute Class C shares of
the Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class C
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund
2
<PAGE>
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class 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/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class C shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors/Trustees. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors/Trustees. Payments hereunder
will be applied to distribution expenses in the order in which they are
incurred, unless otherwise determined by the Board of Directors/Trustees.
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
3
<PAGE>
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 Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential Securities
or Prusec and the Distributor for sale of Class C shares of the Fund,
including sales commissions and trailer commissions paid to, or on
account of, agents and indirect and overhead costs associated with
Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports and
sales literature to persons other than current shareholders of the Fund;
and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other than
Prudential Securities or Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class C shares of the
Fund.
4. Ouarterly Reports: Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of
Directors/Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors/Trustees of the Fund such
additional information as they shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors/Trustees of the Fund
of the
4
<PAGE>
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/Trustees of the Fund and a majority of the
Rule 12b-1 Directors/Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors/Trustees, 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
distribution expenses to be paid as provided for in Sections 2 and 3 hereof so
as to increase materially the amounts payable under this Plan unless such
amendment shall be approved by the vote of a majority of the outstanding voting
securities (as defined in the
5
<PAGE>
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/Trustees of the Fund and a majority of the Rule 12b-1
Directors/Trustees by votes cast in person at a meeting called for the purpose
of voting on the Plan.
8. Rule 12b-1 Directors/Trustees
-----------------------------
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors/Trustees shall be committed to the discretion of the Rule 12b-1
Directors/Trustees.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: June 1, 1998
6
<PAGE>
EXHIBIT O
Nicholas-Applegate Fund, Inc.
(the Fund)
AMENDED AND RESTATED PLAN PURSUANT TO RULE 18F-3
The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares in the Fund. Any
material amendment to this plan is subject to prior approval of the Board of
Directors, including a majority of the independent Directors.
CLASS CHARACTERISTICS
CLASS A SHARES: Class A shares are subject to a high initial sales charge and a
- -------------- distribution and/or service fee pursuant to Rule 12b-1
under the 1940 Act (Rule 12b-1 fee) not to exceed .30 of
1% per annum of the average daily net assets of the
class. The initial sales charge is waived or reduced for
certain eligible investors.
CLASS B SHARES: Class B shares are not subject to an initial sales charge but
- -------------- are subject to a high contingent deferred sales charge
(declining from 5% to zero over a six-year period) which
will be imposed on certain redemptions and a Rule 12b-1
fee not to exceed 1% per annum of the average daily net
assets of the class. The contingent deferred sales
charge is waived for certain eligible investors. Class B
shares automatically convert to Class A shares
approximately seven years after purchase.
CLASS C SHARES: Class C shares issued before October 28, 1998 are not subject to
- -------------- an initial sales charge but are subject to a 1%
contingent deferred sales charge which will be imposed
on certain redemptions within the first 12 month after
purchase and a Rule 12b-1 fee not to exceed 1% per
annum of the average daily net assets of the class.
Class C shares issued on or after October 28, 1998 are
subject to a low initial sales charge and a 1%
contingent deferred sales charge which will be imposed
on certain redemptions within the first 18 months after
purchase and a Rule 12b-1 fee not to exceed 1% per
annum of the average daily net assets of the class.
<PAGE>
Class Z SHARES: Class Z shares are not subject to either an initial or
- -------------- contingent deferred sales charge, nor are they subject
to any Rule 12b-1 fee.
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses, and
expenses not allocated to a particular class of the Fund will be
allocated to each class of the Fund on the basis of the net asset value
of that class in relation to the net asset value of the Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by the Fund to each class of
shares, to the extent paid, will be paid an the same day and at the same
time, and will be determined in the same manner and will be in the same
amount, except that the amount of the dividends and other distributions
declared and paid by a particular class of the Fund may be different
from that paid by another class of the Fund because of Rule 12b-1 fees
and other expenses borne exclusively by that class.
EXCHANGE PRIVILEGE
Holders of Class A Shares, Class B Shares, Class C Shares and Class Z
Shares shall have such exchange privileges as set forth in the Fund's
current prospectus. Exchange privileges may vary among classes and among
holders of a Class.
CONVERSION FEATURES
Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. Conversions
will be effected at relative net asset value without the imposition of
any additional sales charge.
GENERAL
A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and
shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the
interests of any other class.
B. On an ongoing basis, the Directors, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund
for the existence of any material conflicts among the interests of its
several classes. The Directors Trustees, including a majority of the
independent Directors, shall take such
2
<PAGE>
action as is reasonably necessary to eliminate any such conflicts that
may develop. Prudential Investments Fund Management LLC, the Fund's
Manager, will be responsible for reporting any potential or existing
conflicts to the Directors.
C. For purposes of expressing an opinion on the financial statements of the
Fund, the methodology and procedures for calculating the net asset value
and dividends/distributions of the Fund's several classes and the proper
allocation of income and expenses among such classes will be examined
annually by the Fund's independent auditors who, in performing such
examination, shall consider the factors set forth in the relevant
auditing standards adopted, from time to time, by the American Institute
of Certified Public Accountants.
Approved: August 26, 1998
Effective: October 28, 1998
3
