<PAGE>
As filed with the Securities and Exchange Commission on May 9, 1994
Registration No. 33-12531
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 11 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 13 /X/
(CHECK APPROPRIATE BOX OR BOXES)
--------------
PRUDENTIAL FLEXIFUND
(formerly Prudential-Bache FlexiFund)
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 214-1250
S. JANE ROSE, ESQ.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has previously registered an indefinite number of shares of beneficial interest,
par value $.01 per share. The Registrant will file a notice for its fiscal year
ending July 31, 1994 on or before September 30, 1994.
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- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------------------------------------------------------------------ -------------------------------------------
<S> <C> <C> <C>
PART A
Item 1. Cover Page.................................................. Cover Page
Item 2. Synopsis.................................................... Fund Expenses
Item 3. Condensed Financial Information............................. Fund Expenses; Financial Highlights;
General Information
Item 4. General Description of Registrant........................... Cover Page; How the Fund Invests; General
Information
Item 5. Management of the Fund...................................... Financial Highlights; How the Fund is
Managed; General Information
Item 6. Capital Stock and Other Securities.......................... Taxes, Dividends and Distributions; General
Information
Item 7. Purchase of Securities Being Offered........................ Shareholder Guide; How the Fund Values its
Shares
Item 8. Redemption or Repurchase.................................... Shareholder Guide; General Information
Item 9. Pending Legal Proceedings................................... Not Applicable
PART B
Item 10. Cover Page.................................................. Cover Page
Item 11. Table of Contents........................................... Table of Contents
Item 12. General Information and History............................. General Information; Organization and
Capitalization
Item 13. Investment Objectives and Policies.......................... Investment Objectives and Policies;
Investment Restrictions
Item 14. Management of the Fund...................................... Trustees and Officers; Manager; Distributor
Item 15. Control Persons and Principal Holders of Securities......... Not Applicable
Item 16. Investment Advisory and Other Services...................... Manager; Distributor; Custodian, Transfer
and Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other Practices.................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities.......................... Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Purchase and Redemption of Fund Shares;
Offered..................................................... Shareholder Investment Account; Net Asset
Value
Item 20. Tax Status.................................................. Taxes
Item 21. Underwriters................................................ Distributor
Item 22. Calculation of Performance Data............................. Performance Information
Item 23. Financial Statements........................................ Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of
this Registration Statement.
</TABLE>
<PAGE>
[PART A]
PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
PROSPECTUS DATED , 1994
- --------------------------------------------------------------------------------
Prudential Allocation Fund, formerly Prudential FlexiFund (the Fund), is an
open-end, diversified management investment company comprised of two separate
portfolios -- the Conservatively Managed Portfolio and the Strategy Portfolio
(the Portfolios). The investment objective of the Conservatively Managed
Portfolio is to achieve a high total investment return consistent with moderate
risk. The investment objective of the Strategy Portfolio is to achieve a high
total investment return consistent with relatively higher risk than the
Conservatively Managed Portfolio. While each Portfolio will seek to achieve its
objective by investing in a diversified portfolio of money market instruments,
debt obligations and equity securities (including securities convertible into
equity securities), the Portfolios will differ with respect to the proportions
of investments in debt and equity securities, the quality and maturity of debt
securities purchased and the price volatility and the type of issuer of equity
securities purchased. It is expected that the Strategy Portfolio will offer
investors a higher potential return with a correspondingly higher risk of loss
than the Conservatively Managed Portfolio. See "How the Fund Invests --
Investment Objectives and Policies." The Fund's address is One Seaport Plaza,
New York, New York 10292, and its telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated , 1994, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund, at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS PRUDENTIAL ALLOCATION FUND?
Prudential Allocation Fund is a mutual fund. A mutual fund pools the resources
of investors by selling its shares to the public and investing the proceeds of
such sale in a portfolio of securities designed to achieve its investment
objective. Technically, the Fund is an open-end, diversified management
investment company.
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
The Fund is comprised of two separate portfolios -- the Conservatively Managed
Portfolio and the Strategy Portfolio. The investment objective of the
Conservatively Managed Portfolio is to achieve a high total investment return
with moderate risk. The investment objective of the Strategy Portfolio is to
achieve a high total investment return consistent with relatively higher risk
than the Conservatively Managed Portfolio. Each Portfolio will seek to achieve
its objective by investing in a diversified portfolio of equity securities, debt
obligations and money market instruments. See "How the Fund Invests --
Investment Objectives and Policies" at page 7.
WHAT ARE THE FUND'S SPECIAL CHARACTERISTICS AND RISKS?
The Conservatively Managed Portfolio may invest up to 10% of its total assets
in securities rated Ba or lower by Moody's Investors Service, Inc. or BB or
lower by Standard and Poor's Corporation, which may be subject to special risks.
See "How the Fund Invests -- Investment Objectives and Policies" at page 7. The
Strategy Portfolio, under normal conditions, will purchase debt securities of a
lesser quality that will, in the aggregate, have a weighted average maturity
greater than that of the Conservatively Managed Portfolio. The Strategy
Portfolio will also purchase equity securities of smaller, faster growing
companies which are subject to greater price volatility than those purchased by
the Conservatively Managed Portfolio. See "How the Fund Invests -- Investment
Objectives and Policies" at page 7. In addition, each Portfolio may engage in
hedging and income enhancement strategies, including the use of options, forward
currency exchange contracts and futures contracts and options thereon. These
activities may be considered speculative and may result in higher risks and
costs to the Portfolios. See "How the Fund Invests -- Hedging and Income
Enhancement Strategies" at page 11.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager of
the Fund and is compensated for its services at an annual rate of .65 of 1% of
the Fund's average net assets. As of March 31, 1994, PMF served as manager or
administrator to [66] investment companies, including [37] mutual funds, with
aggregate assets of approximately $[51] billion. The Prudential Investment
Corporation (PIC or the Subadviser) furnishes investment advisory services in
connection with the management of the Fund under a Subadvisory Agreement with
PMF. See "How the Fund is Managed -- Manager" at page 15.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
the Fund's Class A shares and is currently paid for its services at an annual
rate of .25 of 1% of the average daily net assets of the Class A shares.
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class B and Class C shares and is paid for its
services at an annual rate of 1% of the average daily net assets of each of the
Class B and Class C shares.
See "How the Fund is Managed -- Distributor" at page 16.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide -- How
to Buy Shares of the Fund" at page 20 and "Shareholder Guide -- Shareholder
Services" at page 27.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), at
the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities plus a sales
charge which may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). See "How the Fund
Values its Shares" at page 17 and "Shareholder Guide -- How to Buy Shares of the
Fund" at page 20.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers three classes of shares:
- Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
- Class B Shares: Sold without an initial sales charge but are subject to a
contingent deferred sales charge or CDSC (declining from
5% to zero of the lower of the amount invested or the
redemption proceeds) which will be imposed on certain
redemptions made within six years of purchase. Although
Class B shares are subject to higher ongoing
distribution-related expenses than Class A shares, Class
B shares will automatically convert to Class A shares
(which are subject to lower ongoing expenses)
approximately seven years after purchase.
- Class C Shares: Sold without an initial sales charge and for one year
after purchase are subject to a 1% CDSC on redemptions.
Like Class B shares, Class C shares are subject to higher
ongoing distribution-related expenses than Class A shares
but do not convert to another class.
See "Shareholder Guide -- Alternative Purchase Plan" at page 21.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to
CDSC. See "Shareholder Guide -- How to Sell Your Shares" at page 23.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income quarterly and make
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the Fund
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 18.
3
<PAGE>
FUND EXPENSES
(FOR EACH PORTFOLIO)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- ------------------------------ --------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)... 5% None None
Maximum Sales Load or Deferred Sales
Load Imposed on Reinvested
Dividends............................. None None None
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)......... None 5% during the first year, 1% on redemptions made within
decreasing by 1% annually to one year of purchase
1% in the fifth and sixth
years and 0% the seventh year*
Redemption Fees........................ None None None
Exchange Fee........................... None None None
</TABLE>
<TABLE>
<CAPTION>
STRATEGY PORTFOLIO CONSERVATIVELY MANAGED PORTFOLIO
------------------------------ --------------------------------
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
(as a percentage of average net assets) SHARES SHARES SHARES** SHARES SHARES SHARES**
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees......................................... .65% .65% .65% .65% .65% .65%
12b-1 Fees+............................................. .25++ 1.00 1.00 .25++ 1.00 1.00
Other Expenses.......................................... .36 .36 .36 .32 .32 .32
--- --- --- --- --- ---
Total Fund Operating Expenses........................... 1.26% 2.01% 2.01% 1.22% 1.97% 1.97%
--- --- --- --- --- ---
--- --- --- --- --- ---
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE (STRATEGY PORTFOLIO) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
Class A................................................................ $ 62 $ 88 $116 $195
Class B................................................................ $ 70 $ 93 $118 $205
Class C**.............................................................. $ 30 $ 63 $108 $234
You would pay the following expenses on the same investment, assuming no
redemption:
Class A................................................................ $ 65 $ 90 $118 $197
Class B................................................................ $ 20 $ 63 $108 $205
Class C**.............................................................. $ 20 $ 63 $108 $234
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE (CONSERVATIVELY MANAGED PORTFOLIO) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
Class A........................................................ $ 62 $ 87 $114 $190
Class B........................................................ $ 70 $ 92 $116 $201
Class C**...................................................... $ 30 $ 62 $106 $230
You would pay the following expenses on the same investment,
assuming no redemption:
Class A........................................................ $ 62 $ 87 $114 $190
Class B........................................................ $ 20 $ 62 $106 $201
Class C**...................................................... $ 20 $ 62 $106 $230
The above examples with respect to Class A and Class B shares are based on restated data for the Fund's fiscal year
ended July 31, 1993. The above examples with respect to Class C shares are based on expenses expected to have been
incurred if Class C shares had been in existence during the fiscal year ended July 31, 1993. THE EXAMPLES SHOULD NOT BE
CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist an investor in understanding the various costs and expenses that an investor
in each Portfolio of the Fund will bear, whether directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Fund Is Managed." "Other Expenses" include operating expenses of the Fund, such as
Trustees' and professional fees, registration fees, reports to shareholders, shareholder servicing fees and custodian
fees.
<FN>
- ---------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide -- Conversion Feature
-- Class B Shares."
** Estimated based on expenses expected to have been incurred if Class C
shares had been in existence during the fiscal year ended July 31, 1993.
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-
based sales charges on shares of the Fund may not exceed 6.25% of total
gross sales, subject to certain exclusions. This 6.25% limitation is
imposed on each class of a Portfolio of the Fund rather than on a per
shareholder basis. Therefore, long-term Class B and Class C shareholders
of the Fund may pay more in total sales charges than the economic
equivalent of 6.25% of such shareholders' investment in such shares. See
"How the Fund Is Managed -- Distributor."
++ Although the Class A Distribution and Service Plan provides that the Fund
may pay a distribution fee of .30 of 1% per annum of the average daily net
assets of the Class A shares of each Portfolio, the Distributor has agreed
to limit its distribution fees with respect to the Class A shares of each
Portfolio to no more than .25 of 1% of the average daily net assets of the
Class A shares for the fiscal year ending July 31, 1994. See "How the Fund
Is Managed -- Distributor."
</TABLE>
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
The following financial highlights, with respect to the five year period
ended July 31, 1993, have been audited by Deloitte & Touche, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the financial statements and notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class A and Class B share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for the periods indicated. The information is based on data
contained in the financial statements. No Class C shares were outstanding during
the periods indicated.
CONSERVATIVELY MANAGED PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------
YEARS ENDED JULY 31, CLASS B
-------------------------------------------------- -----------
SIX MONTHS JANUARY 22, SIX MONTHS
ENDED 1990* ENDED
JANUARY 31, THROUGH JANUARY 31,
1994 JULY 31, 1994
(UNAUDITED) 1993 1992 1991 1990 (UNAUDITED)
----------- ------- ------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $11.75 $ 11.00 $ 10.73 $10.23 $ 9.83 $11.72
----------- ------- ------- ------ ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... .17 .43 .44 .44 .26 .13
Net realized and unrealized gain on
investment transactions................. .50 1.16 .81 .73 .38 .49
----------- ------- ------- ------ ----------- -----------
Total from investment operations....... .67 1.59 1.25 1.17 .64 .62
----------- ------- ------- ------ ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income..... (.17) (.37) (.44) (.44) (.24) (.13)
Dividends in excess of net investment
income.................................. (.02) -- -- -- -- (.02)
Distributions paid to shareholders from
net realized gains on investment
transactions............................ (.32) (.47) (.54) (.23) -- (.32)
Distributions in excess of net realized
gains................................... (.22) -- -- -- -- (.22)
----------- ------- ------- ------ ----------- -----------
Total distributions.................... (.73) (.84) (.98) (.67) (.24) (.69)
----------- ------- ------- ------ ----------- -----------
Net asset value, end of period........... $11.69 $ 11.75 $ 11.00 $10.73 $10.23 $11.65
----------- ------- ------- ------ ----------- -----------
----------- ------- ------- ------ ----------- -----------
TOTAL RETURN++........................... 5.88% 15.15% 12.29% 11.99% 6.59% 5.41%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (000).......... $30,950 $22,605 $10,944 $4,408 $1,944 $402,342
Average net assets (000)................. $26,066 $15,392 $7,103 $2,747 $1,047 $357,266
Ratios to average net assets:
Expenses, including distribution
fees.................................. 1.10%+ 1.17% 1.29% 1.38% 1.29%+ 1.90%+
Expenses, excluding distribution
fees.................................. .90%+ .97% 1.09% 1.18% 1.09%+ .90%+
Net investment income.................. 2.89%+ 3.88% 3.97% 4.44% 5.04%+ 2.10%+
Portfolio turnover rate.................. 38% 83% 105% 137% 106% 38%
<FN>
- -----------------
*Commencement of offering of Class A shares.
**Commencement of offering of Class B shares.
***On March 1, 1988, Prudential Mutual Fund Management, Inc. succeeded The Prudential Insurance Company of
America as manager of the Fund. See "Manager" in the Statement of Additional Information.
+Annualized.
++Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of
each period reported and includes reinvestment of dividends and distributions. Total returns for periods
of less than a full year are not annualized.
<CAPTION>
CLASS B SEPTEMBER 15,
------------------------------------------------ 1987**
YEARS ENDED JULY 31, THROUGH
------------------------------------------------ JULY 31,
1993 1992 1991 1990 1989 1988***
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $ 10.98 $ 10.71 $ 10.22 $ 10.21 $ 9.43 $10.00
-------- -------- -------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... .34 .35 .36 .45 .52 .32
Net realized and unrealized gain on
investment transactions................. 1.16 .82 .73 .18 .73 (.62)
-------- -------- -------- -------- -------- ------
Total from investment operations....... 1.50 1.17 1.09 .63 1.25 (.30)
-------- -------- -------- -------- -------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income..... (.29) (.36) (.37) (.52) (.47) (.25)
Dividends in excess of net investment
income.................................. -- -- -- -- -- --
Distributions paid to shareholders from
net realized gains on investment
transactions............................ (.47) (.54) (.23) (.10) -- (.02)
Distributions in excess of net realized
gains................................... -- -- -- -- -- --
-------- -------- -------- -------- -------- ------
Total distributions.................... (.76) (.90) (.60) (.62) (.47) (.27)
-------- -------- -------- -------- -------- ------
Net asset value, end of period........... $ 11.72 $ 10.98 $ 10.71 $ 10.22 $ 10.21 $ 9.43
-------- -------- -------- -------- -------- ------
-------- -------- -------- -------- -------- ------
TOTAL RETURN++........................... 14.27% 11.48% 11.13% 6.44% 13.73% (2.95)%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (000).......... $321,831 $225,995 $162,281 $154,917 $132,631 $149,472
Average net assets (000)................. $267,340 $189,358 $149,907 $143,241 $139,009 $113,774
Ratios to average net assets:
Expenses, including distribution
fees.................................. 1.97% 2.09% 2.16% 2.07% 2.09% 2.08%+
Expenses, excluding distribution
fees.................................. .97% 1.09% 1.16% 1.08% 1.08% 1.11%+
Net investment income.................. 3.04% 3.25% 3.55% 4.42% 5.47% 4.22%+
Portfolio turnover rate.................. 83% 105% 137% 106% 137% 112%
<FN>
- -----------------
*Commencement of offering of Class A sha
**Commencement of offering of Class B sh
***On March 1, 1988, Prudential Mutual Fu
America as manager of the Fund. See "M
+Annualized.
++Total return is calculated assuming a
each period reported and includes rein
of less than a full year are not annua
</TABLE>
5
<PAGE>
STRATEGY PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------
YEARS ENDED JULY 31, CLASS B
--------------------------------------------------- -----------
JANUARY 22,
SIX MONTHS 1990* SIX MONTHS
ENDED THROUGH ENDED
JANUARY 31, JULY 31, JANUARY 31,
1994 1993 1992 1991 1990 1994
----------- ------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $11.82 $ 12.03 $ 11.45 $ 10.50 $10.16 $11.79
----------- ------- ------- ------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... .18 .42 .35 .38 .25 .13
Net realized and unrealized gain on
investment and foreign currency
transactions............................ .81 .70 1.02 .98 .33 .81
----------- ------- ------- ------- ----------- -----------
Total from investment operations....... .99 1.12 1.37 1.36 .58 .94
----------- ------- ------- ------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income..... (.10) (.37) (.37) (.35) (.24) (.08)
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions........... (.34) (.96) (.42) (.06) -- (.34)
----------- ------- ------- ------- ----------- -----------
Total distributions.................... (.44) (1.33) (.79) (.41) (.24) (.42)
----------- ------- ------- ------- ----------- -----------
Net asset value, end of period........... $12.37 $ 11.82 $ 12.03 $ 11.45 $10.50 $12.31
----------- ------- ------- ------- ----------- -----------
----------- ------- ------- ------- ----------- -----------
TOTAL RETURN+++.......................... 8.50% 10.02% 12.36% 13.42% 5.83% 8.09%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (000).......... $31,621 $28,641 $20,378 $10,765 $5,073 3$78,114
Average net assets (000)................. $29,844 $24,216 $15,705 $ 6,694 $2,928 3$66,090
Ratios to average net assets:
Expenses, including distribution fees.. 1.18%++ 1.21% 1.26% 1.33% 1.51%++ 1.98%++
Expenses, excluding distribution fees.. .98%++ 1.01% 1.06% 1.13% 1.26%++ .98%++
Net investment income.................. 2.21%++ 3.61% 3.05% 3.89% 4.58%++ 2.16%++
Portfolio turnover rate.................. 39% 145% 241% 189% 159% 39%
<FN>
- -----------------
*Commencement of offering of Class A shares.
**Commencement of offering of Class B shares.
***On March 1, 1988, Prudential Mutual Fund Management, Inc. succeeded The Prudential Insurance Company of
America as manager of the Fund. See "Manager" in the Statement of Additional Information.
+Net of expense subsidy or reimbursement.
++Annualized.
+++Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of
each period reported and includes reinvestment of dividends and distributions. Total returns for periods
of less than a full year are not annualized.
<CAPTION>
CLASS B SEPTEMBER 15,
------------------------------------------------ 1987**
YEARS ENDED JULY 31, THROUGH
------------------------------------------------ JULY 31,
1993 1992 1991 1990 1989 1988***
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $ 12.01 $ 11.43 $ 10.49 $ 10.85 $ 9.52 $ 10.00
-------- -------- -------- -------- -------- -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... .34 .26 .30 .37 .42 .23+
Net realized and unrealized gain on
investment and foreign currency
transactions............................ .70 1.02 .97 .03 1.30 (.53)
-------- -------- -------- -------- -------- -------------
Total from investment operations....... 1.04 1.28 1.27 .40 1.72 (.30)
-------- -------- -------- -------- -------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income..... (.30) (.28) (.27) (.40) (.39) (.18)
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions........... (.96) (.42) (.06) (.36) -- --
-------- -------- -------- -------- -------- -------------
Total distributions.................... (1.26) (.70) (.33) (.76) (.39) (.18)
-------- -------- -------- -------- -------- -------------
Net asset value, end of period........... $ 11.79 $ 12.01 $ 11.43 $ 10.49 $ 10.85 $ 9.52
-------- -------- -------- -------- -------- -------------
-------- -------- -------- -------- -------- -------------
TOTAL RETURN+++.......................... 9.21% 11.53% 12.49% 3.59% 18.53% (2.92)%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (000).......... $357,287 $314,771 $219,983 $176,078 $ 62,651 $ 55,671
Average net assets (000)................. $339,225 $267,525 $190,913 $127,360 $ 57,326 $ 44,717
Ratios to average net assets:
Expenses, including distribution fees.. 2.01% 2.06% 2.11% 2.10% 2.33%+ 2.40%+/++
Expenses, excluding distribution fees.. 1.01% 1.06% 1.11% 1.14% 1.34%+ 1.43%+/++
Net investment income.................. 2.79% 2.27% 2.95% 3.61% 4.26% 3.13%+/++
Portfolio turnover rate.................. 145% 241% 189% 159% 132% 93%
<FN>
- -----------------
*Commencement of offering of Class A sh
**Commencement of offering of Class B sh
***On March 1, 1988, Prudential Mutual Fu
America as manager of the Fund. See "M
+Net of expense subsidy or reimbursemen
++Annualized.
+++Total return is calculated assuming a
each period reported and includes rein
of less than a full year are not annua
</TABLE>
6
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVES AND POLICIES
THE FUND IS COMPRISED OF TWO SEPARATE DIVERSIFIED PORTFOLIOS -- THE
CONSERVATIVELY MANAGED PORTFOLIO AND THE STRATEGY PORTFOLIO -- EACH OF WHICH IS,
IN EFFECT, A SEPARATE FUND ISSUING ITS OWN SHARES. THE INVESTMENT OBJECTIVE OF
THE CONSERVATIVELY MANAGED PORTFOLIO IS TO ACHIEVE A HIGH TOTAL INVESTMENT
RETURN CONSISTENT WITH MODERATE RISK. THE INVESTMENT OBJECTIVE OF THE STRATEGY
PORTFOLIO IS TO ACHIEVE A HIGH TOTAL INVESTMENT RETURN CONSISTENT WITH
RELATIVELY HIGHER RISK THAN THE CONSERVATIVELY MANAGED PORTFOLIO. THERE CAN BE
NO ASSURANCE THAT SUCH OBJECTIVES WILL BE ACHIEVED. See "Investment Objectives
and Policies" in the Statement of Additional Information.
EACH PORTFOLIO PURSUES ITS OBJECTIVE THROUGH THE INVESTMENT POLICIES DESCRIBED
BELOW. WHILE EACH PORTFOLIO WILL SEEK TO ACHIEVE ITS OBJECTIVE BY INVESTING IN A
DIVERSIFIED PORTFOLIO OF EQUITY SECURITIES (INCLUDING SECURITIES CONVERTIBLE
INTO EQUITY SECURITIES), DEBT OBLIGATIONS AND MONEY MARKET INSTRUMENTS, THE
PORTFOLIOS WILL DIFFER WITH RESPECT TO THE DEGREE OF RISK INVOLVED. THE
CONSERVATIVELY MANAGED PORTFOLIO WILL BE SUBJECT TO MODERATE RISK, IN THE
OPINION OF THE FUND'S INVESTMENT ADVISER, AND THE STRATEGY PORTFOLIO WILL BE
SUBJECT TO RELATIVELY HIGHER RISK. These differences in risks will be evidenced
in the proportions of investments in debt and equity securities, the quality and
maturity of debt securities purchased and the price volatility and the type of
issuer of equity securities. The following table summarizes the differences in
the types of investments in which each Portfolio may generally invest in seeking
to achieve its objective:
<TABLE>
<CAPTION>
CONSERVATIVELY STRATEGY
DEBT SECURITIES MANAGED PORTFOLIO PORTFOLIO
- ------------------ ----------------------------- -----------------------------
<S> <C> <C>
Quality Investment grade debt Investment grade debt
securities AND up to 10% of securities AND up to 25% of
its assets in debt securities its assets in debt securities
rated below investment grade rated below investment grade
Weighted average Less than 10 years More than 10 years
maturity
<CAPTION>
EQUITY SECURITIES
- ------------------
<S> <C> <C>
Type of issuer Common stock and common stock Common stock and common stock
equivalents of major, equivalents of major,
established companies established companies AND
smaller, faster growing
companies
</TABLE>
Lower-rated debt securities, as well as debt securities with longer maturities,
typically provide a higher return and are subject to a greater degree of risk of
loss and price volatility than higher-rated securities and securities with
shorter maturities. Equity securities of smaller companies are generally subject
to a greater degree of risk and price volatility than those of major companies.
Finally, it is anticipated that the money market instruments held by the
Conservatively Managed Portfolio will be substantially of the same quality and
have generally the same maturities as those held by the Strategy Portfolio. A
more complete description of the Portfolios' investment policies is set forth
below.
The Fund's investment adviser determines the allocation of assets among the
different investment vehicles available (asset mix) to each Portfolio on a
regular basis (at least monthly). The determination of asset mix will result in
decisions with respect to: (1) the proportion of investments among the various
financial instruments available (money market instruments, bonds and other
indebtedness and equity securities, including convertible securities); (2) the
distribution of debt securities among short, intermediate and long-term
maturities; and (3) with respect to the Strategy Portfolio, the distribution of
equity and convertible securities between those of major, established companies
and those of smaller, faster growing companies, the prices of which are
typically more volatile. The determination of asset mix for each Portfolio is
based on technical, qualitative and fundamental analyses and forecasts made by
the investment adviser, prevailing interest rates and general economic factors.
In addition, the investment adviser considers the relative risk objectives of
the Portfolios in making asset mix determinations.
7
<PAGE>
EACH PORTFOLIO'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE,
MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE
PORTFOLIO'S OUTSTANDING VOTING SECURITIES AS DEFINED IN THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). FUND POLICIES THAT ARE NOT
FUNDAMENTAL MAY BE MODIFIED BY THE TRUSTEES.
CONSERVATIVELY MANAGED PORTFOLIO
THE CONSERVATIVELY MANAGED PORTFOLIO WILL INVEST IN A DIVERSIFIED PORTFOLIO
COMPRISED GENERALLY OF EQUITY SECURITIES, DEBT OBLIGATIONS AND MONEY MARKET
INSTRUMENTS. The specific asset mix of the Portfolio will be determined by the
Fund's investment adviser. Although there is no limitation on the percentage of
assets invested in the various investment categories (money market instruments,
debt obligations and equity securities), it is anticipated that the
Conservatively Managed Portfolio will generally have a smaller percentage of its
assets invested in equity securities and a larger percentage invested in money
market securities than the Strategy Portfolio. In addition, the weighted average
maturity of the debt securities purchased by the Conservatively Managed
Portfolio will generally be shorter than that of the Strategy Portfolio and the
equity securities held by the Conservatively Managed Portfolio will be those of
larger, more mature companies, subject to less price volatility, than those held
by the Strategy Portfolio. Based upon its asset mix, the Conservatively Managed
Portfolio is expected to be subject to a relatively lower risk of loss (and
offer a correspondingly lower potential return) than the Strategy Portfolio.
MONEY MARKET INSTRUMENTS. The Conservatively Managed Portfolio may invest in
the following money market instruments generally maturing in one year or less:
1. U.S. Treasury bills and other obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
2. Obligations (including certificates of deposit, bankers' acceptances and
time deposits) of commercial banks, savings banks and savings and loan
associations having, at the time of acquisition by the Portfolio of such
obligations, total assets of not less than $1 billion or its equivalent. The
Portfolio may invest in obligations of domestic banks, foreign banks, and
branches and offices thereof. The term "certificates of deposit" includes both
Eurodollar certificates of deposit, for which there is generally a market, and
Eurodollar time deposits, for which there is generally not a market.
"Eurodollars" are dollars deposited in banks outside the United States.
3. Commercial paper, variable amount demand master notes, bills, notes and
other obligations issued by a U.S. company, a foreign company or a foreign
government, its agencies, instrumentalities or political subdivisions,
maturing in one year or less, denominated in U.S. dollars, and, at the date of
investment, rated at least A or A-2 by Standard & Poor's Corporation (S&P) or
A or Prime-2 by Moody's Investors Service, Inc. (Moody's), or, if not rated,
issued by an entity having an outstanding unsecured debt issue rated at least
A or A-2 by S&P, or A or Prime-2 by Moody's. If such obligations are
guaranteed or supported by a letter of credit issued by a bank, the bank
(including a foreign bank) must meet the requirements set forth in paragraph
(2) above. If such obligations are guaranteed or insured by an insurance
company or other non-bank entity, the insurance company or other non-bank
entity must represent a credit of high quality, as determined by the Fund's
investment adviser under the supervision of the Fund's Trustees.
DEBT OBLIGATIONS. IN ADDITION TO MONEY MARKET INSTRUMENTS DESCRIBED ABOVE,
THE CONSERVATIVELY MANAGED PORTFOLIO MAY INVEST IN LONG-TERM DEBT SECURITIES. It
is anticipated that the weighted average maturity of the debt securities held by
the Portfolio will not exceed 10 years. Such debt securities will generally be
rated at the time of purchase within the four highest categories determined by
S&P, Moody's or a similar nationally recognized rating service, or, if not
rated, be of comparable quality in the opinion of the investment adviser.
However, the Portfolio may invest up to 10% of its total assets in securities
rated at the time of purchase BB or Ba or lower by S&P or Moody's, respectively
(or a similar nationally recognized rating service), or, if not rated, be of
comparable quality in the opinion of the investment adviser.
Securities rated Baa by Moody's, although considered to be of investment
grade, lack outstanding investment characteristics and in fact have speculative
characteristics as well. Securities rated BB or Ba or lower by S&P or Moody's,
respectively, are generally considered to be predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal. The prices
of debt securities vary inversely with interest rates. In addition, lower-rated
debt obligations typically provide a higher yield than higher-rated obligations
of similar maturity. However, lower-rated obligations are also subject to a
greater degree of risk with respect to the ability of the issuer to meet the
principal and interest payments on the obligations and may also be subject to
greater price volatility due to the market's perceptions of the creditworthiness
of the issuer. A description of security ratings is contained in the Appendix.
8
<PAGE>
THE PORTFOLIO MAY ALSO INVEST IN OBLIGATIONS OF THE U.S. GOVERNMENT AND ITS
AGENCIES AND INSTRUMENTALITIES. These securities include U.S. Treasury
obligations (including bills, notes and bonds) and securities issued or
guaranteed by U.S. Government agencies (such as the Export-Import Bank of the
United States, Federal Housing Administration and Government National Mortgage
Association) or by U.S. Government instrumentalities (such as the Federal Home
Loan Bank, Federal Intermediate Credit Banks and Federal Land Bank). Except for
U.S. Treasury securities, these obligations, even those that are guaranteed by
federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Portfolio must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
THE PORTFOLIO MAY INVEST IN MORTGAGE-BACKED SECURITIES INCLUDING THOSE
REPRESENTING AN UNDIVIDED OWNERSHIP INTEREST IN A POOL OF MORTGAGES, E.G., GNMA,
FNMA AND FHLMC CERTIFICATES. The mortgages backing these securities include
conventional thirty-year fixed rate mortgages, fifteen-year fixed rate
mortgages, graduated payment mortgages and adjustable rate mortgages. The U.S.
Government or the issuing agency guarantees the payment of interest and
principal of these securities; however, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
Portfolio's shares. These certificates are in most cases "pass-through"
instruments, through which the holder receives a share of all interest and
principal payments from the mortgages underlying the certificate, net of certain
fees. Because the prepayment characteristics of the underlying mortgages vary,
it is not possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. Mortgage-backed securities are
often subject to more rapid repayment than their stated maturity date would
indicate as a result of the pass-through of prepayments of principal on the
underlying mortgage obligations. While the timing of prepayments of graduated
payment mortgages differs somewhat from that of conventional mortgages, the
prepayment experience of graduated payment mortgages is basically the same as
that of the conventional mortgages of the same maturity dates over the life of
the pool. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Portfolio reinvests the prepaid amounts in
securities the yields of which reflect interest rates prevailing at the time.
Therefore, the Portfolio's ability to maintain a portfolio containing high-
yielding mortgage-backed securities will be adversely affected to the extent
that prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.
THE PORTFOLIO MAY ALSO INVEST IN ASSET-BACKED SECURITIES. Through the use of
trusts and special purpose corporations, various types of assets, primarily
automobile and credit card receivables and home equity loans, have been
securitized in pass-through structures similar to the mortgage pass-through
structures or in a pay-through structure similar to the collateralized mortgage
structure. The Portfolio may invest in these and other types of asset-backed
securities that may be developed in the future. Asset-backed securities present
certain risks that are not presented by mortgage-backed securities. Primarily,
these securities do not have the benefit of the same security interest in the
related collateral. Credit card receivables are generally unsecured and debtors
are entitled to the protection of a number of state and federal consumer credit
laws, some of which may reduce the ability to obtain full payment. In the case
of automobile receivables, the security interests in the underlying automobiles
are often not transferred when the pool is created, with the resulting
possibility that the collateral could be resold. In general, these types of
loans are of shorter average life than mortgage loans and are less likely to
have substantial prepayments.
EQUITY SECURITIES. THE EQUITY SECURITIES IN WHICH THE CONSERVATIVELY MANAGED
PORTFOLIO WILL PRIMARILY INVEST ARE COMMON STOCKS OF MAJOR, ESTABLISHED
CORPORATIONS WHICH, IN THE OPINION OF THE INVESTMENT ADVISER, HAVE PROSPECTS OF
PRICE APPRECIATION GREATER THAN THAT OF THE S&P 500 STOCK INDEX. The Portfolio
may also invest in preferred stocks or debt securities that either have warrants
attached or are otherwise convertible into such common stocks. See "Investment
Policies Applicable to All Portfolios -- Convertible Securities."
OTHER. The Conservatively Managed Portfolio may also make other kinds of
investments as described under "Investment Policies Applicable to All
Portfolios" below.
STRATEGY PORTFOLIO
THE STRATEGY PORTFOLIO WILL INVEST IN A DIVERSIFIED PORTFOLIO OF EQUITY
SECURITIES, DEBT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. The specific asset
mix of the Portfolio will be determined by the Fund's investment adviser.
Although there is no limitation on the percentage of assets invested in the
various investment categories (money market instruments, debt obligations and
equity securities), it is anticipated that the Strategy Portfolio will generally
have a greater percentage of its assets invested in long-term bonds and equity
securities than the Conservatively Managed Portfolio. In addition, under normal
conditions the debt
9
<PAGE>
securities purchased by the Strategy Portfolio will be of lesser quality and
will, in the aggregate, have a weighted average maturity above that of the
Conservatively Managed Portfolio, and the equity securities will be of smaller,
faster growing companies and subject to greater price volatility than those of
the Conservatively Managed Portfolio. The Strategy Portfolio is expected to be
subject to a relatively higher risk of loss (and offer a correspondingly higher
potential return) than the Conservatively Managed Portfolio.
MONEY MARKET INSTRUMENTS. The Strategy Portfolio may invest in the same money
market instruments permitted for the Conservatively Managed Portfolio.
DEBT OBLIGATIONS. IN ADDITION TO MONEY MARKET INSTRUMENTS DESCRIBED ABOVE,
THE STRATEGY PORTFOLIO MAY INVEST IN LONG-TERM DEBT SECURITIES. It is
anticipated that the weighted average maturity of the debt securities held by
the Portfolio in the aggregate will normally be greater than 10 years. Such
securities will generally be rated at the time of purchase within the four
highest categories determined by S&P, Moody's or a similar nationally recognized
rating service, or, if not rated, will be of comparable quality in the opinion
of the investment adviser. However, the Portfolio may invest up to 25% of its
total assets in securities rated at the time of purchase of BB or Ba or lower by
S&P or Moody's, respectively (or a similar nationally recognized rating
service), or, if not rated, be of comparable quality in the opinion of the
investment adviser.
Fixed-income securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity and the market perception of the creditworthiness of the issuer
(market risk). Lower-rated or unrated (I.E., high yield) securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in the general level
of interest rates. The investment adviser considers both credit risk and market
risk in making investment decisions for the Portfolio.
THE PORTFOLIO MAY INVEST IN OBLIGATIONS OF THE U.S. GOVERNMENT AND ITS
AGENCIES AND INSTRUMENTALITIES AND IN ASSET-BACKED SECURITIES. See
"Conservatively Managed Portfolio -- Debt Obligations" above.
EQUITY SECURITIES. LIKE THE CONSERVATIVELY MANAGED PORTFOLIO, THE STRATEGY
PORTFOLIO MAY INVEST IN COMMON STOCKS OF MAJOR, ESTABLISHED CORPORATIONS WHICH,
IN THE OPINION OF THE INVESTMENT ADVISER, HAVE PROSPECTS OF PRICE APPRECIATION
GREATER THAN THAT OF THE S&P 500 STOCK INDEX. THE STRATEGY PORTFOLIO MAY ALSO
INVEST IN COMMON STOCKS OF SMALLER, FASTER GROWING COMPANIES. These equity
securities will typically have more volatile market values and thus may be
subject to a greater risk of decline in market value than the equity securities
of major, established corporations.
The Portfolio may invest in preferred stocks or debt securities that either
have warrants attached or are otherwise convertible into such common stocks.
OTHER. The Strategy Portfolio may also make other kinds of investments as
described under "Investment Policies Applicable to All Portfolios" below.
INVESTMENT POLICIES APPLICABLE TO ALL PORTFOLIOS
GENERAL. IN PURSUIT OF ITS INVESTMENT OBJECTIVE, EACH PORTFOLIO MAY (I)
INVEST IN CONVERTIBLE SECURITIES, (II) PURCHASE AND WRITE (I.E., SELL) OPTIONS
ON EQUITY SECURITIES AND STOCK INDICES FOR HEDGING PURPOSES AND TO REALIZE
INCOME, (III) PURCHASE AND SELL FINANCIAL AND STOCK INDEX FUTURES CONTRACTS AND
PURCHASE AND WRITE (I.E., SELL) OPTIONS THEREON FOR HEDGING PURPOSES OR, WITH
RESPECT TO WRITING OPTIONS ON FUTURES CONTRACTS, TO REALIZE A GREATER RETURN,
(IV) PURCHASE SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS, (V) MAKE
SHORT SALES AGAINST-THE-BOX, (VI) INVEST IN FOREIGN SECURITIES AND (VII) ENTER
INTO REPURCHASE AGREEMENTS.
CONVERTIBLE SECURITIES. EACH PORTFOLIO MAY INVEST IN PREFERRED STOCKS OR DEBT
SECURITIES THAT EITHER HAVE WARRANTS ATTACHED OR ARE OTHERWISE CONVERTIBLE INTO
COMMON STOCKS. A convertible security is typically a fixed-income security (a
bond or preferred stock) that may be converted at a stated price within a
specified period of time into a specified number of shares of common stock of
the same or a different issuer. Convertible securities are generally senior to
common stocks in a corporation's capital structure but are usually subordinated
to similar non-convertible securities. While providing a fixed income stream
(generally higher in yield than the income derivable from a common stock but
lower than that afforded by a similar non-convertible security), a convertible
security also affords an investor the opportunity, through its conversion
feature, to participate in capital appreciation attendant upon a market price
advance in the common stock underlying the convertible security.
In general, the market value of a convertible security is at least the higher
of its "investment value" (I.E., its value as a fixed-income security) or its
"conversion value" (I.E., its value upon conversion into its underlying common
stock). As a fixed-income
10
<PAGE>
security, a convertible security tends to increase in market value when interest
rates decline and tends to decrease in value when interest rates rise. However,
the price of a convertible security is also influenced by the market value of
the security's underlying common stock. The price of a convertible security
tends to increase as the market value of the underlying stock rises, whereas it
tends to decrease as the market value of the underlying stock declines. While no
securities investment is without some risk, investments in convertible
securities generally entail less risk than investments in the common stock of
the same issuer.
FOREIGN SECURITIES. EACH PORTFOLIO MAY INVEST UP TO 30% OF ITS TOTAL ASSETS
IN FOREIGN MONEY MARKET INSTRUMENTS AND DEBT AND EQUITY SECURITIES. For purposes
of this limitation, American Depositary Receipts, Yankee bonds (I.E., U.S.
dollar denominated bonds issued by foreign companies in the United States) and
global bonds which are U.S. dollar denominated are not deemed to be foreign
securities. In many instances, foreign securities may provide higher yields but
may be subject to greater fluctuations in price than securities of domestic
issuers which have similar maturities or quality.
INVESTING IN SECURITIES OF FOREIGN COMPANIES AND COUNTRIES INVOLVES CERTAIN
CONSIDERATIONS AND RISKS WHICH ARE NOT TYPICALLY ASSOCIATED WITH INVESTING IN
U.S. GOVERNMENT SECURITIES AND SECURITIES OF DOMESTIC COMPANIES. There may be
less publicly available information about a foreign issuer than a domestic one,
and foreign companies are not generally subject to uniform accounting, auditing
and financial standards and requirements comparable to those applicable to U.S.
companies. There may also be less government supervision and regulation of
foreign securities exchanges, brokers and listed companies than exists in the
United States. Interest and dividends paid by foreign issuers may be subject to
withholding and other foreign taxes, which may decrease the net return on such
investments as compared to dividends and interest paid to the Portfolio by
domestic companies or the U.S. Government. There may be the possibility of
expropriations, seizure or nationalization of foreign deposits, confiscatory
taxation, political, economic or social instability or diplomatic developments
which could affect assets of the Portfolio held in foreign countries. Finally,
the establishment of exchange controls or other foreign governmental laws or
restrictions could adversely affect the payment of obligations.
To the extent a Portfolio's currency exchange transactions do not fully
protect the Portfolio against adverse changes in currency exchange rates,
decreases in the value of currencies of the foreign countries in which the
Portfolio will invest relative to the U.S. dollar will result in a corresponding
decrease in the U.S. dollar value of the Portfolio's assets denominated in those
currencies (and possibly a corresponding increase in the amount of securities
required to be liquidated to meet distribution requirements). Conversely,
increases in the value of currencies of the foreign countries in which a
Portfolio invests relative to the U.S. dollar will result in a corresponding
increase in the U.S. dollar value of the Portfolio's assets (and possibly a
corresponding decrease in the amount of securities to be liquidated).
There may be less publicly available information about foreign companies and
governments compared to reports and ratings published about U.S. companies.
Foreign securities markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Brokerage commissions and
other transaction costs on foreign securities exchanges are generally higher
than in the United States.
HEDGING AND INCOME ENHANCEMENT STRATEGIES
EACH PORTFOLIO MAY ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE INCOME. THESE STRATEGIES
CURRENTLY INCLUDE THE USE OF OPTIONS, FORWARD CURRENCY EXCHANGE CONTRACTS AND
FUTURES CONTRACTS AND OPTIONS THEREON. The Fund's ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations and there can be no assurance that any of these strategies will
succeed. See "Investment Objectives and Policies" in the Statement of Additional
Information. New financial products and risk management techniques continue to
be developed, and each Portfolio may use these new investments and techniques to
the extent consistent with its investment objective and policies.
OPTIONS TRANSACTIONS
EACH PORTFOLIO MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES AND CURRENCIES THAT ARE TRADED ON SECURITIES EXCHANGES OR IN THE
OVER-THE-COUNTER MARKET TO ENHANCE INCOME OR TO HEDGE THEIR PORTFOLIOS. These
options will be on equity securities, financial indices (E.G., S&P 500) and
foreign currencies. Each Portfolio may write covered put and call options to
generate additional income through the receipt of premiums, purchase put options
in an effort to protect the value of a security that it owns against a decline
in market value and purchase call options in an effort to protect against an
increase in the price of securities it intends to purchase. Each Portfolio may
also purchase put and call options to offset previously written put and call
options of the same series. See "Investment Objectives and Policies -- Risks of
Transactions in Options" in the Statement of Additional Information.
11
<PAGE>
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE RIGHT,
FOR A SPECIFIED PERIOD OF TIME, TO PURCHASE THE SECURITIES SUBJECT TO THE OPTION
AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE PRICE). The writer of a call
option, in return for the premium, has the obligation, upon exercise of the
option, to deliver, depending upon the terms of the option contract, the
underlying securities or a specified amount of cash to the purchaser upon
receipt of the exercise price. When a Portfolio writes a call option, the
Portfolio gives up the potential for gain on the underlying securities in excess
of the exercise price of the option during the period that the option is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES SUBJECT TO THE OPTION TO THE
WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of the put option,
in return for the premium, has the obligation, upon exercise of the option, to
acquire the securities underlying the option at the exercise price. A Portfolio
might, therefore, be obligated to purchase the underlying securities for more
than their current market price.
EACH PORTFOLIO WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, so
long as the Portfolio is obligated under the option, it owns an offsetting
position in the underlying security or maintains cash, U.S. Government
securities or other liquid high-grade debt obligations with a value sufficient
at all times to cover its obligations. See "Investment Objectives and Policies
- -- Options on Stock Indices" in the Statement of Additional Information.
THERE IS NO LIMITATION ON THE AMOUNT OF CALL OPTIONS THE PORTFOLIOS MAY WRITE.
The Fund has undertaken with certain state securities commissions that, so long
as shares of the Fund are registered in those states, neither Portfolio will
purchase (i) put options on stocks not held by the Portfolio, (ii) put options
on indices or (iii) call options on stock or stock indices if, after any such
purchase, the total premiums paid for such options would exceed 10% of the
Portfolio's total assets; provided, however, that the Portfolio may purchase put
options on stocks held by the Portfolio if after such purchase the aggregate
premiums paid for such options do not exceed 20% of the Portfolio's total net
assets. In addition, the aggregate value of the securities that are the subject
of the put options will not exceed 50% of the Portfolio's net assets.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
EACH PORTFOLIO MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS PORTFOLIO AGAINST FUTURE CHANGES IN THE LEVEL OF
CURRENCY EXCHANGE RATES. Each Portfolio may enter into such contracts on a spot,
I.E., cash, basis at the rate then prevailing in the currency exchange market or
on a forward basis, by entering into a forward contract to purchase or sell
currency. A forward contract on foreign currency is an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
agreed upon by the parties from the date of the contract at a price set on the
date of the contract.
EACH PORTFOLIO'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Portfolio generally arising in connection with
the purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Portfolio expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a currency bearing a substantial correlation to
the value of that currency (cross hedge). Although there are no limits on the
number of forward contracts which a Portfolio may enter into, a Portfolio may
not position hedge with respect to a particular currency for an amount greater
than the aggregate market value (determined at the time of making any sale of
forward currency) of the securities held in its portfolio denominated or quoted
in, or currently convertible into, such currency.
FUTURES CONTRACTS AND OPTIONS THEREON
EACH PORTFOLIO MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR CERTAIN
HEDGING, INCOME ENHANCEMENT AND RISK MANAGEMENT PURPOSES IN ACCORDANCE WITH
REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION. These futures contracts
and options thereon will be on interest-bearing securities, financial indices
and interest rate indices. A financial futures contract is an agreement to
purchase or sell an agreed amount of securities at a set price for delivery in
the future.
A PORTFOLIO MAY NOT PURCHASE OR SELL FUTURES CONTRACTS AND OPTIONS THEREON FOR
INCOME ENHANCEMENT OR RISK MANAGEMENT PURPOSES IF, IMMEDIATELY THEREAFTER, THE
SUM OF THE AMOUNT OF INITIAL MARGIN DEPOSITS ON THE PORTFOLIO'S FUTURES
POSITIONS AND PREMIUMS PAID FOR OPTIONS THEREON WOULD EXCEED 5% OF THE
LIQUIDATION VALUE OF THE PORTFOLIO'S TOTAL ASSETS. ALTHOUGH THERE ARE NO OTHER
LIMITS APPLICABLE TO FUTURES CONTRACTS, THE VALUE OF ALL FUTURES CONTRACTS SOLD
WILL NOT EXCEED THE TOTAL MARKET VALUE OF THE PORTFOLIO.
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A PORTFOLIO'S SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND
INTEREST RATES AND REQUIRES SKILLS AND TECHNIQUES DIFFERENT FROM THOSE USED IN
SELECTING PORTFOLIO SECURITIES. The correlation between movements in the price
of a futures contract and movements in the price of the securities being hedged
is imperfect, and there is a risk that the value of the securities being hedged
may increase or decrease at a greater rate than the related futures contracts,
resulting in losses to the Portfolio. Certain futures exchanges or boards of
trade have established daily limits on the amount that the price of futures
contracts or options thereon may vary, either up or down, from the previous
day's settlement price. These daily limits may restrict each Portfolio's ability
to purchase or sell certain futures contracts or options thereon on any
particular day.
EACH PORTFOLIO'S ABILITY TO ENTER INTO FUTURES CONTRACTS AND OPTIONS THEREON
IS LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE INTERNAL REVENUE CODE), FOR QUALIFICATION AS A REGULATED INVESTMENT
COMPANY. SEE "INVESTMENT OBJECTIVES AND POLICIES -- RISKS OF TRANSACTIONS IN
FUTURES CONTRACTS" AND "TAXES" IN THE STATEMENT OF ADDITIONAL INFORMATION.
SPECIAL RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH A
PORTFOLIO WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the
investment adviser's prediction of movements in the direction of the securities,
foreign currency and interest rate markets are inaccurate, the adverse
consequences to the Portfolio may leave the Portfolio in a worse position than
if such strategies were not used. Risks inherent in the use of options, foreign
currency and futures contracts and options on futures contracts include (1)
dependence on the investment adviser's ability to predict correctly movements in
the direction of interest rates, securities prices and currency markets; (2)
imperfect correlation between the price of options and futures contracts and
options thereon and movements in the prices of the securities being hedged; (3)
the fact that skills needed to use these strategies are different from those
needed to select portfolio securities; (4) the possible absence of a liquid
secondary market for any particular instrument at any time; (5) the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (6) the possible inability of a Portfolio to purchase or sell
a portfolio security at a time that otherwise would be favorable for it to do
so, or the possible need for a Portfolio to sell a portfolio security at a
disadvantageous time, due to the need for a Portfolio to maintain "cover" or to
segregate securities in connection with hedging transactions. See "Taxes" and
"Investment Objectives and Policies" in the Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Portfolio may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Portfolio with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous price and yield to the Portfolio at the time of entering into the
transaction. The Fund's Custodian will maintain, in a segregated account of the
Fund, cash, U.S. Government securities or other liquid high-grade debt
obligations having a value equal to or greater than the Fund's purchase
commitments; the Custodian will likewise segregate securities sold on a delayed
delivery basis. The securities so purchased are subject to market fluctuation
and no interest accrues to the purchaser during this period. At the time of
delivery of the securities, the value may be more or less than the purchase
price and an increase in the percentage of the Portfolio's assets committed to
the purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Portfolio's net asset value.
SHORT SALES AGAINST-THE-BOX
The Portfolios may make short sales of securities or maintain a short
position, provided that at all times when a short position is open, the
Portfolio owns an equal amount of such securities or securities convertible into
or exchangeable for, with or without payment of any further consideration, such
securities; provided that if further consideration is required in connection
with the conversion or exchange, cash or U.S. Government securities in an amount
equal to such consideration must be put in a segregated account, for an equal
amount of the securities of the same issuer as the securities sold short (a
short sale against-the-box). Not more than 25% of a Portfolio's net assets
(determined at the time of the short sale) may be subject to such sales. Short
sales will be made primarily to defer realization of gain or loss for federal
tax purposes.
INTEREST RATE SWAPS
Each Portfolio may enter into interest rate swap transactions with respect to
up to 5% of its total assets. Interest rate swaps are used to hedge the value of
existing portfolio assets or assets a Portfolio intends to acquire. Interest
rate swaps involve the exchange by a Portfolio with another party of their
respective commitments to pay or receive interest (E.G., an exchange of floating
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rate payments for fixed-rate payments). Each Portfolio enters into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio or to protect against any increase in the price of
securities it anticipates purchasing at a later date. The Portfolios use
interest rate swaps for hedging purposes and not as a speculative investment.
The use of interest rate swaps is a highly speculative activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the investment advisor were incorrect in
its forecast of market values, interest rates and other applicable factors, the
investment performance of a Portfolio would diminish compared to what it would
have been if this investment technique were never used. Interest rate swaps do
not involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate swaps is limited to
the net amount of interest payments that a Portfolio is contractually obligated
to make. If the other party to an interest rate swap defaults, a Portfolio's
risk of loss consists of the net amount of interest payments that the Portfolio
is contractually entitled to receive. Since interest rate swaps are individually
negotiated, each Portfolio expects to achieve an acceptable degree of
correlation between its rights to receive interest on its portfolio securities
and its rights and obligations to receive and pay interest pursuant to interest
rate swaps.
REPURCHASE AGREEMENTS
Each Portfolio may on occasion enter into repurchase agreements whereby the
seller of a security agrees to repurchase that security from the Portfolio at a
mutually agreed-upon time and price. The repurchase date is usually within a day
or two of the original purchase, although it may not be for a number of months.
The resale price is in excess of the purchase price, reflecting an agreed-upon
rate of return effective for the period of time the Portfolio's money is
invested in the security. Each Portfolio's repurchase agreements will at all
times be fully collateralized in an amount at least equal to the purchase price,
including accrued interest earned on the underlying securities. The instruments
held as collateral are valued daily, and as the value of instruments declines,
the Portfolio will require additional collateral. If the seller defaults and the
value of the collateral securing the repurchase agreement declines, the
Portfolio may incur a loss. The Fund participates in a joint repurchase account
with other investment companies managed by Prudential Mutual Fund Management,
Inc. pursuant to an order of the Securities and Exchange Commission (SEC).
BORROWING
Each Portfolio may borrow up to 20% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes or for the clearance of transactions. A Portfolio may pledge up to 20%
of its total assets to secure such borrowings.
ILLIQUID SECURITIES
Each Portfolio may invest up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended (the Securities Act), that have a readily available market are
not considered illiquid for purposes of this limitation. The investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Trustees. Repurchase agreements subject to demand are deemed to have a
maturity equal to the applicable notice period.
The staff of the SEC has taken the position that purchased over-the-counter
options and the assets used as "cover" for written over-the-counter options are
illiquid securities unless a Portfolio and the counterparty have provided for
the Portfolio, at the Portfolio's election, to unwind the over-the-counter
option. The exercise of such an option ordinarily would involve the payment by
the Portfolio of an amount designed to reflect the counterparty's economic loss
from an early termination, but does allow the Portfolio to treat the assets used
as "cover" as "liquid."
PORTFOLIO TURNOVER
The portfolio turnover rate for each Portfolio is not expected to exceed 200%.
The portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of portfolio securities by the average monthly value of each
Portfolio's securities, excluding securities having a maturity at the date of
purchase of one year or less. High portfolio turnover may involve
correspondingly greater brokerage commissions and other transaction costs, which
will be borne directly by the Portfolio. See "Portfolio Transactions and
Brokerage" in the Statement of Additional Information. In addition, high
portfolio turnover may result in increased short-term capital gains which, when
distributed to shareholders, are treated as ordinary income. See "Taxes,
Dividends and Distributions."
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INVESTMENT RESTRICTIONS
Each Portfolio is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies may
not be changed without the approval of the holders of a majority of the
Portfolio's outstanding voting securities, as defined in the Investment Company
Act. See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS TRUSTEES WHO, IN ADDITION TO OVERSEEING THE ACTIONS OF THE FUND'S
MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW, DECIDE UPON MATTERS OF
GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE DAILY BUSINESS
OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY INVESTMENT
ADVISORY SERVICES.
For the fiscal year ended July 31, 1993, total expenses as a percentage of
average net assets were 1.21% and 2.01% of the Class A shares and Class B
shares, respectively, of the Strategy Portfolio and were 1.17% and 1.97% of the
Class A and Class B shares, respectively, of the Conservatively Managed
Portfolio. See "Financial Highlights." No Class C shares were outstanding during
the fiscal year ended July 31, 1993.
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .65 OF 1% OF THE AVERAGE DAILY NET ASSETS
OF EACH PORTFOLIO. It was incorporated in May 1987 under the laws of the State
of Delaware. For the fiscal year ended July 31, 1993, PMF received a management
fee of .65% of average net assets of both the Strategy Portfolio and the
Conservatively Managed Portfolio. See "Manager" in the Statement of Additional
Information.
As of March 31, 1994, PMF served as the manager to [37] open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to [29] closed-end investment companies. These companies have
aggregate assets of approximately $[51] billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S BUSINESS AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PMF FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. PMF continues
to have responsibility for all investment advisory services pursuant to the
Management Agreement and supervises PIC's performance of such services. [The
Conservatively Managed Portfolio is managed by Prudential Diversified Investment
Strategies (PDI Strategies) and Prudential Investment Advisors, units of PIC,
using a team of portfolio managers under the supervision of James B. McHugh, a
Director of PDI Strategies, who provides overall asset allocation for the
Portfolio. Mr. McHugh has been employed by PIC since 1982. Mr. McHugh also
provides overall asset allocation for the Prudential Series Fund Conservatively
Managed Portfolio and Aggressively Managed Portfolio. The Strategy Portfolio is
managed by Prudential Investment Advisors using a team of portfolio managers
under the supervision of Anthony M. Gleason. Mr. Gleason is a Director of PIC
and has been employed by PIC since 1986. Mr. Gleason also serves as equity
portfolio manager of the Prudential Series Fund Aggressively Managed Portfolio.]
THE FUND'S SUBADVISER HAS ENTERED INTO A CONSULTING ARRANGEMENT WITH GREG A.
SMITH WITH RESPECT TO THE STRATEGY PORTFOLIO, PURSUANT TO WHICH MR. SMITH MAKES
RECOMMENDATIONS TO PIC WITH RESPECT TO THE ALLOCATION OF ASSETS. Mr. Smith is a
consultant to Prudential Securities Incorporated, an affiliate of both the
Subadviser and the Fund and the President of Greg A. Smith Asset Management
Corporation, a registered investment adviser. Mr. Smith is a consultant to PIC
with respect to the allocation of assets for Prudential Multi-Sector Fund, Inc.
and is the portfolio manager of Prudential Growth Fund, Inc. Mr. Smith is
recognized in the financial community as a leading asset allocation strategist.
For the last ten years, he has been named by INSTITUTIONAL INVESTOR magazine as
a member of its All-American Research Team and in 1992 was ranked number one for
portfolio strategy. He is also responsible for Prudential Securities receiving
the top ranking for asset allocation for the entire five-year period ended
December 31, 1992 in a continuing survey conducted by THE WALL STREET JOURNAL
and Wilshire Associates.
PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
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DISTRIBUTOR
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (PMFD), ONE SEAPORT PLAZA, NEW YORK,
NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF
DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS A SHARES OF THE FUND. IT IS
A WHOLLY-OWNED SUBSIDIARY OF PMF.
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF
THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS B AND CLASS C
SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND SEPARATE DISTRIBUTION AGREEMENTS
(THE DISTRIBUTION AGREEMENTS), PMFD AND PRUDENTIAL SECURITIES (COLLECTIVELY THE
DISTRIBUTOR) INCUR THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND
CLASS C SHARES. These expenses include commissions and account servicing fees
paid to, or on account of, financial advisers of Prudential Securities and Pruco
Securities Corporation (Prusec), an affiliated broker-dealer, commissions and
account servicing fees paid to, or on account of, other broker-dealers or
financial institutions (other than national banks) which have entered into
agreements with the Distributor, advertising expenses, the cost of printing and
mailing prospectuses to potential investors and indirect and overhead costs of
Prudential Securities and Prusec associated with the sale of Fund shares,
including lease, utility, communications and sales promotion expenses. The State
of Texas requires that shares of the Fund may be sold in that state only by
dealers or other financial institutions which are registered there as
broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service fees
to the Distributor as compensation for its distribution and service activities,
not as reimbursement for specific expenses incurred. If the Distributor's
expenses exceed its distribution and service fees, the Fund will not be
obligated to pay any additional expenses. If the Distributor's expenses are less
than such distribution and service fees, it will retain its full fees and
realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY PMFD FOR ITS DISTRIBUTION-RELATED
EXPENSES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE OF UP TO .30 OF 1% OF
THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES OF EACH PORTFOLIO. The Class
A Plan provides that (i) up to .25 of 1% of the average daily net assets of the
Class A shares may be used to pay for personal service and/or the maintenance of
shareholder accounts (service fee) and (ii) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1%. PMFD has agreed to limit
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 for the fiscal year ending July
31, 1994.
For the fiscal year ended July 31, 1993, PMFD received payments of $30,784 for
the Conservatively Managed Portfolio and $48,431 for the Strategy Portfolio
under the Class A Plan as reimbursement of expenses related to the distribution
of Class A shares. These amounts were primarily expended for payment of account
servicing fees to financial advisers and other persons who sell Class A shares.
For the fiscal year ended July 31, 1993, PMFD also received approximately
$405,000 and $338,000 in initial sales charges from Class A shareholders of the
Conservatively Managed Portfolio and the Strategy Portfolio.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES FOR
ITS DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS B AND CLASS C SHARES AT
AN ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS B AND CLASS C
SHARES OF EACH PORTFOLIO. The Class B and Class C Plans provide for the payment
to Prudential Securities of (i) an asset-based sales charge of .75 of 1% of the
average daily net assets of each of the Class B and Class C shares and (ii) a
service fee of .25 of 1% of the average daily net assets of each of the Class B
and Class C shares. The service fee is used to pay for personal service and/or
the maintenance of shareholder accounts. Prudential Securities also receives
contingent deferred sales charges from certain redeeming shareholders. See
"Shareholder Guide -- How to Sell Your Shares -- Contingent Deferred Sales
Charges."
For the fiscal year ended July 31, 1993, Prudential Securities incurred
distribution expenses of approximately $4,574,800 on behalf of the
Conservatively Managed Portfolio and $3,861,500 on behalf of the Strategy
Portfolio under the Class B Plan and received $2,673,399 on behalf of the
Conservatively Managed Portfolio and $3,392,254 on behalf of the Strategy
Portfolio under the Class B Plan. In addition, Prudential Securities received
approximately $425,000 and $736,000 on behalf of the Conservatively Managed
Portfolio and the Strategy Portfolio, respectively, in contingent deferred sales
charges from redemptions of Class B shares during these periods. No Class C
shares were outstanding during the fiscal year ending July 31, 1993.
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For the fiscal year ended July 31, 1993, the Fund paid distribution expenses
of .20% and 1.00% of the average daily net assets of the Class A shares and the
Class B shares of each Portfolio, respectively. The Fund records all payments
made under the Plans as expenses in the calculation of net investment income. No
Class C shares were outstanding during the fiscal year ended July 31, 1993.
Distribution expenses attributable to the sale of shares of each Portfolio
will be allocated to each class based upon the ratio of sales of each class to
the sales of all shares of the Portfolio, other than expenses allocable to a
particular class. The distribution fee and sales charge of one class will not be
used to subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year provided
that a majority of the Trustees of the Fund, including a majority of the
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 the Plan or any agreement related to the Plan (the Rule 12b-1
Trustees), vote annually to continue the Plan. Each Plan may be terminated with
respect to a Portfolio at any time by vote of a majority of the Rule 12b-1
Trustees or of a majority of the outstanding shares of the applicable class of
the Portfolio. The Portfolios will not be obligated to pay expenses incurred
under any Plan if it is terminated or not continued.
In addition to distribution and service fees paid by each Portfolio of the
Fund under the Class A, Class B and Class C Plans, the Manager (or one of its
affiliates) may make payments to dealers and other persons who distribute shares
of the Portfolios. Such payments may be calculated by reference to the net asset
value of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor" in
the Statement of Additional Information.
PORTFOLIO TRANSACTIONS
Prudential Securities may also act as a broker or futures commission merchant
for the Fund, provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage" in
the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171, serves as Custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Fund. Its mailing address is P.O.
Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and, in
those capacities, maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
EACH PORTFOLIO'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING
ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE NET
ASSET VALUE OF EACH PORTFOLIO TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Fund's Trustees. See "Net Asset Value" in the Statement of
Additional Information.
Each Portfolio will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Portfolio or days on which changes in
the value of the portfolio securities do not materially affect the NAV. The New
York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different net asset
values and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. It is
expected, however, that the NAV of the three classes will tend to converge
immediately after the recording of dividends, if any, which will differ by
approximately the amount of the distribution-related expense accrual
differential among the classes.
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HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME EACH PORTFOLIO OF THE FUND MAY ADVERTISE ITS TOTAL RETURN
(INCLUDING "AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD
IN ADVERTISEMENTS OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B AND CLASS C SHARES. THESE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
"total return" shows how much an investment in the Portfolio would have
increased (decreased) over a specified period of time (I.E., one, five or ten
years or since inception of the Fund) assuming that all distributions and
dividends by the Portfolio were reinvested on the reinvestment dates during the
period and less all recurring fees. The "aggregate" total return reflects actual
performance over a stated period of time. "Average annual" total return is a
hypothetical rate of return that, if achieved annually, would have produced the
same aggregate total return if performance had been constant over the entire
period. "Average annual" total return smooths out variations in performance and
takes into account any applicable initial or contingent deferred sales charges.
Neither "average annual" total return nor "aggregate" total return takes into
account any federal or state income taxes which may be payable upon redemption.
The "yield" refers to the income generated by an investment in a Portfolio over
a one-month or 30-day period. This income is then "annualized;" that is, the
amount of income generated by the investment during that 30-day period is
assumed to be generated each 30-day period for twelve periods and is shown as a
percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. Each Portfolio
of the Fund also may include comparative performance information in advertising
or marketing its shares. Such performance information may include data from
Lipper Analytical Services, Inc., other industry publications, business
periodicals and market indices. See "Performance Information" in the Statement
of Additional Information. The Fund will include performance data for each class
of shares of each Portfolio in any advertisement or information including
performance data of the Fund. Further performance information is contained in
the Fund's annual and semi-annual reports to shareholders, which may be obtained
without charge. See "Shareholder Guide -- Shareholder Services -- Reports to
Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
EACH PORTFOLIO HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, EACH
PORTFOLIO WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT
INCOME AND CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. SEE
"TAXES" IN THE STATEMENT OF ADDITIONAL INFORMATION.
Under the Internal Revenue Code, special rules apply to the treatment of
certain options and futures contracts (Section 1256 contracts). At the end of
each year, such investments held by a Portfolio will be required to be "marked
to market" for federal income tax purposes; that is, treated as having been sold
at market value. Sixty percent of any gain or loss recognized on these "deemed
sales" and on actual dispositions will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss. See
"Taxes" in the Statement of Additional Information.
Each Portfolio may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, a Portfolio's investments
in PFICs may subject the Portfolio to federal income taxes on certain income and
gains realized by the Portfolio. Certain gains or losses from fluctuations in
foreign currency exchange rates ("Section 988" gains or losses) will affect the
amount of ordinary income a Portfolio will be able to pay as dividends.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of net
short-term capital gains, will be taxable as ordinary income to the shareholder
whether or not reinvested. See "Taxes" in the Statement of Additional
Information. Any net capital gains (I.E., the excess of net long-term capital
gains over net short-term capital losses) distributed to shareholders will be
taxable as long-term capital gains to the shareholders, whether or not
reinvested and regardless of the length of time a shareholder has owned his or
her shares. The maximum long-term capital gains rate for corporate shareholders
currently is the same as the maximum tax rate for ordinary income. The maximum
long-term capital gains rate for individual shareholders is 28%.
18
<PAGE>
Both regular and capital gains dividends are taxable to shareholders whether
they are received in cash or in additional shares. In addition, certain
dividends declared by a Portfolio will be treated as received by shareholders on
December 31 of the year the dividends are declared. This rule applies to
dividends declared by a Portfolio in October, November or December of a calendar
year, payable to shareholders of record on a date in any such month, if such
dividends are paid during January of the following calendar year.
Dividends received by corporate shareholders are eligible for a dividends
received deduction of 70% to the extent a Portfolio's income is derived from
qualified dividends received by the Portfolio from domestic corporations.
Dividends attributable to foreign dividends, interest income, capital gain net
income, gain or loss from Section 1256 contracts and from some other sources
will not be eligible for the dividends received deduction. Corporate
shareholders should consult their tax advisers regarding other requirements
applicable to the dividends received deduction.
Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, although
otherwise treated as a short-term capital loss, will be treated as long-term
capital loss to the extent of any capital gain distributions received by the
shareholder on shares that are held for six months or less.
The Fund has obtained an opinion of counsel to the effect that the conversion
of Class B shares into Class A shares does not constitute a taxable event for
U.S. income tax purposes. However, such opinion is not binding on the Internal
Revenue Service.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund is required to withhold and remit to
the U.S. Treasury 31% of dividend, capital gain income and redemption proceeds
on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law.
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, QUARTERLY
AND MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY CAPITAL GAINS IN EXCESS OF
CAPITAL LOSSES. Dividends paid by the Fund with respect to each class of shares,
to the extent any dividends are paid, will be calculated in the same manner, at
the same time, on the same day and will be in the same amount except that each
class will bear its own distribution charges, generally resulting in lower
dividends for Class B and Class C shares. Distributions of net capital gains, if
any, will be paid in the same amount for each class of shares. See "How the Fund
Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE, OR SUCH OTHER DATE AS THE TRUSTEES MAY
DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN FIVE BUSINESS
DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS IN
CASH. Such election should be submitted to Prudential Mutual Fund Services,
Inc., Attention: Account Maintenance, P.O. Box 15015, New Brunswick, New Jersey
08906-5015. The Fund will notify each shareholder after the close of the Fund's
taxable year both of the dollar amount and the taxable status of that year's
dividends and distributions on a per share basis. If you hold shares through
Prudential Securities, you should contact your financial adviser to elect to
receive dividends and distributions in cash.
WHEN THE FUND GOES "EX-DIVIDEND," ITS NAV IS REDUCED BY THE AMOUNT OF THE
DIVIDEND OR DISTRIBUTION. IF YOU BUY SHARES JUST PRIOR TO THE EX-DIVIDEND DATE
(WHICH GENERALLY OCCURS FOUR BUSINESS DAYS PRIOR TO THE RECORD DATE), THE PRICE
YOU PAY WILL INCLUDE THE DIVIDEND OR DISTRIBUTION AND A PORTION OF YOUR
INVESTMENT WILL BE RETURNED TO YOU AS A TAXABLE DISTRIBUTION. YOU SHOULD,
THEREFORE, CONSIDER THE TIMING OF DIVIDENDS WHEN MAKING YOUR PURCHASES.
GENERAL INFORMATION
DESCRIPTION OF SHARES
THE FUND IS AN OPEN-END INVESTMENT COMPANY WHICH WAS ORGANIZED UNDER THE LAWS
OF MASSACHUSETTS ON FEBRUARY 23, 1987 AS AN UNINCORPORATED BUSINESS TRUST, A
FORM OF ORGANIZATION THAT IS COMMONLY KNOWN AS A MASSACHUSETTS BUSINESS TRUST.
THE STRATEGY PORTFOLIO WAS FORMERLY KNOWN AS THE AGGRESSIVELY MANAGED PORTFOLIO.
THE FUND IS AUTHORIZED TO ISSUE AN UNLIMITED NUMBER OF SHARES, DIVIDED INTO
THREE CLASSES, DESIGNATED CLASS A, CLASS B AND CLASS C SHARES. Each class
represents an interest in the same assets of the Fund and is identical in all
respects except that (i) each class bears different distribution expenses, (ii)
each class has exclusive voting rights with respect to its
19
<PAGE>
distribution and service plan (except that the Fund has agreed with the SEC in
connection with the offering of a conversion feature on Class B shares to submit
any amendment of the Class A Plan to both Class A and Class B shareholders),
(iii) each class has a different exchange privilege and (iv) only Class B shares
have a conversion feature. See "How the Fund is Managed -- Distributor." The
Fund has received an order from the SEC permitting the issuance and sale of
multiple classes of shares. Currently, the Fund is offering only three classes,
designated Class A, Class B and Class C shares. In accordance with the Fund's
Declaration of Trust, the Trustees may authorize the creation of additional
series of shares and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine.
Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide -- How to Sell Your Shares." Each share of each class
is equal as to earnings, assets and voting privileges, except as noted above,
and each class bears the expenses related to the distribution of its shares.
Except for the conversion feature applicable to the Class B shares, there are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of the Fund is entitled to its portion of all of the
Fund's assets after all debt and expenses of the Fund have been paid. Since
Class B and Class C shares generally bear higher distribution expenses than
Class A shares, the liquidation proceeds to shareholders of those classes are
likely to be lower than to Class A shareholders. The Fund's shares do not have
cumulative voting rights for the election of Trustees.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF TRUSTEES 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 TRUSTEES OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC OR
DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES, INC. (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The minimum initial
investment for Class A and Class B shares is $1,000 per class and $5,000 for
Class C shares. The minimum subsequent investment is $100 for all classes. All
minimum investment requirements are waived for certain retirement and employee
savings plans or custodial accounts for the benefit of minors. For purchases
made through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment is $50. See "Shareholder Services" below.
THE PURCHASE PRICE IS THE NAV PER SHARE NEXT DETERMINED FOLLOWING RECEIPT OF
AN ORDER BY THE TRANSFER AGENT OR PRUDENTIAL SECURITIES PLUS A SALES CHARGE
WHICH, AT YOUR OPTION, MAY BE IMPOSED (I) EITHER AT THE TIME OF PURCHASE (CLASS
A SHARES) OR (II) ON A DEFERRED BASIS (CLASS B OR CLASS C SHARES). SEE
"ALTERNATIVE PURCHASE PLAN" BELOW. SEE ALSO "HOW THE FUND VALUES ITS SHARES."
Application forms can be obtained from PMFS, Prudential Securities or Prusec.
If a share certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares. Shareholders who hold
their shares through Prudential Securities will not receive share certificates.
The Fund reserves the right to reject any purchase order (including an
exchange) or to suspend or modify the continuous offering of its shares. See
"How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
20
<PAGE>
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS at (800) 225-1852 (toll-free) to receive an account
number. The following information will be requested: your name, address, tax
identification number, class election, dividend distribution election, amount
being wired and wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to State Street Bank and Trust Company (State
Street), Boston, Massachusetts, Custody and Shareholder Services Division,
Attention: Prudential Allocation Fund, specifying on the wire the account number
assigned by PMFS and your name and identifying the sales charge alternative
(Class A, Class B or Class C shares) and the name of the Portfolio.
If you arrange for receipt by State Street of Federal Funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Fund as
of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Allocation Fund,
the name of the Portfolio, Class A, Class B or Class C shares and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders utilizing Federal Funds. The minimum amount which may be
invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS THREE CLASSES OF SHARES (CLASS A, CLASS B AND CLASS C SHARES)
WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE FOR YOUR
INDIVIDUAL CIRCUMSTANCES, GIVEN THE AMOUNT OF THE PURCHASE AND THE LENGTH OF
TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES (ALTERNATIVE
PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE
DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
-------------------------------------- ----------------------- --------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% of .30 of 1% (Currently Initial sales charge waived or reduced
the public offering price being charged at a rate for certain purchases
of .25 of 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser of 1% Shares do not convert to another class
the amount invested or the redemption
proceeds on redemptions made within
one year of purchase
</TABLE>
The three classes of shares represent an interest in the same portfolio of
investments of a Portfolio and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except as
noted under the heading "General Information -- Description of Shares"), and
(iii) only Class B shares have a conversion feature. The three classes also have
separate exchange privileges. See "How to Exchange Your Shares" below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause the Class B shares to have higher expense ratios and to pay
lower dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Portfolios
will receive different compensation for selling Class A, Class B and Class C
shares and will generally receive more compensation initially for selling Class
A and Class B shares than for selling Class C shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of any
applicable sales charge (whether imposed at the time of purchase or redemption)
and distribution-related fees, as noted above, (3) whether you qualify for any
reduction or waiver of any applicable sales charge, (4) the various exchange
privileges among the different classes of shares (see "How to Exchange Your
Shares" below) and (5) the fact that Class B shares automatically convert to
Class A shares approximately seven years after purchase (see "Conversion Feature
- -- Class B Shares" below).
21
<PAGE>
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 7 years and do
not qualify for a reduced sales charge on Class A shares, since Class A shares
are subject to 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 [7] years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately [7] years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
[If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fee on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fee on
the investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions during which the CDSC is
applicable.]
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT OR
UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES.
SEE "REDUCTION AND WAIVER OF INITIAL SALES CHARGES" BELOW.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial sales
charge alternative is the next determined NAV plus a sales charge (expressed as
a percentage of the offering price and of the amount invested) as shown in the
following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Reduction and Waiver of Initial
Sales Charges--Class A Shares" in the Statement of Additional Information.
Class A shares may be purchased at NAV, without payment of an initial sales
charge, by pension, profit-sharing or other employee benefit plans qualified
under Section 401 of the Internal Revenue Code and deferred compensation and
annuity plans under Sections 457 and 403(b)(7) of the Internal Revenue Code
(Benefit Plans), provided that the plan has existing assets of at least $1
million invested in shares of Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) or 1,000
eligible employees or members. In the case of Benefit Plans whose accounts are
held directly with the Transfer Agent and for which the Transfer Agent does
individual account record keeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by PSI or its subsidiaries (PSI or Subsidiary Prototype Benefit
Plans), Class A shares may be purchased at NAV by participants who are repaying
loans made from such plans to the participant. Additional information concerning
the reduction and waiver of initial sales charges is set forth in the Statement
of Additional Information.
In addition, Class A shares may be purchased at NAV, through Prudential
Securities or the Transfer Agent, by the following persons: (a) Trustees and
officers of the Fund and other Prudential Mutual Funds, (b) employees of
Prudential Securities and PMF and their subsidiaries and members of the families
of such persons who maintain an "employee related" account at Prudential
Securities or the Transfer Agent, (c) employees and special agents of Prudential
and its subsidiaries and all persons who have
22
<PAGE>
retired directly from active service with Prudential or one of its subsidiaries,
(d) registered representatives and employees of dealers who have entered into a
selected dealer agreement with Prudential Securities provided that purchases at
NAV are permitted by such person's employer and (e) investors who have a
business relationship with a financial adviser who joined Prudential Securities
from another investment firm, provided that (i) the purchase is made within 90
days of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares of
any open-end, non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or service fee
of .25 of 1% or less) on which no deferred sales load, fee or other charge was
imposed on redemption and (iii) the financial adviser served as the client's
broker on the previous purchases.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec that you are entitled to the reduction or waiver
of the sales charge. The reduction or waiver will be granted subject to
confirmation of your entitlement. No initial sales charges are imposed upon
Class A shares purchased upon the reinvestment of dividends and distributions.
See "Purchase and Redemption of Fund Shares -- Reduction and Waiver of Initial
Sales Charges -- Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one of
the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class B
and Class C shares may be subject to a CDSC. See "How to Sell Your Shares --
Contingent Deferred Sales Charges."
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV PER
SHARE NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY
THE TRANSFER AGENT OR PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS
SHARES." In certain cases, however, redemption proceeds will be reduced by the
amount of any applicable contingent deferred sales charge, as described below.
See "Contingent Deferred Sales Charges" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU
HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION SIGNED BY
YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES,
THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES,
MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION REQUEST TO BE
PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR
FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST
BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All correspondence and
documents concerning redemptions should be sent to the Fund in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN SEVEN
DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST, EXCEPT AS INDICATED BELOW. Such payment may be postponed or the right
of redemption suspended at times (a) when the New York Stock Exchange is closed
for other than customary weekends and holidays, (b) when trading on such
Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, or (d) during any other period when the SEC, by order, so
permits; provided that applicable rules and regulations of the SEC shall govern
as to whether the conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE
FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECK.
23
<PAGE>
REDEMPTION IN KIND. If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of a Portfolio to make payment
wholly or partly in cash, the Portfolio may pay the redemption price in whole or
in part by a distribution in kind of securities from its portfolio, in lieu of
cash, in conformity with applicable rules of the SEC. Securities will be readily
marketable and will be valued in the same manner as a regular redemption. See
"How the Fund Values its Shares." If your shares are redeemed in kind, you would
incur transaction costs in converting the assets into cash. The Fund, however,
has elected to be governed by Rule 18f-1 under the Investment Company Act, under
which each Portfolio is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Portfolio during any
90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Trustees
may redeem all of the shares of any shareholder, other than a shareholder which
is an IRA or other tax-deferred retirement plan, whose account has a net asset
value of less than $500 due to a redemption. The Fund will give such
shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No contingent deferred sales charge
will be imposed on any involuntary redemption.
30-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 30 days after the
date of the redemption. No sales charge will apply to such repurchases. You will
receive PRO RATA credit for any contingent deferred sales charge paid in
connection with the redemption of shares. You must notify the Fund's Transfer
Agent, either directly or through Prudential Securities or Prusec, at the time
the repurchase privilege is exercised, that you are entitled to credit for the
contingent deferred sales charge previously paid. Exercise of the repurchase
privilege will generally not affect federal income tax treatment of any gain
realized upon redemption. If the redemption results in a loss, some or all of
the loss, depending on the amount reinvested, will not be allowed for federal
income tax purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within one year of purchase will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to you. The
CDSC will be imposed on any redemption by you which reduces the current value of
your Class B or Class C shares to an amount which is lower than the dollar
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and one year, in the case of Class C shares. A CDSC will
be applied on the lesser of the original purchase price or the current value of
the shares being redeemed. Increases in the value of your shares or shares
purchased through reinvestment of dividends or distributions are not subject to
a CDSC. The amount of any contingent deferred sales charge will be paid to and
retained by the Distributor. See "How the Fund is Managed -- Distributor" and
"Waiver of the Contingent Deferred Sales Charges -- Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of 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 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 OF DOLLARS
YEAR SINCE PURCHASE INVESTED
PAYMENT MADE OR 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 net asset value above the total amount of
24
<PAGE>
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 THE CONTINGENT DEFERRED SALES CHARGES -- CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability of
a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), or a trust, at the time of death or initial
determination of disability, provided that the shares were purchased prior to
death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include a lump-sum or other distribution
after retirement, or for an IRA or Section 403(b) custodial account, after
attaining age 59 1/2, a tax-free return of an excess contribution or plan
distributions following the death or disability of a shareholder (provided that
the shares were purchased prior to death or disability). The waiver does not
apply in the case of a tax-free rollover or transfer of assets, other than one
following a separation from service. In the case of Direct Account and PSI or
Subsidiary Prototype Benefit Plans, the CDSC will be waived on redemptions which
represent borrowings from such plans. Shares purchased with amounts used to
repay a loan from such plans on which a CDSC was not previously deducted will
thereafter be subject to a CDSC without regard to the time such amounts were
previously invested. In the case of a 401(k) plan, the CDSC will also be waived
upon the redemption of shares purchased with amounts used to repay loans made
from the account to the participant and from which a CDSC was previously
deducted.
In addition, the CDSC will be waived on redemptions of shares held by Trustees
of the Fund.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to waiver of the CDSC. The waiver will be granted subject to
confirmation of your entitlement.
A quantity discount may apply to redemptions of Class B shares purchased prior
to _______, 1994. See "Purchase and Redemption of Fund Shares -- Quantity
Discount -- Class B Shares Purchased Prior to __________, 1994" in the Statement
of Additional Information.
CONVERSION FEATURE -- CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will occur during
the month following each calendar quarter and will be effected at relative net
asset value without the imposition of any additional sales charge. It is
currently anticipated that conversions will occur on the first Friday of the
month following each calendar quarter, or, if not a business day, the next
Friday of the month.
Since the Fund tracks amounts paid rather than the number of shares bought on
each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least [seven]
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares then in your account. Each time any Eligible Shares in
your account convert to Class A shares, all shares or amounts representing Class
B shares then in your account that were acquired through the automatic
reinvestment of dividends and other distributions will convert to Class A
shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately [seven] years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second
25
<PAGE>
purchase of 100 shares was subsequently made at $11 per share (for a total of
$1,100), 95.24 shares would convert approximately [seven] years from the initial
purchase (I.E., $1,000 divided by $2,100 (47.62%), multiplied by 200 shares
equals 95.24 shares). The Manager reserves the right to modify the formula for
determining the number of Eligible Shares in the future as it deems appropriate
on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than Class
B shares, the per share net asset value of the Class A shares may be higher than
that of the Class B shares at the time of conversion. Thus, although the
aggregate dollar value will be the same, you may receive fewer Class A shares
than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions, all
payments for Class B shares during a month will be deemed to have been made on
the last day of the month, or for Class B shares acquired through exchange or a
series of exchanges, on the last day of the month in which the original payment
for purchases of such Class B shares was made. For Class B shares previously
exchanged for shares of a money market fund, the time period during which such
shares were held in the money market fund will be excluded. For example, Class B
shares held in a money market fund for one year will not convert to Class A
shares until approximately eight years from purchase. For purposes of measuring
the time period during which shares are held in a money market fund, exchanges
will be deemed to have been made on the last day of the month. Class B shares
acquired through exchange will convert to Class A shares after expiration of the
conversion period applicable to the original purchase of such shares. It is
currently anticipated that the first conversion of Class B shares will occur in
or about January 1995. At that time all amounts representing Class B shares then
outstanding beyond the applicable conversion period will automatically convert
to Class A shares together with all shares or amounts representing Class B
shares acquired through the automatic reinvestment of dividends and
distributions then held in your account.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code and
(ii) that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Portfolios will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS (THE EXCHANGE PRIVILEGE), INCLUDING ONE OR MORE
SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF
SUCH FUNDS. CLASS A, CLASS B AND CLASS C SHARES MAY BE EXCHANGED FOR CLASS A,
CLASS B AND CLASS C SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE
RELATIVE NAV PER SHARE. Any applicable CDSC payable upon the redemption of
shares exchanged will be that imposed by the fund in which shares were initially
purchased and will be calculated from the first day of the month after the
initial purchase, excluding the time shares were held in a money market fund.
Class B and Class C shares may not be exchanged into money market funds other
than Prudential Special Money Market Fund. For purposes of calculating the
holding period applicable to the Class B conversion feature, the time period
during which Class B shares were held in a money market fund will be excluded.
See "Conversion Feature -- Class B Shares" above. If your investments in shares
of Prudential Mutual Funds (excluding money market funds other than those
acquired pursuant to the exchange privilege) reach $1 million and you then hold
Class B and/or Class C shares of the Fund which are free of CDSC, you will be so
notified and offered the opportunity to exchange those shares for Class A shares
of the Fund without the imposition of any sales charge. In the case of
tax-exempt shareholders, if no response is received within 60 days of the
mailing of such notice, eligible Class B and/or Class C shares will be
automatically exchanged for Class A shares. All other shareholders must
affirmatively elect to have their eligible Class B and/or Class C shares
exchanged for Class A shares. An exchange will be treated as a redemption and
purchase for tax purposes. See "Shareholder Investment Account -- Exchange
Privilege" in the Statement of Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE THE TELEPHONE
EXCHANGE PRIVILEGE ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call
the Fund at (800) 225-1852 to execute a telephone exchange of shares, weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fraudulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction will be sent to you.
NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST
WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE
UNDER THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order. The Exchange Privilege is available only in states where the
exchange may legally be made.
26
<PAGE>
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder of the Fund, you can
take advantage of the following services and privileges:
- AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not
less than 5 full business days prior to the record date to have subsequent
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through Prudential Securities, you should contact your
financial adviser.
- AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account
(including a Command Account). For additional information about this
service, you may contact your Prudential Securities financial adviser,
Prusec registered representative or the Transfer Agent directly.
- TAX DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue
Code are available through the Distributor. These plans are for use by
both self-employed individuals and corporate employers. These plans permit
either self-direction of accounts by participants, or a pooled account
arrangement. Information regarding the establishment of these plans, the
administration, custodial fees and other details is available from
Prudential Securities or the Transfer Agent. If you are considering
adopting such a plan, you should consult with your own legal or tax
adviser with respect to the establishment and maintenance of such a plan.
- SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals
of Class B and Class C shares may be subject to a CDSC. See "How to Sell
Your Shares -- Contingent Deferred Sales Charges."
- REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited
by independent accountants. In order to reduce duplicate mailing and
printing expenses, the Fund will provide one annual and semi-annual
shareholder report and annual prospectus per household. You may request
additional copies of such reports by calling (800) 225-1852 or by writing
to the Fund at One Seaport Plaza, New York, New York 10292. In addition,
monthly unaudited financial data is available upon request from the Fund.
- SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800)
225-1852 (toll-free) or, from outside the U.S.A., at (908) 417-7555
(collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
27
<PAGE>
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a mid
ranking; and the modifier "3" indicates that the issue ranks in the lower end of
its generic rating category.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year.
P-1: Issuers rated "Prime-1" or "P-1" (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
P-2: Issuers rated "Prime-2" or "P-2" (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations.
STANDARD & POOR'S CORPORATION
BOND RATINGS
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A-1
<PAGE>
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher-rated categories.
BB, B, CCC and CC: Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1: The A-1 designation indicates that the degree of safety regarding timely
payment is overwhelming or very strong. A "+" designation is applied to those
issues rated A-1 which possess an overwhelming degree of safety.
A-2: Capacity for timely payment on issues with the designation A-2 is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-2
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec registered representative or telephone
the Funds at (800) 225-1852 for a free prospectus. Read the prospectus carefully
before you invest or send money.
TAXABLE BOND FUNDS
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible-R- Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
-TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
-TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund
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
B-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell, or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
----------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS........................................................... 2
FUND EXPENSES............................................................. 4
FINANCIAL HIGHLIGHTS...................................................... 5
HOW THE FUND INVESTS...................................................... 7
Investment Objectives and Policies...................................... 7
Hedging and Income Enhancement Strategies............................... 11
Other Investments and Policies.......................................... 13
Investment Restrictions................................................. 15
HOW THE FUND IS MANAGED................................................... 15
Manager................................................................. 15
Distributor............................................................. 16
Portfolio Transactions.................................................. 17
Custodian and Transfer and Dividend Disbursing Agent.................... 17
HOW THE FUND VALUES ITS SHARES............................................ 17
HOW THE FUND CALCULATES PERFORMANCE....................................... 18
TAXES, DIVIDENDS AND DISTRIBUTIONS........................................ 18
GENERAL INFORMATION....................................................... 19
Description of Shares................................................... 19
Additional Information.................................................. 20
SHAREHOLDER GUIDE......................................................... 20
How to Buy Shares of the Fund........................................... 20
Alternative Purchase Plan............................................... 21
How to Sell Your Shares................................................. 23
Conversion Feature -- Class B Shares.................................... 25
How to Exchange Your Shares............................................. 26
Shareholder Services.................................................... 27
DESCRIPTION OF SECURITY RATINGS........................................... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY......................................... B-1
</TABLE>
----------------------------------------------
MF134A 44414OE
<TABLE>
<S> <C> <C>
Conservative: Class A: 744326109
Class B: 744326208
CUSIP Nos.: Class C:
Strategy: Class A: 744326307
Class B: 744326406
Class C:
</TABLE>
[LOGO]
Prudential
Allocation Fund
Conservatively
Managed Portfolio
Strategy Portfolio
-------------------------
<PAGE>
[PART B]
PRUDENTIAL ALLOCATION FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED , 1994
Prudential Allocation Fund, formerly Prudential FlexiFund (the Fund), is an
open-end, diversified management investment company. The Fund is comprised of
two separate portfolios--the Conservatively Managed Portfolio and the Strategy
Portfolio. The investment objective of the Conservatively Managed Portfolio is
to achieve a high total investment return consistent with moderate risk. The
investment objective of the Strategy Portfolio is to achieve a high total
investment return consistent with relatively higher risk than the Conservatively
Managed Portfolio. While each Portfolio will seek to achieve its objective by
investing in a diversified portfolio of money market instruments, debt
obligations and equity securities (including securities convertible into equity
securities), the Portfolios will differ with respect to the proportions of
investments in debt and equity securities, the quality and maturity of debt
securities purchased, and the price volatility and the type of issuer of equity
securities purchased. It is expected that the Strategy Portfolio will offer
investors a higher potential return with a correspondingly higher risk of loss
than the Conservatively Managed Portfolio. See "Investment Objectives and
Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated , 1994, a copy of
which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE TO
PAGE PAGE IN PROSPECTUS
--------- -------------------
<S> <C> <C>
General Information.............................................................................. B-2 19
Investment Objectives and Policies............................................................... B-2 7
Investment Restrictions.......................................................................... B-8 15
Trustees and Officers............................................................................ B-10 15
Manager.......................................................................................... B-12 15
Distributor...................................................................................... B-14 16
Portfolio Transactions and Brokerage............................................................. B-16 17
Purchase and Redemption of Fund Shares........................................................... B-17 20
Shareholder Investment Account................................................................... B-20 20
Net Asset Value.................................................................................. B-23 17
Taxes............................................................................................ B-24 18
Performance Information.......................................................................... B-26 18
Organization and Capitalization.................................................................. B-27 19
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants.................... B-29 17
Independent Auditors' Report..................................................................... B-30 --
Financial Statements............................................................................. B-31 --
</TABLE>
- --------------------------------------------------------------------------------
MF134B 444141C
<PAGE>
GENERAL INFORMATION
The Fund was organized on February 23, 1987 and consisted of two Portfolios,
the Aggressively Managed Portfolio and the Conservatively Managed Portfolio. On
November 30, 1990, the name of the Aggressively Managed Portfolio was changed to
the Strategy Portfolio. On February 28, 1991, the Trustees approved an amendment
to the Declaration of Trust to change the Fund's name from Prudential-Bache
FlexiFund to Prudential FlexiFund and, on February 8, 1994, the Trustees
approved an amendment to the Declaration of Trust to change the Fund's name from
Prudential FlexiFund to Prudential Allocation Fund.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Conservatively Managed Portfolio is to
achieve a high total investment return consistent with moderate risk. The
investment objective of the Strategy Portfolio is to achieve a high total
investment return consistent with relatively higher risk than the Conservatively
Managed Portfolio. Each Portfolio will seek to achieve its objective by
investing in a diversified portfolio of money market instruments, debt
obligations and equity securities. However, the asset mix and the type of
portfolio securities purchased by the Portfolios will differ. It is anticipated
that, under normal conditions, the Conservatively Managed Portfolio will have a
smaller percentage of its assets invested in equity securities and a larger
percentage invested in money market instruments than the Strategy Portfolio. In
addition, the average weighted maturity of the debt securities held by the
Conservatively Managed Portfolio will be shorter than that of the Strategy
Portfolio, and the equity securities held by the Conservatively Managed
Portfolio will typically be less volatile securities of larger and more mature
companies than the Strategy Portfolio. See "How the Fund Invests--Investment
Objectives and Policies" in the Prospectus.
RISKS OF TRANSACTIONS IN OPTIONS
A Portfolio will write (I.E., sell) covered call options only on equity
securities, on stock indices which are traded on a securities exchange or which
are listed on NASDAQ or in the over-the-counter market, on currencies and on
futures contracts which are traded on an exchange or board of trade. A call
option gives the purchaser of the option the right to buy, and the writer the
obligation to sell, the underlying security at the exercise price during the
option period. A Portfolio will write covered call options for hedging purposes
and to augment its income.
So long as the obligation of the writer of the call continues, the writer
may be assigned an exercise notice. The exercise notice would require the writer
of a call option to deliver the underlying security against payment of the
exercise price. This obligation terminates upon expiration of the option, or at
such earlier time that the writer effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the same
exercise price and expiration date (of the same series) as the one previously
sold. Once an option has been exercised, the writer may not execute a closing
purchase transaction. To secure the obligation to deliver the underlying
security the writer of the option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of The Options
Clearing Corporation (the OCC), the Chicago Board of Trade and the Chicago
Mercantile Exchange, institutions which interpose themselves between buyers and
sellers of options. Technically, each of these institutions assumes the other
side of every purchase and sale transaction on an exchange and, by doing so,
gives its guarantee to the transaction.
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although a Portfolio will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect closing transactions in particular options, with the result
that the Portfolio would have to exercise its options in order to realize any
profit and would incur brokerage commissions upon the exercise of call options
and upon the subsequent disposition of underlying securities acquired through
the exercise of call options or upon the purchase of underlying securities for
the exercise of put options. If a Portfolio as a covered call option writer is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading
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volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in the class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by a
clearing corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. There is no assurance that higher
than anticipated trading activity or other unforeseen events might not, at
times, render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.
However, the OCC, based on forecasts provided by the U.S. exchanges, believes
that its facilities are adequate to handle the volume of reasonably anticipated
options transactions, and such exchanges have advised such clearing corporation
that they believe their facilities will also be adequate to handle reasonably
anticipated volume.
OPTIONS ON STOCK INDICES
Except as described below, a Portfolio will write call options on indices
only if on such date it holds a portfolio of securities at least equal to the
value of the index times the multiplier times the number of contracts. When a
Portfolio writes a call option on a broadly-based stock market index, the
Portfolio will segregate or put into escrow with its Custodian, or pledge to a
broker as collateral for the option, cash, cash equivalents or at least one
"qualified security" with a market value at the time the option is written of
not less than 100% of the current index value times the multiplier times the
number of contracts. A Portfolio will write call options on broadly-based stock
market indices only if at the time of writing it holds a diversified portfolio
of stocks.
If a Portfolio has written an option on an industry or market segment index,
it will so segregate or put into escrow with the Fund's Custodian, or pledge to
a broker as collateral for the option, at least ten "qualified securities," all
of which are stocks of an issuer in such industry or market segment, with a
market value at the time the option is written of not less than 100% of the
current index value times the multiplier times the number of contracts. Such
stocks will include stocks which represent at least 50% of the weighting of the
industry or market segment index and will represent at least 50% of the
Portfolio's holdings in that industry or market segment. No individual security
will represent more than 15% of the amount so segregated, pledged or escrowed in
the case of broadly-based stock market index options or 25% of such amount in
the case of industry or market segment index options.
If at the close of business on any day the market value of such qualified
securities so segregated, escrowed or pledged falls below 100% of the current
index value times the multiplier times the number of contracts, a Portfolio will
segregate, escrow or pledge an amount in cash, Treasury bills or other
high-grade short-term debt obligations equal in value to the difference. In
addition, when the Portfolio writes a call on an index which is in-the-money at
the time the call is written, the Portfolio will segregate with the Fund's
Custodian or pledge to the broker as collateral cash, U.S. Government or other
high-grade short-term debt obligations equal in value to the amount by which the
call is in-the-money times the multiplier times the number of contracts. Any
amount segregated pursuant to the foregoing sentence may be applied to the
Portfolio's obligation to segregate additional amounts in the event that the
market value of the qualified securities falls below 100% of the current index
value times the multiplier times the number of contracts. A "qualified security"
is an equity security which is listed on a securities exchange or listed on
NASDAQ against which the Portfolio has not written a stock call option and which
has not been hedged by the Portfolio by the sale of stock index futures.
However, if the Portfolio holds a call on the same index as the call written
where the exercise price of the call held is equal to or less than the exercise
price of the call written or greater than the exercise price of the call written
if the difference is maintained by the Portfolio in cash, Treasury bills or
other high-grade short-term debt obligations in a segregated account with the
Fund's Custodian, it will not be subject to the requirements described in this
paragraph.
RISKS OF OPTIONS ON INDICES
A Portfolio's purchase and sale of options on indices will be subject to
risks described above under "Risks of Transactions in Options." In addition, the
distinctive characteristics of options on indices create certain risks that are
not present with stock options.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, successful use by the
Fund of options on indices would be subject to the investment adviser's ability
to predict correctly movements in the direction of the stock market generally or
of a particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
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Index prices may be distorted if trading of certain securities included in
the index is interrupted. Trading in the index options also may be interrupted
in certain circumstances, such as if trading were halted in a substantial number
of securities included in the index. If this occurred, the Portfolio would not
be able to close out options which it had purchased or written and, if
restrictions on exercise were imposed, may be unable to exercise an option it
holds, which could result in substantial losses to the Portfolio. It is each
Portfolio's policy to purchase or write options only on indices which include a
number of securities sufficient to minimize the likelihood of a trading halt in
the index.
Trading in stock index options commenced in April 1983 with the S&P 100
option (formerly called the CBOE 100). Since that time a number of additional
index option contracts have been introduced including options on industry
indices. Although the markets for certain index option contracts have developed
rapidly, the markets for other index options are still relatively illiquid. The
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid secondary market. It is not certain
that this market will develop in all index option contracts. Neither Portfolio
will purchase or sell any index option contract unless and until, in the
investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is no greater
than the risk in connection with options on stocks.
SPECIAL RISKS OF WRITING CALLS ON INDICES. Unless a Portfolio has other
liquid assets which are sufficient to satisfy the exercise of a call, the
Portfolio would be required to liquidate portfolio securities in order to
satisfy the exercise. Because an exercise must be settled within hours after
receiving the notice of exercise, if the Portfolio fails to anticipate an
exercise, it may have to borrow from a bank (in amounts not exceeding 20% of the
Portfolio's total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.
When a Portfolio has written a call, there is also a risk that the market
may decline between the time the Portfolio has a call exercised against it, at a
price which is fixed as of the closing level of the index on the date of
exercise, and the time the Portfolio is able to sell securities in its
portfolio. As with stock options, the Portfolio will not learn that an index
option has been exercised until the day following the exercise date but, unlike
a call on stock where the Portfolio would be able to deliver the underlying
securities in settlement, the Portfolio may have to sell part of its portfolio
in order to make settlement in cash, and the price of such securities might
decline before they can be sold. This timing risk makes certain strategies
involving more than one option substantially more risky with index options than
with stock options. For example, even if an index call which the Portfolio has
written is "covered" by an index call held by the Portfolio with the same strike
price, the Portfolio will bear the risk that the level of the index may decline
between the close of trading on the date the exercise notice is filed with the
clearing corporation and the close of trading on the date the Portfolio
exercises the call it holds or the time the Portfolio sells the call, which in
either case would occur no earlier than the day following the day the exercise
notice was filed.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks involved in the use of futures contracts as a
hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the price of the underlying securities, the price of
a futures contract may move more or less than the price of the securities being
hedged. Therefore, a correct forecast of interest rate or stock market trends by
the investment adviser may still not result in a successful hedging transaction.
Although a Portfolio will purchase or sell futures contracts only on
exchanges where there appears to be an adequate secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular contract or at any particular time. Accordingly, there can be no
assurance that it will be possible, at any particular time, to close a futures
position. In the event a Portfolio could not close a futures position and the
value of such position declined, the Portfolio would be required to continue to
make daily cash payments of variation margin. However, in the event a futures
contract has been used to hedge portfolio securities, such securities will not
be sold until the futures contract can be terminated. In such circumstances, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract. However, there is no guarantee that the
price movements of the securities will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on the
futures contract.
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the Investment
Company Act), are exempt from the definition of "commodity pool operator,"
subject to compliance with certain conditions. The exemption is conditioned upon
a requirement that all of the Fund's futures or options transactions constitute
bona fide hedging transactions within the meaning of the regulations of the
Commodity Futures Trading Commission (CFTC). A Portfolio of the Fund may also
enter into futures contracts or options thereon for income enhancement and risk
management purposes if the aggregate initial margin for such contracts and
premiums paid for such options does not
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exceed 5% of the liquidation value of the Portfolio's total assets. In addition,
a Portfolio may not enter into futures contracts or options thereon if the sum
of initial and variation margin on outstanding futures contracts, together with
the premium paid on outstanding options exceeds 20% of the Portfolio's total
assets. The Fund will use futures and options thereon in a manner consistent
with these requirements.
Successful use of futures contracts by a Portfolio is also subject to the
ability of the Fund's investment adviser to predict correctly movements in the
direction of interest rates and other factors affecting markets for securities.
For example, if a Portfolio has hedged against the possibility of an increase in
interest rates which would adversely affect the price of securities in its
portfolio and the price of such securities increases instead, the Portfolio will
lose part or all of the benefit of the increased value of its securities because
it will have offsetting losses in its futures positions. In addition, in such
situations, if a Portfolio has insufficient cash to meet daily variation margin
requirements, it may need to sell securities to meet such requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. A Portfolio may have to sell securities at a
time when it is disadvantageous to do so.
The hours of trading of futures contracts may not conform to the hours
during which a Portfolio may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures markets.
OPTIONS ON FUTURES CONTRACTS
An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. Currently, options can
be purchased or written with respect to futures contracts on U.S. Treasury
Bills, Notes and Bonds and on the S&P 500 Stock Index and the NYSE Composite
Index.
The holder or writer of an option may terminate his or her position by
selling or purchasing an option of the same series. There is no guarantee that
such closing transactions can be effected.
LIMITATIONS ON PURCHASE AND SALE OF OPTIONS, FUTURES AND OPTIONS THEREON
Each Portfolio may write call options on stocks only if they are covered,
and such options must remain covered so long as the Fund is obligated as a
writer. The Fund has undertaken with certain state securities commissions that,
so long as shares of a Portfolio of the Fund are registered in those states,
neither Portfolio will purchase (i) put options on stocks not held by the
Portfolio, (ii) put options on indices and (iii) call options on stock or stock
indices or foreign currencies if, after any such purchase, the total premiums
paid for such options would exceed 10% of the Portfolio's total assets;
provided, however, that a Portfolio may purchase put options on stock held by
the Portfolio if after such purchase the aggregate premiums paid for such
options do not exceed 20% of the Portfolio's total net assets. In addition, the
aggregate value of the securities that are the subject of put options will not
exceed 50% of the Portfolio's net assets.
POSITION LIMITS. Transactions by a Portfolio in futures contracts and
options will be subject to limitations, if any, established by each of the
exchanges, boards of trade or other trading facilities (including NASDAQ)
governing the maximum number of options in each class which may be written or
purchased by a single investor or group of investors acting in concert,
regardless of whether the options are written on the same or different
exchanges, boards of trade or other trading facilities or are held or written in
one or more accounts or through one or more brokers. Thus, the number of futures
contracts and options which the Portfolio may write or purchase may be affected
by the futures contracts and options written or purchased by other investment
advisory clients of the investment adviser. An exchange, board of trade or other
trading facility may order the liquidations of positions found to be in excess
of these limits, and it may impose certain other sanctions.
RISK FACTORS RELATING TO HIGH YIELD SECURITIES
Fixed-income securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity and the market
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perception of the creditworthiness of the issuer (market risk). Lower-rated or
unrated (I.E., high yield) securities are more likely to react to developments
affecting market and credit risk than are more highly-rated securities, which
react primarily to movements in the general level of interest rates. The
investment adviser considers both credit risk and market risk in making
investment decisions for the Portfolios.
The amount of high yield securities outstanding proliferated in the 1980's
in conjunction with the increase in merger and acquisition and leveraged buyout
activity. An economic downturn could severely affect the ability of highly
leveraged issuers to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for high yield
securities which is concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated securities. Under adverse
market or economic conditions, the secondary market for high yield securities
could contract further, independent of any specific adverse changes in the
condition of a particular issuer. As a result, the investment adviser could find
it more difficult to sell these securities or may be able to sell the securities
only at prices lower than if such securities were widely traded. Prices realized
upon the sale of such lower-rated or unrated securities, under these
circumstances, may be less than the prices used in calculating a Portfolio's net
asset value.
Federal laws require the divestiture by federally insured savings and loan
associations of their investments in high yield bonds and limit the
deductibility of interest by certain corporate issuers of high yield bonds.
These laws could adversely affect a Portfolio's net asset value and investment
practices, the secondary market for high yield securities, the financial
condition of issuers of these securities and the value of outstanding high yield
securities.
Lower-rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Portfolio may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Portfolio experiences unexpected net
redemptions, it may be forced to sell its higher-rated securities, resulting in
a decline in the overall credit quality of the Portfolio and increasing the
exposure of the Portfolio to the risks of high yield securities.
MORTGAGE-RELATED SECURITIES
Each Portfolio may also invest in Collateralized Mortgage Obligations
(CMOs). A CMO is a debt security that is backed by a portfolio of mortgages or
mortgage-backed securities. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs generally are partitioned into several classes
with a ranked priority as to the time that principal payments will be made with
respect to each of the classes.
Each Portfolio may also invest in Real Estate Mortgage Investment Conduits
(REMICs). An issuer of REMICs may be a trust, partnership, corporation,
association, segregated pool of mortgages, or agency of the U.S. Government and,
in each case, must qualify and elect treatment as such under the Tax Reform Act
of 1986. A REMIC must consist of one or more classes of "regular interests" some
of which may be adjustable rate, and a single class of "residual interests." To
qualify as a REMIC, substantially all the assets of the entity must be directly
or indirectly secured, principally by real property. The Fund does not intend to
invest in residual interests. REMICs are intended by the U.S. Congress
ultimately to become the exclusive vehicle for the issuance of multi-class
securities backed by real estate mortgages. As of January 1, 1992, if a trust or
partnership that issues CMOs does not elect or qualify for REMIC status, it is
taxed at the entity level as a corporation.
Certain issuers of CMOs, including CMOs that have elected to be treated as
REMICs, are not considered investment companies pursuant to a Rule adopted by
the Securities and Exchange Commission ("SEC"), and each Portfolio may invest in
the securities of such issuers without the limitations imposed by the Investment
Company Act of 1940 on investments by an investment company in other investment
companies. In addition, in reliance on an earlier SEC interpretation, a
Portfolio's investments in certain qualifying CMOs, which cannot or do not rely
on the rule, including CMOs that have elected to be treated as REMICs, are not
subject to the Investment Company Act's limitation on acquiring interests in
other investment companies. In order to be able to rely on the SEC's
interpretation, the CMOs and REMICs must be unmanaged, fixed-asset issuers that
(a) invest primarily in mortgage-backed securities, (b) do not issue redeemable
securities, (c) operate under general exemptive orders exempting them from all
provisions of the Investment Company Act, and (d) are not registered or
regulated under the Investment Company Act as investment companies. To the
extent that a Portfolio selects CMOs or REMICs that do not meet the above
requirements, the Portfolio may not invest more than 10% of its assets in all
such entities and may not acquire more than 3% of the voting securities of any
single such entity.
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MONEY MARKET INSTRUMENTS
Each Portfolio may invest in money market instruments, including commercial
paper of corporations, certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks, and obligations issued or guaranteed
by the U.S. Government, its instrumentalities or its agencies. A Portfolio will
invest in foreign banks and foreign branches of U.S. banks only if, after giving
effect to such investment, all such investments would constitute less than 10%
of such Portfolio's total assets (taken at current value). Such investments may
be subject to certain risks, including future political and economic
developments, the possible imposition of withholding taxes on interest income,
the seizure or nationalization of foreign deposits and foreign exchange controls
or other restrictions.
Each Portfolio may also invest in money market instruments that are
guaranteed by an insurance company or other non-bank entity. Under the
Investment Company Act, a guaranty is not deemed to be a security of the
guarantor for purposes of satisfying the diversification requirements provided
that the securities issued or guaranteed by the guarantor and held by a
Portfolio do not exceed 10% of the Portfolio's total assets.
REPURCHASE AGREEMENTS
The Fund's repurchase agreements will be collateralized by U.S. Government
obligations. The Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Fund's Trustees. The Fund's
investment adviser will monitor the creditworthiness of such parties under the
general supervision of the Trustees. In the event of a default or bankruptcy by
a seller, the Fund will promptly seek to liquidate the collateral. To the extent
that the proceeds from any sale of such collateral upon a default in the
obligation to repurchase are less than the repurchase price, the Fund will
suffer a loss.
The Fund participates in a joint repurchase agreement account with other
investment companies managed by Prudential Mutual Fund Management, Inc. (PMF)
pursuant to an order of the SEC. On a daily basis, any uninvested cash balances
of the Fund may be aggregated with those of such investment companies and
invested in one or more repurchase agreements. Each fund participates in the
income earned or accrued in the joint account based on the percentage of its
investment.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, each Portfolio may lend
its portfolio securities to brokers, dealers and financial institutions provided
that outstanding loans do not exceed in the aggregate 33% of the value of the
Portfolio's total assets and provided further that such loans are callable at
any time by the Portfolio and are at all times secured by cash or equivalent
collateral that is equal to at least the market value, determined daily, on the
loaned securities. The advantage of such loans is that a Portfolio continues to
receive payments in lieu of the interest and dividends of the loaned securities,
while at the same time earning interest either directly from the borrower or on
the collateral which will be invested in short-term obligations.
A loan may be terminated by the borrower on one business day's notice or by
a Portfolio at any time. If the borrower fails to maintain the requisite amount
of collateral, the loan automatically terminates, and the Portfolio could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases loss of rights in
the collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms determined to be
creditworthy pursuant to procedures approved by the Trustees of the Fund. On
termination of the loan, the borrower is required to return the securities to
the Portfolio, and any gain or loss in the market price during the loan would
inure to the Portfolio.
Since voting or consent rights which accompany loaned securities pass to the
borrower, each Portfolio will follow the policy of calling the loan, in whole or
in part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Portfolio's investment in
the securities which are the subject of the loan. A Portfolio will pay
reasonable finder's, administrative and custodial fees in connection with a loan
of its securities or may share the interest earned on collateral with the
borrower.
While each Portfolio may lend securities, neither Portfolio loaned its
securities during the fiscal year ended July 31, 1993.
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WARRANTS
Each Portfolio will not invest more than 5% of its net assets in warrants,
nor will it invest more than 2% of its net assets in warrants which are not
listed on the New York or American Stock Exchanges or a major foreign exchange.
In the application of such limitation, warrants will be valued at the lower of
cost or market value, except that warrants acquired by a Portfolio in units or
attached to other securities will be deemed to be without value.
SECURITIES OF OTHER INVESTMENT COMPANIES
Each Portfolio may invest up to 5% of its total assets in securities of
other registered investment companies. Generally, the Portfolios do not intend
to invest in such securities. If a Portfolio does invest in securities of other
registered investment companies, shareholders of the Portfolio may be subject to
duplicate management and advisory fees.
PORTFOLIO TURNOVER
As a result of the investment policies described above, each Portfolio may
engage in a substantial number of portfolio transactions, but each Portfolio's
portfolio turnover rate is not expected to exceed 200%. The portfolio turnover
rates for the Conservatively Managed Portfolio for the fiscal years ended July
31, 1992 and 1993 were 83% and 105%, respectively. The portfolio turnover rate
for the Strategy Portfolio for the fiscal year ended July 31, 1993 was 145%. Due
to market volatility, the portfolio turnover rate for the Strategy Portfolio for
the fiscal year ended July 31, 1992 was 241%. The portfolio turnover rate is
generally the percentage computed by dividing the lesser of portfolio purchases
or sales (excluding all securities, including options, whose maturities or
expiration date at acquisition were one year or less) by the monthly average
value of such portfolio securities. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs, which
are borne directly by each Portfolio. In addition, high portfolio turnover may
also mean that a proportionately greater amount of distributions to shareholders
will be taxed as ordinary income rather than long-term capital gains compared to
investment companies with lower portfolio turnover. See "Portfolio Transactions
and Brokerage" and "Taxes."
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 outstanding voting securities of a Portfolio. A "majority of the
outstanding voting securities of a Portfolio," when used in this Statement of
Additional Information, means the lesser of (i) 67% of the voting shares
represented at a meeting at which more than 50% of the outstanding voting shares
are present in person or represented by proxy or (ii) more than 50% of the
outstanding voting shares.
Each Portfolio may not:
1. Purchase securities on margin (but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of transactions);
provided that the deposit or payment by the Portfolio of initial or maintenance
margin in connection with futures contracts or options thereon is not considered
the purchase of a security on margin.
2. Make short sales of securities or maintain a short position, except
short sales against-the-box.
3. Issue senior securities, borrow money or pledge its assets, except that
the Portfolio may borrow up to 20% of the value of its total assets (calculated
when the loan is made) for temporary, extraordinary or emergency purposes or for
the clearance of transactions. The Portfolio may pledge up to 20% of the value
of its total assets to secure such borrowings. For purposes of this restriction,
the preference as to shares of a Portfolio in liquidation and as to dividends
over all other Portfolios of the Fund with respect to assets specifically
allocated to that Portfolio, the purchase or sale of securities on a when-issued
or delayed delivery basis, the purchase of forward foreign currency exchange
contracts and collateral arrangements relating thereto, the purchase and sale of
options, financial futures contracts, options on such contracts and collateral
arrangements with respect thereto and with respect to interest rate swap
transactions and obligations of the Fund to Trustees pursuant to deferred
compensation arrangements are not deemed to be the issuance of a senior security
or a pledge of assets.
4. Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result: (i) with respect to 75% of
the Portfolio's assets, more than 5% of the total assets of the Portfolio
(determined at the time of
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investment) would then be invested in securities of a single issuer or (ii) more
than 25% of the total assets of the Portfolio (determined at the time of
investment) would be invested in a single industry. As to utility companies,
gas, electric and telephone companies will be considered as separate industries.
5. Purchase any security if as a result the Portfolio would then hold more
than 10% of the outstanding voting securities of an issuer.
6. Purchase any security if as a result the Portfolio would then have more
than 5% of its total assets (determined at the time of investment) invested in
securities of companies (including predecessors) less than three years old,
except that the Portfolio may invest in the securities of any U.S. Government
agency or instrumentality, and in any security guaranteed by such an agency or
instrumentality.
7. Buy or sell real estate or interests in real estate, except that it may
purchase and sell securities which are secured by real estate, securities of
companies which invest or deal in real estate and publicly traded securities of
real estate investment trusts.
8. Buy or sell commodities or commodity contracts, except that it may
purchase and sell futures contracts and options thereon. (For purposes of this
restriction, a forward foreign currency exchange contract is not deemed to be a
commodity or commodity contract.)
9. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.
10. Make investments for the purpose of exercising control or management.
11. Invest in securities of other registered investment companies, except by
purchases in the open market involving only customary brokerage commissions and
as a result of which not more than 5% of its total assets (determined at the
time of investment) would be invested in such securities, or except as part of a
merger, consolidation or other acquisition.
12. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Portfolio may invest in the securities of
companies which invest in or sponsor such programs.
13. Make loans, except through repurchase agreements and loans of portfolio
securities (limited to 33% of the Portfolio's total assets).
Each Portfolio has undertaken with certain state securities commissions that
it does not intend to engage in arbitrage transactions.
In order to comply with certain state "blue sky" restrictions, each
Portfolio will not as a matter of operating policy purchase the securities of
any one issuer if, to the knowledge of the Fund, any officer or Trustee of the
Fund or any officer or director of the Manager or Subadviser owns more than 1/2
of 1% of the outstanding securities of such issuer, and such officers, Trustees
and directors who own more than 1/2 of 1% own in the aggregate more than 5% of
the outstanding securities of such issuer.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of a Portfolio's assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later change
in percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the
Portfolio's asset coverage for borrowings falls below 300%, the Portfolio will
take prompt action to reduce its borrowings, as required by applicable law.
B-9
<PAGE>
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST 5 YEARS
- --------------------------- ----------------------- -----------------------------------------------------------------
<S> <C> <C>
Edward D. Beach Trustee President and Director of BMC Fund, Inc., a closed-end investment
c/o Prudential Mutual Fund company; prior thereto Vice Chairman of Broyhill Furniture
Management, Inc. Industries, Inc.; Certified Public Accountant; Secretary and
One Seaport Plaza Treasurer of Broyhill Family Foundation, Inc.; President,
New York, NY Treasurer and Director of First Financial Fund, Inc., and The
High Yield Plus Fund, Inc.; Director of The Global Government
Plus Fund, Inc. and The Global Yield Fund, Inc.
Donald D. Lennox Trustee Chairman (since February 1990) and Director (since April 1989) of
c/o Prudential Mutual Fund International Imaging Materials, Inc.; Retired Chairman, Chief
Management, Inc. Executive Officer and Director of Schlegel Corporation
One Seaport Plaza (industrial manufacturing) (March 1987-February 1989); Director,
New York, NY Gleason Corporation, Navistar International Corporation,
Personal Sound Technologies, Inc., The Global Government Plus
Fund, Inc. and The High Yield Income Fund, Inc.
Douglas H. McCorkindale Trustee Vice Chairman, Gannett Co. Inc. (publishing and media) (since
c/o Prudential Mutual Fund March 1984); Director of Continental Airlines, Inc., Gannett
Management, Inc. Co., Inc., Rochester Telephone Corporation and The Global
One Seaport Plaza Government Plus Fund, Inc.
New York, NY
*Lawrence C. McQuade President and Trustee Vice Chairman of Prudential Mutual Fund Management, Inc. (PMF)
One Seaport Plaza (since 1988); Managing Director, Investment Banking, Prudential
New York, NY Securities Incorporated (Prudential Securities) (1988-1991);
Director of Quixote Corporation (since February 1992) and BUNZL,
P.L.C. (since June 1991); formerly Director of Kaiser Tech. Ltd.
and Kaiser Aluminum and Chemical Corp. (March 1987-November
1988) and Crazy Eddie Inc. (1987-1990); formerly Executive Vice
President and Director of W.R. Grace & Co. (1975-1987);
President and Director of The Global Government Plus Fund, Inc.,
The Global Yield Fund, Inc. and The High Yield Income Fund, Inc.
Thomas T. Mooney Trustee President of the Greater Rochester Metro Chamber of Commerce;
c/o Prudential Mutual Fund Rochester City Manager; Trustee of Center for Governmental
Management, Inc. Research, Inc.; Director of Blue Cross of Rochester, Monroe
One Seaport Plaza County Water Authority, Rochester Jobs, Inc., Executive Service
New York, NY Corps of Rochester, Monroe County Industrial Development
Corporation, Northeast Midwest Institute, First Financial Fund,
Inc., The Global Government Plus Fund, Inc., The Global Yield
Fund, Inc. and The High Yield Plus Fund, Inc.
<FN>
- ------------------------
* "Interested" Trustee, as defined in the Investment Company Act.
</TABLE>
B-10
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST 5 YEARS
- --------------------------- ----------------------- -----------------------------------------------------------------
<S> <C> <C>
*Richard A. Redeker Trustee President, Chief Executive Officer and Director (since October
One Seaport Plaza 1993), PMF; Executive Vice President, Director and Member of the
New York, NY Operating Committee (since October 1993), Prudential Securities;
Director (since October 1993) of Prudential Securities Group,
Inc.; formerly Senior Executive Vice President and Director of
Kemper Financial Services, Inc. (September 1978-September 1993);
Director of The Global Government Plus Fund, Inc. and The High
Yield Income Fund, Inc.
Louis A. Weil, III Trustee Publisher and Chief Executive Officer, Phoenix Newspapers, Inc.
c/o Prudential Mutual Fund (since August 1991); Director of Central Newspapers Inc. (since
Management, Inc. September 1991); prior thereto, Publisher of Time Magazine (May
One Seaport Plaza 1989-March 1991); formerly President, Publisher and CEO of The
New York, NY Detroit News (February 1986-August 1989); formerly member of the
Advisory Board, Chase Manhattan Bank-Westchester; Director of
The Global Government Plus Fund, Inc.
Robert F. Gunia Vice President Chief Administrative Officer (since July 1990), Director (since
One Seaport Plaza January 1989) and Executive Vice President, Treasurer and Chief
New York, NY Financial Officer (since June 1987) of PMF; Senior Vice
President (since March 1987) of Prudential Securities; Vice
President and Director (since May 1989) of The Asia Pacific
Fund, Inc.
Susan C. Cote Treasurer and Principal Senior Vice President (since January 1989) and First Vice
One Seaport Plaza Financial and President (June 1987-December 1988) of PMF; Senior Vice
New York, NY Accounting Officer President (since January 1992) and Vice President (January
1986-December 1991) of Prudential Securities.
S. Jane Rose Secretary Senior Vice President (since January 1991), Senior Counsel (since
One Seaport Plaza June 1987) and First Vice President (June 1987-December 1990) of
New York, NY PMF; Senior Vice President and Senior Counsel (since July 1992)
of Prudential Securities; formerly Vice President and Associate
General Counsel of Prudential Securities.
Marguerite E. H. Morrison Assistant Secretary Vice President and Associate General Counsel (since June 1991) of
One Seaport Plaza PMF; Vice President and Associate General Counsel of Prudential
New York, NY Securities.
<FN>
- ------------------------
* "Interested" Trustee, as defined in the Investment Company Act.
</TABLE>
Trustees and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities or Prudential Mutual Fund Distributors, Inc. (PMFD)
The officers conduct and supervise the daily business operations of the
Fund, while the Trustees, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Fund pays each of its Trustees who is not an affiliated person of PMF or
The Prudential Investment Corporation (PIC) annual compensation of $8,500 in
addition to certain out-of-pocket expenses. [The Chairman of the Audit Committee
receives an additional $200 per year.]
Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Trustees of the Fund who are affiliated persons of the Manager.
B-11
<PAGE>
Trustees may receive their Trustees' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Trustees' fees which accrue interest at a rate equivalent to
the prevailing rate applicable to 90-day U.S. Treasury Bills at the beginning of
each calendar quarter or at the daily rate of return of the Fund. Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Trustee. The Fund's obligation to make payments of deferred Trustees'
fees, together with interest thereon, is a general obligation of the Fund.
As of March 31, 1994, the Trustees and officers of the Fund, as a group,
owned beneficially less than 1% of the outstanding shares of beneficial interest
of each Portfolio of the Fund.
As of March 31, 1994, Prudential Securities was record holder for other
beneficial owners of 986,584 Class A shares (or 34% of the outstanding Class A
shares) of the Conservatively Managed Portfolio and 1,517,789 Class A shares (or
58% of the outstanding Class A shares) of the Strategy Portfolio and 14,078,466
Class B shares (or 37% of the outstanding Class B shares) of the Conservatively
Managed Portfolio and 17,618,681 Class B shares (or 56% of the outstanding Class
B shares) of the Strategy Portfolio. In the event of any meetings of
shareholders, Prudential Securities will forward, or cause the forwarding of,
proxy material to the beneficial owners for which it is the record holder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to all of the other investment companies that, together with the Fund, comprise
the "Prudential Mutual Funds." See "How the Fund is Managed--Manager" in the
Prospectus. As of March 31, 1994, PMF managed and/or administered open-end and
closed-end management investment companies with assets of approximately $[51]
billion. According to the Investment Company Institute, as of December 31, 1993,
the Prudential Mutual Funds were the 12th largest family of mutual funds in the
United States.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Trustees and in
conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolios, including
the purchase, retention, disposition and loan of securities. In connection
therewith, PMF is obligated to keep certain books and records of the Fund. PMF
also administers the Fund's business affairs and, in connection therewith,
furnishes the Fund with office facilities, together with those ordinary clerical
and bookkeeping services which are not being furnished by State Street Bank and
Trust Company (State Street or the Custodian), the Fund's custodian, and
Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), the Fund's
transfer and dividend disbursing agent. The management services of PMF for the
Fund are not exclusive under the terms of the Management Agreement and PMF is
free to, and does, render management services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .65 of 1% of the average daily net assets of each
Portfolio. The fee is computed daily and payable monthly. The Management
Agreement also provides that, in the event the expenses of the Fund (including
the fees of PMF, but excluding interest, taxes, brokerage commissions,
distribution fees and litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdiction in which the Fund's shares are qualified for offer and sale,
the compensation due PMF will be reduced by the amount of such excess.
Reductions in excess of the total compensation payable to PMF will be paid by
PMF to the Fund. No such reductions were required during the fiscal year ended
July 31, 1993. Currently, the Fund believes that the most restrictive expense
limitation of state securities commissions is 2 1/2% of a fund's average daily
net assets up to $30 million, 2% of the next $70 million of such assets and
1 1/2% of such assets in excess of $100 million.
B-12
<PAGE>
In connection with its management of the business affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel except
the fees and expenses of Trustees who are not affiliated persons of PMF or the
Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the Fund
as described below; and
(c) the costs and expenses payable to PIC pursuant to the subadvisory
agreement between PMF and PIC (the Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b) the
fees and expenses of Trustees who are not affiliated persons of the Manager or
the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of any
trade associations of which the Fund may be a member, (h) the cost of stock
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) certain organization expenses of the Fund and the fees
and expenses involved in registering and maintaining registration of the Fund
and of its shares with the SEC, registering the Fund and qualifying its shares
under state securities laws, including the preparation and printing of the
Fund's registration statements and prospectuses for such purposes, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
reports, proxy statements and prospectuses to shareholders in the amount
necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act. The Management Agreement
was last approved by the Trustees of the Fund, including all of the Trustees who
are not parties to the contract or interested persons of any such party, as
defined in the Investment Company Act, on May 3, 1994 and by shareholders of
each Portfolio of the Fund on February 19, 1988.
For the fiscal year ended July 31, 1993 PMF received management fees of
$1,837,757 and $2,362,366 on behalf of the Conservatively Managed Portfolio and
Strategy Portfolio, respectively. For the fiscal year ended July 31, 1992, PMF
received management fees of $1,276,999 and $1,840,991 on behalf of the
Conservatively Managed Portfolio and Strategy Portfolio, respectively, and for
the fiscal year ended July 31, 1991, PMF received management fees of $992,289
and $1,240,934 on behalf of the Conservatively Managed Portfolio and the
Strategy Portfolio, respectively.
PMF has entered into the Subadvisory Agreement with Prudential Investment
Corporation (PIC or the Subadviser), a wholly-owned subsidiary of Prudential.
The Subadvisory Agreement provides that PIC will furnish investment advisory
services in connection with the management of the Fund. In connection therewith,
PIC is obligated to keep certain books and records of the Fund. PMF continues to
have responsibility for all investment advisory services pursuant to the
Management Agreement and supervises PIC's performance of such services. PIC is
reimbursed by PMF for the reasonable costs and expenses incurred by PIC in
furnishing those services.
The Subadvisory Agreement was last approved by the Trustees, including a
majority of the Trustees who are not interested persons of the Fund and who have
no direct or indirect interest in the Subadvisory Agreement, on May 3, 1994, and
by shareholders of each Portfolio of the Fund on February 19, 1988.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the
B-13
<PAGE>
Fund, PMF or PIC upon not more than 60 days', nor less than 30 days', written
notice. The Subadvisory Agreement provides that it will continue in effect for a
period of more than two years from its execution only so long as such
continuance is specifically approved at least annually in accordance with the
requirements of the Investment Company Act.
The Manager and the Subadviser are subsidiaries of The Prudential Insurance
Company of America (Prudential) which, as of December 31, 1993, is one of the
largest financial insititutions in the world and the largest insurance company
in North America. Prudential has been engaged in the insurance business since
1875. In July 1993, INSTITUTIONAL INVESTOR ranked Prudential the third largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1992.
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the Fund.
Prudential Securities, One Seaport Plaza, New York, New York 10292, acts as the
distributor of the Class B and Class C shares of the Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and separate distribution
agreements (the Distribution Agreements), PMFD and Prudential Securities
(collectively the Distributor) incur the expenses of distributing the Fund's
Class A, Class B and Class C shares, respectively. See "How the Fund is
Managed--Distributor" in the Prospectus.
Prior to January 22, 1990, the Fund offered only one class of shares (the
existing Class B shares). On October 11, 1989, the Trustees, including a
majority of the Trustees who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Class A or
Class B Plan or in any agreement related to either Plan (the Rule 12b-1
Trustees), at a meeting called for the purpose of voting on each Plan, adopted a
new plan of distribution for the Class A shares of the Fund (the Class A Plan)
and approved an amended and restated plan of distribution with respect to the
Class B shares of the Fund (the Class B Plan). On May 4, 1993, the Trustees,
including a majority of the Rule 12b-1 Trustees, at a meeting called for the
purpose of voting on each Plan, approved the continuance of the Plans and
Distribution Agreements and approved modifications of the Fund's Class A and
Class B Plans and Distribution Agreements to conform them with recent amendments
to the National Association of Securities Dealers, Inc. (NASD) maximum sales
charge rule described below. As so modified, the Class A Plan provides that (i)
up to .25 of 1% of the average daily net assets of the Class A shares may be
used to pay for personal service and the maintenance of shareholder accounts
(service fee) and (ii) total distribution fees (including the service fee of .25
of 1%) may not exceed .30 of 1%. As so modified, the Class B Plan provides that
(i) up to .25 of 1% of the average daily net assets of the Class B shares may be
paid as a service fee and (ii) up to .75 of 1% (not including the service fee)
may be used as reimbursement for distribution-related expenses with respect to
the Class B shares (asset-based sales charge). On May 4, 1993, the Trustees,
including a majority of the Rule 12b-1 Trustees, at a meeting called for the
purpose of voting on each Plan, adopted a plan of distribution for the Class C
shares of the Fund and approved further amendments to the plans of distribution
for the Fund's Class A and Class B shares, changing them from reimbursement type
plans to compensation type plans. The Plans were last approved by the Trustees,
including a majority of the Rule 12b-1 Trustees, on May 3, 1994. The Class A
Plan, as amended, was approved by Class A and Class B shareholders, and the
Class B Plan, as amended, was approved by Class B shareholders on
______________, 1994. The Class C Plan was approved by the sole shareholder of
Class C shares on ______________, 1994.
CLASS A PLAN. For the fiscal year ended July 31, 1993, PMFD received
payments of $30,784 and $48,431 on behalf of the Conservatively Managed
Portfolio and Strategy Portfolio, respectively, under the Class A Plan as
reimbursement of expenses related to the distribution of Class A shares. These
amounts were expended on commission credits to Prudential Securities and Pruco
Securities Corporation, an affiliated broker-dealer (Prusec), for payments of
commissions and account servicing fees to financial advisers and other persons
who sell Class A shares. For the fiscal year ended July 31, 1993, PMFD also
received approximately $405,000 and $338,000 on behalf of the Conservatively
Managed Portfolio and Strategy Portfolio, respectively, in initial sales
charges.
B-14
<PAGE>
CLASS B PLAN
For the fiscal year ended July 31, 1993, it is estimated that Prudential
Securities spent approximately the following amounts on behalf of the portfolios
of the Fund:
<TABLE>
<CAPTION>
COMPENSATION
TO PRUSEC FOR
PRINTING AND COMMISSION APPROXIMATE
MAILING COMMISSION PAYMENTS TO TOTAL AMOUNT
PROSPECTUSES PAYMENTS TO OVERHEAD ACCOUNT SPENT BY
TO INTEREST FINANCIAL COSTS EXECUTIVES DISTRIBUTOR
OTHER THAN AND ADVISERS OF OF AND ON
CURRENT CARRYING PRUDENTIAL PRUDENTIAL OTHER BEHALF OF
PORTFOLIO SHAREHOLDERS CHARGES SECURITIES SECURITIES* EXPENSES* PORTFOLIO
- ----------------------------------- ------------- ---------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Conservatively Managed
Portfolio......................... $ 19,400 $ 358,900 $ 887,800 $ 1,182,900 $ 2,125,800 $ 4,574,800
Strategy Portfolio................. 18,600 298,900 1,115,100 1,571,200 857,700 3,861,500
<FN>
- ------------------------
* Including lease, utility and sales promotional expenses.
</TABLE>
The term "overhead costs" represents (a) the expenses of operating the
branch offices of Prudential Securities and Prusec in connection with the sale
of Fund shares, including lease costs, the salaries and employee benefits of
operations and sales support personnel, utility costs, communication costs and
the costs of stationery and supplies, (b) the cost 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 sales.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class B shares. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges"
in the Prospectus. For the fiscal year ended July 31, 1993, Prudential
Securities received approximately $425,000 and $736,000 on behalf of the
Conservatively Managed Portfolio and the Strategy Portfolio, respectively, in
contingent deferred sales charges.
CLASS C PLAN. Prudential Securities receives the proceeds of contingent
deferred sales charges paid by investors upon certain redemptions of Class C
shares. See "Shareholder Guide -- How to Sell Your Shares -- Contingent Deferred
Sales Charges" in the Prospectus. Prior to the date of this Statement of
Additional Information, no distribution expenses were incurred under the Class C
Plan.
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 Trustees, including a majority vote of the Rule 12b-1 Trustees, cast in
person at a meeting called for the purpose of voting on such continuance. The
Plans may each be terminated at any time, without penalty, by the vote of a
majority of the Rule 12b-1 Trustees or by the vote of the holders of a majority
of the outstanding shares of the applicable class on not more than 30 days'
written notice to any other party to the Plans. The Plans may not be amended to
increase materially the amounts to be spent for the services described therein
without approval by the shareholders of the applicable class (by both Class A
and Class B shareholders, voting separately, in the case of material amendments
to the Class A Plan), and all material amendments are required to be approved by
the Trustees in the manner described above. Each Plan will automatically
terminate in the event of its assignment. The Fund will not be contractually
obligated to pay expenses incurred under any Plan if it is terminated or not
continued.
Pursuant to each Plan, the Trustees will review at least quarterly a written
report of the distribution expenses incurred on behalf of each class of shares
of the Portfolios by the Distributor. The report includes an itemization of the
distribution expenses and the purposes of such expenditures. In addition, as
long as the Plans remain in effect, the selection and nomination of Rule 12b-1
Trustees shall be committed to the Rule 12b-1 Trustees.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933, as amended. Each Distribution
Agreement was last approved by the Trustees, including a majority of the Rule
12b-1 Trustees, on May 3, 1994.
NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. In the case of Class B 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
B-15
<PAGE>
calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of the Fund may not exceed .75 of 1% per class. The 6.25% limitation
applies to each class of a Portfolio of the Fund rather than on a per
shareholder basis. If aggregate sales charges were to exceed 6.25% of total
gross sales of any class, all sales charges on shares of that class would be
suspended.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities and
options on securities and futures for each Portfolio of the Fund, the selection
of brokers, dealers and futures commission merchants to effect the transactions
and the negotiation of brokerage commissions, if any. The term "Manager" as used
in this section includes the Subadviser. Broker-dealers may receive brokerage
commissions on portfolio transactions, including options and the purchase and
sale of underlying securities upon the exercise of options. Orders may be
directed to any broker or futures commission merchant including, to the extent
and in the manner permitted by applicable law, Prudential Securities and its
affiliates. Brokerage commissions on United States securities, options and
futures exchanges or boards of trade are subject to negotiation between the
Manager and the broker or futures commission merchant.
In the over-the-counter market, securities and bonds, including convertible
bonds, are generally traded on a "net" basis with dealers acting as principal
for their own accounts without a stated commission, although the price of the
security usually includes a profit to the dealer. In underwritten offerings,
securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
Government agency securities may be purchased directly from the issuer, in which
case no commissions or discounts are paid. The Fund will not deal with
Prudential Securities in any transaction in which Prudential Securities (or any
affiliate) acts as principal. Thus, it will not deal with Prudential Securities
acting as market maker, and it will not execute a negotiated trade with
Prudential Securities if execution involves Prudential Securities acting as
principal with respect to any part of the Fund's order.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Manager will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio transactions
of the Fund, the Manager or the Manager's other clients. Such research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. Such services are used by the
Manager in connection with all of its investment activities, and some of such
services obtained in connection with the execution of transactions for the Fund
may be used in managing other investment accounts. Conversely, brokers, dealers
or futures commission merchants furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are far
larger than the Fund's, and the services furnished by such brokers, dealers or
futures commission merchants may be used by the Manager in providing investment
management for the Fund. Commission rates are established pursuant to
negotiations with the broker, dealer or futures commission merchant based on the
quality and quantity of execution services provided by the broker, dealer or
futures commission merchant in the light of generally prevailing rates. The
policy of the Manager is to pay higher commissions to brokers, other than
Prudential Securities, for particular transactions than might be charged if a
different broker had been selected, on occasions when, in the Manager's opinion,
this policy furthers the objective of obtaining best price and execution. In
addition, the Manager is authorized to pay higher commissions on brokerage
transactions for the Fund to brokers other than Prudential Securities in order
to secure research and investment services described above, subject to review by
the Fund's Trustees from time to time as to the extent and continuation of this
practice. The allocation of orders among brokers and the commission rates paid
are reviewed periodically by the Fund's Trustees. Portfolio securities may not
be purchased from any underwriting or selling syndicate of which Prudential
Securities (or any affiliate), during the existence of the syndicate, is a
principal underwriter (as defined in the Investment Company Act), except in
accordance with rules of the SEC. This limitation, in the opinion of the Fund,
will not significantly affect the Portfolios' ability to pursue their present
investment objectives. However, in the future in other circumstances, the
Portfolios may be at a disadvantage because of this limitation in comparison to
other funds with similar objectives but not subject to such limitations.
Subject to the above considerations, Prudential Securities may act as a
securities broker or futures commission merchant for the Fund. In order for
Prudential Securities (or any affiliate) to effect any portfolio transactions
for the Fund, the commissions, fees or other remuneration received by Prudential
Securities (or any affiliate) must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers or futures
commission merchants in connection with comparable
B-16
<PAGE>
transactions involving similar securities or futures contracts being purchased
or sold on an exchange or board of trade during a comparable period of time.
This standard would allow Prudential Securities (or any affiliate) to receive no
more than the remuneration which would be expected to be received by an
unaffiliated broker or futures commission merchant in a commensurate
arm's-length transaction. Furthermore, the Trustees of the Fund, including a
majority of the Rule 12b-1 Trustees, have adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to Prudential Securities (or any affiliate) are consistent with the
foregoing standard. In accordance with Section 11(a) of the Securities Exchange
Act of 1934, Prudential Securities may not retain compensation for effecting
transactions on a national securities exchange for a Portfolio unless the Fund
has expressly authorized the retention of such compensation. Prudential
Securities must furnish to the Fund at least annually a statement setting forth
the total amount of all compensation retained by Prudential Securities from
transactions effected for the Portfolios during the applicable period. Brokerage
and futures transactions with Prudential Securities (or any affiliate) are also
subject to such fiduciary standards as may be imposed upon Prudential Securities
(or such affiliate) by applicable law.
Transactions in options by the Fund will be subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options are written or held on the same or
different exchanges or are written or held in one or more accounts or through
one or more brokers. Thus, the number of options which the Fund may write or
hold may be affected by options written or held by the Manager and other
investment advisory clients of the Manager. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
The table below sets forth information concerning the payment of commissions
by the Fund, including the commissions paid to Prudential Securities, for the
three years ended July 31, 1993:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31,
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund.................................. $ 714,203 $ 659,790 $ 536,465
Total brokerage commissions paid to Prudential
Securities................................................................... $ 38,171 $ 71,200 $ 47,000
Percentage of total brokerage commissions paid to Prudential
Securities................................................................... 5.3% 10.8% 8.8%
</TABLE>
The Fund effected approximately 5.6% of the total dollar amount of its
transactions involving the payment of commissions to Prudential Securities
during the year ended July 31, 1993. Of the total brokerage commissions paid
during such period, $216,608 and $385,021 (or 30% and 53%), respectively, were
paid to firms which provide research, statistical or other services to PIC on
behalf of the Conservatively Managed Portfolio and Strategy Portfolio,
respectively.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of each Portfolio of the Fund may be purchased at a price equal to
the next determined net asset value per share plus a sales charge which, at the
election of the investor, may be imposed either (i) at the time of purchase
(Class A shares) or (ii) on a deferred basis (Class B or Class C shares). See
"Shareholder Guide--How to Buy Shares of the Fund" in the Prospectus.
Each class of shares represents an interest in the same portfolio of
investments of each Portfolio of the Fund and have the same rights, except that
(i) each class bears the separate expenses of its Rule 12b-1 distribution and
service plan, (ii) each class has exclusive voting rights with respect to its
plan (except that the Fund has agreed with the SEC in connection with the
offering of a conversion feature on Class B shares to submit any amendment of
the Class A distribution and service plan to both Class A and Class B
shareholders) and (iii) only Class B shares have a conversion feature. See
"Distributor." Each class also has separate exchange privileges. See
"Shareholder Investment Account--Exchange Privilege."
B-17
<PAGE>
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares of the Fund are sold at a maximum sales charge of 5%
and Class B* and Class C* shares of the Fund are sold at net asset value. Using
each Portfolio's net asset value at July 31, 1993 the maximum offering price of
the Fund's shares would have been as follows:
<TABLE>
<CAPTION>
CONSERVATIVELY
STRATEGY MANAGED
PORTFOLIO PORTFOLIO
--------- --------------
<S> <C> <C>
CLASS A
Net asset value and redemption price per Class A share..... $ 11.72 $11.75
Maximum sales charge (5% of offering price)................ .62 .62
--------- ------
Maximum offering price to public........................... $ 12.34 $12.37
CLASS B
Net asset value, redemption price and offering price to
public per Class B share*................................ $ 11.79 $11.72
--------- ------
--------- ------
CLASS C
Net asset value, redemption price offering price to public
per Class C share*....................................... $ 11.79 $11.72
--------- ------
--------- ------
<FN>
- ------------------------
* Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
</TABLE>
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See the table of breakpoints under "Shareholder
Guide--Alternative Purchase Plan" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be controlled
by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefits plans of a company controlled by an
individual.
[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 Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings.
RIGHTS OF ACCUMULATION. 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 a
Portfolio and shares of other Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) to determine
the reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be
B-18
<PAGE>
aggregated to determine the reduced sales charge. All shares must be held either
directly with the Transfer Agent or through Prudential Securities. The value of
existing holdings for purposes of determining the reduced sales charge is
calculated using the maximum offering price (net asset value plus maximum sales
charge) as of the previous business day. See "How the Fund Values its Shares" in
the Prospectus. The Distributor must be notified at the time of purchase that
the shareholder is entitled to a reduced sales charge. The reduced sales charge
will be granted subject to confirmation of the investor's holdings. Rights of
Accumulation are not available to individual participants in the any retirement
or group plans.
LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors) who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of shares of a
Portfolio and shares of other Prudential Mutual Funds. All shares of each
Portfolio and shares of other Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) which were
previously purchased and are still owned are also included in determining the
applicable reduction. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The Distributor must be
notified at the time of purchase that the investor is entitled to a reduced
sales charge. The reduced sales charge will be granted subject to confirmation
of the investors holdings. Letters of Intent are not available to individual
participants any retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter of Intent will be held by the Transfer Agent in the name of the
purchaser. The effective date of a Letter of Intent may be back-dated up to 90
days, in order that any investments made during this 90-day period, valued at
the purchaser's cost, can be applied to the fulfillment of the Letter of Intent
goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and the sales charge actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. If the goal is exceeded in
an amount which qualifies for a lower sales charge, a price adjustment is made
by refunding to the purchaser the amount of excess sales charge, if any, paid
during the thirteen-month period. Investors electing to purchase Class A shares
of a Portfolio pursuant to a Letter of Intent should carefully read such Letter
of Intent.
QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO _________, 1994._The
CDSC is reduced on redemptions of Class B shares of the Fund purchased prior to
_________, 1994, if immediately after a purchase of such shares, the aggregate
cost of all Class B shares of the Fund owned by you in a single account exceeded
$500,000. For example, if you purchased $100,000 of Class B shares of the Fund
and the following year purchase an additional $450,000 of Class B shares with
the result that the aggregate cost of your Class B shares of the Fund following
the second purchase was $550,000, the quantity discount would be available for
the second purchase of $450,000 but not for the first purchase of $100,000. The
quantity discount will be imposed at the following rates depending on whether
the aggregate value exceeded $500,000 or $1 million:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS INVESTED
OR REDEMPTION PROCEEDS
YEAR SINCE PURCHASE ----------------------------------------
PAYMENT MADE $500,001 TO $1 MILLION OVER $1 MILLION
- ----------------------------------------------------------- ---------------------- ---------------
<S> <C> <C>
First...................................................... 3.0% 2.0%
Second..................................................... 2.0% 1.0%
Third...................................................... 1.0% 0%
Fourth and thereafter...................................... 0% 0%
</TABLE>
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
B-19
<PAGE>
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of any Portfolio, a Shareholder
Investment Account is established for each investor under which a record of the
shares held is maintained by the Transfer Agent. The Fund makes available to its
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 a Portfolio at the 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 or distributions sent in cash rather than reinvested. In the case of
recently purchased shares for which registration instructions have not been
received, cash payment will be made directly to the dealer. Any shareholder who
receives a cash payment representing a dividend or distribution may reinvest
such dividend or distribution at net asset value (without a sales charge) by
returning the check or the proceeds to the Transfer Agent within 30 days after
the payment date. The 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 shareholders will receive credit for any contingent deferred sales charge
paid in connection with the amount of proceeds being invested.
EXCHANGE PRIVILEGE
Each Portfolio of the Fund makes available to its shareholders the privilege
of exchanging their shares for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
Mutual Funds may also be exchanged for shares of a Portfolio. All exchanges are
made on the basis of relative net asset value next determined after receipt of
an order in proper form. An exchange will be treated as a redemption and
purchase for tax purposes. Shares may be exchanged for shares of another fund
only if shares of such fund may legally be sold under applicable state laws. For
retirement and group plans having a limited menu of Prudential Mutual Funds, the
exchange privilege is available for those funds eligible for investment in the
particular program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Intermediate Term Series) and shares of the money
market funds specified below. No fee or sales load will be imposed upon the
exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the Exchange Privilege only to acquire Class
A shares of the Prudential Mutual Funds participating in the Exchange Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund
CLASS B AND CLASS C. Shareholders of each Portfolio may exchange their Class
B and Class C shares for Class B and Class C shares, respectively, of certain
other Prudential Mutual Funds and shares of Prudential Special Money Market
Fund, a money market fund. No CDSC will be payable upon such exchange, but a
CDSC may be payable upon the redemption of Class B and
B-20
<PAGE>
Class C shares acquired as a result of the exchange. The applicable sales charge
will be that imposed by the fund in which shares were initially purchased and
the purchase date will be deemed to be the first day of the month after the
initial purchase, rather than the date of the exchange.
Class B and Class C shares of each Portfolio may also be exchanged for
shares of an eligible money market fund without imposition of any CDSC at the
time of exchange. Upon subsequent redemption from such money market fund or
after re-exchange into the Fund, such shares will be subject to the CDSC
calculated without regard to the time such shares were held in the money market
fund. In order to minimize the period of time in which shares are subject to a
CDSC, shares exchanged out of the money market fund will be exchanged on the
basis of their remaining holding periods, with the longest remaining holding
periods being transferred first. [In measuring the time period shares are held
in a money market fund and "tolled" for purposes of calculating the CDSC holding
period, exchanges are deemed to have been made on the last day of the month.]
Thus, if shares are exchanged into the Fund from a money market fund during the
month (and are held in the Fund at the end of 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.
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 each Portfolio, respectively, without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C Exchange Privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares of other funds, respectively, without
being subject to any CDSC.
Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $4,800 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2007, the cost of four years at a private
college could reach $163,000 and over $97,000 at a public university.(1)
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
25 Years.................. $ 110 $ 165 $ 220 $ 275
20 Years.................. 176 264 352 440
15 Years.................. 296 444 592 740
10 Years.................. 555 833 1,110 1,388
5 Years................... 1,371 2,057 2,742 3,428
See "Automatic Savings Accumulation Plan."
<FN>
- ------------------------
(1) Source information concerning the costs of education at public universities
is available from The College Board Annual Survey of Colleges, 1992. 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, room
and board.
</TABLE>
B-21
<PAGE>
(2) The chart assumes an effective rate of return of 8% (assuming compounding).
This example is for illustrative purposes only and is not intended to reflect
the performance of an investment in shares of the Fund. The investment return
and principal value of an investment will fluctuate so that an investor's shares
when redeemed may be worth more or less than their original cost.
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of a Portfolio monthly by authorizing his or her bank account
or Prudential Securities account (including a Command Account) to be debited to
invest specified dollar amounts in shares of the Portfolio. The investor's bank
must be a member of the Automatic Clearing House System. Share certificates are
not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. Such withdrawal plan provides for monthly or
quarterly checks in any amount, except as provided below, up to the value of the
shares in the shareholder's account. Withdrawals of Class B or Class C shares
may be subject to a CDSC. See "Shareholder Guide-- How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment Account--
Automatic Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charges applicable to (i) the purchase of Class
A shares and (ii) the withdrawal of Class B and Class C shares. Each shareholder
should consult his or her own tax adviser with regard to the tax consequences of
the plan, particularly if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS
Various qualified retirement plans, including a 401(k) plan, self-directed
individual retirement accounts and "tax-deferred accounts" under Section
403(b)(7) of the Internal Revenue Code are available through the Distributor.
These plans are for use by both self-employed individuals and corporate
employers. These plans permit either self-direction of accounts by participants,
or a pooled account arrangement. Information regarding the establishment of
these plans, the administration, custodial fees and other details are available
from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNT. 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
B-22
<PAGE>
personal savings account with those in an IRA, assuming a $2,000 annual
contribution, an 8% rate of return and a 39.6% federal income tax bracket and
shows how much more retirement income can accumulate within an IRA as opposed to
a taxable individual savings account.
<TABLE>
<CAPTION>
TAX-DEFERRED COMPOUNDING(1)
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
---------------------------------- -------- --------
<S> <C> <C>
10 years.......................... $ 26,165 $ 31,291
15 years.......................... 44,675 58,649
20 years.......................... 68,109 98,846
25 years.......................... 97,780 157,909
30 years.......................... 135,346 244,692
<FN>
- ------------------------
(1) The chart is for illustrative purposes only and does not represent the
performance of either Portfolio of the Fund or any specific investment. It shows
taxable versus tax-deferred compounding for the periods and on the terms
indicated. Earnings in the IRA account will be subject to tax when withdrawn
from the account.
</TABLE>
NET ASSET VALUE
Under the Investment Company Act, the Trustees are responsible for
determining in good faith the fair value of securities of each Portfolio of the
Fund. Net asset value is calculated separately for each class. The Trustees have
fixed the specific time of day for the computation of each Portfolio's net asset
value to be as of 4:15 P.M., New York time.
In accordance with procedures adopted by the Trustees, the values of each
Portfolio's investments are determined as follows:
Securities for which the primary market is on a national securities exchange
or NASDAQ National Market System, including options on stocks and stock indices,
are valued at the last sale price on such exchange on the day of valuation or,
if there was no sale on such day, at the mean between the last bid and asked
prices quoted on such day. Corporate obligations (other than convertible debt
securities) and U.S. Government securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued on the basis of valuations
provided by an independent pricing agent; the independent pricing agent will use
information with respect to transactions in bonds, quotations from bond dealers,
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 most recently quoted bid and asked prices provided by principal
market makers. Stock index futures and options thereon traded on a commodities
exchange or board of trade shall be valued at the last sale price at the close
of trading on such exchange or board of trade or, if there was no such sale on
such day, at the mean between the last bid and asked price quoted on such day.
Other securities are valued at the mean between the most recently quoted bid and
asked prices. Securities or other assets for which reliable market quotations
are not readily available are valued at fair value in accordance with procedures
adopted by the Trustees.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost, if their term to maturity from date of purchase
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity exceeded 60 days.
Because the New York Stock Exchange or the national securities exchanges on
which stock options are traded have adopted different trading hours on either a
permanent or temporary basis, the Trustees of the Fund may reconsider the time
at which net asset value is computed. In addition, the Fund may compute its net
asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
The net asset value of Class B and Class C shares will generally be lower
than the net asset value of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. It is
expected, however, that the net asset value per share of each class will tend to
converge immediately after the recording of dividends, which will differ by
approximately the amount of the distribution expense accrual differential among
the classes.
B-23
<PAGE>
TAXES
Each Portfolio of the Fund has elected to qualify and intends to remain
qualified as a regulated investment company under Subchapter M of the Internal
Revenue Code. This relieves the Portfolio and the Fund (but not its
shareholders) from paying federal tax on income which is distributed to
shareholders, provided that it distributes at least 90% of its net investment
income and short-term capital gains and permits net capital gains of the
Portfolio (I.E., the excess of net long-term capital gains over net short-term
capital losses) to be treated as long-term capital gains of the shareholders,
regardless of how long shares in the Portfolio are held.
Qualification of a Portfolio as a regulated investment company requires,
among other things, that (a) at least 90% of the Portfolio's annual gross
income, without offset for losses from the sale or other disposition of
securities, be derived from payments with respect to securities loans, interest,
dividends and gains from the sale or other disposition of securities, futures
contracts or options thereon or foreign currencies, or other income (including
but not limited to gains from options, futures or forward contracts) derived
with respect to its business of investing in such securities or currencies; (b)
the Portfolio derive less than 30% of its gross income from gains (without
offset for losses) from the sale or other disposition of securities, options
thereon, futures contracts, options thereon, forward contracts and foreign
currencies held for less than three months (except for foreign currencies
directly related to the Fund's business of investing in foreign securities); and
(c) the Portfolio diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of its assets is
represented by cash, U.S. Government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the market value
of the assets of the Portfolio 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).
For federal tax purposes, each Portfolio is treated as a separate taxable
entity. Net capital gains of a Portfolio which are available for distribution to
shareholders will be computed by taking into account any capital loss
carryforward of the Portfolio.
Gains or losses on sales of securities by each Portfolio of the Fund will be
treated as long-term capital gains or losses if the securities have been held by
it for more than one year except in certain cases where the Portfolio acquires a
put or writes a call thereon or makes a short sale against-the-box. Other gains
or losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will generally be treated as gains and losses from the sale of
securities (assuming they do not qualify as "Section 1256 contracts"). If an
option written by a Portfolio on securities lapses or is terminated through a
closing transaction, such as a repurchase by the Portfolio of the option from
its holder, the Portfolio will generally realize short-term capital gain or
loss. If securities are sold by the Portfolio pursuant to the exercise of a call
option written by it, the Portfolio will include the premium received in the
sale proceeds of the securities delivered in determining the amount of gain or
loss on the sale. If securities are purchased by a Portfolio pursuant to the
exercise of a put option written by it, the Portfolio will subtract the premium
received from its cost basis in the securities purchased. Certain transactions
of a Portfolio may be subject to wash sale, short sale, straddle and
anti-conversion provisions of the Internal Revenue Code. In addition, debt
securities acquired by the Portfolios may be subject to original issue discount
and market discount rules.
Special rules will apply to most options on stock indices, futures contracts
and options thereon, and forward foreign currency exchange contracts in which
the Portfolios may invest. See "Investment Objectives and Policies." These
investments will generally constitute "Section 1256 contracts" and will be
required to be "marked to market" for federal income tax purposes at the end of
each Portfolio's taxable year; that is, treated as having been sold at market
value. Except with respect to forward foreign currency exchange contracts, 60
percent of any gain or loss recognized on such "deemed sales" and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss. The Portfolios'
ability to invest in forward foreign currency exchange contracts, options on
equity securities and on stock indices, futures contracts and options thereon
may be affected by the 30% limitation on gains derived from securities held less
than three months, discussed above.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Portfolio accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Portfolio actually collects such receivables or pays such liabilities are
treated as ordinary income or ordinary loss. Similarly, gains or losses on
forward foreign currency exchange contracts or dispositions of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gain or loss. These gains,
referred to under the Internal Revenue Code as "Section 988" gains or losses,
increase or decrease the amount of the Portfolio's investment company taxable
income available to be distributed to its
B-24
<PAGE>
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Portfolio's net capital gain. If Section 988 losses exceed other
investment company taxable income during a taxable year, the Portfolio would not
be able to make any ordinary dividend distributions, or distributions made
before the losses were realized would be recharacterized as a return of capital
to shareholders, rather than as an ordinary dividend, reducing each
shareholder's basis in his or her Portfolio shares.
Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share net asset value of the investor's
shares by the per share amount of the dividends or distributions. Furthermore,
such dividends or distributions, although in effect a return of capital, are
subject to federal income taxes. Therefore, prior to purchasing shares of any
Portfolio of the Fund, the investor should carefully consider the impact of
dividends or capital gains distributions which are expected to be or have been
announced.
Each Portfolio of the Fund is required under the Internal Revenue Code to
distribute 98% of its ordinary income in the same calendar year in which it is
earned. Each Portfolio is also required to distribute during the calendar year
98% of the capital gain net income it earned during the twelve months ending on
October 31 of such calendar year. In addition, each Portfolio must distribute
during the calendar year any undistributed ordinary income and undistributed
capital gain net income from the prior year or the twelve month period ending on
October 31 of such prior year, respectively. To the extent it does not meet
these distribution requirements, a Portfolio will be subject to a nondeductible
4% excise tax on the undistributed amount. For purposes of this excise tax,
income on which a Portfolio pays income tax is treated as distributed.
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 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 and distributions on Class B and Class C shares will
be lower than the per share dividends and distributions on Class A shares as a
result of the higher distribution-related fee applicable to the Class B and
Class C shares. The per share distributions of net capital gains, if any, will
be paid in the same amount for Class A, Class B and Class C shares. See "Net
Asset Value."
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries is not known.
B-25
<PAGE>
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. Each Portfolio of the Fund may from time to
time advertise its average annual total return. Average annual total return is
determined separately for Class A, Class B and Class C shares. See "How the Fund
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T)to the power of n = ERV
Where: P = a hypothetical initial payment of $1000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical $1000
payment made at the beginning of the 1, 5 or 10 year periods.
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal or
state income taxes that may be payable upon redemption.
The average annual total return for the Class A shares for the one year and
since inception periods ended July 31, 1993 was 9.1% and 11.4% for the
Conservatively Managed Portfolio and 4.3% and 10.2% for the Strategy Portfolio,
respectively. The average annual total return for the Class B shares for the one
and five year and since inception periods ended July 31, 1993 was 9.3%, 11.2%
and 8.9% for the Conservatively Managed Portfolio and 4.2%, 10.9% and 8.6% for
the Strategy Portfolio, respectively. During these periods, no Class C shares
were outstanding.
AGGREGATE TOTAL RETURN. Each Portfolio may also advertise its aggregate
total return. Aggregate total return is determined separately for Class A, Class
B and Class C shares. See "How the Fund Calculates Performance" in the
Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in a Portfolio of the Fund and is computed according to the following
formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1000.
ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical $1000
payment made at the beginning of the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The aggregate total return for Class A shares for the one year and four year
periods ended on January 31, 1994 was 14.2% and 63.4% for the Conservatively
Managed Portfolio and 14.1% and 61.2% for the Strategy Portfolio, respectively.
The aggregate total return for Class B shares for the one, five and six and
three-eighths year periods ended on January 31, 1994 was 13.3%, 72.8% and 75.3%
for the Conservatively Managed Portfolio and 13.3%, 77.0% and 79.9% for the
Strategy Portfolio, respectively. During these periods, no Class C shares were
outstanding.
YIELD. A Portfolio of the Fund may from time to time advertise its yield as
calculated over a 30-day period. Yield is calculated separately for Class A,
Class B and Class C shares. This yield will be computed by dividing the
Portfolio'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)to the power of 6 - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
B-26
<PAGE>
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in a Portfolio will actually yield for any
given period.
The 30-day yields in the period ended January 31, 1994 were 2.2% and 2.2%,
respectively, for the Class A shares of the Conservatively Managed Portfolio and
the Strategy Portfolio, respectively, and 1.6% and 1.5%, respectively, for the
Class B shares of the Strategy Portfolio and the Conservatively Managed
Portfolio, respectively. During these periods, no Class C shares were
outstanding.
From time to time, the performance of the Portfolios may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of inflation.(1)
[GRAPHIC]
(1) Source: Ibbotson Associates. "Stocks, Bonds, Bills and Inflation--1993
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Common stock returns are based on the Standard & Poor's 500 Stock
Index, a market-weighted, unmanaged index of 500 common stocks in a variety of
industry sectors. It is a commonly used indicator of broad stock price
movements. This chart is for illustrative purposes only, and is not intended to
represent the performance of any particular investment or fund.
ORGANIZATION AND CAPITALIZATION
The Declaration of Trust and the By-Laws of the Fund are designed to make
the Fund similar in certain respects to a Massachusetts business corporation.
The principal distinction between the two forms relates to shareholder
liability. Under Massachusetts law, shareholders of a business trust may, in
certain circumstances, be held personally liable for the obligations of the
Fund, which is not the case with a corporation. The Fund believes that this risk
is not material. The Declaration of Trust of the Fund provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
the Fund and that every written obligation, contract, instrument or undertaking
made by the Fund shall contain a provision to the effect that the shareholders
are not individually bound thereunder.
Massachusetts counsel for the Fund has advised the Fund that no personal
liability with respect to contract obligations will attach to the shareholders
under any undertaking containing such provisions when adequate notice of such
provision is given, except possibly in a few jurisdictions. With respect to all
types of claims in the latter jurisdictions and with respect to tort claims,
contract claims when the provision referred to is omitted from the undertaking,
claims for taxes and certain statutory liabilities, a shareholder may be held
personally liable to the extent that claims are not satisfied by the Fund.
However, upon payment of any
B-27
<PAGE>
such liability the shareholder will be entitled to reimbursement from the
general assets of the appropriate Portfolio of the Fund. The Trustees intend to
conduct the operations of the Fund in such a way as to avoid, to the extent
possible, ultimate liability of the shareholders for liabilities of the Fund.
The Declaration of Trust further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his or her
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his or her duties. It also provides that all third parties shall look solely to
the Fund property or the property of the appropriate Portfolio for satisfaction
of claims arising in connection with the affairs of the Fund or of the
particular Portfolio of the Fund, respectively. With the exceptions stated, the
Declaration of Trust permits the Trustees to provide for the indemnification of
Trustees, officers, employees or agents of the Fund against all liability in
connection with the affairs of the Fund.
The Fund does not intend to hold annual meetings of shareholders.
The Fund and each Portfolio thereof shall continue without limitation of
time subject to the provisions in the Declaration of Trust concerning
termination by action of the shareholders or by the Trustees by written notice
to the shareholders.
The authorized capital of the Fund consists of an unlimited number of shares
of beneficial interest, $.01 par value, issued in separate Portfolios and
divided into separate classes. Each Portfolio of the Fund, for federal income
tax and Massachusetts state law purposes, will constitute a separate trust which
will be governed by the provisions of the Declaration of Trust. All shares of
any Portfolio issued and outstanding will be fully paid and nonassessable by the
Fund. Each share of each Portfolio represents an equal proportionate interest in
that Portfolio with each other share of that Portfolio. The assets of the Fund
received for the issue or sale of the shares of each Portfolio and all income,
earnings, profits and proceeds thereof, subject only to the rights of creditors
of that Portfolio, are specially allocated to the Portfolio and constitute the
underlying assets of the Portfolio. The underlying assets of each Portfolio are
segregated on the books of account and are to be charged with the liabilities in
respect to the Portfolio and with a share of the general liabilities of the
Fund. Under no circumstances would the assets of a Portfolio be used to meet
liabilities that are not otherwise properly chargeable to it. Expenses with
respect to any two or more Portfolios are to be allocated in proportion to the
asset value of the respective Portfolio except where allocations of direct
expenses can otherwise be fairly made. The officers of the Fund, subject to the
general supervision of the Trustees, have the power to determine which
liabilities are allocable to a given Portfolio or which are general. Upon
redemption of shares of a Portfolio of the Fund, the shareholder will receive
proceeds solely of the assets of such Portfolio. In the event of the dissolution
or liquidation of the Fund, the holders of the shares of any Portfolio are
entitled to receive as a class the underlying assets of that Portfolio available
for distribution to shareholders.
Shares of the Fund entitle their holders to one vote per share. Matters will
be acted upon by the vote of the shareholders of each Portfolio separately,
except to the extent otherwise provided in the Investment Company Act. A change
in the investment objective or investment restrictions for a Portfolio would be
voted upon only by shareholders of the Portfolio involved. In addition, approval
of the investment advisory agreement is a matter to be determined separately by
each Portfolio. Approval by the shareholders of a Portfolio is effective as to
that Portfolio whether or not enough votes are received from the shareholders of
the other Portfolio to approve the proposal as to that Portfolio.
Pursuant to the Declaration of Trust, the Trustees may authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset value
procedures) with such preferences, privileges, limitations and voting and
dividend rights as the Trustees may determine. All consideration received by the
Fund for shares of any additional series, and all assets in which such
consideration is invested would belong to that series (subject only to the
rights of creditors of that series) and would be subject to the liabilities
related thereto. Pursuant to the Investment Company Act, shareholders of any
additional series of shares would normally have to approve the adoption of any
advisory contract relating to such series and of any changes in the investment
policies related thereto.
The Trustees have the power to alter the number and the terms of office of
the Trustees and they may at any time lengthen their own terms or make their
terms of unlimited duration and appoint their own successors, provided that at
all times at least a majority of the Trustees has been elected by the
shareholders of the Fund. The voting rights of shareholders are not cumulative,
so that holders of more than 50% of the shares voting can, if they choose, elect
all Trustees being selected, while the holders of the remaining shares would be
unable to elect any Trustees.
B-28
<PAGE>
Prudential Securities provided the initial capital for the Fund by
purchasing 10,000 shares of the Fund (5,000 shares of each Portfolio) for a
total of $100,000. The shares were acquired for investment and can only be
disposed of by redemption; Prudential Securities has agreed not to redeem the
shares purchased except as organizational expenses have been amortized. The
organizational expenses of the Fund were paid by Prudential Securities and the
Fund has reimbursed Prudential Securities for such expenses. These costs have
been deferred and will be amortized by the Fund over the period of benefit not
to exceed 60 months from the date the Fund commenced operations.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash, and in that capacity maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Subcustodians provide custodial
services for the Fund's foreign assets held outside the United States. See "How
the Fund is Managed--Custodian and Transfer and Dividend Disbursing Agent" in
the Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer and Dividend Disbursing Agent of the Fund. PMFS
is a wholly-owned subsidiary of PMF. PMFS provides customary transfer agency
services to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, the payment of dividends and distributions and related functions. For
these services, PMFS receives an annual fee per shareholder account, a new
account set-up fee for each manually established account and a monthly inactive
zero balance account fee per shareholder account. PMFS is also reimbursed for
its out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications expenses and other costs. For the fiscal year
ended July 31, 1993, the Fund incurred fees of approximately $1,066,000
($410,000--Conservatively Managed Portfolio and $656,000--Strategy Portfolio)
for the services of PMFS.
Deloitte & Touche, 1633 Broadway, New York, New York 10019, serves as the
Fund's independent accountants and in that capacity audits the Fund's annual
financial statements.
B-29
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Prudential FlexiFund (consisting of the Conservatively Managed Portfolio and the
Strategy Portfolio)
We have audited the accompanying statements of assets and liabilities of
Prudential FlexiFund, including the portfolios of investments, as of July 31,
1993, the related statements of operations for the year then ended and of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
July 31, 1993 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential FlexiFund
as of July 31, 1993, the results of its operations, the changes in its net
assets and the financial highlights for the respective periods in conformity
with generally accepted accounting principles.
Deloitte & Touche
New York, New York
September 9, 1993
B-30
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND PORTFOLIO OF INVESTMENTS
CONSERVATIVELY MANAGED PORTFOLIO JULY 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1)
- ------- --------------------------------------------------------- ------------
<C> <S> <C>
LONG-TERM INVESTMENTS--90.8%
EQUITY INVESTMENTS--51.0%
AEROSPACE/DEFENSE--1.2%
203,200 Banner Aerospace, Inc.*.................................. $ 1,066,800
20,000 Furon Co. ............................................... 287,500
35,000 Martin Marietta Corp. ................................... 2,843,750
------------
4,198,050
------------
AUTOMOTIVE--1.6%
27,500 Danaher Corp............................................. 914,375
26,000 Ford Motor Co............................................ 1,374,750
25,000 General Motors Corp...................................... 1,212,500
64,300 General Motors Corp. Class E............................. 1,768,250
------------
5,269,875
------------
CHEMICALS--5.0%
40,000 American Cyanamid Co..................................... 2,110,000
35,000 Dexter Corp.............................................. 752,500
70,000 Ferro Corp............................................... 2,056,250
19,200 FMC Corp.*............................................... 926,400
50,000 Fuller, H.B. Co.......................................... 1,750,000
46,000 Geon Co.................................................. 1,017,750
35,000 Grace (W.R.) & Co........................................ 1,404,375
60,000 Hanna (M. A.) Co......................................... 1,590,000
79,700 Imperial Chemical Ind. (ADR)............................. 3,217,888
90,200 Praxair, Inc............................................. 1,409,375
42,300 Vigoro Corp.............................................. 1,009,913
------------
17,244,451
------------
COAL--0.5%
86,000 Pittston Co.............................................. 1,687,750
------------
COMPUTER AND RELATED EQUIPMENT--3.5%
44,000 Ceridian Corp.*.......................................... 660,000
45,000 Diebold, Inc............................................. 2,497,500
45,200 Digital Equipment Corp.*................................. 1,604,600
32,200 First Data Corp.......................................... 1,151,150
21,000 Intel Corp............................................... 1,097,250
12,000 Measurex Corp............................................ 222,000
55,200 Motorola, Inc............................................ 5,002,500
------------
12,235,000
------------
CONSUMER PRODUCTS--1.3%
65,000 Eastman Kodak Co......................................... 3,493,750
10,000 Unilever N.V............................................. 967,500
------------
4,461,250
------------
DRUGS & HEALTH CARE--2.8%
59,800 Healthtrust, Inc.*....................................... 1,233,375
20,600 Rhone Poulenc Rorer, Inc................................. 991,375
45,400 Schering Plough Corp..................................... 2,780,750
36,200 Warner Lambert Co........................................ 2,429,925
67,466 Zeneca Group PLC*........................................ 1,905,915
------------
9,341,340
------------
ELECTRONICS--1.8%
35,000 Loral Corp............................................... 2,231,250
84,300 MagneTek, Inc.*.......................................... 1,496,325
62,000 Mark IV Industries, Inc.................................. 1,278,750
46,700 Perkin Elmer Corp........................................ 1,535,263
------------
6,541,588
------------
ENTERTAINMENT--2.2%
131,100 Time Warner, Inc......................................... 5,014,575
43,000 Viacom, Inc.*............................................ 2,375,750
------------
7,390,325
------------
ENVIRONMENTAL SERVICES--0.1%
37,000 Air & Water Technologies Corp.*.......................... 397,750
------------
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1)
- ------- --------------------------------------------------------- ------------
<C> <S> <C>
EQUIPMENT LEASING/RENTAL--0.6%
66,000 Ryder System, Inc........................................ $ 2,186,250
------------
FINANCIAL SERVICES--6.3%
28,000 American Express Co...................................... 913,500
41,600 Aon Corp................................................. 2,251,600
20,000 Beneficial Corp.......................................... 1,492,500
40,400 Dean Witter Discover & Co................................ 1,504,900
40,000 Equitable Companies, Inc................................. 810,000
64,000 Equitable of Iowa........................................ 1,792,000
83,200 First Bank System, Inc................................... 2,527,200
26,100 First Financial Management Corp.......................... 1,207,125
67,000 First of America Bank Corp............................... 2,646,500
65,000 KeyCorp.................................................. 2,543,125
114,200 Norwest Corp............................................. 2,997,750
28,900 Washington Mutual Savings Bank........................... 1,148,775
------------
21,834,975
------------
FOOD & BEVERAGE--0.8%
29,000 Morrison Restaurants, Inc................................ 906,250
47,000 Sbarro, Inc.............................................. 1,874,125
------------
2,780,375
------------
FREIGHT TRANSPORTATION--0.8%
50,000 Illinois Central Corp.................................... 1,475,000
22,900 Union Pacific Corp....................................... 1,457,013
------------
2,932,013
------------
GAS PIPELINES--0.3%
37,400 Seagull Energy Corp.*.................................... 977,075
------------
HOME IMPROVEMENTS--1.2%
40,000 Black & Decker Corp...................................... 850,000
70,000 Owens Corning Fiberglass*................................ 2,913,750
------------
3,763,750
------------
INSURANCE--3.9%
33,600 Berkley (W.R.) Corp...................................... 1,428,000
71,000 Life Re.................................................. 2,493,875
31,000 NAC Re Corp.............................................. 1,046,250
45,000 National Re Corp......................................... 1,541,250
25,700 Reinsurance Group America, Inc.*......................... 883,438
124,700 Tig Holdings, Inc.*...................................... 3,164,263
40,000 Trenwick Group, Inc...................................... 1,765,000
30,000 Unitrin, Inc............................................. 1,335,000
------------
13,657,076
------------
MACHINERY & EQUIPMENT--1.6%
2,400 Duriron, Inc............................................. 55,800
45,000 IDEX Corp................................................ 1,293,750
38,000 Kaydon Corp.............................................. 845,500
43,900 Newell Co................................................ 1,426,750
103,200 Rexnord Corp.*........................................... 1,702,800
------------
5,324,600
------------
MEDIA--1.5%
26,300 Dow Jones & Co., Inc..................................... 779,138
50,000 Houghton Mifflin Co...................................... 2,250,000
50,000 Media General, Inc....................................... 1,087,500
27,000 Scholastic Corp.*........................................ 1,171,125
------------
5,287,763
------------
MINING--0.4%
150,000 INDRESCO, Inc.*.......................................... 1,537,500
------------
MISCELLANEOUS--0.8%
46,100 BWIP Holding, Inc........................................ 1,117,925
21,300 Minerals Technologies, Inc............................... 599,063
34,300 York International Corp.................................. 1,140,475
------------
2,857,463
------------
</TABLE>
B-31 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1)
- ------- --------------------------------------------------------- ------------
<C> <S> <C>
OIL & GAS EXPLORATION/PRODUCTION--1.8%
70,000 Cabot Oil & Gas Corp..................................... $ 1,610,000
26,100 Enron Oil & Gas Co....................................... 1,112,513
164,700 Oryx Energy Co........................................... 3,355,763
------------
6,078,276
------------
PAPER & FOREST PRODUCTS--2.2%
59,000 Champion International Corp.............................. 1,939,625
90,000 Mead Corp................................................ 3,948,750
28,050 Pentair, Inc............................................. 1,009,800
34,800 Riverwood International Corp............................. 482,850
------------
7,381,025
------------
PETROLEUM SERVICES--2.1%
15,000 American Oil & Gas Corp.*................................ 161,250
28,000 Anadarko Petroleum Corp.................................. 1,095,500
40,000 British Petroleum Plc (ADR).............................. 2,225,000
35,000 Enterra Corp.*........................................... 857,500
35,000 Murphy Oil Corp.......................................... 1,430,625
70,000 Occidental Petroleum Corp................................ 1,478,750
7,100 USX -Delhi Group......................................... 148,213
------------
7,396,838
------------
RAILROADS--0.3%
48,100 Santa-Fe Pacific Corp.................................... 889,850
------------
RETAIL--1.7%
32,800 AnnTaylor Stores Corp.*.................................. 873,300
21,500 Dayton Hudson Corp....................................... 1,478,125
72,500 Federated Department Stores, Inc.*....................... 1,667,500
33,000 Sears Roebuck & Co....................................... 1,654,125
------------
5,673,050
------------
STEEL & METALS--0.1%
17,000 Material Sciences Corp.*................................. 333,625
------------
TELECOMMUNICATIONS--3.5%
58,200 Ericsson (L.M.) Telephone Co., (ADR)..................... 2,611,725
30,000 ITT Corp................................................. 2,662,500
117,000 MCI Communications Corp.................................. 3,276,000
135,000 Tele-Communications, Inc.*............................... 3,223,125
------------
11,773,350
------------
TEXTILES--1.1%
17,000 Fruit of the Loom, Inc.*................................. 484,500
80,000 Jones Apparel Group, Inc.*............................... 1,940,000
32,000 VF Corp. ................................................ 1,408,000
------------
3,832,500
------------
Total equity investments (cost $148,663,027)............. $175,264,733
------------
</TABLE>
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT
(UNAUDITED) (000)
- ----------- ---------
<S> <C> <C> <C>
DEBT OBLIGATIONS--39.8%
CORPORATE BONDS--13.8%
AIRLINES--0.2%
Baa3 $ 500 AMR Corp. 9.00%, 8/1/12................... $ 523,165
Baa1 100 Southwest Airlines Co., 9.40%, 7/1/01..... 117,584
------------
640,749
------------
COMPUTER & RELATED EQUIPMENT--0.6%
Baa2 1,000 Comdisco, Inc., 8.95%,
5/15/95.................................. 1,057,010
Baa2 1,000 9.75%, 1/15/97........................... 1,105,540
------------
2,162,550
------------
ELECTRONICS--0.7%
Baa3 2,000 Commonwealth Edison Co., 9.05%,
10/15/99................................. 2,273,400
------------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ----------- --------- ------------------------------------------ ------------
<S> <C> <C> <C>
ENTERTAINMENT--0.5%
NR $ 1,000 Time Warner, Inc., 6.05%, 7/1/95.......... $ 1,004,270
Ba2 600 7.45%, 2/1/98............................ 621,564
------------
1,625,834
------------
FINANCIAL SERVICES--6.1%
A2 500 Associates Corp. of North America, 12.75%,
8/15/94.................................. 542,275
A1 300 8.80%, 1/14/95........................... 317,709
A1 200 8.375%, 1/15/98.......................... 221,128
Baa3 500 Chase Manhattan Corp., 8.00%, 6/15/99..... 542,645
Baa1 1,200 Chrysler Financial Corp., 5.34%, 7/5/95... 1,202,100
Baa1 400 5.26%, 7/6/95............................ 400,112
Baa1 700 6.00%, 4/15/96........................... 705,544
Baa1 700 9.50%, 12/15/99.......................... 793,765
Baa1 1,000 Citicorp, 7.80%, 3/24/95.................. 1,048,340
A3 1,000 First Union Corp., 9.45%, 6/15/99......... 1,156,860
A2 1,000 Ford Motor Credit Co., 6.25%, 2/26/98..... 1,016,650
A1 2,000 Goldman Sachs Group, L.P., 6.10%,
4/15/98.................................. 2,032,560
Baa1 700 Kansallis-Osake-Pankki Bank, 6.125%,
5/15/98.................................. 707,434
A1 1,800 Korea Development Bank, 7.92%, 3/25/97.... 1,940,796
NR 3,000 Nordiska Investeringsbanke, 9.50%,
12/15/94................................. 3,191,430
NR 1,000 Potomac Capital Investment Corp., 6.19%,
4/28/97.................................. 1,006,500
A3 1,000 Shearson Lehman Holdings, Inc., 5.75%,
2/15/98.................................. 987,140
Ba1 1,500 Tiphook Finance Corp., 7.125%, 5/1/98..... 1,498,470
A3 1,650 Union Bank Finland, 5.25%, 6/15/96........ 1,646,519
------------
20,957,977
------------
FOOD & BEVERAGE--0.8%
A3 500 Coca Cola Enterprises, Inc., 6.50%,
11/15/97................................. 517,745
A2 250 Phillip Morris Co., Inc., 8.70%, 8/1/94... 260,678
Aa2 1,700 Procter & Gamble Co., 9.36%, 1/1/21....... 2,106,045
------------
2,884,468
------------
MEDIA--0.5%
Baa3 1,000 News America Holdings, Inc., 7.45%,
6/1/00................................... 1,012,250
NR 836 RHI Entertainment, Inc., 6.50%, 6/1/03.... 846,450
------------
1,858,700
------------
MISCELLANEOUS--1.2%
NR 1,000 Banmer S.A., 8.00%, 7/7/98................ 1,002,500
Ba2 1,500 Cemex S.A., 8.875%, 6/10/98............... 1,543,120
Baa3 500 Federal Express Corp., 10.05%, 6/15/99.... 584,180
Baa2 700 Laidlaw, Inc., 8.25%, 5/15/23............. 719,500
------------
3,849,300
------------
PAPER & FOREST PRODUCTS--0.2%
Baa3 500 Georgia Pacific Corp., 9.625%, 3/15/22.... 576,340
------------
</TABLE>
B-32 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ----------- --------- ------------------------------------------ ------------
<S> <C> <C> <C>
RETAIL--1.4%
A2 $ 2,000 Penney (J.C.) Co., Inc., 9.75%, 6/15/21... $ 2,447,620
Baa1 2,000 Sears Roebuck & Co., 9.25%, 8/1/97........ 2,246,380
------------
4,694,000
------------
TELECOMMUNICATIONS--0.3%
Aa3 1,000 American Telephone & Telegraph Co.,
8.625%, 12/1/31.......................... 1,127,860
Ba2 310 Tele-Communications, Inc., Zero Coupon,
4/25/08.................................. 125,163
------------
1,253,023
------------
UTILITIES--1.3%
Baa3 1,000 Cleveland Electric Illuminating Co.,
8.33%, 10/30/98.......................... 1,075,300
Aa3 600 Hydro Quebec Corp., 9.40%, 2/1/21......... 733,320
Aa3 500 3.375%, 9/30/49.......................... 437,500
A2 450 Pennsylvania Power & Light Co., 9.375%,
7/1/21................................... 525,024
Baa1 1,000 Philadelphia Electric Co., 7.125%,
9/1/02................................... 1,037,540
Baa2 800 Texas Utilities Electric Co., 9.625%,
9/30/94.................................. 842,584
------------
4,651,268
------------
Total corporate bonds (cost
$45,792,136)............................. 47,427,609
------------
U.S. GOVERNMENT AND AGENCY SECURITIES-- 24.7%
United States Treasury Bonds,
2,650 11.625%, 11/15/04........................ 3,877,268
1,700 10.75%, 8/15/05.......................... 2,389,826
10,300 11.25%, 2/15/15.......................... 15,947,284
4,500 7.50%, 11/15/16.......................... 4,994,280
3,100 8.875%, 8/15/17.......................... 3,959,754
United States Treasury Notes,
5,000 7.25%, 11/15/96.......................... 5,392,200
800 6.50%, 11/30/96.......................... 844,872
13,600 6.00%, 11/30/97.......................... 14,127,000
5,300 9.00%, 5/15/98........................... 6,168,723
11,000 9.25%, 8/15/98........................... 12,976,590
2,000 5.50%, 4/15/00........................... 2,005,320
9,750 7.50%, 11/15/01.......................... 10,912,395
United States Treasury Strips,
4,200 Zero Coupon, 2/15/08..................... 1,636,572
------------
Total U.S. government and agency
securities (cost $82,740,610)............ 85,232,084
------------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ----------- --------- ------------------------------------------ ------------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--0.4%
$ 1,000 Federal Home Loan Mortgage Corp., Ser.
1435, Class D, REMIC, 7.00%, 12/15/16.... $ 1,033,750
23 Federal National Mortgage Association,
Ser. 92-78, Class J, REMIC, PAC IO,
6/25/07.................................. 493,923
------------
Total collateralized mortgage obligations
(cost $1,748,109)........................ 1,527,673
------------
ASSET BACKED SECURITIES--0.9%
Aaa 1,600 Bank of New York Master Credit Card Trust,
7.95%, 4/15/96........................... 1,648,496
Aaa 1,000 Standard Credit Card Trust, 9.375%,
5/10/95.................................. 1,069,680
Aaa 400 8.75%, 6/3/96............................ 431,688
------------
Total asset backed securities (cost
$3,084,754).............................. 3,149,864
------------
Total debt obligations (cost
$133,365,609)............................ 137,337,230
------------
Total long-term investments (cost
$282,028,636)............................ $312,601,963
------------
SHORT-TERM INVESTMENTS--8.0%
CORPORATE NOTES--0.9%
A1 $ 655 Associates Corp. of America, 8.875%,
11/1/93.................................. $ 663,030
Aa1 66 First USA Credit Card Trust, 8.55%,
7/15/94.................................. 66,134
Baa1 500 General Motors Acceptance Corp., 8.60%,
12/30/93................................. 508,875
Baa2 800 Great Atlantic & Pacific Tea, Inc.,
8.125%, 1/15/94.......................... 812,568
Baa3 1,000 Westinghouse Credit Corp., 8.86%,
9/19/93.................................. 1,005,300
------------
Total corporate notes (cost $3,117,281)... 3,055,907
------------
REPURCHASE AGREEMENT--7.1%
24,579 Joint Repurchase Agreement Account,
3.008%, 8/2/93 (Note 5).................. 24,579,000
------------
Total short-term investments (cost
$27,696,281)............................. 27,634,907
------------
Total investments--98.8% (cost
$309,724,917; Note 4).................... 340,236,870
Other assets in excess of
liabilities--1.2%........................ 4,199,480
------------
NET ASSETS--100%.......................... $344,436,350
------------
------------
<FN>
- ------------------------------
* Non-income producing security.
ADR--American Depository Receipt.
PAC IO--Planned Amortization Class Interest Only.
L.P.--Limited Partnership.
REMIC--Real Estate Mortgage Investment Conduit.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Prospectus contains a description of Moody's ratings.
</TABLE>
B-33 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS JULY 31, 1993
-------------
<S> <C>
Investments, at value (cost $309,724,917)........................ $ 340,236,870
Cash............................................................. 41,859
Receivable for investments sold 8,207,495
Interest and dividends receivable................................ 2,954,369
Receivable for Fund shares sold.................................. 1,344,542
Deferred expenses and other assets............................... 9,747
-------------
Total assets................................................. 352,794,882
-------------
LIABILITIES
Payable for investments purchased................................ 7,442,893
Due to Distributors.............................................. 272,893
Payable for Fund shares reacquired............................... 264,987
Accrued expenses................................................. 190,696
Due to Manager................................................... 187,063
-------------
Total liabilities............................................ 8,358,532
-------------
NET ASSETS....................................................... $ 344,436,350
-------------
-------------
Net assets were comprised of:
Shares of beneficial interest, at par.......................... $ 293,884
Paid-in capital in excess of par............................... 299,195,008
-------------
299,488,892
-------------
Undistributed net investment income............................ 2,707,799
Accumulated net realized gains................................. 11,727,706
Net unrealized appreciation.................................... 30,511,953
-------------
Net assets, July 31, 1993...................................... $ 344,436,350
-------------
-------------
Class A:
Net asset value and redemption price per share ($22,605,489
DIVIDED BY 1,923,323 shares of beneficial
interest issued and outstanding)............................. $11.75
Maximum sales charge (5.25% of offering price)................. .65
-------------
Maximum offering price to public............................... $12.40
-------------
-------------
Class B:
Net asset value, offering price and redemption price per share
($321,830,861 DIVIDED BY 27,465,084 shares of beneficial
interest issued and outstanding)............................. $11.72
-------------
-------------
</TABLE>
B-34 See Notes to Financial Statements.
<PAGE>
- ----------------------------------------------
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO
STATEMENT OF OPERATIONS
- ----------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31,
NET INVESTMENT INCOME 1993
-----------
<S> <C>
Income
Interest............................................. $ 9,988,829
Dividends (net of foreign withholding taxes of
$36,235)........................................... 4,148,144
-----------
Total income....................................... 14,136,973
-----------
Expenses
Distribution fee--Class A............................ 30,784
Distribution fee--Class B............................ 2,673,399
Management fee....................................... 1,837,757
Transfer agent's fees and expenses................... 500,000
Custodian's fees and expenses........................ 177,500
Registration fees.................................... 67,000
Reports to shareholders.............................. 64,000
Trustees' fees....................................... 25,500
Audit fee............................................ 14,000
Legal fees........................................... 10,000
Amortization of organization expenses................ 2,246
Miscellaneous........................................ 245
-----------
Total expenses..................................... 5,402,431
-----------
Net investment income.................................. 8,734,542
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions........... 13,033,133
Net change in unrealized appreciation on investments... 16,803,076
-----------
Net gain on investments................................ 29,836,209
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS... $38,570,751
-----------
-----------
</TABLE>
- ---------------------------------------------------
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) YEAR ENDED JULY 31,
IN NET ASSETS 1993 1992
------------ ------------
<S> <C> <C>
Operations
Net investment income................. $ 8,734,542 $ 6,431,238
Net realized gain on investment
transactions........................ 13,033,133 12,244,567
Net change in unrealized appreciation
on investments...................... 16,803,076 2,143,846
------------ ------------
Net increase in net assets resulting
from operations..................... 38,570,751 20,819,651
------------ ------------
Net equalization credits................ 325,868 287,441
------------ ------------
Dividends and distributions (Note 1)
Dividends to shareholders from net
investment income
Class A............................. (490,533) (282,634)
Class B............................. (6,742,292) (6,248,189)
------------ ------------
(7,232,825) (6,530,823)
------------ ------------
Distributions to shareholders from net
realized gains on investment
transactions
Class A............................. (557,629) (282,143)
Class B............................. (10,528,236) (8,537,608)
------------ ------------
(11,085,865) (8,819,751)
------------ ------------
Fund share transactions (Note 6)
Net proceeds from shares subscribed... 115,375,179 85,104,820
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions......... 16,869,402 13,845,678
Cost of shares reacquired............. (45,324,359) (34,457,473)
------------ ------------
Net increase in net assets from Fund
share transactions.................. 86,920,222 64,493,025
------------ ------------
Total increase.......................... 107,498,151 70,249,543
NET ASSETS
Beginning of year....................... 236,938,199 166,688,656
------------ ------------
End of year............................. $344,436,350 $236,938,199
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
B-35
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND PORTFOLIO OF INVESTMENTS
STRATEGY PORTFOLIO JULY 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1)
- ------- --------------------------------------------------------- ------------
<C> <S> <C>
LONG-TERM INVESTMENTS--85.9%
EQUITY INVESTMENTS--58.5%
ADVERTISING--0.4%
40,625 ADVO, Inc. .............................................. $ 680,463
61,100 American Business Information*........................... 687,375
------------
1,367,838
------------
AEROSPACE/DEFENSE--1.5%
32,200 General Dynamics Corp. .................................. 2,906,050
34,400 Martin Marietta Corp. ................................... 2,795,000
------------
5,701,050
------------
AUTOMOTIVE--1.8%
64,600 Durakon Industries, Inc.*................................ 1,162,800
43,200 Ford Motor Co. .......................................... 2,284,200
87,900 Goodyear Tire & Rubber Co. .............................. 3,669,825
------------
7,116,825
------------
CHEMICALS--2.4%
76,500 Air Products & Chemicals, Inc. .......................... 3,079,125
22,800 Fuller, H.B. Co. ........................................ 798,000
30,000 Imperial Chemical Ind. (ADR)............................. 1,211,250
52,166 Lawter International, Inc. .............................. 691,200
150,600 Praxair, Inc. ........................................... 2,353,125
33,500 Valspar Corp. ........................................... 1,222,750
------------
9,355,450
------------
COMMERCIAL SERVICES--1.1%
24,300 Olsten Corp. ............................................ 631,800
29,000 Premark International, Inc. ............................. 1,769,000
78,300 ServiceMaster L. P. ..................................... 1,977,075
------------
4,377,875
------------
COMPUTER AND RELATED EQUIPMENT--4.1%
45,800 Automatic Data Processing, Inc. ......................... 2,278,550
34,300 Borland International, Inc. ............................. 630,263
117,000 First Data Corp. ........................................ 4,182,750
46,200 Fiserv, Inc. ............................................ 924,000
37,800 HBO & Co. ............................................... 1,228,500
13,000 Hewlett-Packard Co. ..................................... 936,000
36,000 LEGENT Corp.*. .......................................... 715,500
41,700 Motorola, Inc. .......................................... 3,779,063
21,400 SPS Transaction Services, Inc.*.......................... 1,003,125
------------
15,677,751
------------
CONSUMER PRODUCTS--1.8%
46,100 Eastman Kodak Co. ....................................... 2,477,875
19,900 Hillenbrand Industries, Inc. ............................ 880,575
15,400 International Flavors & Fragrances, Inc. ................ 1,759,450
44,400 Scholastic Corp.*........................................ 1,925,850
------------
7,043,750
------------
DRUGS & HEALTH CARE--2.4%
14,900 Diagnostic Products Corp. ............................... 316,625
139,300 Galen Health Care, Inc.*................................. 2,855,650
9,600 Hooper Holmes, Inc. ..................................... 108,000
50,700 Schering Plough Corp. ................................... 3,105,375
41,800 Warner Lambert Co. ...................................... 2,805,825
------------
9,191,475
------------
ELECTRONICS--3.2%
66,800 Ametek, Inc. ............................................ 910,150
126,200 Emerson Electric Co. .................................... 7,319,600
43,900 General Electric Co. .................................... 4,324,150
------------
12,553,900
------------
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1)
- ------- --------------------------------------------------------- ------------
<C> <S> <C>
ENTERTAINMENT--1.3%
98,100 Carnival Cruise Lines, Inc. ............................. $ 3,985,313
45,400 TCA Cable TV, Inc. ...................................... 998,800
------------
4,984,113
------------
ENVIRONMENTAL SERVICES--0.9%
38,400 Thermo Electron Corp.*................................... 2,155,200
44,550 Thermo Instrument System, Inc.*.......................... 1,236,263
10,400 Thermotrex Corp.*........................................ 176,800
------------
3,568,263
------------
FINANCIAL SERVICES--11.3%
61,000 American Express Co. .................................... 1,990,125
45,000 American General Corp. .................................. 1,395,000
36,700 Banc One Corp. .......................................... 1,986,388
44,000 Capital Holding Corp. ................................... 1,897,500
18,600 Cash America International, Inc. ........................ 137,175
25,800 Chubb Corp. ............................................. 2,360,700
67,800 Dean Witter Discover & Co. .............................. 2,525,550
15,000 Dreyfus Corp. ........................................... 598,125
80,000 Equitable Companies, Inc. ............................... 2,240,000
51,000 First Financial Management Corp. ........................ 2,358,750
24,100 General Reinsurance Corp. ............................... 2,925,138
34,100 Horace Mann Educators Corp. ............................. 912,175
31,200 John Nuveen Co. ......................................... 1,080,300
59,200 Kansas City Southern Industries, Inc. ................... 2,301,400
10,500 Mellon Bank Corp. ....................................... 586,688
103,400 Norwest Corp. ........................................... 2,714,250
44,610 Republic New York Corp. ................................. 2,263,958
55,200 SAFECO Corp. ............................................ 3,450,000
19,300 T. Rowe Price & Associates, Inc. ........................ 1,047,025
45,400 Travelers Corp. ......................................... 1,430,100
35,000 Union Planters Corp. .................................... 905,625
26,600 United Asset Management Corp. ........................... 1,054,025
26,462 UNUM Corp. .............................................. 1,514,950
64,400 Wachovia Corp. .......................................... 2,262,050
33,400 Washington Mutual Savings Bank........................... 1,327,650
------------
43,264,647
------------
FOOD & BEVERAGE--0.2%
32,700 Eskimo Pie Corp.*. ...................................... 604,950
------------
FREIGHT TRANSPORTATION--0.1%
15,000 Expeditores Int'l. Washington, Inc.*. ................... 382,500
12,000 M.S. Carriers, Inc.*..................................... 132,675
------------
515,175
------------
MACHINERY & EQUIPMENT--2.5%
82,400 Illinois Tool Works, Inc. ............................... 2,976,700
30,000 Lindsay Manufacturing Co.*............................... 840,000
33,600 Minnesota Mining & Manufacturing, Co. ................... 3,528,000
51,118 Newell Co. .............................................. 1,661,335
20,000 Snap On Tools Corp. ..................................... 870,000
------------
9,876,035
------------
MEDIA--2.5%
6,000 Capital Cities ABC, Inc. ................................ 3,030,000
69,600 Liberty Media Corp.*..................................... 1,757,400
95,200 Time Warner, Inc. ....................................... 3,641,400
17,800 Viacom, Inc. ............................................ 983,450
------------
9,412,250
------------
MINING--0.3%
51,000 Placer Dome, Inc. ....................................... 1,141,125
------------
PAPER & FOREST PRODUCTS--1.1%
110,600 Willamette Industries, Inc. ............................. 4,202,800
------------
</TABLE>
B-36 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND
STRATEGY PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1)
- ------- --------------------------------------------------------- ------------
<C> <S> <C>
PETROLEUM--0.1%
37,000 Cygne Designs Inc. ...................................... $ 370,000
------------
PETROLEUM SERVICES--6.2%
60,100 Amoco Corp. ............................................. 3,290,475
44,800 Burlington Resources, Inc. .............................. 2,234,400
62,900 Coastal Corp. ........................................... 1,737,613
28,700 Cross Timbers Oil Co. ................................... 459,200
13,109 El Paso Natural Gas Co. ................................. 521,083
93,200 Exxon Corp. ............................................. 6,116,250
53,000 Royal Dutch Petroleum Co. ............................... 4,995,250
47,200 Schlumberger, Ltd. ...................................... 3,003,100
60,800 Seagull Energy Corp.*.................................... 1,588,400
------------
23,945,771
------------
REALTY INVESTMENT TRUST--1.4%
36,000 Federal Reality Investment Trust......................... 976,500
38,800 General Growth Properties Inc. .......................... 955,450
30,000 Manufactured Home Community, Inc. ....................... 1,080,000
55,000 Property Trust America................................... 1,065,625
23,900 United Dominion Reality Trust, Inc. ..................... 334,600
19,800 Weingarten Realty Investors.............................. 821,700
------------
5,233,875
------------
RETAIL--0.2%
31,000 Edison Brothers Stores, Inc. ............................ 968,750
------------
STEEL & METALS--0.8%
106,800 Worthington Industries, Inc. ............................ 3,204,000
------------
TELECOMMUNICATIONS--8.1%
37,100 Alltel Corp. ............................................ 973,875
110,200 American Telephone & Telegraph Co. ...................... 6,983,925
55,000 Cincinnati Bell, Inc. ................................... 1,141,250
53,000 Ericsson (L.M.) Telephone Co., (ADR)..................... 2,378,375
16,800 General Instrument Corp.*................................ 703,500
53,100 ITT Corp. ............................................... 4,712,625
199,000 MCI Communications Corp. ................................ 5,572,000
25,000 Mobile Telecommunication Tech. Corp.*.................... 575,000
23,400 Resurgens Communications Group*. ........................ 991,575
66,200 Southwestern Bell Corp. ................................. 2,681,100
145,600 Tele-Communications, Inc.*............................... 3,476,200
21,800 Telephone & Data System, Inc. ........................... 1,008,250
------------
31,197,675
------------
TEXTILES--0.3%
28,000 Kellwood Co. ............................................ 822,500
16,400 Nautica Enterprises, Inc. ............................... 364,900
------------
1,187,400
------------
TRUCKING/SHIPPING--0.9%
64,000 Consolidated Rail Corp. ................................. 3,608,000
------------
UTILITIES--0.9%
58,600 Entergy Corp. ........................................... 2,182,850
83,700 Public Service Co. of New Mexico*........................ 1,067,175
------------
3,250,025
------------
U.S. GOVERNMENT AGENCIES--0.7%
34,400 Federal National Mortgage Assn. ......................... 2,833,700
------------
Total equity investments (cost $199,966,267)............. $225,754,468
------------
</TABLE>
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ---------------------------------------- ------------
<S> <C> <C> <C>
DEBT OBLIGATIONS--27.4%
CORPORATE BONDS--22.2%
AEROSPACE/DEFENSE--1.6%
Ba3 $ 3,000 BE Aerospace, Inc., Sr. Notes,
9.75%, 3/1/03.......................... $ 3,082,500
Ba2 2,951 Colt Industries, Inc., Sr. Sub. Deb.,
11.25%, 12/1/15........................ 3,194,458
------------
6,276,958
------------
AIRLINES--1.7%
Baa3 1,000 AMR Corp.
9.00%, 8/1/12.......................... 1,046,330
Ba1 2,000 Delta Air Lines, Inc., 10.375%,
12/15/22............................... 2,145,740
Ba3 3,000 USAir, Inc., Gtd. Sr. Notes, 10.00%,
7/1/03................................. 3,034,950
------------
6,227,020
------------
BUILDING & RELATED INDUSTRIES--3.4%
NR 3,000 American Standard, Inc., Sr. Sub. Notes,
9.875%, 6/1/01......................... 3,067,500
NR 2,000 Intermediate City Products Corp., Sr.
Sec'd. Notes, 9.75%, 3/1/00............ 1,935,000
NR 2,500 Kaufman & Broad Home Corp., Sr. Sub.
Notes, 9.375%,
5/1/03................................. 2,606,250
Ba2 2,500 Standard Pacific Corp., Sr. Notes,
10.50%, 3/1/00......................... 2,575,000
B2 3,000 USG Corp., Sr. Notes, 10.25%,
12/15/02............................... 3,063,750
------------
13,247,500
------------
CHEMICALS--0.7%
B1 2,500 Georgia Gulf Corp., Sr. Sub. Notes,
15.00%, 4/15/00........................ 2,850,000
------------
COMPUTER AND RELATED EQUIPMENT--0.9%
Ba3 3,000 Unisys Corp., 15.00%, 7/1/97............ 3,495,000
------------
CONTAINERS & PACKAGING--2.1%
B2 5,000 Container Corp., Sr. Sub. Notes, 13.50%,
12/1/99................................ 5,687,500
Ba3 2,000 Owens-Illinois Holdings Corp., Sr. Deb.,
11.00%, 12/1/03........................ 2,315,000
------------
8,002,500
------------
DRUGS & HEALTH CARE--1.9%
B1 3,000 Healthtrust, Inc., Sub. Note, 10.75%,
5/1/02................................. 3,330,000
Ba2 3,500 Hospital Corp. of America, 11.25%,
12/1/15................................ 3,744,965
------------
7,074,965
------------
FINANCIAL SERVICES--1.7%
B2 4,500 Auburn Hills Trust, Inc., 15.375%,
5/1/20................................. 6,626,250
------------
FOOD & BEVERAGE--0.8%
B3 3,000 Fresh Del Monte Produce, N.V., Sr.
Notes, 10.00%, 5/1/03.................. 3,000,000
------------
MEDIA--2.0%
Ba3 2,000 Cablevision Industries Corp., Sr. Notes,
10.75%, 1/30/02........................ 2,055,000
Ba2 2,000 News America Holdings, Inc., Sr. Notes,
12.00%, 12/15/01....................... 2,442,920
B1 3,000 Turner Broadcasting System, Inc., Sr.
Sub. Deb., 12.00%, 10/15/01............ 3,345,000
------------
7,842,920
------------
</TABLE>
B-37 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND
STRATEGY PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ---------------------------------------- ------------
<S> <C> <C> <C>
MISCELLANEOUS--0.8%
NR $ 3,000 Flagstar Corp., Sr. Notes, 10.875%,
12/1/02................................ $ 3,045,000
------------
PETROLEUM SERVICES--0.5%
Ba2 2,000 Clark Oil & Refining Corp., Sr. Notes,
9.50%, 9/15/04......................... 2,060,000
------------
RETAIL--3.5%
NR 4,050 Bradlees, Inc., Sr. Sub. Notes, 9.25%,
3/1/03................................. 4,090,500
B1 4,000 Kroger Co., Sr. Sub. Notes, 9.875%,
8/1/02................................. 4,209,960
NR 2,000 Sealy Corp., Sr. Sub. Notes, 9.50%,
5/1/03................................. 2,045,000
NA 3,000 Southland Corp., Sr. Notes, 12.00%,
12/15/96............................... 3,060,000
------------
13,405,460
------------
TRANSPORTATION--0.6%
NR 2,000 Southern Pacific Transportation Co., Sr.
Sec'd. Notes, 10.50%, 7/1/99........... 2,175,000
------------
Total corporate bonds (cost
$83,457,435)........................... 85,328,573
------------
COLLATERALIZED MORTGAGE OBLIGATIONS--0.3%
Aaa 1,000 Federal National Mortgage Association,
REMIC, 9.00%, 3/25/20, (cost
$977,862).............................. $ 1,115,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (A) (NOTE 1)
--------- ------------------------------------------------- ------------
<S> <C> <C> <C>
FOREIGN GOVERNMENT OBLIGATIONS--4.9%
FF 20,650 French Government Bonds, 8.50%, 3/28/00.......... $ 3,846,785
Lira 4,200,000 Italian Government Bonds, 12.00%, 1/17/99........ 2,708,916
Pts. 810,500 Spanish Government Bonds, 11.30%, 1/15/02........ 6,010,798
L 4,250 United Kingdom Treasury Bonds, 8.00%, 6/10/03.... 6,562,768
------------
Total foreign government obligations (cost
$19,939,659).................................... 19,129,267
------------
Total debt obligations (cost $104,374,956)....... 105,572,840
------------
Total long-term investments (cost
$304,341,223)................................... $331,327,308
------------
SHORT-TERM INVESTMENTS--7.9%
REPURCHASE AGREEMENT--7.9%
$ 30,586 Joint Repurchase Agreement Account, 3.008%,
8/2/93 (Note 5)
Total short-term investments (cost
$30,586,000).................................... $ 30,586,000
------------
TOTAL INVESTMENTS--93.8%
(cost $334,927,223; Note 4)...................... 361,913,308
Other assets in excess of liabilities-- 6.2%..... 24,015,248
------------
NET ASSETS--100%................................. $385,928,556
------------
------------
<FN>
- ------------------------------
* Non-income producing security.
ADR--American Depository Receipt.
REMIC--Real Estate Mortgage Investment Conduit.
L.P.--Limited Partnership.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Prospectus contains a description of Moody's ratings.
</TABLE>
B-38 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND
STRATEGY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS JULY 31, 1993
-------------
<S> <C>
Investments, at value (cost $334,927,223)..................... $ 361,913,308
Cash.......................................................... 44,288
Foreign currency, at value (cost $12,697)..................... 11,621
Receivable for investments sold............................... 27,923,675
Interest and dividends receivable............................. 2,868,500
Receivable for Fund shares sold............................... 986,799
Forward contracts--net amount receivable from
counterparties............................................... 90,799
Deferred expenses and other assets............................ 7,450
-------------
Total assets.............................................. 393,846,440
-------------
LIABILITIES
Payable for investments purchased............................. 6,425,534
Payable for Fund shares reacquired............................ 697,629
Due to Distributors........................................... 308,298
Due to Manager................................................ 212,978
Accrued expenses.............................................. 273,445
-------------
Total liabilities......................................... 7,917,884
-------------
NET ASSETS.................................................... $ 385,928,556
-------------
-------------
Net assets were comprised of:
Shares of beneficial interest, at par....................... $ 327,372
Paid-in capital in excess of par............................ 352,360,725
-------------
352,688,097
-------------
Undistributed net investment income......................... 3,160,863
Accumulated net realized gains on investments and foreign
currencies................................................ 3,092,901
Net unrealized appreciation on investments and foreign
currencies................................................ 26,986,695
-------------
Net assets, July 31, 1993................................... $ 385,928,556
-------------
-------------
Class A:
Net asset value and redemption price per share ($28,641,187
DIVIDED BY 2,422,952 shares of beneficial interest issued
and outstanding).......................................... $11.82
Maximum sales charge (5.25% of offering price).............. .65
-------------
Maximum offering price to public............................ $12.47
-------------
-------------
Class B:
Net asset value, offering price and redemption price per
share ($357,287,369 DIVIDED BY 30,314,276 shares of
beneficial interest issued and outstanding)............... $11.79
-------------
-------------
</TABLE>
B-39 See Notes to Financial Statements.
<PAGE>
- ----------------------------------------------
PRUDENTIAL FLEXIFUND
STRATEGY PORTFOLIO
STATEMENT OF OPERATIONS
- ----------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31,
NET INVESTMENT INCOME 1993
-----------
<S> <C>
Income
Interest......................................................... $12,498,106
Dividends (net of foreign withholding taxes of $50,177).......... 4,959,580
-----------
Total income................................................... 17,457,686
-----------
Expenses
Distribution fee--Class A........................................ 48,431
Distribution fee--Class B........................................ 3,392,254
Management fee................................................... 2,362,366
Transfer agent's fees and expenses............................... 796,500
Custodian's fees and expenses.................................... 286,000
Reports to shareholders.......................................... 75,000
Registration fees................................................ 75,000
Trustees' fees................................................... 25,500
Audit fee........................................................ 14,000
Legal fees....................................................... 10,000
Amortization of organization expenses............................ 2,246
Miscellaneous.................................................... 22,063
-----------
Total expenses................................................. 7,109,360
-----------
Net investment income............................................ 10,348,326
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCIES
Net realized gain (loss) on:
Investment transactions.......................................... 8,388,223
Foreign currency transactions.................................... 2,838,088
Financial futures contracts...................................... (271,635)
-----------
10,954,676
-----------
Net change in unrealized appreciation/depreciation on:
Investments...................................................... 11,300,212
Foreign currencies............................................... (24,311)
-----------
11,275,901
-----------
Net gain on investments............................................ 22,230,577
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $32,578,903
-----------
-----------
</TABLE>
- ---------------------------------------------------
PRUDENTIAL FLEXIFUND
STRATEGY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) YEARS ENDED JULY 31,
IN NET ASSETS 1993 1992
------------ ------------
<S> <C> <C>
Operations
Net investment income........................... $ 10,348,326 $ 6,562,245
Net realized gain on investment and foreign
currency transactions......................... 10,954,676 22,802,156
Net change in unrealized appreciation on
investments and foreign currency.............. 11,275,901 782,489
------------ ------------
Net increase in net assets resulting from
operations.................................... 32,578,903 30,146,890
------------ ------------
Net equalization credits.......................... 57,175 347,822
------------ ------------
Dividends and distributions (Note 1)
Dividends to shareholders from net investment
income
Class A....................................... (762,246) (490,593)
Class B....................................... (8,432,955) (6,280,551)
------------ ------------
(9,195,201) (6,771,144)
------------ ------------
Distributions to shareholders from net realized
gains on investments and foreign currencies
Class A....................................... (1,779,498) (494,165)
Class B....................................... (26,359,313) (8,902,530)
------------ ------------
(28,138,811) (9,396,695)
------------ ------------
Fund share transactions (Note 6)
Net proceeds from shares subscribed............. 95,403,980 123,189,307
Net asset value of shares issued to shareholders
in reinvestment of dividends and
distributions................................. 35,885,867 15,413,803
Cost of shares reacquired....................... (75,812,344) (48,529,391)
------------ ------------
Net increase in net assets from Fund share
transactions.................................. 55,477,503 90,073,719
------------ ------------
Total increase.................................... 50,779,569 104,400,592
NET ASSETS
Beginning of year................................. 335,148,987 230,748,395
------------ ------------
End of year....................................... $385,928,556 $335,148,987
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
B-40
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Prudential Allocation Fund, (the "Fund"), is registered under the Investment
Company Act of 1940, as a diversified, open-end management investment company.
The Fund was organized as an unincorporated business trust in Massachusetts on
February 23, 1987 and consists of two series, the Conservatively Managed
Portfolio and the Strategy Portfolio. The investment objective of the
Conservatively Managed Portfolio is to achieve a high total investment return
consistent with moderate risk by investing in a diversified portfolio of money
market instruments, debt obligations and equity securities. The investment
objective of the Strategy Portfolio is to achieve a high total investment return
consistent with relatively higher risk than the Conservatively Managed Portfolio
through varying the proportions of investments in debt and equity securities,
the quality and maturity of debt securities purchased and the price volatility
and the type of issuer of equity securities purchased. The ability of issuers of
debt securities held by the Fund to meet their obligations may be affected by
economic developments in a specific country, industry or region.
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting
policies followed by the Fund in the preparation of its
financial statements.
SECURITIES VALUATION: Any security for which the primary market is on an
exchange (including NASDAQ National Market System equity securities) is valued
at the last sale price on such exchange on the day of valuation or, if there was
no sale on such day, the mean between the last bid and asked prices quoted on
such day. Corporate bonds (other than convertible debt securities) and U.S.
Government and agency securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued on the basis of valuations
provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in comparable securities and various relationships between
securities in determining value. Convertible debt securities that are actively
traded in the over-the-counter market, including listed securities for which the
primary market is believed to be over-the-counter, are valued at the mean
between the most recently quoted bid and asked prices provided by principal
market makers. Forward currency exchange contracts are valued at the current
cost of offsetting the contract on the day of valuation. Other securities
(including options and futures contracts) are valued at the mean between the
most recently quoted bid and asked prices.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian take possession of the
underlying collateral securities, the value of which exceeds the principal
amount of the repurchase transaction, including accrued interest. To the extent
that any repurchase transaction exceeds one business day, the value of the
collateral is marked-to-market on a daily basis to ensure the adequacy of the
collateral. If the seller defaults and the value of the collateral declines or
if bankruptcy proceedings are commenced with respect to the seller of the
security, realization of the collateral by the Fund may be delayed or limited.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing daily rate of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the fiscal period, the Fund does not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of long-term securities held at the end of the fiscal period.
Similarly, the Fund does not isolate the effect of changes in foreign exchange
rates from the fluctuations arising from changes in the market prices of
long-term portfolio securities sold during the fiscal period. Accordingly,
realized foreign currency gains (losses) are included in the reported net
realized gains on investment transactions.
Net realized gains on foreign currency transactions represent net foreign
exchange gains from the holding of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions, and
the difference between the amounts of dividends, interest and foreign taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts actually
received or paid.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors,
B-41
<PAGE>
the possibility of political and economic instability or the level of
governmental supervision and regulation of foreign securities markets.
FINANCIAL FUTURES CONTRACTS: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the "initial margin". Subsequent payments, known as "variation margin",
are made or received by the Fund each day, depending on the daily fluctuations
in the value of the underlying security. Such variation margin is recorded for
financial statement purposes on a daily basis as unrealized gain or loss until
the contracts expire or are closed, at which time the gain or loss is
reclassified to realized gain or loss. The Fund invests in financial futures
contracts solely for the purpose of hedging its existing portfolio securities or
securities the Fund intends to purchase against fluctuations in value caused by
changes in prevailing market interest rates. Should interest rates move
unexpectedly, the Fund may not achieve the anticipated benefits of the financial
futures contracts and may realize a loss. The use of futures transactions
involves the risk of imperfect correlation in movements in the price of futures
contracts, interest rates and the underlying hedged assets.
FORWARD CURRENCY CONTRACTS: The Fund enters into forward currency contracts in
order to hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings. A forward contract is a commitment to purchase or
sell a foreign currency at a future date (usually the security transaction
settlement date) at a negotiated forward rate. In the event that a security
fails to settle within the normal settlement period, the forward currency
contract is renegotiated at a new rate. The gain or loss arising from the
difference between the settlement value of the original and renegotiated forward
contracts is isolated and is included in net realized gain from foreign currency
transactions. Risks may arise as a result of the potential inability of the
counterparties to meet the terms of their contract.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Net
investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares of each series based
upon the relative proportion of net assets at the beginning of the day of each
class.
EQUALIZATION: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
FEDERAL INCOME TAXES: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of each series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its taxable net income
to its shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rates.
DIVIDENDS AND DISTRIBUTIONS: The Fund expects to pay dividends of net investment
income quarterly and make distributions at least annually of any net capital
gains. Dividends and distributions are recorded on the ex-dividend date.
DEFERRED ORGANIZATION EXPENSES: Prudential Securities Incorporated ("PSI"),
incurred expenses of approximately $187,000 ($93,500 per series) in connection
with the organization and initial registration of the Fund and was reimbursed by
the Fund for this amount. These costs have been deferred and amortized over 60
months. As of July 31, 1993, the organization costs have been fully amortized.
NOTE 2. AGREEMENTS
The Fund has a management agreement with Prudential
Mutual Fund Management, Inc. ("PMF"). Pursuant to this agreement, PMF has
responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PMF has entered into a subadvisory
agreement with The Prudential Investment Corporation ("PIC"); PIC furnishes
investment advisory services in connection with the management of the Fund. PMF
pays for the services of PIC, the compensation of officers of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an annual
rate of .65 of 1% of the average daily net assets of each of the series.
PMF has agreed that, in any fiscal year, it will reimburse the Fund for each
of the series' expenses (including the fees of PMF but excluding interest,
taxes, brokerage commissions, distribution fees, litigation and indemnification
expenses and
B-42
<PAGE>
other extraordinary expenses) in excess of the most restrictive expense
limitation imposed by state securities commissions. The most restrictive expense
limitation is presently believed to be 2.5% of the series' average daily net
assets up to $30 million, 2.0% of the next $70 million of average daily net
assets and 1.5% of the series' average daily net assets in excess of $100
million. Such expense reimbursement, if any, will be estimated and accrued daily
and payable monthly. No reimbursement was required for the year ended July 31,
1993.
The Fund has distribution agreements with Prudential Mutual Fund Distributors,
Inc. ("PMFD"), who acts as the distributor of the Class A shares of the Fund,
and PSI, who acts as distributor of the Class B shares of the Fund (collectively
the "Distributors"). To reimburse the Distributors for their expenses incurred
in distributing and servicing the Fund's Class A and B shares, the Fund,
pursuant to plans of distribution, pays the Distributors a reimbursement,
accrued daily and payable monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its
distribution-related expenses with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net assets of the Class A shares. Such
expenses under the Class A Plan were .20 of 1% of the average daily net assets
of the Class A shares for the year ended July 31, 1993. PMFD pays various
broker-dealers, including PSI and Pruco Securities Corporation ("Prusec"),
affiliated broker-dealers, for account servicing fees and other expenses
incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to the Class B shares at an annual
rate of up to 1% of the average daily net assets of the Class B shares. Unlike
the Class A Plan, there are carryforward amounts under the Class B Plan, and
interest expenses are incurred under the Class B Plan.
The Class B distribution expenses include commission credits for payments of
commissions and account servicing fees to financial advisers and an allocation
for overhead and other distribution-related expenses, interest and/or carrying
charges, the cost of printing and mailing prospectuses to potential investors
and of advertising incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and service fees incurred
through the receipt of reimbursement payments from the Fund under the plans and
the receipt of initial sales charges (Class A only) and contingent deferred
sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $743,000
($405,000--Conservatively Managed Portfolio and $338,000--Strategy Portfolio) in
front-end sales charges resulting from sales of Class A shares during the year
ended July 31, 1993. From these fees, PMFD paid such sales charges to dealers
(PSI and Prusec) which in turn paid commissions to salespersons and incurred
other distribution costs.
With respect to the Class B Plan, at any given time the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total reimbursement made by the Fund
pursuant to the Class B Plan. PSI advised the Fund that for the year ended July
31, 1993, it received approximately $1,161,000 ($425,000--Conservatively Managed
Portfolio and $736,000--Strategy Portfolio) in contingent deferred sales charges
imposed upon certain redemptions by investors. PSI, as distributor, has also
advised the Fund that at July 31, 1993, the amount of distribution expenses
incurred by PSI and not yet reimbursed by the Fund or recovered through
contingent deferred sales charges approximated $18,728,000
($10,268,000--Conservatively Managed Portfolio and $8,460,000--Strategy
Portfolio). This amount may be recovered through future payments under the Class
B Plan or contingent deferred sales charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services, Inc. ("PMFS"), a
wholly-owned subsidiary of PMF, serves as the Fund's
transfer agent. During the year ended July 31, 1993, the Fund incurred fees of
approximately $1,066,000 ($410,000-- Conservatively Managed Portfolio and
$656,000--Strategy Portfolio) for the services of PMFS. As of July 31, 1993,
approximately $205,000 ($83,000--Conservatively Managed Portfolio and
$122,000--Strategy Portfolio) of such fees were due to PMFS. Transfer agent fees
and expenses in the Statement of Operations also include certain out of pocket
expenses paid to non-affiliates.
For the year ended July 31, 1993, PSI received approximately $38,000
($6,000--Conservatively Managed Portfolio and $32,000--Strategy Portfolio) in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
B-43
<PAGE>
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than
short-term investments, for the fiscal year ended July
31, 1993, were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- -------------------------------------------------- ------------ ------------
<S> <C> <C>
Conservatively Managed Portfolio.................. $298,135,511 $208,675,914
Strategy Portfolio................................ $445,454,030 $411,076,196
</TABLE>
At July 31, 1993, the Strategy Portfolio had outstanding forward currency
contracts to sell foreign currencies, as follows:
<TABLE>
<CAPTION>
VALUE AT
SETTLEMENT CURRENT APPRECIATION/
FOREIGN CURRENCY SALE CONTRACTS DATE VALUE (DEPRECIATION)
- ----------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
British Pounds, expiring 8/4/93.... $ 6,701,010 $ 6,672,035 $ 28,975
French Francs, expiring 8/3/93..... $ 3,965,704 $ 3,955,032 $ 10,672
French Francs, expiring 8/9/93..... 6,093,591 6,309,806 (216,215)
Italian Lira, expiring 8/4/93...... 2,756,120 2,753,922 2,198
Spanish Pesetas, expiring 8/4/93... 6,348,595 6,354,947 (6,352)
----------- ----------- --------------
$25,865,020 $26,045,742 $(180,722)
----------- ----------- --------------
----------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
VALUE AT
SETTLEMENT CURRENT APPRECIATION/
FOREIGN CURRENCY PURCHASE CONTRACT DATE VALUE (DEPRECIATION)
- ----------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
French Francs, expiring 8/9/93..... $ 6,365,112 $ 6,093,591 $ 271,521
----------- ----------- --------------
----------- ----------- --------------
</TABLE>
The cost basis of investments for federal income tax purposes as of July 31,
1993 was $309,756,308 and $335,238,619 for the Conservatively Managed Portfolio
and the Strategy Portfolio, respectively, and net and gross unrealized
appreciation of investments for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
CONSERVATIVELY
MANAGED STRATEGY
PORTFOLIO PORTFOLIO
-------------- -----------
<S> <C> <C>
Gross unrealized appreciation.................... $35,817,843 $31,791,152
Gross unrealized depreciation.................... 5,337,281 5,116,463
-------------- -----------
Net unrealized appreciation...................... $30,480,562 $26,674,689
-------------- -----------
-------------- -----------
</TABLE>
NOTE 5. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, along with other affiliated registered
investment companies, transfers uninvested cash balances
into a single joint account, the daily aggregate balance
of which is invested in one or more repurchase agreements collateralized by U.S.
Government or federal agency obligations. As of July 31, 1993, the Fund had a
4.8% (Conservatively Managed Portfolio--2.1% and Strategy Portfolio--2.7%)
undivided interest in the repurchase agreements in the joint account. The
undivided interest for the Fund represented $55,165,000, (Conservatively Managed
Portfolio--$24,579,000 and Strategy Portfolio-- $30,586,000) in the principal
amount. As of such date, each repurchase agreement in the joint account and the
collateral therefor was as follows:
Bear Stearns & Co., Inc., 3.05%, dated 7/31/93, in the principal amount of
$370,000,000, repurchase price $370,092,500, due 8/2/93; collateralized by
$117,000,000 U.S. Treasury Bills, 3.00%, 7/28/94, $30,720,000 U.S. Treasury
Notes, 4.625%, 12/31/94, and $200,000,000 U.S. Treasury Notes, 8.75%, 10/15/97;
value including accrued interest--$378,035,770.
J.P. Morgan Securities, Inc., 3.05%, dated 7/31/93, in the principal amount of
$325,000,000, repurchase price $325,082,504, due 8/2/93; collateralized by
$100,000,000 U.S. Treasury Notes, 3.875%, 3/31/95, $20,895,000 U.S. Treasury
Bonds, 14.25%, 2/15/02, and $150,000,000 U.S. Treasury Bonds, 8.75%, 8/15/20;
value including accrued interest--$332,345,551.
Kidder, Peabody & Co., Inc., 3.05%, dated 7/31/93, in the principal amount of
$310,000,000, repurchase price $310,078,792, due 8/2/93; collateralized by
$42,445,000 U.S. Treasury Notes, 7.00%, 1/15/94, $30,640,000 U.S. Treasury
Notes, 4.25%, 7/31/94, $22,000,000 U.S. Treasury Notes, 4.25%, 8/31/94, $135,000
U.S. Treasury Notes, 6.875%, 4/30/97, $34,115,000 U.S. Treasury Notes, 8.00%,
8/15/99, and $113,290,000 U.S. Treasury Bonds, 11.75%, 11/15/14; value including
accrued interest--$316,410,057.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 2.85%, dated 7/31/93, in the
principal amount of $145,000,000, repurchase price $145,034,438, due 8/2/93;
collateralized by $146,800,000 U.S. Treasury Notes, 4.125%, 5/31/95; value
including accrued interest--$148,005,533.
NOTE 6. CAPITAL
Class A shares are sold with a front-end sales charge of
up to 5.25%. Class B shares are sold with a contingent deferred sales charge
which declines from 5% to zero depending on the period of time the shares are
held. Both classes of shares have equal rights as to earnings, assets and voting
privileges except that each class bears different distribution expenses and has
exclusive voting rights with respect to its distribution plan.
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share, divided into two classes, designated
Class A and Class B. Of the shares outstanding at July 31, 1993, PSI owned 5,000
Class B shares of each series.
B-44
<PAGE>
Transactions in shares of beneficial interest were as follows:
CONSERVATIVELY MANAGED PORTFOLIO:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Year ended July 31,
1993:
Shares sold............. 1,111,058 $12,515,640 9,197,549 $102,859,539
Shares issued in
reinvestment of
dividends and
distributions.......... 90,896 994,506 1,459,840 15,874,896
Shares reacquired....... (273,750) (3,079,784) (3,783,156) (42,244,575)
---------- ----------- ----------- ------------
Increase in shares
outstanding............ 928,204 $10,430,362 6,874,233 $ 76,489,860
---------- ----------- ----------- ------------
---------- ----------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended July 31, 1992:
Shares sold.............. 663,286 $ 7,158,440 7,228,409 $77,946,380
Shares issued in
reinvestment of
dividends and
distributions........... 52,136 547,017 1,273,597 13,298,661
Shares reacquired........ (131,231) (1,416,013) (3,062,513) (33,041,460)
---------- ----------- ----------- -----------
Increase in shares
outstanding............. 584,191 $ 6,289,444 5,439,493 $58,203,581
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
STRATEGY PORTFOLIO:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended July 31, 1993:
Shares sold.............. 948,490 $11,062,181 7,245,790 $84,341,799
Shares issued in
reinvestment of
dividends and
distributions........... 219,562 2,486,431 2,958,707 33,399,436
Shares reacquired........ (439,023) (5,122,055) (6,093,273) (70,690,289)
---------- ----------- ----------- -----------
Increase in shares
outstanding............. 729,029 $ 8,426,557 4,111,224 $47,050,946
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended July 31, 1992:
Shares sold.............. 924,582 $10,881,022 9,577,890 $112,308,285
Shares issued in
reinvestment of
dividends and
distributions........... 83,717 955,803 1,268,889 14,458,000
Shares reacquired........ (254,775) (2,995,192) (3,884,771) (45,534,199)
---------- ----------- ----------- -----------
Increase in shares
outstanding............. 753,524 $ 8,841,633 6,962,008 $81,232,086
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
NOTE 7. DIVIDENDS
On September 9, 1993, the Board of Trustees of the Fund
delcared a dividend from undistributed net investment income to Class A
shareholders of $.085 per share and to Class B shareholders of $.065 per share
for the Conservatively Managed Portfolio and a dividend from undistributed net
investment income to Class A shareholders of $.10 per share and to Class B
shareholders of $.08 per share for the Strategy Portfolio. All dividends are
payable on September 30, 1993 to shareholders of record on September 23, 1993.
B-45
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND CONSERVATIVELY MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated:
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------- ----------------------------------------------------
JANUARY 22,
1990@
YEAR ENDED JULY 31, THROUGH YEAR ENDED JULY 31,
-------------------------- JULY 31, ----------------------------------------------------
1993 1992 1991 1990 1993 1992 1991 1990 1989
------- ------- ------ ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 11.00 $ 10.73 $10.23 $ 9.83 $ 10.98 $ 10.71 $ 10.22 $ 10.21 $ 9.43
------- ------- ------ ----------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income......... .43 .44 .44 .26 .34 .35 .36 .45 .52
Net realized and unrealized
gain on investment
transactions................. 1.16 .81 .73 .38 1.16 .82 .73 .18 .73
------- ------- ------ ----------- -------- -------- -------- -------- --------
Total from investment
operations................ 1.59 1.25 1.17 .64 1.50 1.17 1.09 .63 1.25
------- ------- ------ ----------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income....................... (.37) (.44) (.44) (.24 ) (.29) (.36) (.37) (.52) (.47)
Distributions paid to
shareholders from net
realized gains on investment
transactions................. (.47) (.54) (.23) -- (.47) (.54) (.23) (.10) --
------- ------- ------ ----------- -------- -------- -------- -------- --------
Total distributions......... (.84) (.98) (.67) (.24 ) (.76) (.90) (.60) (.62) (.47)
------- ------- ------ ----------- -------- -------- -------- -------- --------
Net asset value, end of
period....................... $ 11.75 $ 11.00 $10.73 $ 10.23 $ 11.72 $ 10.98 $ 10.71 $ 10.22 $ 10.21
------- ------- ------ ----------- -------- -------- -------- -------- --------
------- ------- ------ ----------- -------- -------- -------- -------- --------
TOTAL RETURN#:................ 15.15% 12.29% 11.99% 6.59% 14.27% 11.48% 11.13% 6.44% 13.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $22,605 $10,944 $4,408 $ 1,944 $321,831 $225,995 $162,281 $154,917 $132,631
Average net assets (000)...... $15,392 $ 7,103 $2,747 $ 1,047 $267,340 $189,358 $149,907 $143,241 $139,009
Ratios to average net assets:
Expenses, including
distribution fees......... 1.17% 1.29% 1.38% 1.29%* 1.97% 2.09% 2.16% 2.07% 2.09%
Expenses, excluding
distribution fees......... .97% 1.09% 1.18% 1.09%* .97% 1.09% 1.16% 1.08% 1.08%
Net investment income....... 3.88% 3.97% 4.44% 5.04%* 3.04% 3.25% 3.55% 4.42% 5.47%
Portfolio turnover rate....... 83% 105% 137% 106% 83% 105% 137% 106% 137%
<FN>
- ------------------------------
@ Commencement of offering of Class A shares.
* Annualized.
# Total return does not consider the effects of sales loads. Total returns for
periods of less than a full year are not annualized.
</TABLE>
See Notes to Financial Statements.
B-46
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND STRATEGY PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated:
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------------- ---------------------------------------------------
JANUARY 22,
1990@
YEAR ENDED JULY 31, THROUGH YEAR ENDED JULY 31,
--------------------------- JULY 31, ---------------------------------------------------
1993 1992 1991 1990 1993 1992 1991 1990 1989
------- ------- ------- ----------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period.................. $ 12.03 $ 11.45 $ 10.50 $ 10.16 $ 12.01 $ 11.43 $ 10.49 $ 10.85 $ 9.52
INCOME FROM INVESTMENT
OPERATIONS
Net investment income....... .42 .35 .38 .25 .34 .26 .30 .37 .42
Net realized and unrealized
gain on investment and
foreign currency
transactions............... .70 1.02 .98 .33 .70 1.02 .97 .03 1.30
------- ------- ------- ----------- -------- -------- -------- -------- -------
Total from investment
operations............ 1.12 1.37 1.36 .58 1.04 1.28 1.27 .40 1.72
------- ------- ------- ----------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS
Dividends from net
investment income.......... (.37) (.37) (.35) (.24 ) (.30) (.28) (.27) (.40) (.39)
------- ------- ------- ----------- -------- -------- -------- -------- -------
Distributions paid to
shareholders from net
realized gains on
investment and foreign
currency transactions...... (.96) (.42) (.06) -- (.96) (.42) (.06) (.36) --
------- ------- ------- ----------- -------- -------- -------- -------- -------
Total distributions..... (1.33) (.79) (.41) (.24 ) (1.26) (.70) (.33) (.76) (.39)
------- ------- ------- ----------- -------- -------- -------- -------- -------
Net asset value, end of
period..................... $ 11.82 $ 12.03 $ 11.45 $ 10.50 $ 11.79 $ 12.01 $ 11.43 $ 10.49 $ 10.85
------- ------- ------- ----------- -------- -------- -------- -------- -------
------- ------- ------- ----------- -------- -------- -------- -------- -------
TOTAL RETURN#:.............. 10.02% 12.36% 13.42% 5.83% 9.21% 11.53% 12.49% 3.59% 18.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...................... $28,641 $20,378 $10,765 $ 5,073 $357,287 $314,771 $219,983 $176,078 $62,651
Average net assets (000).... $24,216 $15,705 $ 6,694 $ 2,928 $339,225 $267,525 $190,913 $127,360 $57,326
Ratios to average net
assets:
Expenses, including
distribution fees....... 1.21% 1.26% 1.33% 1.51%* 2.01% 2.06% 2.11% 2.10% 2.33%+
Expenses, excluding
distribution fees....... 1.01% 1.06% 1.13% 1.26%* 1.01% 1.06% 1.11% 1.14% 1.34%+
Net investment income..... 3.61% 3.05% 3.89% 4.58%* 2.79% 2.27% 2.95% 3.61% 4.26%+
Portfolio turnover rate..... 145% 241% 189% 159% 145% 241% 189% 159% 132%
<FN>
- ------------------------------
+ Net of expense subsidy or reimbursement.
* Annualized.
@ Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total returns for
periods of less than a full year are not annualized.
</TABLE>
See Notes to Financial Statements.
B-47
<PAGE>
LETTER TO SHAREHOLDERS, 1994
PRUDENTIAL FLEXIFUND PORTFOLIO OF INVESTMENTS
CONSERVATIVELY MANAGED PORTFOLIO JANUARY 31, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
(NOTE 1)
- -------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--84.8%
COMMON STOCKS--46.6%
AEROSPACE/DEFENSE--2.0%
<S> <C> <C>
61,300 Aviall, Inc.* . . . . . . . . . . . . . . . . . . $ 1,072,750
203,200 Banner Aerospace, Inc.* . . . . . . . . . . . . . 1,143,000
20,000 Furon Co. . . . . . . . . . . . . . . . . . . . . 335,000
56,500 Gencorp, Inc. . . . . . . . . . . . . . . . . . . 826,312
52,500 General Motors Corp., Class H . . . . . . . . . . 2,060,625
70,000 Martin Marietta Corp. . . . . . . . . . . . . . . 3,141,250
------------
8,578,937
------------
AUTOMOTIVE--1.6%
27,100 Coltec Inds., Inc.* . . . . . . . . . . . . . . . 575,875
27,500 Danaher Corp. . . . . . . . . . . . . . . . . . . 1,034,687
26,000 Ford Motor Co.. . . . . . . . . . . . . . . . . . 1,742,000
25,000 General Motors Corp.. . . . . . . . . . . . . . . 1,534,375
64,300 General Motors Corp. Class E. . . . . . . . . . . 1,941,000
------------
6,827,937
------------
CHEMICALS--3.6%
18,400 Cytec Inds., Inc.*. . . . . . . . . . . . . . . . 296,705
35,000 Dexter Corp.. . . . . . . . . . . . . . . . . . . 835,625
41,450 Eastman Chemical Co.* . . . . . . . . . . . . . . 1,813,437
70,000 Ferro Corp. . . . . . . . . . . . . . . . . . . . 2,450,000
19,200 FMC Corp.*. . . . . . . . . . . . . . . . . . . . 926,400
35,000 Grace (W.R.) & Co.. . . . . . . . . . . . . . . . 1,596,875
60,000 Hanna (M. A.) Co. . . . . . . . . . . . . . . . . 2,250,000
79,700 Imperial Chemical Ind. (ADR). . . . . . . . . . . 3,885,375
46,600 Vigoro Corp.. . . . . . . . . . . . . . . . . . . 1,467,900
------------
15,522,317
------------
COMPUTER AND RELATED EQUIPMENT--2.4%
44,000 Ceridian Corp.* . . . . . . . . . . . . . . . . . 1,001,000
56,900 Diebold, Inc. . . . . . . . . . . . . . . . . . . 3,243,300
29,100 Digital Equipment Corp.*. . . . . . . . . . . . . $ 880,275
32,200 First Data Corp.. . . . . . . . . . . . . . . . . 1,473,150
40,200 Motorola, Inc.. . . . . . . . . . . . . . . . . . 3,959,700
------------
10,557,425
------------
CONSUMER PRODUCTS--1.1%
65,000 Eastman Kodak Co. . . . . . . . . . . . . . . . . 2,868,125
43,900 Newell Co.. . . . . . . . . . . . . . . . . . . . 1,838,313
------------
4,706,438
------------
CONTAINERS & PACKAGING--0.6%
64,200 Ball Corp.. . . . . . . . . . . . . . . . . . . . 1,693,275
85,000 Owens-Illinois Holdings Corp.*. . . . . . . . . . 988,125
------------
2,681,400
------------
DATA PROCESSING & REPRODUCTION--0.4%
26,100 First Financial Management Corp.. . . . . . . . . 1,543,163
------------
DRUGS & HEALTH CARE--4.8%
40,000 American Cyanamid Co. . . . . . . . . . . . . . . 2,015,000
87,400 HCA Hospital Corp. America* . . . . . . . . . . . 3,397,675
90,900 Healthtrust, Inc.*. . . . . . . . . . . . . . . . 2,556,563
179,300 National Medical Enterprises, Inc.. . . . . . . . 2,846,387
52,700 Schering Plough Corp. . . . . . . . . . . . . . . 3,320,100
36,200 Warner Lambert Co.. . . . . . . . . . . . . . . . 2,357,525
117,766 Zeneca Group PLC. . . . . . . . . . . . . . . . . 4,254,297
------------
20,747,547
------------
ELECTRONICS--1.6%
43,700 Belden, Inc.* . . . . . . . . . . . . . . . . . . 846,687
70,000 Loral Corp. . . . . . . . . . . . . . . . . . . . 2,791,250
80,000 Mark IV Industries, Inc.. . . . . . . . . . . . . 1,650,000
41,600 Perkin Elmer Corp.. . . . . . . . . . . . . . . . 1,627,600
------------
6,915,537
------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes To Financial Statements
B-48
<PAGE>
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
(NOTE 1)
- -------------------------------------------------------------------------------
FINANCIAL SERVICES--5.1%
<C> <S> <C>
55,600 American Express Co.. . . . . . . . . . . . . . . $ 1,820,900
100,000 Dean Witter Discover & Co.. . . . . . . . . . . . 3,837,500
83,200 First Bank System, Inc. . . . . . . . . . . . . . 2,610,400
16,700 First Interstate Bank Corp. . . . . . . . . . . . 1,171,087
25,000 ITT Corp. . . . . . . . . . . . . . . . . . . . . 2,459,375
110,000 KeyCorp . . . . . . . . . . . . . . . . . . . . 4,070,000
148,000 Norwest Corp. . . . . . . . . . . . . . . . . . . 3,903,500
100,000 Washington Mutual Savings Bank. . . . . . . . . . 2,462,500
------------
22,335,262
------------
FOOD & BEVERAGE--1.0%
47,600 Karcher Carl Enterprises, Inc.. . . . . . . . . . 636,650
70,000 Morrison Restaurants, Inc.. . . . . . . . . . . . 1,750,000
47,000 Sbarro, Inc.. . . . . . . . . . . . . . . . . . . 1,903,500
------------
4,290,150
------------
FREIGHT TRANSPORTATION--1.1%
50,000 Illinois Central Corp.. . . . . . . . . . . . . . 1,875,000
70,000 Ryder System, Inc.. . . . . . . . . . . . . . . . 1,881,250
15,300 Union Pacific Corp. . . . . . . . . . . . . . . . 1,000,238
------------
4,756,488
------------
HOME IMPROVEMENTS--0.7%
70,000 Owens Corning Fiberglass* . . . . . . . . . . . . 3,158,750
------------
HOTELS & LEISURE--0.5%
75,000 Marriott International, Inc.. . . . . . . . . . . 2,203,125
------------
INSURANCE--3.3%
33,600 Berkley (W.R.) Corp. . . . . . . . . . . . . . . 1,201,200
64,000 Equitable of Iowa Cos.. . . . . . . . . . . . . . 1,864,000
71,000 Life Re . . . . . . . . . . . . . . . . . . . . 1,579,750
40,000 NAC Re Corp.. . . . . . . . . . . . . . . . . . . 1,260,000
60,800 National Re Corp. . . . . . . . . . . . . . . . . 1,763,200
74,700 Reinsurance Group America, Inc. . . . . . . . . . 1,960,875
124,700 Tig Holdings, Inc.. . . . . . . . . . . . . . . . 2,696,637
51,200 Trenwick Group, Inc.. . . . . . . . . . . . . . . 1,881,600
------------
14,207,262
------------
MACHINERY & EQUIPMENT--1.8%
49,600 Donaldson Co., Inc. . . . . . . . . . . . . . . . $ 2,337,400
45,000 IDEX Corp.* . . . . . . . . . . . . . . . . . . . 1,710,000
38,000 Kaydon Corp.. . . . . . . . . . . . . . . . . . . 774,250
85,800 Regal Beloit Corp.. . . . . . . . . . . . . . . . 2,273,700
37,000 Trimas Corp.. . . . . . . . . . . . . . . . . . . 883,375
------------
7,978,725
------------
MEDIA--3.7%
50,000 Houghton Mifflin Co.. . . . . . . . . . . . . . . 2,250,000
75,000 Media General, Inc. . . . . . . . . . . . . . . . 2,034,375
60,000 Multimedia, Inc.* . . . . . . . . . . . . . . . . 2,100,000
6,100 Scholastic Corp.* . . . . . . . . . . . . . . . . 257,725
135,000 Tele-Communications, Inc.*. . . . . . . . . . . . 3,678,750
105,400 Time Warner, Inc. . . . . . . . . . . . . . . . . 4,216,000
42,300 Viacom, Inc.* . . . . . . . . . . . . . . . . . . 1,469,925
------------
16,006,775
------------
MISCELLANEOUS--0.6%
64,400 BWIP Holding, Inc.. . . . . . . . . . . . . . . . 1,288,000
34,300 York International Corp.. . . . . . . . . . . . . 1,294,825
------------
2,582,825
------------
MINING--0.5%
150,000 INDRESCO, Inc.* . . . . . . . . . . . . . . . . . 2,100,000
------------
OIL & GAS EXPLORATION/
PRODUCTION--3.5%
23,600 Anadarko Petroleum Corp.. . . . . . . . . . . . . 1,121,000
99,800 Basin Exploration, Inc.*. . . . . . . . . . . . . 1,272,450
40,000 British Petroleum PLC (ADR) . . . . . . . . . . . 2,730,000
70,000 Cabot Oil & Gas Corp. . . . . . . . . . . . . . . 1,548,750
26,100 Enron Oil & Gas Co. . . . . . . . . . . . . . . . 1,151,662
35,000 Murphy Oil Corp.. . . . . . . . . . . . . . . . . 1,448,125
164,700 Oryx Energy Co. . . . . . . . . . . . . . . . . . 2,964,600
37,400 Seagull Energy Corp.* . . . . . . . . . . . . . . 995,775
55,500 Societe Nationale Elf Aquitaine . . . . . . . . . 1,998,000
7,100 USX-Delhi Group . . . . . . . . . . . . . . . . . 123,363
------------
15,353,725
------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes To Financial Statements
B-49
<PAGE>
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
(NOTE 1)
- -------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--1.7%
<C> <S> <C>
90,000 Mead Corp.. . . . . . . . . . . . . . . . . . . . $ 4,263,750
65,650 Pentair, Inc. . . . . . . . . . . . . . . . . . . 2,371,606
34,800 Riverwood International Corp. . . . . . . . . . . 661,200
------------
7,296,556
------------
PETROLEUM SERVICES--0.2%
35,000 Enterra Corp.*. . . . . . . . . . . . . . . . . . 721,875
------------
RETAIL--1.4%
55,100 AnnTaylor Stores Corp.* . . . . . . . . . . . . . 1,177,763
60,000 Caldor Corp.* . . . . . . . . . . . . . . . . . . 1,590,000
60,000 Federated Department Stores, Inc.*. . . . . . . . 1,312,500
33,000 Sears Roebuck & Co. . . . . . . . . . . . . . . . 1,810,875
------------
5,891,138
------------
STEEL & METALS--0.4%
17,000 Material Sciences Corp.*. . . . . . . . . . . . . 446,250
63,100 Wolverine Tube, Inc.. . . . . . . . . . . . . . . 1,443,413
------------
1,889,663
------------
TELECOMMUNICATIONS--2.1%
58,000 Century Telephone Enterprises Inc.. . . . . . . . 1,580,500
100,000 MCI Communications Corp.. . . . . . . . . . . . . 2,762,500
37,400 Northern Telecom Ltd. . . . . . . . . . . . . . . 1,215,500
40,000 Pacific Telesis Group . . . . . . . . . . . . . . 2,305,000
12,000 Pactel Corp.* . . . . . . . . . . . . . . . . . . 303,000
24,900 Rochester Telephone Corp. . . . . . . . . . . . . 1,083,150
------------
9,249,650
------------
TEXTILES--0.9%
80,000 Jones Apparel Group, Inc.*. . . . . . . . . . . . 2,390,000
32,000 VF Corp. . . . . . . . . . . . . . . . . . . . . 1,484,000
------------
3,874,000
------------
Total Common Stocks
(cost $168,839,838) . . . . . . . . . . . . . . . 201,976,670
------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL DESCRIPTION VALUE
MOODY'S AMOUNT (NOTE 1)
RATING (000)
- -------------------------------------------------------------------------------
DEBT OBLIGATIONS(a)--38.2%
CORPORATE BONDS--18.9%
AIRLINES--1.0%
AMR Corp.,
<S> <C> <C> <C>
Baa3 $1,000 7.75%, 12/1/97. . . . . . . . . . . . . $1,037,250
DELTA AIR LINES, INC.,
Ba1 1,300 7.71%, 5/14/97. . . . . . . . . . . . . 1,345,500
Ba1 5007. 79%, 12/1/985 . . . . . . . . . . . . . 11,935
Ba1 8008. 63%, 12/12/05 . . . . . . . . . . . . . 854,488
Ba1 5009. 75%, 5/15/21 . . . . . . . . . . . . . 558,100
SOUTHWEST AIRLINES CO.,
Baa1 1009. 40%, 7/1/01. . . . . . . . . . . . . . 118,705
------------
4,425,978
------------
CEMENT--0.6%
CEMEX S.A.,
NR 750 6.25%, 10/25/95. . . . . . . . . . . . . . . 765,000
Ba2 750 8.875%, 6/10/98. . . . . . . . . . . . . . . 806,250
Ba2 500 8.75%, 6/10/98. . . . . . . . . . . . . . . 537,500
TOLMEX S.A. DE C.V.,
Ba2 500 8.375%, 11/1/03. . . . . . . . . . . . . . . 528,750
------------
2,637,500
------------
CHEMICALS--0.4%
Eastman Chemical Co.,
Baa1 1,500 6.375%, 1/15/04 . . . . . . . . . . . . 1,498,635
------------
COMPUTER AND RELATED EQUIPMENT--0.7%
Comdisco, Inc.,
Baa2 3,000 8.95%, 5/15/95. . . . . . . . . . . . . 3,160,740
------------
ELECTRONICS--0.7%
Westinghouse Electric Corp.,
Ba1 1,100 7.75%, 4/15/96. . . . . . . . . . . . . 1,151,095
Ba1 450 8.70%, 6/20/96. . . . . . . . . . . . . 478,215
</TABLE>
- -------------------------------------------------------------------------------
See Notes To Financial Statements
B-50
<PAGE>
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL DESCRIPTION VALUE
MOODY'S AMOUNT (NOTE 1)
RATING (000)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRONICS(CONT'D)
WESTINGHOUSE ELECTRIC CORP.,
Ba1 $800 8.875%, 6/1/01 . . . . . . . . . . . . . . . $ 881,832
Baa3 600 8.375%, 6/15/02. . . . . . . . . . . . . . . 635,400
------------
3,146,542
------------
FINANCIAL SERVICES--6.4%
ANZ BANKING
A2 1,100 6.25%, 2/1/04. . . . . . . . . . . . . . . . 1,096,755
Associates Corp. of North America,
A1 750 6.875%, 1/15/97. . . . . . . . . . . . . . . 790,770
A1 200 8.375%, 1/15/98. . . . . . . . . . . . . . . 222,322
Bancomer S.A.,
NR 1,000 8.00%, 7/7/98. . . . . . . . . . . . . . . . 1,047,500
Chrysler Financial Corp.,
Baa2 1,100 5.39%, 8/27/96. . . . . . . . . . . . . . 1,112,650
Baa2 3,300 3.8125%, 11/15/96. . . . . . . . . . . . . . 3,298,053
Baa2 1,000 9.50%, 12/15/99. . . . . . . . . . . . . . 1,174,590
Citicorp,
Baa1 1,000 7.80%, 3/24/95. . . . . . . . . . . . . . 1,040,170
First Union Corp.,
A3 1,000 9.45%, 6/15/99. . . . . . . . . . . . . . 1,156,540
Ford Motor Credit Co.,
A2 1,000 6.25%, 2/26/98. . . . . . . . . . . . . . 1,034,570
General Motors
Acceptance Corp.,
Baa1 1,750 7.80%, 11/7/96 . . . . . . . . . . . . . . 1,866,655
Baa1 2,000 7.50%, 11/4/97 . . . . . . . . . . . . . . 2,130,880
Baa1 1,100 8.40%, 10/15/99. . . . . . . . . . . . . . 1,220,582
Goldman Sachs Group,
A1 2,000 6.10%, 4/15/98. . . . . . . . . . . . . . 2,059,560
Kansallis-Osake-
Pankki Bank,
A3 1,000 6.125%, 5/15/98. . . . . . . . . . . . . . 1,026,370
Potomac Capital
Investment Corp.,
A3 1,000 6.19%, 4/28/97. . . . . . . . . . . . . . 1,016,290
Shawmut National Corp.,
Baa2 $2,100 8.625%, 12/15/99. . . . . . . . . . . . . . $2,333,037
Shearson Lehman
Holdings, Inc.,
A3 1,000 5.75%, 2/15/98. . . . . . . . . . . . . . 1,007,420
Union Bank Finland,
A3 2,600 5.25%, 6/15/96. . . . . . . . . . . . . . 2,607,722
Westinghouse Credit Corp.,
Ba1 400 8.75%, 6/3/96 . . . . . . . . . . . . . . 425,152
------------
27,667,588
------------
FOOD & BEVERAGE--1.2%
Borden, Inc.,
Baa2 1,000 7.875%, 2/15/23 . . . . . . . . . . . . . . 984,410
Coca Cola Enterprises, Inc.
A3 500 6.50%, 11/15/97 . . . . . . . . . . . . . . 521,585
Fomento Economico
Mexicano S.A.,
NR 850 9.50%, 7/22/97 . . . . . . . . . . . . . . 926,500
Philip Morris Cos, Inc.,
A2 700 8.75%, 6/15/97 . . . . . . . . . . . . . . 777,714
Procter & Gamble Co.,
Aa2 1,700 9.36%, 1/1/21. . . . . . . . . . . . . . . 2,162,825
------------
5,373,034
------------
INSURANCE--0.2%
Zurich Reinsurancecentre Holdings, Inc.,
A1 1,000 7.125%, 10/15/23 . . . . . . . . . . . . . . 963,810
------------
MEDIA--2.2%
Grupo Televisa, SA De Euro, M.T.N.,
Ba2 1,500 10.00%, 11/9/97. . . . . . . . . . . . . . . 1,661,250
News America
Holdings, Inc.,
Ba1 300 7.50%, 3/1/00. . . . . . . . . . . . . . . 314,055
Ba1 1,000 7.45%, 6/1/00. . . . . . . . . . . . . . . 1,046,890
Ba1 1,600 8.25%, 8/10/18 . . . . . . . . . . . . . . 1,665,040
</TABLE>
- -------------------------------------------------------------------------------
See Notes To Financial Statements
B-51
<PAGE>
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL DESCRIPTION VALUE
MOODY'S AMOUNT (NOTE 1)
RATING (000)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
MEDIA(CONT'D)
Time Warner, Inc.,
Ba1 $1,000 6.05%, 7/1/95 . . . . . . . . . . . . . $1,015,720
Ba1 600 7.45%, 2/1/98 . . . . . . . . . . . . . 632,430
Baa3 2,000 7.25%, 9/1/08 . . . . . . . . . . . . . 2,036,100
Tele-Communications, Inc.,
Baa3 1,000 10.125%, 4/15/22. . . . . . . . . . . . 1,327,540
------------
9,699,025
------------
MISCELLANEOUS--0.3%
Federal Express Corp.,
Baa3 500 10.05%, 6/15/99 . . . . . . . . . . . . 590,915
Laidlaw, Inc.,
Baa2 700 8.25%, 5/15/23 . . . . . . . . . . . . 719,740
------------
1,310,655
------------
OIL & GAS--0.8%
Arkla, Inc.,
Ba2 1,200 9.875%, 4/15/97 . . . . . . . . . . . . 1,329,000
Ba1 1,000 9.30%, 1/15/98 . . . . . . . . . . . . 1,083,050
Mitchell Energy &
Development Corp.,
Baa3 1,000 5.10%, 2/15/97 . . . . . . . . . . . . 999,820
------------
3,411,870
------------
PAPER & FOREST
PRODUCTS--0.6%
Boise Cascade Corp.,
Baa3 1,500 6.82%, 2/1/99. . . . . . . . . . . . . 1,500,000
Baa3 363 9.875%, 2/15/01 . . . . . . . . . . . . 404,066
Georgia Pacific Corp.,
Baa3 500 9.625%, 3/15/22 . . . . . . . . . . . . 599,800
------------
2,503,866
------------
RETAIL--0.8%
Dayton Hudson Corp.,
A3 1,150 9.00%, 10/1/21. . . . . . . . . . . . . 1,361,393
Sears Roebuck & Co.,
Baa1 $2,000 9.25%, 8/1/97. . . . . . . . . . . . . $2,252,880
------------
3,614,273
------------
SHIPPING--0.4%
Compania Sudamericana
De Vapores,
NR 1,750 7.375%, 12/8/03 . . . . . . . . . . . . 1,736,875
------------
TELECOMMUNICATIONS--0.3%
American Telephone & Telegraph Co.,
Aa3 1,000 8.625%, 12/1/31 . . . . . . . . . . . . 1,142,910
------------
UTILITIES--1.0%
Commonwealth Edison Co.,
Baa1 2,000 9.05%, 10/15/99 . . . . . . . . . . . . 2,295,720
Hydro Quebec Corp.,
A1 500 3.375%, 9/30/49 . . . . . . . . . . . . 435,000
Pennsylvania Power & Light Co.,
A2 450 9.375%, 7/1/21. . . . . . . . . . . . . 527,274
Philadelphia Electric CcO.,
Baa1 1,000 7.125%, 9/1/02. . . . . . . . . . . . . 1,034,080
------------
4,292,074
------------
SOVEREIGN BONDS--1.3%
Banco Nacional De Comercio,
Ba2 1,000 7.50%, 7/1/00 . . . . . . . . . . . . . 1,030,000
Grupo Condumex
S.A. DE C.V., M.T.N.,
NR 700 6.25%, 7/27/96. . . . . . . . . . . . . 692,125
Quebec Province Canada,
A1 700 7.125%, 2/9/24. . . . . . . . . . . . . 696,395
Republic of Italy Global Bond,
A1 1,250 6.875%, 9/27/23 . . . . . . . . . . . . 1,197,625
United Mexican States,
Ba2 1,650 8.50%, 9/15/02. . . . . . . . . . . . . 1,788,188
------------
5,404,333
------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes To Financial Statements
B-52
<PAGE>
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL DESCRIPTION VALUE
MOODY'S AMOUNT (NOTE 1)
RATING (000)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL CORPORATE BONDS
(cost $80,472,489). . . . . . . . . . . . . . . $81,989,708
------------
ASSET BACKED SECURITIES--1.5%
BANK OF NEW YORK MASTER
CREDIT CARD TRUST,
Aaa $1,200 7.95%, 4/15/96. . . . . . . . . . . . . 1,218,000
Standard Credit Card Trust,
A2 1,000 9.375%, 5/10/95 . . . . . . . . . . . . 1,058,750
Aaa 4,000 8.00%, 8/7/96 . . . . . . . . . . . . . 4,302,480
------------
Total Asset Backed
Securities
(cost $6,594,859). . . . . . . . . . . 6,579,230
------------
U. S. GOVERNMENT AND AGENCY
SECURITIES--17.8%
United States Treasury Bonds,
17,900 11.25%, 2/15/15 . . . . . . . . . . . . 28,150,614
1,250 8.875%, 8/15/17 . . . . . . . . . . . . 1,625,975
United States Treasury Bonds,
3,800 12.00%, 8/15/13 . . . . . . . . . . . . 5,978,464
4,700 7.50%, 11/15/16 . . . . . . . . . . . . 5,321,998
United States Treasury Notes,
11,600 6.00%, 11/30/97 . . . . . . . . . . . . 12,111,096
1,600 7.875%, 8/15/01 . . . . . . . . . . . . 1,841,504
United States Treasury Notes,
1,600 4.25%, 7/31/95 . . . . . . . . . . . . 1,608,992
1,700 7.625%, 4/30/96 . . . . . . . . . . . . 1,822,723
800 6.50%, 11/30/96 . . . . . . . . . . . . 843,496
1,800 6.875%, 3/31/97 . . . . . . . . . . . . 1,922,904
3,700 9.00%, 5/15/98 . . . . . . . . . . . . 4,286,783
United States Treasury Notes,
$1,200 8.75%, 8/15/00 . . . . . . . . . . . . $1,429,872
7,850 7.50%, 11/15/01 . . . . . . . . . . . . 8,856,998
United States Treasury Strips,
4,500 Zero Coupon, 2/15/11. . . . . . . . . . 1,484,775
------------
Total U. S. Government and Agency Securities
(cost $76,050,629). . . . . . . . . . . 77,286,194
------------
Total Debt Obligations
(cost $163,117,977) . . . . . . . . . . 165,855,132
------------
Total Long-Term Investments
(cost $331,957,815) . . . . . . . . . . 367,831,802
SHORT-TERM INVESTMENTS(a)--13.9%
CORPORATE NOTES--2.5%
Nordiska Investeringsbanke,
Aaa 3,000 9.50%, 12/15/94 . . . . . . . . . . . . 3,137,190
Phillip Morris Co., Inc.,
A2 250 8.70%, 8/1/94 . . . . . . . . . . . . . 255,977
Texas Utilities Electric Co.,
Baa2 800 9.625%, 9/30/94 . . . . . . . . . . . . 828,432
Bancomer S.A., Euro C.D.,
NR 3,400 Zero Coupon, 3/17/94. . . . . . . . . . 3,382,296
NR 3,000 Zero Coupon, 4/5/94 . . . . . . . . . . 2,972,793
------------
Total Corporate Notes
(cost $10,552,920) . . . . . . . . . . 10,576,688
------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes To Financial Statements
B-53
<PAGE>
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT DESCRIPTION VALUE
(000) (NOTE 1)
- --------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT--11.4%
$49,474 Joint Repurchase Agreement
Account, 3.14%, 2/1/94
(Note 5)...................... $49,474,000
-----------
Total short-term investments
(cost $60,026,920)............ 60,050,688
----------
TOTAL INVESTMENTS--98.7%
(cost $391,984,735;
Note 4)....................... 427,882,490
Other assets in excess
of liabilities--1.3%........... 5,409,291
-----------
NET ASSETS--100% ............... $433,291,781
============
<FN>
- -----------------------
* Non-income producing security.
(a) Par value U.S. dollar denominated.
ADR--American Depository Receipt.
C.D.--Certificate of Deposit.
M.T.N.--Medium Term Note.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Prospectus contains a description of
Moody's ratings.
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
B-54
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS JANUARY 31,
1994
------------
<S> <C>
Investments, at value (cost $391,984,735)................. $427,882,490
Cash...................................................... 1,173,298
Receivable for investments sold........................... 15,954,820
Dividends and interest receivable......................... 3,716,881
Receivable for Fund shares sold........................... 3,416,179
Deferred expenses and other assets........................ 5,358
------------
Total assets.............................................. 452,149,026
------------
LIABILITIES
Payable for investments purchased......................... 16,941,286
Payable for Fund shares reacquired........................ 1,278,053
Distribution fee payable.................................. 337,034
Management fee payable.................................... 231,379
Withholding taxes payable................................. 19,172
Accrued expenses.......................................... 50,321
------------
Total liabilities.................................... 18,857,245
------------
NET ASSETS................................................ $433,291,781
------------
------------
Net assets were comprised of:
Common stock, at par.................................... $ 371,808
Paid-in capital in excess of par........................ 389,997,986
-----------
390,348,662
Undistributed net investment income..................... 2,947,168
Accumulated net realized gains on investsments.......... 4,098,196
Net unrealized appreciation on investments.............. 35,897,755
----------
Net Assets, January 31, 1994.............................. $433,291,781
------------
------------
Class A:
Net asset value and redemption price per share
($30,949,634 divided by 2,647,468 shares of common
stock issued and outstanding)........................ $11.69
Maximum sales charge (5.25% of offering price)........ 0.65
------
Maximum offering price to public...................... $12.34
------
------
Class B:
Net asset value, offering price and redemption
price per share ($402,342,147 divided by 34,533,379
shares of shares of common stock issued and
outstanding)......................................... $11.65
------
------
</TABLE>
See Notes to Financial Statements.
B-55
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO
STATEMENT OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JANUARY 31,
1994
NET INVESTMENT INCOME --------------
<S> <C>
Income
Interest (net of foreign withholding taxes of $17,247)...... $ 6,067,093
Dividends (net of foreign withholding taxes of $22,689)..... 1,614,313
------------
Total income............................................. 7,681,406
------------
Expenses
Distribution fee--Class A................................... 27,543
Distribution fee--Class B................................... 1,801,013
Management fee.............................................. 1,256,070
Transfer agent's fees and expenses.......................... 256,000
Custodian's fees and expenses............................... 96,000
Reports to shareholders..................................... 33,000
Registration fees........................................... 30,000
Directors' fees............................................. 13,000
Audit fee................................................... 8,000
Legal fees.................................................. 5,000
Miscellaneous............................................... 883
-------------
Total expenses........................................... 3,526,509
-------------
Net investment income......................................... 4,154,897
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions.................. 10,623,243
Net change in unrealized appreciation/depreciation
on Investment................................................. 5,385,802
----------
Net gain on investments....................................... 16,009,045
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $20,163,942
-----------
-----------
</TABLE>
See Notes to Financial Statements
B-56
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND
CONSERVATIVELY MANAGED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JANUARY 31, JULY 31,
1994 1993
---------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income......................... $ 4,154,897 $ 8,734,542
Net realized gain on investments.............. 10,623,243 13,033,133
Net change in unrealized
appreciation of investments................... 5,385,802 16,803,076
----------- -----------
Net increase in net assets resulting from
operations.................................... 20,163,942 38,570,751
----------- ----------
Net equalization credits........................ 620,253 325,868
----------- ----------
Dividends and distributions (Note 1)
Dividends to shareholders from net
investment income
Class A..................................... (361,478) (490,533)
Class B..................................... (3,793,419) (6,742,292)
----------- -----------
(4,154,897) (7,232,825)
----------- -----------
Dividends to shareholders in excess of net
investment income
Class A........................................ (51,840) ---
Class B........................................ (544,013) ---
----------- ----------
(595,853) ---
----------- ----------
Distributions to shareholders from net realized
gains on investment transactions
Class A........................................ (733,654) (577,629)
Class B........................................ (9,889,589) (10,528,236)
------------ ------------
(10,623,243) (11,085,865)
------------ ------------
Distributions to shareholders in excess of
net realized gains
Class A....................................... (513,520) ---
Class B....................................... (6,922,153) ---
------------ ------------
(7,435,673) ---
------------ ------------
Fund share transactions (Note 6)
Net proceeds from shares subscribed............ 101,823,684 115,375,179
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions.............................. 1,087,882 16,869,402
Cost of shares reacquired...................... (32,030,664) (45,324,359)
------------ -------------
Net increase in net assets from Fund share
transactions................................... 90,880,902 86,920,222
------------ -----------
Total increase................................... 88,855,431 107,498,151
NET ASSETS
Beginning of period............................... 344,436,350 236,938,199
------------ -----------
End of period..................................... 433,291,781 $344,436,350
------------ -----------
</TABLE>
See Notes to Financial Statements
B-57
<PAGE>
PRUDENTIAL FLEXIFUND
STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
(NOTE 1)
- --------------------------------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--89.2%
COMMON STOCKS--67.7%
ADVERTISING--0.5%
43,225 ADVO, Inc....................... $ 783,453
71,000 American Business Information*.. 1,242,500
-------------
2,025,953
-------------
AEROSPACE/DEFENSE--1.3%
21,000 General Dynamics Corp........... 1,934,625
73,200 Martin Marietta Corp............ 3,284,850
-------------
5,219,475
-------------
AUTOMOTIVE--3.6%
101,800 Agency Rent-A-Car,Inc*.......... 1,323,400
114,000 Ford Motor Co................... 7,638,000
9,700 General Motors Corp............. 291,000
93,600 Goodyear Tire & Rubber Co....... 4,527,900
40,000 Modine Manufacturing Co......... 1,180,000
------------
14,960,300
------------
BUILDING & RELATED INDUSTRIES--1.0%
50,000 ABT Building Products Corp*..... 1,362,500
28,625 Clayton Homes, Inc*............. 726,359
38,500 TJ International, Inc........... 1,097,250
45,700 Toll Brothers, Inc*............. 874,013
-----------
4,060,122
-----------
CHEMICALS--2.5%
81,500 Air Products & Chemicals, Inc... 4,044,437
14,150 Eastman Chemical Co*............ 619,063
32,900 IMC Fertlizer Group, Inc........ 1,435,262
30,000 Imperial Chemical Ind. (ADR).... 1,462,500
75,600 Praxair, Inc.................... 1,417,500
35,700 Valspar Corp.................... 1,445,850
-----------
10,424,612
-----------
COMMERCIAL SERVICES--0.5%
80,100 ServiceMaster L. P............... 2,202,750
-----------
COMPUTER AND RELATED EQUIPMENT--5.0%
42,000 American Management Systems, Inc* $ 845,250
73,800 Automatic Data Processing, Inc... 3,865,275
124,600 First Data Corp.................. 5,700,450
49,200 Fiserv, Inc*..................... 947,100
52,000 International Business Machines
Corp............................ 2,951,000
40,700 LEGENT Corp*..................... 1,210,825
17,000 Microsoft Corp*.................. 1,447,125
10,300 Motorola, Inc.................... 1,014,550
37,500 National Data Corp............... 778,125
22,100 Policy Management Systems Corp*.. 729,300
21,400 SPS Transaction Services, Inc*... 1,241,200
-----------
20,730,200
-----------
CONSUMER PRODUCTS--2.3%
56,600 Eastman Kodak Co................. 2,497,475
39,200 Industrie Natuzzi Spa (ADR)...... 1,038,800
92,418 Newell Co........................ 3,870,004
7,900 Premark International, Inc....... 680,387
30,900 Scholastic Corp*................. 1,305,525
----------
9,392,191
----------
DRUGS & HEALTH CARE--4.2%
63,600 Caremark Int'l., Inc*............ 1,224,300
115,010 Columbia Healthcare Corp......... 4,356,004
82,500 HCA Hospital Corp. America*...... 3,207,187
50,000 Health Care & Retirement Corp*... 1,281,250
50,000 Healthtrust, Inc*................ 1,406,250
30,000 Kendall International, Inc*...... 1,500,000
65,000 Schering Plough Corp............. 4,095,000
-----------
17,069,991
-----------
- --------------------------------------------------------------------------------
</TABLE>
B-58
See Notes to Financial Statements
<PAGE>
PRUDENTIAL FLEXIFUND
STRATEGY PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
(NOTE1)
- --------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONICS--3.9%
120,000 ADT, Ltd*......................... $1,200,000
27,000 Anthem Electronics, Inc.*......... 884,250
58,800 Baldor Electric Co................ 1,543,500
60,000 Belden, Inc.*..................... 1,162,500
73,000 Emerson Electric Co............... 4,471,250
46,800 General Electric Co............... 5,042,700
40,000 Loral Corp........................ 1,595,000
-----------
15,899,200
-----------
ENTERTAINMENT--2.0%
104,500 Carnival Cruise Lines, Inc........ 5,172,750
35,000 Disney (Walt) Co.................. 1,653,750
53,400 TCA Cable TV, Inc................. 1,381,725
-----------
8,208,225
-----------
ENVIRONMENTAL SERVICES--1.2%
61,350 Thermo Electron Corp*............. 2,630,381
47,450 Thermo Instrument System, Inc.*... 1,583,644
45,450 Thermotrex Corp.*................. 630,619
-----------
4,844,644
-----------
FINANCIAL SERVICES--7.5%
35,500 American Express Co............... 1,162,625
75,000 Bank of New York, Inc............. 4,228,125
54,600 Block (H&R), Inc.................. 2,395,575
18,600 Cash America International, Inc... 165,075
124,400 Dean Witter Discover & Co......... 4,773,850
59,300 First Financial Management Corp... 3,506,112
37,200 John Nuveen Co.................... 930,000
63,100 Kansas City Southern Industries,Inc. 2,910,487
110,100 Norwest Corp...................... 2,903,887
49,500 State Street Boston Corp.......... 1,881,000
41,200 T. Rowe Price & Associates, Inc... 1,339,000
37,300 Union Planters Corp............... 918,513
25,300 United Asset Management Corp...... 1,002,513
53,400 Washington Mutual Savings Bank.... 1,314,975
9,300 Wells Fargo & Co.................. 1,275,263
----------
30,707,000
----------
FOOD & BEVERAGE--2.0%
96,000 Archer-Daniels-Midland Co......... $2,544,000
55,000 Dr Pepper/Seven Up Cos., Inc*..... 1,313,125
108,000 PepsiCo, Inc...................... 4,360,500
----------
8,217,625
-----------
FREIGHT TRANSPORTATION--0.5%
32,500 Expeditors Int'l. Washington,Inc*. 524,063
40,000 Illinois Central Corp............. 1,500,000
-----------
2,024,063
-----------
HOTELS & LEISURE--0.4%
39,200 Host Marriott Corp................ 485,100
39,200 Marriott International, Inc....... 1,151,500
-----------
1,636,600
-----------
INSURANCE--2.9%
55,400 American General Corp............. 1,585,825
38,700 CCP Insurance, Inc................ 914,287
32,500 Chubb Corp........................ 2,701,562
85,200 Equitable Companies, Inc.......... 2,481,450
30,800 General Reinsurance Corp.......... 3,515,050
12,800 Mid Ocean, Ltd*................... 329,600
31,100 Penncorp Financial Group, Inc..... 540,363
-----------
12,068,137
-----------
MACHINERY & EQUIPMENT--2.0%
30,000 AES Corp.......................... 1,068,750
30,000 Donaldson Co., Inc................ 1,413,750
10,300 Fisher Scientific International, Inc. 391,400
87,800 Illinois Tool Works, Inc.......... 3,731,500
30,000 Lindsay Manufacturing Co*......... 952,500
8,800 Nordson Corp...................... 499,400
4,500 Tuscarora, Inc.................... 85,500
----------
8,142,800
----------
MEDIA--3.6%
4,000 Capital Cities ABC, Inc........... 2,620,000
49,000 Enquirer Star Group, Inc.......... 918,750
18,600 Grupo Televisa S.A*............... 1,320,600
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
B-59
<PAGE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
(NOTE 1)
- --------------------------------------------------------------------------------
<C> <S> <C>
MEDIA -- (CONT'D)
59,100 Liberty Media Corp.*. . . . . . . . . . . . . $ 1,536,600
90,000 Rogers Communications, Inc.*. . . . . . . . . 1,526,805
41,000 Shaw Communications . . . . . . . . . . . . . 776,691
400,000 Television Broadcasts, Ltd. . . . . . . . . . 1,683,175
41,400 Time Warner, Inc. . . . . . . . . . . . . . . 1,656,000
30,400 Times Mirror Co.. . . . . . . . . . . . . . . 1,102,000
21,100 Tribune Co. . . . . . . . . . . . . . . . . . 1,268,637
6,400 Viacom, Inc.* . . . . . . . . . . . . . . . . 222,400
------------
14,631,658
------------
MINING -- 0.6%
96,000 Placer Dome, Inc. . . . . . . . . . . . . . . 2,436,000
------------
PAPER & FOREST PRODUCTS -- 1.9%
16,100 Longview Fibre Co. Washington . . . . . . . . 348,163
68,700 Thermo Fibertek, Inc. . . . . . . . . . . . . 1,107,787
107,800 Willamette Industries, Inc. . . . . . . . . . 6,198,500
------------
7,654,450
------------
PETROLEUM SERVICES -- 5.9%
44,000 Amoco Corp. . . . . . . . . . . . . . . . . . 2,365,000
67,000 Coastal Corp. . . . . . . . . . . . . . . . . 2,068,625
60,600 Cross Timbers Oil Co. . . . . . . . . . . . . 886,275
99,300 Exxon Corp. . . . . . . . . . . . . . . . . . 6,603,450
66,500 Royal Dutch Petroleum Co. . . . . . . . . . . 7,315,000
50,300 Schlumberger, Ltd.. . . . . . . . . . . . . . 2,986,562
69,800 Seagull Energy Corp.* . . . . . . . . . . . . 1,858,425
------------
24,083,337
------------
REALTY INVESTMENT TRUST -- 1.3%
33,700 Duke Reality Investments, Inc.. . . . . . . . 775,100
38,300 Federal Reality Investment Trust. . . . . . . 923,988
38,500 Manufactured Home Community, Inc. . . . . . . 1,665,125
58,600 Property Trust America. . . . . . . . . . . . 1,113,400
21,100 Weingarten Realty Investors . . . . . . . . . 785,975
------------
5,263,588
------------
RETAIL -- 0.8%
37,000 Edison Brothers Stores, Inc.. . . . . . . . . 1,114,625
30,000 Penney (J.C.), Inc. . . . . . . . . . . . . . $ 1,571,250
28,000 Tiffany & Co. . . . . . . . . . . . . . . . . 819,000
------------
3,504,875
------------
STEEL & METALS -- 1.8%
25,300 Aluminum Co. of America . . . . . . . . . . . 2,001,863
39,400 Inland Steel Industries, Inc.*. . . . . . . . 1,383,925
17,300 USX Corp. . . . . . . . . . . . . . . . . . . 761,200
160,200 Worthington Industries, Inc.. . . . . . . . . 3,163,950
------------
7,310,938
------------
TELECOMMUNICATIONS -- 6.9%
14,200 American Telephone & Telegraph Co.. . . . . . 805,850
18,400 Bell Atlantic Corp. . . . . . . . . . . . . . 1,044,200
32,600 ITT Corp. . . . . . . . . . . . . . . . . . . 3,207,025
49,800 LDDS Communications, Inc.*. . . . . . . . . . 1,369,500
137,500 MCI Communications Corp.. . . . . . . . . . . 3,798,437
34,200 Rochester Telephone Corp. . . . . . . . . . . 1,487,700
70,500 Southwestern Bell Corp. . . . . . . . . . . . 2,952,188
179,100 Tele-Communications, Inc.*. . . . . . . . . . 4,880,475
100,600 Telefonos de Mexico, Series A (ADR) . . . . . 7,431,825
23,200 Telephone & Data System, Inc. . . . . . . . . 1,145,500
------------
28,122,700
------------
TEXTILES -- 0.3%
32,800 Kellwood Co.. . . . . . . . . . . . . . . . . 1,217,700
------------
TRUCKING & SHIPPING -- 1.3%
72,200 Consolidated Rail Corp. . . . . . . . . . . . 4,693,000
36,800 Southern Pacific Rail Corp.*. . . . . . . . . 777,400
------------
5,470,400
------------
Total Common Stocks
(cost $238,349,102) 277,529,534
------------
PRINCIPAL
MOODY'S AMOUNT
RATING (000)
- -------- -------- DEBT OBLIGATIONS -- 21.5%
CORPORATE BONDS -- 21.2%
AEROSPACE/DEFENSE -- 1.3%
BE Aerospace, Inc.,
Ba3 $3,000 9.75%, 3/1/03 . . . 3,120,000
</TABLE>
Notes to Financial Statements.
B-60
<PAGE>
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL DESCRIPTION VALUE
RATING AMOUNT (NOTE 1)
(000)
<C> <C> <S> <C>
- ---------------------------------------------------------------------------
AEROSPACE/DEFENSE -- (CONT'D)
Colt Industries, Inc.,
Ba2 $2,010 11.25%, 12/1/15. . . . . . . . . . . $ 2,170,800
------------
5,290,800
------------
AIRLINES -- 1.0%
Delta Air Lines, Inc.,
Ba1 1,000 10.375%, 12/15/22. . . . . . . . . . 1,174,780
USAir, Inc.,
Ba3 3,000 10.00%, 7/1/03 . . . . . . . . . . . 3,009,030
------------
4,183,810
------------
AUTOMOTIVE -- 0.6%
Lear Seating Corp.,
B2 750 8.25%, 2/1/02. . . . . . . . . . . . 750,000
Motor Wheel Corp.,
B2 1,500 11.50%, 3/1/00 . . . . . . . . . . . 1,642,500
------------
2,392,500
------------
BUILDING & RELATED
INDUSTRIES -- 3.8%
American Standard, Inc.,
B1 3,000 9.875%, 6/1/01 . . . . . . . . . . . 3,165,000
Intermediate City Products Corp.,
Ba3 2,000 9.75%, 3/1/00. . . . . . . . . . . . 2,005,000
Kaufman & Broad Home Corp.,
Ba3 2,500 9.375%, 5/1/03 . . . . . . . . . . . 2,612,500
Ryland Group, Inc.,
Ba3 2,000 9.625%, 6/1/04 . . . . . . . . . . . 2,040,000
Standard Pacific Corp.,
Ba2 2,500 10.50%, 3/1/00 . . . . . . . . . . . 2,625,000
USG Corp.,
B2 3,000 10.25%, 12/15/02 . . . . . . . . . . 3,105,000
------------
15,552,500
------------
CHEMICALS -- 0.7%
Georgia Gulf Corp.,
B1 2,500 15.00%, 4/15/00. . . . . . . . . . . 2,775,000
------------
COMPUTER AND RELATED EQUIPMENT -- 0.9%
Unisys Corp.,
Ba3 $3,000 15.00%, 7/1/97 . . . . . . . . . . . $3,480,000
------------
CONTAINERS & PACKAGING -- 1.9%
Container Corp.,
B2 5,000 13.50%, 12/1/99. . . . . . . . . . . 5,550,000
Riverwood International Corp.,
B1 2,000 11.25%, 6/15/02. . . . . . . . . . . 2,200,000
------------
7,750,000
------------
DRUGS & HEALTH CARE -- 1.7%
Healthtrust, Inc.,
B1 3,000 10.75%, 5/1/02 . . . . . . . . . . . 3,337,500
Hospital Corp. of America,
Ba2 3,500 11.25%, 12/1/15. . . . . . . . . . . 3,745,000
------------
7,082,500
------------
FINANCIAL SERVICES -- 0.2%
Auburn Hills Trust, Inc.,
Baa2 625 15.375%, 5/1/20. . . . . . . . . . . 969,275
------------
FOOD & BEVERAGE -- 1.7%
Fresh Del Monte Produce, N.V.,
B3 3,000 10.00%, 5/1/03 . . . . . . . . . . . 2,910,000
RJR Nabisco, Inc.,
Baa3 2,000 8.75%, 4/15/04 . . . . . . . . . . . 2,082,020
Rykoff Sexton, Inc.,
Ba2 2,000 8.875%, 11/1/03. . . . . . . . . . . 2,085,000
------------
7,077,020
------------
HOTELS & LEISURE -- 0.5%
Host Marriott Hospitality, Inc.,
B1 2,000 11.00%, 5/1/07 . . . . . . . . . . . 2,050,000
------------
INSURANCE -- 0.3%
Reliance Group Holdings, Inc.,
B1 1,000 9.75%, 11/15/03. . . . . . . . . . . 1,052,500
------------
</TABLE>
See Notes to Financial Statements.
B-61
<PAGE>
<TABLE>
PRUDENTIAL FLEXIFUND STRATEGY PORTFOLIO
STRATEGY PORTFOLIO
<CAPTION>
MOODY'S PRINCIPAL DESCRIPTION VALUE
RATING AMOUNT (NOTE 1)
(000)
<C> <C> <S> <C>
- ---------------------------------------------------------------------------
MEDIA -- 1.7%
Cablevision Industries Corp.,
Ba3 $2,000 10.75%, 1/30/02. . . . . . . . . . . $ 2,165,000
Continental Cablevision, Inc.,
Ba2 2,000 9.50%, 8/1/13. . . . . . . . . . . . 2,210,000
News America Holdings, Inc.,
Ba1 2,000 12.00%, 12/15/01 . . . . . . . . . . 2,422,560
------------
6,797,560
------------
MINING -- 0.5%
Magma Copper Co.,
Ba3 2,000 11.50%, 1/15/02. . . . . . . . . . . 2,220,000
------------
OIL & GAS -- 0.6%
Triton Energy Corp.,
B1 3,000 Zero Coupon, 12/15/00. . . . . . . . . 2,295,000
------------
PAPER & FOREST PRODUCTS -- 1.0%
Canadian Pacific Forest Products Ltd.,
Ba1 1,000 9.25%, 6/15/02 . . . . . . . . . . . 980,150
Fort Howard Paper Corp.,
B2 3,000 12.625%, 11/1/00 . . . . . . . . . . 3,172,500
------------
4,152,650
------------
PETROLEUM SERVICES -- 0.5%
Clark Oil & Refining Corp.,
Ba2 2,000 9.50%, 9/15/04 . . . . . . . . . . . 2,125,000
------------
STEEL & METALS -- 0.5%
Wheeling Pittsburgh Corp.,
B1 2,000 9.375%, 11/15/03 . . . . . . . . . . 2,105,000
------------
TEXTILES -- 0.5%
Westpoint Stevens, Inc.,
B3 2,000 9.375%, 12/15/05 . . . . . . . . . . 2,080,000
------------
TRUCKING & SHIPPING -- 0.5%
Southern Pacific Transportation Co.,
Ba1 2,000 10.50%, 7/1/99 . . . . . . . . . . . 2,220,000
------------
MISCELLANEOUS -- 0.8%
Flagstar Corp.,
B1 3,000 10.875%, 12/1/02 . . . . . . . . . . 3,180,000
------------
Total Corporate Bonds
(cost $84,580,981) . . . . . . . . . 86,831,115
------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 0.3%
Federal National Mortgage
Association, REMIC,
Aaa 1,000 9.00%, 3/25/20
(cost $977,861). . . . . . . . . . . 1,079,370
------------
Total Debt Obligations
(cost $85,558,842) . . . . . . . . . 87,910,485
------------
Total long-term investments
(cost $323,907,944). . . . . . . . . 365,440,019
------------
SHORT-TERM INVESTMENTS -- 8.4%
REPURCHASE AGREEMENT -- 8.4%
34,301 Joint Repurchase Agreement
Account, 3.14%, 2/1/94
(Note 5) . . . . . . . . . . . . . . 34,301,000
------------
TOTAL INVESTMENTS -- 97.6%
(cost $358,208,944; Note 4). . . . . 399,741,019
Other assets in excess of
liabilities -- 2.4%. . . . . . . . . 9,993,866
------------
NET ASSETS -- 100% . . . . . . . . . . $409,734,885
------------
------------
<FN>
- ---------
*Non-income producing security.
ADR -- American Depository Receipt.
REMIC -- Real Estate Mortgage Investment Conduit.
L.P. -- Limited Partnership.
</TABLE>
See Notes to Financial Statements.
B-62
<PAGE>
<TABLE>
PRUDENTIAL FLEXIFUND
STRATEGY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
<CAPTION>
- --------------------------------------------------------------------------------
JANUARY 31,
1994
------------
<S> <C>
ASSETS
Investments, at value (cost $358,208,944). . . . . . . . . . . . $399,741,019
Foreign currency, at value (cost $1,745,723) . . . . . . . . . . 1,746,524
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,940
Receivable for investments sold. . . . . . . . . . . . . . . . . 12,539,234
Interest and dividends receivable. . . . . . . . . . . . . . . . 2,398,463
Receivable for Fund shares sold. . . . . . . . . . . . . . . . . 1,206,413
Deferred expenses and other assets . . . . . . . . . . . . . . . 17,409
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 417,845,002
------------
LIABILITIES
Payable for investments purchased. . . . . . . . . . . . . . . . 6,280,203
Payable for Fund shares reacquired . . . . . . . . . . . . . . . 1,042,312
Distribution fee payable . . . . . . . . . . . . . . . . . . . . 325,842
Management fee payable . . . . . . . . . . . . . . . . . . . . . 233,724
Withholding taxes payable. . . . . . . . . . . . . . . . . . . . 1,889
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . 226,147
------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . 8,110,117
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $409,734,885
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at par . . . . . . . . . . . . . $ 332,774
Paid-in capital in excess of par. . . . . . . . . . . . . . . . 358,602,003
------------
358,928,008
Undistributed net investment income . . . . . . . . . . . . . . 4,561,660
Accumulated net realized gain on investments. . . . . . . . . . 4,711,875
Net unrealized appreciation on investments. . . . . . . . . . . 41,533,342
------------
Net Assets, January 31,1994. . . . . . . . . . . . . . . . . . . $409,734,885
------------
------------
Class A:
Net asset value and redemption price per share
($31,620,546 divide ,555,336 shares of beneficial
interest issued and outstanding) . . . . . . . . . . . . . . . $12.37
Maximum sales charge (5.25% of offering price). . . . . . . . . 0.69
------
Maximum offering price to public. . . . . . . . . . . . . . . . $13.06
------
------
Class B:
Net asset value, offering price and redemption price per share
($378,114,339 divide 30,722,019 shares of
beneficial interest issued and outstanding). . . . . . . . . . $12.31
------
------
</TABLE>
See Notes to Financial Statements.
B-63
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL FLEXIFUND
STRATEGY PORTFOLIO
STATEMENT OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED
JANUARY 31,
1994
------------
<S> <C>
NET INVESTMENT INCOME
Income
Interest (net of foreign withholding taxes of $1,889) . . . . . $ 5,299,098
Dividends (net of foreign withholding taxes of $22,215) . . . . 2,853,578
------------
Total income . . . . . . . . . . . . . . . . . . . . . . . . . 8,152,676
------------
Expenses
Distribution fee -- Class A . . . . . . . . . . . . . . . . . . 31,398
Distribution fee -- Class B . . . . . . . . . . . . . . . . . . 1,845,495
Management fee. . . . . . . . . . . . . . . . . . . . . . . . . 1,297,363
Transfer agent's fees and expenses. . . . . . . . . . . . . . . 394,000
Custodian's fees and expenses . . . . . . . . . . . . . . . . . 151,000
Reports to shareholders . . . . . . . . . . . . . . . . . . . . 49,000
Registration fees . . . . . . . . . . . . . . . . . . . . . . . 37,000
Directors' fees . . . . . . . . . . . . . . . . . . . . . . . . 13,000
Audit fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Legal fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 9,508
------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . 3,840,764
------------
Net investment income. . . . . . . . . . . . . . . . . . . . . . 4,311,912
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investment transactions . . . . . . . . . . . . . . . . . . . . 12,082,523
Financial futures contracts . . . . . . . . . . . . . . . . . . 124,955
Foreign currency transactions . . . . . . . . . . . . . . . . . (28,540)
------------
12,178,938
------------
Net change in unrealized appreciation/depreciation
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 14,545,990
Foreign currencies. . . . . . . . . . . . . . . . . . . . . . . 657
------------
14,546,647
------------
Net gain on investments. . . . . . . . . . . . . . . . . . . . . 26,725,585
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . $31,037,497
------------
------------
</TABLE>
See Notes to Financial Statements.
B-64
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL FLEXIFUND
STRATEGY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JANUARY 31, JULY 31,
1994 1993
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income . . . . . . . . . . . . . . . $ 4,311,912 $10,348,326
Net realized gain on investments. . . . . . . . . . 12,178,938 10,954,676
Net change in unrealized appreciation
of investments. . . . . . . . . . . . . . . . . . 14,546,647 11,275,901
------------ ------------
Net increase in net assets resulting
from operations . . . . . . . . . . . . . . . . . 31,037,497 32,578,903
------------ ------------
Net equalization credits . . . . . . . . . . . . . . 57,433 57,175
------------ ------------
Dividends and distributions (Note 1)
Dividends to shareholders from net investment income
Class A . . . . . . . . . . . . . . . . . . . . . (242,713) (762,246)
Class B . . . . . . . . . . . . . . . . . . . . . (2,396,308) (8,432,955)
------------ ------------
(2,639,021) (9,195,201)
------------ ------------
Distributions to shareholders from net realized
gains on investments and foreign curencies
Class A . . . . . . . . . . . . . . . . . . . . . (815,737) (1,779,498)
------------ ------------
Class B . . . . . . . . . . . . . . . . . . . . . (10,080,523) (26,359,313)
------------ ------------
(10,896,260) (28,138,811)
------------ ------------
Fund share transactions (Note 5)
Proceeds from shares sold. . . . . . . . . . . . . 36,830,260 95,403,980
Net asset value of shares issued in reinvestment
of dividends and distributions. . . . . . . . . . 12,946,740 35,885,867
Cost of shares reacquired. . . . . . . . . . . . . (43,530,320) (75,812,344)
------------ ------------
Net increase in net assets from Fund
share transactions. . . . . . . . . . . . . . . . 6,246,680 55,477,503
------------ ------------
Total increase . . . . . . . . . . . . . . . . . . . 23,806,329 50,779,569
NET ASSETS
Beginning of period. . . . . . . . . . . . . . . . . 385,928,556 335,148,987
------------ ------------
End of period. . . . . . . . . . . . . . . . . . . . $409,734,885 $385,928,556
------------ ------------
</TABLE>
See Notes to Financial Statements.
B-65
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Prudential FlexiFund, (the "Fund"), is registered under the Investment
Company Act of 1940, as a diversified, open-end management investment company.
The Fund was organized as an unincorporated business trust in Massachusetts on
February 23, 1987 and consists of two series, the Conservatively Managed
Portfolio and the Strategy Portfolio. The investment objective of the
Conservatively Managed Portfolio is to achieve a high total investment return
consistent with moderate risk by investing in a diversified portfolio of money
market instruments, debt obligations and equity securities. The investment
objective of the Strategy Portfolio is to achieve a high total investment return
consistent with relatively higher risk than the Conservatively Managed Portfolio
through varying the proportions of investments in debt and equity securities,
the quality and maturity of debt securities purchased and the price volatility
and the type of issuer of equity securities purchased. The ability of issuers of
debt securities held by the Fund to meet their obligations may be affected by
economic developments in a specific country, industry or region.
NOTE 1. ACCOUNTING
POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITIES VALUATION: Any security for which the primary market is on an
exchange (including NASDAQ National Market System equity securities) is valued
at the last sale price on such exchange on the day of valuation or, if there was
no sale on such day, the mean between the last bid and asked prices quoted on
such day. Corporate bonds (other than convertible debt securities) and U.S.
Government and agency securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued on the basis of valuations
provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in comparable securities and various relationships between
securities in determining value. Convertible debt securities that are actively
traded in the over-the-counter market, including listed securities for which the
primary market is believed to be over-the-counter, are valued at the mean
between the most recently quoted bid and asked prices provided by principal
market makers. Forward currency exchange contracts are valued at the current
cost of offsetting the contract on the day of valuation. Other securities
(including options and futures contracts) are valued at the mean between the
most recently quoted bid and asked prices.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian take possession of the
underlying collateral securities, the value of which exceeds the principal
amount of the repurchase transaction, including accrued interest. To the extent
that any repurchase transaction exceeds one business day, the value of the
collateral is marked-to-market on a daily basis to ensure the adequacy of the
collateral. If the seller defaults and the value of the collateral declines or
if bankruptcy proceedings are commenced with respect to the seller of the
security, realization of the collateral by the Fund may be delayed or limited.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, other assets and liabilities -- at
the closing daily rate of exchange.
(ii) purchases and sales of investment securities, income and expenses -- at
the rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the fiscal period, the Fund does not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of long-term securities held at the end of the fiscal period.
Similarly, the Fund does not isolate the effect of changes in foreign exchange
rates from the fluctuations arising from changes in the market prices of
long-term portfolio securities sold during the fiscal period. Accordingly,
realized foreign currency gains (losses) are included in the reported net
realized gains on investment transactions.
B-66
<PAGE>
Net realized gains on foreign currency transactions represent net foreign
exchange gains from the holding of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions, and
the difference between the amounts of dividends, interest and foreign taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts actually
received or paid.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability or
the level of governmental supervision and regulation of foreign securities
markets.
FINANCIAL FUTURES CONTRACTS: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the "initial margin". Subsequent payments, known as "variation margin",
are made or received by the Fund each day, depending on the daily fluctuations
in the value of the underlying security. Such variation margin is recorded for
financial statement purposes on a daily basis as unrealized gain or loss until
the contracts expire or are closed, at which time the gain or loss is
reclassified to realized gain or loss. The Fund invests in financial futures
contracts solely for the purpose of hedging its existing portfolio securities or
securities the Fund intends to purchase against fluctuations in value caused by
changes in prevailing market interest rates. Should interest rates move
unexpectedly, the Fund may not achieve the anticipated benefits of the financial
futures contracts and may realize a loss. The use of futures transactions
involves the risk of imperfect correlation in movements in the price of futures
contracts, interest rates and the underlying hedged assets.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Net
investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares of each series based
upon the relative proportion of net assets at the beginning of the day of each
class.
EQUALIZATION: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
FEDERAL INCOME TAXES: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of each series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its taxable net income
to its shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rates.
DIVIDENDS AND DISTRIBUTIONS: The Fund expects to pay dividends of net investment
income quarterly and make distributions at least annually of any net capital
gains. Dividends and distributions are recorded on the ex-dividend date.
RECLASSIFICATION OF CAPITAL ACCOUNTS: Effective August 1, 1993, the Fund began
accounting and reporting for distributions to shareholders in accordance with
Statement of Position 93-2: Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. As a result of this statement, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. The effect caused by adopting this
statement was to decrease paid-in capital for the Conservatively Managed
Portfolio and the Strategy Portfolio by $21,132 and $6,769, respectively,
increase (decrease) undistributed net investment income for the Conservatively
Managed Portfolio and the Strategy Portfolio by $214,969 and $(329,527),
respectively, and increase (decrease) accumulated net realized gains on
investments for the Conservatively Managed Portfolio and the Strategy Portfolio
by $(193,837) and $336,296, respectively, as compared to amounts previously
reported through July 31, 1993. Net investment income, net realized gains and
net assets were not affected by this change.
NOTE 2. AGREEMENTS
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
("PMF"). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation ("PIC"); PIC furnishes investment advisory services in connection
with the
B-67
<PAGE>
management of the Fund. PMF pays for the services of PIC, the compensation of
officers of the Fund, occupancy and certain clerical and bookkeeping costs of
the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an
annual rate of .65 of 1% of the average daily net assets of each of the series.
PMF has agreed that, in any fiscal year, it will reimburse the Fund for each
of the series' expenses (including the fees of PMF but excluding interest,
taxes, brokerage commissions, distribution fees, litigation and indemnification
expenses and other extraordinary expenses) in excess of the most restrictive
expense limitation imposed by state securities commissions. The most
restrictive expense limitation is presently believed to be 2.5% of the series'
average daily net assets up to $30 million, 2.0% of the next $70 million of
average daily net assets and 1.5% of the series' average daily net assets in
excess of $100 million. Such expense reimbursement, if any, will be estimated
and accrued daily and payable monthly. No reimbursement was required for the six
months ended January 31, 1994.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. ("PMFD"), who acts as the distributor of the Class A shares
of the Fund, and PSI, who acts as distributor of the Class B shares of the Fund
(collectively the "Distributors"). To reimburse the Distributors for their
expenses incurred in distributing and servicing the Fund's Class A and B
shares, the Fund, pursuant to plans of distribution, pays the Distributors a
reimbursement, accrued daily and payable monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its
distribution-related expenses with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net assets of the Class A shares. Such
expenses under the Class A Plan were .20 of 1% of the average daily net assets
of the Class A shares for the five months ended December 31, 1993. Effective
January 1, 1994, PMF increased the Class A Plan distribution expenses to .25 of
1% of the average daily net assets. PMFD pays various broker-dealers, including
PSI and Pruco Securities Corporation ("Prusec"), affiliated broker-dealers, for
account servicing fees and other expenses incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to the Class B shares at an annual
rate of up to 1% of the average daily net assets of the Class B shares. Unlike
the Class A Plan, there are carryforward amounts under the Class B Plan, and
interest expenses are incurred under the Class B Plan.
The Class B distribution expenses include commission credits for payments of
commissions and account servicing fees to financial advisers and an allocation
for overhead and other distribution-related expenses, interest and/or carrying
charges, the cost of printing and mailing prospectuses to potential investors
and of advertising incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and service fees incurred
through the receipt of reimbursement payments from the Fund under the plans and
the receipt of initial sales charges (Class A only) and contingent deferred
sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $376,000
($278,000 -- Conservatively Managed Portfolio and $98,000 -- Strategy Portfolio)
in front-end sales charges resulting from sales of Class A shares during the six
months ended January 31, 1994. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons and
incurred other distribution costs.
With respect to the Class B Plan, at any given time the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total reimbursement made by the Fund
pursuant to the Class B Plan. PSI advised the Fund that for the six months ended
January 31, 1994, it received approximately $535,000 ($242,000 -- Conservatively
Managed Portfolio and $293,000 -- Strategy Portfolio) in contingent deferred
sales charges imposed upon certain redemptions by investors. PSI, as
distributor, has also advised the Fund that at January 31, 1994, the amount
of distribution expenses incurred by PSI and not yet reimbursed by the Fund
or recovered through contingent deferred sales charges approximated $19,830,500
($11,846,000 Conservatively Managed Portfolio and $7,984,500 -- Strategy
Portfolio). This amount may be recovered through future payments under the
Class B Plan or contingent deferred sales charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
B-68
<PAGE>
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services, Inc. ("PMFS"), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the six months ended January
31, 1994, the Fund incurred fees of approximately $554,000 ($220,0000--
Conservatively Managed Portfolio and $334,000--Strategy Portfolio) for the
services of PMFS. As of January 31, 1994, approximately $105,000 ($49,000--
Conservatively Managed Portfolio and $56,000--Strategy Portfolio) of such fees
were due to PMFS. Transfer agent fees and expenses in the Statement of
Operations also include certain out of pocket expenses paid to non-affiliates.
For the six months ended January 31, 1994, PSI received approximately $30,500
($4,000--Conservatively Managed Portfolio and $26,500--Strategy Portfolio) in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments, for the six months ended January 31, 1994, were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
--------- ------------ ------------
<S> <C> <C>
Conservatively Managed Portfolio . . . . $178,529,049 $131,752,019
Strategy Portfolio . . . . . . . . . . . $155,263,976 $147,796,278
</TABLE>
The cost basis of investments for federal income tax purposes as of
January 31, 1994 was $392,013,569 and $358,490,526 for the Conservatively
Managed Portfolio and the Strategy Portfolio, respectively, and net and gross
unrealized appreciation of investments for federal income tax purposes was as
follows:
<TABLE>
<CAPTION>
CONSERVATIVELY
MANAGED STRATEGY
PORTFOLIO PORTFOLIO
-------------- -----------
<S> <C> <C>
Gross unrealized appreciation. . . . . . . . . . . $41,469,237 $44,674,578
Gross unrealized depreciation. . . . . . . . . . . 5,600,316 3,424,085
-------------- -----------
Net unrealized appreciation. . . . . . . . . . . . $35,868,921 $41,250,493
-------------- -----------
-------------- -----------
</TABLE>
NOTE 5. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Government or federal agency obligations. As of
January 31, 1994, the Fund had a 6.9% (Conservatively Managed Portfolio--2.8%
and Strategy Portfolio--4.1%) undivided interest in the repurchase agreements
in the joint account. The undivided interest for the Fund represented
$83,775,000, (Conservatively Managed Portfolio--$49,474,000 and Strategy
Portfolio--$34,301,000) in the principal amount. As of such date, each
repurchase agreement in the joint account and the collateral therefor was as
follows:
BT Securities Corp., 3.18%, dated 1/31/94, in the principal amount of
$175,000,000, repurchase price $175,015,458, due 2/1/94; collateralized by
$31,590,000 U.S. Treasury Notes, 7.50%, 11/15/01, $50,000,000 U.S. Treasury
Notes, 6.375%, 1/15/00, $27,100,000 U.S. Treasury Notes, 6.375%, 7/15/99,
$20,000,000 U.S. Treasury Notes, 7.00%, 4/15/99, and $33,500,000 U.S. Treasury
Notes, 8.25%, 7/15/98; value including accrued interest--$178,679,927.
Goldman Sachs & Co., Inc., 3.125%, dated 1/31/94, in the principal amount of
$395,000,000, repurchase price $395,034,288, due 2/1/94; collateralized by
$351,115,000 U.S. Treasury Bonds, 7.50%, 11/15/16; value including accrued
interest--$404,665,486.
J.P. Morgan Securities, Inc., 3.125%, dated 1/31/94, in the principal amount
of $137,000,000, repurchase price $137,011,892, due 2/1/94; collateralized by
$52,575,000 U.S. Treasury Bonds, 7.125%, 2/15/23, and $50,000,000 U.S. Treasury
Bonds, 11.75%, 11/15/14; value including accrued interest--$139,894,253.
Kidder, Peabody & Co., Inc., 3.15%, dated 1/31/94, in the principal amount of
$301,000,000, repurchase price $301,026,337, due 2/1/94; collateralized by
$89,455,000 U.S. Treasury Notes, 7.50%, 5/15/02, $13,230,000 U.S. Treasury
Notes, 7.875%, 11/15/99, $43,195,000 U.S. Treasury Notes, 6.00%, 11/30/97,
$99,730,000 U.S. Treasury Notes, 6.875%, 3/31/97, and $34,010,000 U.S. Treasury
Notes, 4.625%, 12/31/94; value including accrued interest--$307,201,387.
Smith Barney Shearson, Inc., 3.15%, dated 1/31/94 in the principal amount of
$200,000,000 repurchase price $200,017,500, due 2/1/94; collateralized by
$11,700,000 U.S. Treasury Bonds, 7.25%, 8/15/22, $15,000,000, U.S Treasury
Bonds, 8.00%, 11/15/21, $50,000,000 U.S Treasury Notes, 6.00%, 10/15/99,
$13,000,000 U.S. Treasury Notes, 6.875%, 4/30/97, $11,600,000 U.S. Treasury
Notes 4.625%, 8/15/95, $60,000,00 U.S. Treasury Notes, 11.625%, 11/15/94,
$9,880,000 U.S. Treasury Notes 12.625%, 8/15/94, and $16,600,000 U.S. Treasury
Notes, 5.375%, 4/30/94; value including accrued interest--$204,251,368.
NOTE 6. CAPITAL
Class A shares are sold with a front-end sales charge of up to 5.25%.
Class B shares are sold with a contingent deferred
B-69
<PAGE>
sales charge which declines from 5% to zero depending on the period of time the
shares are held. Both classes of shares have equal rights as to earnings, assets
and voting privileges except that each class bears different distribution
expenses and has exclusive voting rights with respect to its distribution plan.
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share, divided into two classes, designated
Class A and Class B.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CONSERVATIVELY MANAGED PORTFOLIO:
CLASS A CLASS B
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Six months ended January 31, 1994:
Shares sold. . . . . . . . . . . . . . . . . 785,164 $ 9,274,961 7,862,928 $ 92,548,723
Shares issued in reinvestment of dividends
and distributions. . . . . . . . . . . . . 138,677 1,579,156 1,720,969 19,508,726
Shares reacquired. . . . . . . . . . . . . . (199,696) (2,361,012) (2,515,602) (29,669,652)
--------- ----------- ---------- ------------
Increase in shares outstanding . . . . . . . 724,145 $ 8,493,105 7,068,295 $ 82,387,797
--------- ----------- ---------- ------------
--------- ----------- ---------- ------------
CLASS A CLASS B
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- ------------
Year ended July 31, 1993:
Shares sold. . . . . . . . . . . . . . . . . 1,111,058 $12,515,640 9,197,549 $102,859,539
Shares issued in reinvestment of dividends
and distributions. . . . . . . . . . . . . 90,896 994,506 1,459,840 15,874,896
Shares reacquired. . . . . . . . . . . . . . (273,750) (3,079,784) (3,783,156) (42,244,575)
--------- ----------- ---------- ------------
Increase in shares outstanding . . . . . . . 928,204 $10,430,362 6,874,233 $ 76,489,860
--------- ----------- ---------- ------------
--------- ----------- ---------- ------------
STRATEGY PORTFOLIO:
CLASS A CLASS B
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- ------------
Six months ended January 31, 1994:
Shares sold. . . . . . . . . . . . . . . . . 359,901 $ 4,339,213 2,707,213 $ 32,491,047
Shares issued in reinvestment of dividends
and distributions. . . . . . . . . . . . . 87,258 1,029,925 1,015,842 11,916,815
Shares reacquired. . . . . . . . . . . . . . (314,775) (3,807,535) (3,315,312) (39,722,785)
--------- ----------- ---------- ------------
Increase in shares outstanding . . . . . . . 132,384 $1,561,603 407,743 $ 4,685,077
--------- ----------- ---------- ------------
--------- ----------- ---------- ------------
CLASS A CLASS B
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- ------------
Year ended July 31, 1993:
Shares sold. . . . . . . . . . . . . . . . . 948,490 $11,062,181 7,245,790 $ 84,341,799
Shares issued in reinvestment of dividends
and distributions. . . . . . . . . . . . . 219,562 2,486,431 2,958,707 33,399,436
Shares reacquired. . . . . . . . . . . . . . (439,023) (5,122,055) (6,093,273) (70,690,289)
--------- ----------- ---------- ------------
Increase in shares outstanding . . . . . . . 729,029 $ 8,426,557 4,111,224 $ 47,050,946
--------- ----------- ---------- ------------
--------- ----------- ---------- ------------
</TABLE>
NOTE 7. DIVIDENDS
On March 2, 1994, the Board of Trustees of the Fund delcared a dividend from
undistributed net investment income to Class A shareholders of $.105 per share
and to Class B shareholders of $.08 per share for the Conservatively Managed
Portfolio and a dividend from undistributed net investment income to Class A
shareholders of $.07 per share and to Class B shareholders of $.05 per share for
the Strategy Portfolio. All dividends are payable on March 31, 1994 to
shareholders of record on March 24, 1994.
B-70
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND CONSERVATIVELY MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------- ----------------------------------------------------------
JANUARY 22,
SIX MONTHS 1990@ SIX MONTHS
ENDED YEAR ENDED JULY 31, THROUGH ENDED YEAR ENDED JULY 31,
PER SHARE OPERATING JANUARY 31, -------------------- JULY 31, JANUARY 31, ---------------------------------------------
PERFORMANCE: 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1989
------- ------- ------- ------ --------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period. . . . . . . . $ 11.75 $ 11.00 $ 10.73 $10.23 $ 9.83 $ 11.72 $ 10.98 $ 10.71 $ 10.22 $ 10.21 $ 9.43
------- ------- ------- ------ ------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income. . . .17 .43 .44 .44 .26 .13 .34 .35 .36 .45 .52
Net realized and
unrealized gain on
investment transactions. .50 1.16 .81 .73 .38 .49 1.16 .82 .73 .18 .73
------- ------- ------- ------ ------- -------- -------- -------- -------- -------- --------
Total from investment
operations . . . . . . . .67 1.59 1.25 1.17 .64 .62 1.50 1.17 1.09 .63 1.25
------- ------- ------- ------ ------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net
investment income. . . . (.17) (.37) (.44) (.44) (.24) (.13) (.29) (.36) (.37) (.52) (.47)
Dividends in excess of net
investment income. . . . (.02) -- -- -- -- (.02) -- -- -- -- --
Distributions paid to
shareholders from net
realized gains on
investment transactions. (.32) (.47) (.54) (.23) -- (.32) (.47) (.54) (.23) (.10) --
Distributions in excess of
net realized gains . . . (.22) -- -- -- -- (.22) -- -- -- -- --
------- ------- ------- ------ ------- -------- -------- -------- -------- -------- --------
Total distributions. . . (.73) (.84) (.98) (.67) (.24) (.69) (.76) (.90) (.60) (.62) (.47)
------- ------- ------- ------ ------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period . . . . . . . . . $ 11.69 $ 11.75 $ 11.00 $10.73 $10.23 $ 11.65 $ 11.72 $ 10.98 $ 10.71 $ 10.22 $ 10.21
------- ------- ------- ------ ------- -------- -------- -------- -------- -------- --------
------- ------- ------- ------ ------- -------- -------- -------- -------- -------- --------
TOTAL RETURN#: . . . . . . 5.88% 15.15% 12.29% 11.99% 6.59% 5.41% 14.27% 11.48% 11.13% 6.44% 13.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000). . . . . . . . . . $30,950 $22,605 $10,944 $4,408 $1,944 $402,342 $321,831 $225,995 $162,281 $154,917 $132,631
Average net assets (000) . $26,066 $15,392 $7,103 $2,747 $1,047 $357,266 $267,340 $189,358 $149,907 $143,241 $139,009
Ratios to average net
assets:
Expenses, including
distribution fees. . . 1.10%* 1.17% 1.29% 1.38% 1.29%* 1.90%* 1.97% 2.09% 2.16% 2.07% 2.09%
Expenses, excluding
distribution fees. . . .90%* .97% 1.09% 1.18% 1.09%* .90%* .97% 1.09% 1.16% 1.08% 1.08%
Net investment income. . 2.89%* 3.88% 3.97% 4.44% 5.04%* 2.10%* 3.04% 3.25% 3.55% 4.42% 5.47%
Portfolio turnover rate. . 38% 83% 105% 137% 106% 38% 83% 105% 137% 106% 137%
<FN>
- ----------
@ Commencement of offering of Class A shares.
* Annualized.
# Total return does not consider the effects of sales loads. Total returns for
periods of less than a full year are not annualized.
</TABLE>
See Notes to Financial Statements
B-71
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL FLEXIFUND STRATEGY PORTFOLIO
FINANCIAL HIGHLIGHTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated:
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------------- ------------------------------------------------------
JANUARY 22,
SIX MONTHS 1990@ SIX MONTHS
ENDED YEAR ENDED JULY 31, THROUGH ENDED YEAR ENDED JULY 31,
PER SHARE OPERATING JANUARY 31, -------------------- JULY 31, JANUARY 31, ----------------------------------------
PERFORMANCE: 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1989
---------- ------- ------- ------- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period. . . . $ 11.82 $ 12.03 $ 11.45 $ 10.50 $10.16 $ 11.79 $ 12.01 $ 11.43 $ 10.49 $ 10.85 $ 9.52
------- ------- ------- ------- ------ -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income. . . . .18 .42 .35 .38 .25 .13 .34 .26 .30 .37 .42
Net realized and unrealized
gain on investment and
foreign currency
transactions . . . . . . . .81 .70 1.02 .98 .33 .81 .70 1.02 .97 .03 1.30
------- ------- ------- ------- ------ -------- -------- -------- -------- -------- --------
Total from investment
operations . . . . . . . . .99 1.12 1.37 1.36 .58 .94 1.04 1.28 1.27 .40 1.72
------- ------- ------- ------- ------ -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net
investment income. . . . . (.10) (.37) (.37) (.35) (.24) (.08) (.30) (.28) (.27) (.40) (.39)
Distributions paid to
shareholders from net
realized gains on
investment and foreign
currency transactions. . . (.34) (.96) (.42) (.06) -- (.34) (.96) (.42) (.06) (.36) --
------- ------- ------- ------- ------ -------- -------- -------- -------- -------- --------
Total distributions. . . . (.44) (1.33) (.79) (.41) (.24) (.42) (1.26) (.70) (.33) (.76) (.39)
------- ------- ------- ------- ------ -------- -------- -------- -------- -------- --------
Net asset value, end of
period . . . . . . . . . . $ 12.37 $ 11.82 $ 12.03 $ 11.45 $10.50 $ 12.31 $ 11.79 $ 12.01 $ 11.43 $ 10.49 $ 10.85
------- ------- ------- ------- ------ -------- -------- -------- -------- -------- --------
------- ------- ------- ------- ------ -------- -------- -------- -------- -------- --------
TOTAL RETURN#: . . . . . . . 8.50% 10.02% 12.36% 13.42% 5.83% 8.09% 9.21% 11.53% 12.49% 3.59% 18.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000). . . . . . . . . . . $31,621 $28,641 $20,378 $10,765 $5,073 $378,114 $357,287 $314,771 $219,983 $176,078 $ 62,651
Average net assets (000) . . $29,844 $24,216 $15,705 $ 6,694 $2,928 $366,090 $339,225 $267,525 $190,913 $127,360 $ 57,326
Ratios to average net
assets:
Expenses, including
distribution fees. . . . 1.18%* 1.21% 1.26% 1.33% 1.51%* 1.98%* 2.01% 2.06% 2.11% 2.10% 2.33%+
Expenses, excluding
distribution fees. . . . .98%* 1.01% 1.06% 1.13% 1.26%* .98%* 1.01% 1.06% 1.11% 1.14% 1.34%+
Net investment income. . . 2.21%* 3.61% 3.05% 3.89% 4.58%* 2.16%* 2.79% 2.27% 2.95% 3.61% 4.26%+
Portfolio turnover rate. . . 39% 145% 241% 189% 159% 39% 145% 241% 189% 159% 132%
<FN>
- ----------
+ Net of expense subsidy or reimbursement.
* Annualized.
@ Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total returns for
periods of less than a full year are not annualized.
</TABLE>
See Notes to Financial Statements.
B-72
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
(1) The following financial statements are included in the Prospectus
constituting Part A of this Registration Statement:
Financial Highlights.
(2) The following financial statements are included in the Statement of
Additional Information constituting Part B of this Registration Statement:
Independent Auditors' Report.
Portfolio of Investments at July 31, 1993 and at January 31, 1994
(unaudited).
Statement of Assets and Liabilities at July 31, 1993 and at January
31, 1994 (unaudited).
Statement of Operations for the year ended July 31, 1993 and the six
months ended January 31, 1994 (unaudited).
Statement of Changes in Net Assets for the years ended July 31, 1993
and 1992 and the six months ended January 31, 1994 (unaudited).
Notes to Financial Statements.
Financial Highlights.
(B) EXHIBITS:
1. (a) Declaration of Trust dated February 23, 1987. Incorporated by
reference to Exhibit No. 1 to the Registration Statement on Form
N-1A filed on March 10, 1987 (File No. 33-12531).
(b) Amendment to Declaration of Trust. Incorporated by reference to
Exhibit No. 1(b) to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A filed on December 28, 1989 (File
No. 33-12531).
(c) Certificate of Amendment of Declaration of Trust. Incorporated
by reference to Exhibit No. 1(c) to Post-Effective Amendment No. 9
to the Registration Statement on Form N-1A filed on September 29,
1992 (File No. 33-12531).
(d) Form of Amended Declaration of Trust.*
2. (a) By-Laws of the Registrant, as amended. Incorporated by reference
to Exhibit No. 2 to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on December 31, 1987 (File
No. 33-12531).
(b) Form of Amended and Restated By-Laws.*
4. (a) Specimen receipt for shares of beneficial interest issued by the
Registrant. Incorporated by reference to Exhibit No. 4 to
Post-Effective Amendment No. 2 to the Registration Statement on Form
N-1A filed on March 1, 1988 (File No. 33-12531).
(b) Specimen receipt for Class A shares of beneficial interest of
the Conservatively Managed Portfolio of the Registrant. Incorporated
by reference to Exhibit No. 4(b) to Post-Effective Amendment No. 7
to the Registration Statement on Form N-1A filed on November 30,
1990 (File No. 33-12531).
C-1
<PAGE>
(c) Specimen receipt for Class A and Class B shares of beneficial
interest of the Strategy Portfolio. Incorporated by reference to
Exhibit No. 4(c) to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed on November 30, 1990 (File
No. 33-12531).
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc. Incorporated by reference to Exhibit
No. 5(a) to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A filed on October 31, 1989 (File No.
33-12531).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation. Incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No.4 to
the Registration Statement on Form N-1A filed on October 31, 1989
(File No. 33-12531).
6. (a) Amended and Restated Distribution and Service Agreement between
the Fund and Prudential Mutual Fund Distributors, Inc. for Class A
shares. Incorporated by reference to Exhibit 6(c) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A via
EDGAR filed on September 21, 1993 (File No. 33-12531).
(b) Amended and Restated Distribution and Service Agreement between
the Fund and Prudential Securities Inc. for Class B shares.
Incorporated by reference to Exhibit 6(d) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A via
EDGAR filed on September 21, 1993 (File No. 33-12531).
(c) Form of Distribution and Service Agreement for Class A shares.*
(d) Form of Distribution and Service Agreement for Class B shares.*
(e) Form of Distribution and Service Agreement for Class C shares.*
8. (a) Custodian Contract betwen the Registrant and State Street Bank
and Trust Company. Incorporated by reference to Exhibit No. 8 to
Post-Effective Amendment No. 4 to the Registration Statement on Form
N-1A filed on October 31, 1989 (File No. 33-12531).
(b) Amendment to Custodian Contract. Incorporated by reference to
Exhibit No. 8(b) to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed on November 30, 1990 (File
No. 33-12531).
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. Incorporated by reference to
Exhibit No. 9 to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A filed on October 31, 1989 (File No.
33-12531).
10. Opinion of Counsel. Incorporated by reference to Exhibit No. 10 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A filed on August 31, 1987 (File No. 33-12531).
11. Consent of Independent Auditors.*
13. Purchase Agreement. Incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A filed on August 31, 1987 (File No. 33-12531).
15. (a) Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Class A shares. Incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A via EDGAR filed on September 21,
1993 (File No. 33-12531).
(b) Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Class B shares. Incorporated by
reference to Exhibit 6(d) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A via EDGAR filed on September 21,
1993 (File No. 33-12531).
(c) Form of Distribution and Service Plan for Class A shares.*
(d) Form of Distribution and Service Plan for Class B shares.*
(e) Form of Distribution and Service Plan for Class C shares.*
C-2
<PAGE>
16. (a) Schedule of Computation of Performance Quotations. Incorporated
by reference to Exhibit No. 16 to Post-Effective Amendment No. 4 to
the Registration Statement on Form N-1A filed on October 31, 1989
(File No. 33-12531).
(b) Schedule of Computation of Performance Quotations for Class A
shares. Incorporated by reference to Exhibit No. 16(b) to
Post-Effective Amendment No. 7 to the Registration Statement on Form
N-1A filed on November 30, 1990 (File No. 33-12531).
Other Exhibits
Powers of Attorney for: Edward D. Beach, Donald D. Lennox, Douglas H.
McCorkindale, Lawrence C. McQuade, Thomas T. Mooney and Louis A. Weil, III.
Executed copies incorporated by reference to Other Exhibits to Post-Effective
Amendment No. 4 to the Registration Statement on Form N-1A filed on October 31,
1989 (File No. 33-12531).
- --------------
*Filed herewith
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by or under common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of March 31, 1994, there were 3,641 Class A shareholders of the
Conservatively Managed Portfolio and 5,283 Class A shareholders of the Strategy
Portfolio and 34,286 Class B shareholders of the Conservatively Managed
Portfolio and 33,061 Class B shareholders of the Strategy Portfolio.
ITEM 27. INDEMNIFICATION.
As permitted by Sections 17(h) and (i) of the Investment Company Act of 1940
(the "1940 Act") and pursuant to Article VI of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, Trustees, employees and agents of the
Registrant will not be liable to the Registrant, any shareholder, officer,
trustee, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
As permitted by Section 17(i) of the 1940 Act, pursuant to Section 9 or 10 of
the Distribution Agreements (Exhibit 6(c) and (d) to the Registration
Statement), the Distributor of the Registrant may be indemnified against
liabilities which it may incur, except liabilities arising from bad faith, gross
negligence, willful misfeasance or reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 ("Securities Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such trustee,
officer or controlling person or the principal underwriter in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1940 Act and will be governed by the
final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers and
trustees against liabilities, and certain costs of defending claims against such
officers and trustees, to the extent such officers and trustees are not found to
have committed conduct constituting willful misfeasance, bad faith, gross
negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and trustees under certain circumstances.
C-3
<PAGE>
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. ("PMF") and The Prudential Investment Corporation ("PIC"),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective obligations and duties
under the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution Agreements in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretations of Sections 17 (h) and 17 (i) of such Act
remain in effect and are consistently applied.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Prudential Mutual Fund Management, Inc.
See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the executive officers of PMF are listed
in Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-3110, filed in October 1993).
The business and other connections of PMF's directors and principal executive
officers are set forth below. Except as otherwise indicated, the address of each
person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ------------------------------ ------------------------------ --------------------------------------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice President and Executive Vice President and Director of
Director of Marketing Marketing, PMF
John D. Brookmeyer, Jr. Director Senior Vice President, The Prudential Insurance
Two Gateway Center Company of America (Prudential); Senior Vice
Newark, NJ 07102 President, PIC
Susan C. Cote Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities
Fred A. Fiandaca Executive Vice President, Executive Vice President, Chief Operating Officer
Raritan Plaza One Chief Operating Officer and and Director, PMF; Chairman, Chief Operating
Edison, NJ 08847 Director Officer and Director, Prudential Mutual Fund
Services, Inc.
Stephen P . Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities
Frank W. Giordano Executive Vice President, Executive Vice President, General Counsel and
General Counsel and Secretary Secretary, PMF; Senior Vice President,
Prudential Securities
Robert F. Gunia Executive Vice President, Executive Vice President, Chief Financial and
Chief Financial and Administrative Officer, Treasurer and Director,
Administrative Officer, PMF; Senior Vice President, Prudential
Treasurer and Director Securities
Eugene B. Heimberg Director Senior Vice President, Prudential; President,
Prudential Plaza Director and Chief Investment Officer, PIC
Newark, NJ 07101
Lawrence C. McQuade Vice Chairman Vice Chairman, PMF
Leland B. Paton Director Executive Vice President and Director, Prudential
Securities; Director, Prudential Securities
Group, Inc. (PSG)
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ------------------------------ ------------------------------ --------------------------------------------------
<S> <C> <C>
Richard A. Redeker President, Chief Executive President, Chief Executive Officer and Director,
Officer and Director PMF; Executive Vice President, Director and
Member of Operating Committee, Prudential
Securities; Director, PSG
S. Jane Rose Senior Vice President, Senior Senior Vice President, Senior Counsel and
Counsel and Assistant Secre- Assistant Secretary, PMF; Senior Vice President
tary and Senior Counsel, Prudential Securities
Donald G. Southwell Director Senior Vice President, Prudential, Director, PSG
213 Washington Street
Newark, N.J. 07102
</TABLE>
(b) Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Subadviser" in the Prospectus constituting Part
A of this Registration Statement and "Subadviser" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, NJ 07101.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ------------------------------ ------------------------------ --------------------------------------------------
<S> <C> <C>
Martin A. Berkowitz Senior Vice President, Chief Vice President, Prudential; Senior Vice President,
Financial and Compliance Chief Financial and Compliance Officer, PIC
Officer
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice
Two Gateway Center President, PIC
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President, Prudential; Senior Vice
Two Gateway Center President, PIC
Newark, NJ 07102
Eugene B. Heimberg President, Director and Chief Senior Vice President, Prudential; President,
Investment Officer Director and Chief Investment Officer, PIC
Garnett L. Keith, Jr. Director Vice Chairman and Director, Prudential; Director,
PIC
Harry E. Knapp, Jr. Vice President Vice President, Prudential; Vice President, PIC
Four Gateway Center
Newark, NJ 07102
William P . Link Senior Vice President Executive Vice President, Prudential; Senior Vice
Four Gateway Center President, PIC
Newark, NJ 07102
Robert E. Riley Executive Vice Executive Vice President, Prudential; Executive
800 Boylston Avenue President Vice President, PIC; Director, PSG
Boston, MA 02199
James W. Stevens Executive Vice Executive Vice President, Prudential; Executive
Four Gateway Center President Vice President, PIC; Director, PSG
Newark, NJ 07102
Robert C. Winters Director Chairman of the Board and Chief Executive Officer,
Prudential; Director, PIC; Chairman of the
Board, PSG
Claude J. Zinngrabe, Jr. Executive Vice Vice President, Prudential; Executive Vice
President President, PIC
</TABLE>
C-5
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a)(i) Prudential Securities Incorporated
Prudential Securities is distributor for Prudential Government Securities
Trust (Intermediate Term Series), The Target Portfolio Trust and for Class B
shares of Prudential Adjustable Rate Securities Fund, Inc., Prudential
Allocation Fund, Prudential California Municipal Fund (California Series and
California Income Series), Prudential Equity Fund, Inc., Prudential Equity
Income Fund, Prudential Global Fund, Inc., Prudential Global Genesis Fund, Inc.,
Prudential Global Natural Resources Fund, Inc., Prudential GNMA Fund, Inc.,
Prudential Government Income Fund, Inc., Prudential Growth Fund, Inc.,
Prudential Growth Opportunity Fund, Inc., Prudential High Yield Fund, Inc.,
Prudential IncomeVertible-R- Fund, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund,
Prudential Municipal Series Fund (except Connecticut Money Market Series,
Massachusetts Money Market Series, New York Money Market Series, New Jersey
Money Market Series and Florida Series), Prudential National Municipals Fund,
Inc., Prudential Pacific Growth Fund, Inc., Prudential Short-Term Global Income
Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential U.S.
Government Fund, Prudential Utility Fund, Inc., Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund) and The
BlackRock Government Income Trust. Prudential Securities is also a depositor for
the following unit investment trusts:
The Corporate Income Fund
Corporate Investment Trust Fund
Equity Income Fund
Government Securities Income Fund
International Bond Fund
Municipal Investment Trust
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(ii)_Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series and Class A Shares of
the California Income Series and California Series), Prudential Government
Securities Trust (Money Market Series and U.S. Treasury Money Market Series),
Prudential-Bache MoneyMart Assets (d/b/a Prudential MoneyMart Assets),
Prudential Municipal Series Fund (Connecticut Money Market Series, Massachusetts
Money Market Series, New York Money Market Series and New Jersey Money Market
Series), Prudential Institutional Liquidity Portfolio, Inc., Prudential-Bache
Special Money Market Fund, Inc. (d/b/a Prudential Special Money Market Fund),
Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential Tax-Free Money
Fund), and for Class A shares of Prudential Adjustable Rate Securities Fund,
Inc., Prudential Allocation Fund, The BlackRock Government Income Trust,
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential Global
Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global Natural
Resources Fund, Inc., Prudential GNMA Fund, Inc., Prudential Government Plus
Fund, Inc., Prudential Growth Fund, Inc, Prudential Growth Opportunity Fund,
Inc., Prudential High Yield Fund, Inc., Prudential IncomeVertible-R- Fund, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential Multi-Sector Fund,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund (Arizona
Series, Florida Series, Georgia Series, Maryland Series, Massachusetts Series,
Michigan Series, Minnesota Series, New Jersey Series, North Carolina Series,
Ohio Series and Pennsylvania Series), Prudential National Municipals Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Short-Term Global Income Fund,
Inc., Prudential U.S. Government Fund and Prudential Utility Fund, Inc., Global
Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth
Equity Fund) and The BlackRock Government Income Trust.
C-6
<PAGE>
(b)(i) Information concerning the officers and directors of Prudential
Securities Incorporated are set forth below.
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ----------------------------------- --------------------------------------------- --------------
<S> <C> <C>
Alan D. Hogan...................... Executive Vice President, Chief None
Administrative Officer and Director
Howard A. Knight................... Executive Vice President, Director, Corporate None
Strategy and New Business Development
George A. Murray................... Executive Vice President and Director None
John P . Murray.................... Executive Vice President and Director of Risk None
Management
Leland B. Paton.................... Executive Vice President and Director None
Richard A. Redeker................. Director Trustee
Hardwick Simmons................... Chief Executive Officer, President and None
Director
Lee Spencer........................ Interim General Counsel None
</TABLE>
(ii) Information concerning the officers and directors of Prudential Mutual
Fund Distributors, Inc. is set forth below.
<TABLE>
<S> <C> <C>
Joanne Accurso-Soto................ Vice President None
Dennis Annarumma................... Vice President, Assistant Treasurer and None
Assistant Comptroller
Phyllis J. Berman.................. Vice President None
Fred A. Fiandaca................... President, Chief Executive Officer and None
Raritan Plaza One Director
Edison, NJ 08847
Stephen P . Fisher................. Vice President None
Frank W. Giordano.................. Executive Vice President, General Counsel, None
Secretary and Director
Robert F. Gunia.................... Executive Vice President, Treasurer, Vice President
Comptroller and Director
Andrew J. Varley................... Vice President None
Anita L. Whelan.................... Vice President and Assistant Secretary None
<FN>
- --------------
(1)The address of each person named is One Seaport Plaza, New York, NY 10292 unless otherwise
indicated.
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated person of
the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy,
Massachusetts, The Prudential Investment Corporation, Prudential Plaza, 751
Broad Street, Newark, New Jersey, the Registrant, One Seaport Plaza, New York,
New York, and Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison,
New Jersey. Documents required by Rules 31a-1 (b)(5), (6), (7), (9), (10) and
(11) and 31a-1(f) will be kept at Two Gateway Center, Newark, New Jersey.
Documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport
Plaza and the remaining accounts, books and other documents required by such
other pertinent provisions of Section 31(a) and the Rules promulgated thereunder
will be kept by State Street Bank and Trust Company and Prudential Mutual Fund
Services, Inc.
C-7
<PAGE>
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Fund is Managed--Manager"
and "How the Fund is Managed-- Distributor" in the Prospectus and the captions
"Manager" and "Distributor" in the Statement of Additional Information,
constituting Parts A and B, respectively, of this Registration Statement,
Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and the State
of New York, on May 6, 1994.
PRUDENTIAL ALLOCATION FUND
/s/ Lawrence C. McQuade
-----------------------------------------------------------------------
(LAWRENCE C. MCQUADE, 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
- ------------------------------------- ------------------------------------- ----------
<S> <C> <C>
/s/ Susan C. Cote Treasurer and Principal Financial and May 6,
- ------------------------------------ Accounting Officer 1994
SUSAN C. COTE
/s/ Edward D. Beach Trustee May 6,
- ------------------------------------ 1994
EDWARD D. BEACH
/s/ Donald D. Lennox Trustee May 6,
- ------------------------------------ 1994
DONALD D. LENNOX
/s/ Douglas H. McCorkindale Trustee May 6,
- ------------------------------------ 1994
DOUGLAS H. MCCORKINDALE
/s/ Lawrence C. McQuade Trustee and President May 6,
- ------------------------------------ 1994
LAWRENCE C. MCQUADE
/s/ Thomas T. Mooney Trustee May 6,
- ------------------------------------ 1994
THOMAS T. MOONEY
/s/ Richard A. Redeker Trustee May 6,
- ------------------------------------ 1994
RICHARD A. REDEKER
/s/ Louis A. Weil, III Trustee May 6,
- ------------------------------------ 1994
LOUIS A. WEIL, III
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER PAGE
1.
(a) Declaration of Trust dated February 23, 1987. Incorporated by
reference to Exhibit No. 1 to the Registration Statement on Form N-1A
filed on March 10, 1987 (File No. 33-12531).
(b) Amendment to Declaration of Trust. Incorporated by reference to
Exhibit No. 1(b) to Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A filed on December 28, 1989 (File No. 33-12531).
(c) Certificate of Amendment of Declaration of Trust. Incorporated by
reference to Exhibit No. 1(c) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A filed on September 29, 1992 (File No.
33-12531).
(d) Form of Amended Declaration of Trust.*
2.
(a) By-Laws of the Registrant, as amended. Incorporated by reference to
Exhibit No. 2 to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on December 31, 1987 (File No. 33-12531).
(b) Form of Amended and Restated By-Laws.*
4.
(a) Specimen receipt for shares of beneficial interest issued by the
Registrant. Incorporated by reference to Exhibit No. 4 to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A filed on March
1, 1988 (File No. 33-12531).
(b) Specimen receipt for Class A shares of beneficial interest of the
Conservatively Managed Portfolio of the Registrant. Incorporated by
reference to Exhibit No. 4(b) to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed on November 30, 1990 (File No.
33-12531).
(c) Specimen receipt for Class A and Class B shares of beneficial
interest of the Strategy Portfolio. Incorporated by reference to Exhibit
No. 4(c) to Post-Effective Amendment No. 7 to the Registration Statement
on Form N-1A filed on November 30, 1990 (File No. 33-12531).
5.
(a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc. Incorporated by reference to Exhibit No. 5(a) to
Post-Effective Amendment No. 4 to the Registration Statement on Form N-1A
filed on October 31, 1989 (File No. 33-12531).
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation. Incorporated by reference to
Exhibit No. 5(b) to Post-Effective Amendment No.4 to the Registration
Statement on Form N-1A filed on October 31, 1989 (File No. 33-12531).
6.
(a) Amended and Restated Distribution and Service Agreement between the
Fund and Prudential Mutual Fund Distributors, Inc. for Class A shares.
Incorporated by reference to Exhibit 6(c) to Post-Effective Amendment No.
10 to the Registration Statement on Form N-1A via EDGAR filed on
September 21, 1993 (File No. 33-12531).
(b) Amended and Restated Distribution and Service Agreement between the
Fund and Prudential Securities Inc. for Class B shares. Incorporated by
reference to Exhibit 6(d) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A via EDGAR filed on September 21, 1993
(File No. 33-12531).
(c) Form of Distribution and Service Agreement for Class A shares.*
(d) Form of Distribution and Service Agreement for Class B shares.*
(e) Form of Distribution and Service Agreement for Class C shares.*
8.
(a) Custodian Contract betwen the Registrant and State Street Bank and
Trust Company. Incorporated by reference to Exhibit No. 8 to
Post-Effective Amendment No. 4 to the Registration Statement on Form N-1A
filed on October 31, 1989 (File No. 33-12531).
(b) Amendment to Custodian Contract. Incorporated by reference to Exhibit
No. 8(b) to Post-Effective Amendment No. 7 to the Registration Statement
on Form N-1A filed on November 30, 1990 (File No. 33-12531).
9.
Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. Incorporated by reference to
Exhibit No. 9 to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A filed on October 31, 1989 (File No. 33-12531).
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10.
Opinion of Counsel. Incorporated by reference to Exhibit No. 10 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A
filed on August 31, 1987 (File No. 33-12531).
11.Consent of Independent Auditors.*
13.
Purchase Agreement. Incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A
filed on August 31, 1987 (File No. 33-12531).
15.
(a) Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Class A shares. Incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A via EDGAR filed on September 21, 1993
(File No. 33-12531).
(b) Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Class B shares. Incorporated by
reference to Exhibit 6(d) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A via EDGAR filed on September 21, 1993
(File No. 33-12531).
(c) Form of Distribution and Service Plan for Class A shares.*
(d) Form of Distribution and Service Plan for Class B shares.*
(e) Form of Distribution and Service Plan for Class C shares.*
16.
(a) Schedule of Computation of Performance Quotations. Incorporated by
reference to Exhibit No. 16 to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A filed on October 31, 1989 (File No.
33-12531).
(b) Schedule of Computation of Performance Quotations for Class A shares.
Incorporated by reference to Exhibit No. 16(b) to Post-Effective
Amendment No. 7 to the Registration Statement on Form N-1A filed on
November 30, 1990 (File No. 33-12531).
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Exhibit 1(d)
CERTIFICATE OF RESTATEMENT OF
DECLARATION OF TRUST
OF
PRUDENTIAL ALLOCATION FUND
Dated , 1994
----------
The undersigned, being the Secretary of Prudential Allocation Fund
(hereinafter referred to as the "Trust"), a trust with transferable shares of
the type commonly called a Massachusetts business trust, DOES HEREBY CERTIFY
that, pursuant to the authority conferred upon the Trustees of the Trust by
Section 9.3 of the Declaration of Trust, dated February 23, 1987 and amended
January 11, 1990 (referred to as the "Declaration of Trust"), and by the
affirmative vote of a majority of the Trustees at a meeting duly called and
held on _____________, 1994, the Declaration of Trust is restated as follows:
ARTICLE I.
NAME AND DEFINITIONS
Section 1.1. NAME. The name of the trust created hereby is the
Prudential Allocation Fund.
Section 1.2. DEFINITIONS. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "Administrator" means the party, other than the Trust, to the
contract described in Section 4.2 hereof.
(b) "By-Laws" means the By-Laws referred to in Section 3.9 hereof, as
from time to time amended.
(c) The terms "Commission," "Affiliated Person" and "Interested
Person" have the meanings given them in the 1940 Act, as defined herein,
except as otherwise defined by the Trustees in conjunction with the
establishment of any series of Shares.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Custodian" means any Person other than the Trust who has custody
of any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
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(f) "Declaration" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein" and "hereunder" shall be deemed to refer to this Declaration rather
than to the article or section in which such words appear.
(g) "Distributor" means the party, other than the Trust, to the
contract described in Section 4.3 hereof.
(h) "Fundamental Policies" means the investment objective and
investment restrictions set forth in the Prospectus and designated as
fundamental policies therein.
(i) "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 4.1 hereof.
(j) "Majority Shareholder Vote" means the vote of the holders of a
majority of Shares which shall consist of: (i) a majority of Shares
represented in person or by proxy and entitled to vote at a meeting of
Shareholders at which a quorum, as determined in accordance with the By-Laws,
is present; (ii) a majority of Shares issued and outstanding and entitled to
vote when action is taken by written consent of Shareholders; or (iii) a
"majority of the outstanding voting securities," as that phrase is defined in
the 1940 Act, when action is taken by Shareholders with respect to approval of
an investment advisory or management contract or an underwriting or
distribution agreement or continuance thereof.
(k) Act" means the Investment Company Act of 1940 and the rules and
regulations thereunder, as amended from time to time.
(l) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(m) "Prospectus" means the prospectus (including the statement of
additional information to the extent incorporated by reference therein)
constituting part of the Registration Statement of the Trust under the
Securities Act of 1933, as amended, as such prospectus may be amended or
supplemented and filed with the Commission from time to time.
(n) "Shareholder" means a record owner of outstanding Shares.
(o) "Shares" shall mean the equal proportionate transferable units of
interest into which the beneficial interest in any series of the Trust shall
be divided from time to time and includes fractions of Shares as well as whole
Shares. As provided in Article VI hereof, a series of the Trust may be
divided into separate classes of Shares; all references to Shares shall be
deemed to be Shares of any or all series or of a single class of a series or
all classes of a series as the context may require.
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(p) "Transfer Agent" means the party, other than the Trust, to the
contract described in Section 4.5 hereof.
(q) "Trust" means the Prudential-Bache FlexiFund.
(r) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(s) "Trustees" mean the person or persons who have signed the
Declaration, so long as he or they shall continue in office in accordance with
the terms hereof, and all other persons who may from time to time be duly
elected, qualified and serving as Trustees in accordance with the provisions
hereof, and reference herein to a Trustee or the Trustees shall refer to such
person or persons in their capacity as trustees hereunder.
ARTICLE II.
TRUSTEES
Section 2.1. NUMBER OF TRUSTEES. The number of Trustees shall
initially be one and thereafter shall be such number as shall be fixed from
time to time by a written instrument signed by a majority of the Trustees;
provided, however, that at all times after the Prospectus of the Trust first
becomes effective, the number of Trustees shall in no event be less than three
(3) nor more than fifteen (15).
Section 2.2. ELECTION AND TERM. The Trustees shall be elected by a
Majority Shareholder Vote at the first meeting of Shareholders following the
public offering of Shares of the Trust. The Trustees shall have the power to
set and alter the terms of office of the Trustees, and they may at any time
lengthen or lessen their own terms or make their terms of unlimited duration,
subject to the resignation and removal provisions of Section 2.3 hereof.
Except in the event of resignation or removals pursuant to Section 2.3 hereof,
each Trustee shall hold office until such time as less than a majority of the
Trustees holding office have been elected by Shareholders. In such event the
Trustees then in office will call a Shareholders' meeting for the election of
Trustees. Subject to Section 16(c) of the 1940 Act, no Trustee shall continue
to hold office after the holders of record of not less than two-thirds of the
outstanding Shares of the Trust have declared that such Trustee be removed
from office either by declaration in writing filed with the Custodian or by
votes cast in person or by proxy at a meeting called for the purpose. The
Trustees shall promptly call a meeting of the Shareholders for the purpose of
voting upon the question of removal of any Trustee or Trustees when requested
in writing to do so by the record holders of not less than 10 percent of the
outstanding Shares. Except for the foregoing circumstances, the Trustees
shall continue to hold office and may appoint successor Trustees.
Section 2.3. RESIGNATION AND REMOVAL. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall
be effective upon such delivery, or at a later date
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according to the terms of the instrument. Any of the Trustees may be removed
(provided that the aggregate number of Trustees after such removal shall not be
less than the number required by Section 2.1 hereof) with cause, by the action
of two-thirds of the remaining Trustees. Upon the resignation or removal of a
Trustee, or his otherwise ceasing to be a Trustee, he shall execute and deliver
such documents as the remaining Trustees shall require for the purpose of
conveying to the Trust or the remaining Trustees any Trust Property or property
of any series of the Trust held in the name of the resigning or removed Trustee.
Upon the incapacity or death of any Trustee, his legal representative shall
execute and deliver on his behalf such documents as the remaining Trustees shall
require as provided in the preceding sentence.
Section 2.4. VACANCIES. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees or, prior to
the public offering of Shares of the Trust, if only one Trustee shall then
remain in office, the remaining Trustee, shall fill such vacancy by the
appointment of such other person as they or he, in their or his discretion,
shall see fit, made by a written instrument signed by a majority of the
remaining Trustees or by the remaining Trustee, as the case may be. Any such
appointment shall not become effective, however, until the person named in the
written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.4, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
Section 2.5. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may,
by power of attorney, delegate his power for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees; provided that in no
case shall less than two (2) Trustees personally exercise the powers granted
to the Trustees under the Declaration except as herein otherwise expressly
provided.
ARTICLE III.
POWERS OF TRUSTEES
Section 3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the property and business of the Trust and of any series of the
Trust to the same extent as if the
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Trustees were the sole owners of such property and business in their own right,
but with such powers of delegation as may be permitted by the Declaration. The
Trustees shall have power to conduct the business of the Trust and carry on its
operations in any and all of its branches and maintain offices both within and
without The Commonwealth of Massachusetts, in any and all states of the United
States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination
as to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of the Declaration, the
presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid powers: Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 3.2. INVESTMENTS. The Trustees shall have the power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute, lend or
otherwise deal in or dispose of negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, reverse repurchase
agreements, options, futures and other securities of any kind, including,
without limitation, those issues, guaranteed or sponsored by any and all
Persons including, without limitation, states, territories and possessions of
the United States, the District of Columbia and any of the political
subdivisions, agencies or instrumentalities thereof, and by the United States
Government or its agencies or instrumentalities, or international
instrumentalities, or by any bank or savings institution, or by any
corporation or organization organized under the laws of the United States or
of any state, territory or possession thereof, and of corporations or
organizations organized under foreign laws, or in "when issued" contracts for
any such securities, or retain assets of the Trust or any series thereof in
cash and from time to time change the investments of the assets of the Trust
or any series thereof; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of every kind and description, including, without limitation, the right to
consent and otherwise act with respect thereto, with power to designate one or
more persons, firms, associations or corporations to exercise any of said
rights, powers and privileges in respect of any of said instruments; and the
Trustees shall be deemed to have the foregoing powers with respect to any
additional securities in which the Trust or any series of the Trust may invest
should the Fundamental Policies be amended.
The Trustees shall not be limited to investing in obligations maturing before
the possible termination of the Trust, nor shall the Trustees be limited by
any law limiting the investments which may be made by fiduciaries.
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Section 3.3. LEGAL TITLE. Legal title to all of the Trust Property
shall be vested in the Trustees as joint tenants except that the Trustees
shall have power to cause legal title to any Trust Property to be held by or
in the name of one or more of the Trustees, or in the name of the Trust or any
series of the Trust, or in the name of any other Person as nominee, on such
terms as the Trustees may determine, provided that the interest of the Trust
therein is appropriately protected. The right, title and interest of the
Trustees in the Trust Property shall vest automatically in each Person who may
hereafter become a Trustee. Upon the resignation, removal or death of a
Trustee he shall automatically cease to have any right, title or interest in
any of the Trust Property, and the right, title and interest of such Trustee
in all such property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective without the requirement that
conveyancing documents be executed and delivered.
Section 3.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer and otherwise deal in Shares and,
subject to the provisions set forth in Articles VII, VIII and IX and Section
6.9 hereof, to apply to any such repurchase, redemption, retirement,
cancellation or acquisition of Shares any funds or property of the particular
series of the Trust with respect to which such Shares are issued, whether
capital or surplus or otherwise, to the full extent now or hereafter permitted
by laws of The Commonwealth of Massachusetts governing business corporations.
Section 3.5. BORROWING MONEY; LENDING TRUST ASSETS. The Trustees shall
have power to borrow money or otherwise obtain credit and to secure the same
by mortgaging, pledging or otherwise subjecting as security the assets of the
Trust, to endorse, guarantee or undertake the performance of any obligation,
contract or engagement of any other Person and to lend Trust assets.
Section 3.6. DELEGATION; COMMITTEES. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of
the Trust and the Trust Property, to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of
such things and the execution of such instruments either in the name of the
Trust or any series of the Trust or the names of the Trustees or otherwise as
the Trustees may deem expedient.
Section 3.7. COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the
Trust; and to enter into releases, agreements and other instruments.
Section 3.8. EXPENSES. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Declaration and to pay
reasonable compensation from the funds of the Trust to
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themselves as Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees.
Section 3.9. MANNER OF ACTING; BY-LAWS. Except as otherwise provided
herein or in the By-Laws or by any provision of law, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting
of Trustees (a quorum being present), including any meeting held by means of a
conference telephone circuit or similar communications equipment by means of
which all persons participating in the meeting can hear each other, or by
written consent of all the Trustees. The Trustees may adopt By-Laws not
inconsistent with this Declaration to provide for the conduct of the business
of the Trust and may amend or repeal such By-Laws to the extent such power is
not reserved to the Shareholders.
Section 3.10. MISCELLANEOUS POWERS. Subject to Section 6.9 hereof, the
Trustees shall have the power to: (a) employ or contract with such Persons as
the Trustees may deem desirable for the transaction of the business of the
Trust or any series thereof; (b) enter into joint ventures, partnerships and
any other combinations or associations; (c) remove Trustees or fill vacancies
in or add to their number, elect and remove such officers and appoint and
terminate such agents or employees as they consider appropriate, and appoint
from their own number or otherwise, and terminate, any one or more committees
which may exercise some or all of the power and authority of the Trustees as
the Trustees may determine; (d) purchase, and pay for out of Trust Property or
the property of the appropriate series of the Trust, insurance policies
insuring the Shareholders, Trustees, officers, employees, agents, investment
advisers, distributors, selected dealers or independent contractors of the
Trust against all claims arising by reason of holding any such position or by
reason of any action taken or omitted to be taken by any such Person in such
capacity, whether or not constituting negligence, or whether or not the Trust
would have the power to indemnify such Person against such liability; (e)
establish pension, profit-sharing, Share purchase and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents of
the Trust; (f) to the extent permitted by law, indemnify any person with whom
the Trust or any series thereof has dealings, including the Investment Adviser,
Administrator, Distributor, Custodian, Transfer Agent and selected dealers, to
such extent as the Trustees shall determine; (g) guarantee indebtedness or
contractual obligations of others; (h) determine and change the fiscal year of
the Trust or any series thereof and the method by which its accounts shall be
kept; (i) adopt a seal for the Trust, but the absence of such seal shall not
impair the validity of any instrument executed on behalf of the Trust; (j) aid
by further investment any corporation, company, trust, association or firm, any
obligation of or interest in which is included in the Trust Property or in the
affairs of which the Trustees have any direct or indirect interest; to do all
acts and things designed to protect, preserve, improve or enhance the value of
such obligation or interest; to guarantee or become surety on any or all of the
contracts, stocks, bonds, notes, debentures and other obligations of any such
corporation, company, trust, association or firm; (k) enter into a plan of
distribution and any related agreements whereby the Trust may finance directly
or indirectly any activity which is primarily intended to result in sale of
Shares; and (l) in general, carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
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appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
Section 4.1. PRINCIPAL TRANSACTIONS. Except in transactions permitted
by the 1940 Act or any order of exemption issued by the Commission, or
effected to implement the provisions of any agreement to which the Trust is a
party, the Trustees shall not, on behalf of the Trust, buy any securities
(other than Shares) from or sell any securities (other than Shares) to, or
lend any assets of the Trust or any series thereof to, any Trustee or officer
of the Trust or any firm of which any such Trustee or officer is a member
acting as principal, or have any such dealings with the Investment Adviser,
Administrator, Custodian, Distributor or Transfer Agent or with any Affiliated
Person of such Person; but the Trust or a series thereof may employ any such
Person, or firm or company in which such Person is an Interested Person, as
broker, legal counsel, registrar, transfer agent, dividend disbursing agent or
custodian upon customary terms.
ARTICLE IV.
INVESTMENT ADVISER, ADMINISTRATOR, DISTRIBUTOR,
CUSTODIAN AND TRANSFER AGENT
Section 4.1. INVESTMENT ADVISER. Subject to approval by a Majority
Shareholder Vote, the Trustees may in their discretion from time to time enter
into an investment advisory or management contract or contracts whereby the
other party to such contract shall undertake to furnish the Trust or any
series thereof such management, investment advisory, administration,
accounting, legal, statistical and research facilities and services,
promotional activities and such other facilities and services, if any, as the
Trustees shall from time to time consider desirable, all upon such terms and
conditions as the Trustees may in their discretion determine. Notwithstanding
any provisions of the Declaration, the Trustees may authorize the Investment
Adviser (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales, loans or exchanges of
portfolio securities of the Trust or any series thereof on behalf of the
Trustees or may authorize any officer, employee or Trustee to effect such
purchases, sales, loans or exchanges pursuant to recommendations of the
Investment Advisor, all without further action by the Trustees. Any such
purchases, sales, loans and exchanges shall be deemed to have been authorized
by all of the Trustees. The Trustees may, in their sole discretion, call a
meeting of Shareholders in order to submit to a vote of Shareholders at such
meeting the approval of continuance of any such investment advisory or
management contract.
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Section 4.2. ADMINISTRATOR. The Trustees may in their discretion from
time to time enter into an administrative services contract or contracts
whereby the other party or parties to such contract or contracts shall
undertake to furnish administrative services. The contract or contracts shall
have such terms and conditions as the Trustees may in their discretion
determine are not inconsistent with the Declaration. Such services may be
provided by one or more Persons.
Section 4.3. DISTRIBUTOR. The Trustees may in their discretion from
time to time enter into a contract providing for the sale of Shares of the
Trust or applicable series thereof at not less than the net asset value per
Share (as described in Article VIII hereof) and pursuant to which the Trust or
series thereof may either agree to sell the Shares to the other party to the
contract or appoint such other party its sales agent for such Shares. In
either case, the contract shall be on such terms and conditions as the
Trustees may in their discretion determine is not inconsistent with the
provisions of this Article IV, including, without limitation, the provision
for the repurchase or sale of shares of the Trust by such other party as
principal or as agent of the Trust.
Section 4.4. CUSTODIAN. The Trustees shall employ at all times a
custodian or custodians, meeting the qualifications for custodians of
portfolio securities under the 1940 Act, as custodian with respect to the
Trust and may from time to time enter into a custodian contract or contracts
whereby the other party or parties to such contract or contracts shall
undertake to furnish custodial services. The contract or contracts shall have
such terms and conditions as the Trustees may in their discretion determine
are not inconsistent with the Declaration. Such services may be provided by
one or more Persons.
Section 4.5. TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust. The contract shall have such
terms and conditions as the Trustees may in their discretion determine that
are not inconsistent with the Declaration. Such services may be provided by
one or more Persons.
Section 4.6. PARTIES TO CONTRACT. Any contract of the character
described in Section 4.1, 4.2, 4.3, 4.4 or 4.5 of this Article IV and any
other contract may be entered with any Person, although one or more of the
Trustees or officers of the Trust may be an officer, director, trustee,
shareholder or member of such other party to the contract, and no such
contract shall be invalidated or rendered voidable by reason of the existence
of any such relationship; not shall any Person holding such relationship be
liable merely by reason of such relationship for any loss or expense to the
Trust under or by reason of said contract or accountable for any profit
realized directly or indirectly therefrom, provided that the contract when
entered into was not inconsistent with the provisions of this Article IV. The
same Person may be the other party to any contracts entered into pursuant to
Sections 4.1, 4.2, 4.3, 4.4 and 4.5 above or otherwise, and any individual may
be financially interested or otherwise affiliated with Persons who are parties
to any or all of the contracts referred to in this Section 4.6
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ARTICLE V.
LIMITATION OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property, or the acts, obligations or affairs
of the Trust. No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any Person, other than the
Trust or its Shareholders, in connection with Trust Property or the affairs of
the Trust, save only that arising from bad faith, willful misfeasance, gross
negligence or reckless disregard of his duty to such Person; and all such
Persons shall look solely to the Trust Property or the property of one or more
specific series of the Trust, for satisfaction of claims of any nature arising
in connection with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee or agent, as such, of the Trust is made a party to any suit
or proceeding to enforce any such liability, he shall not, on account thereof,
be held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims by reason of his being or
having been an Shareholder, and shall reimburse the Shareholder for all legal
and other expenses reasonably incurred by him in connection with any such
claim or liability, provided that any such expenses shall be paid solely out
of the Trust Property or the property of one or more series thereof.
Indemnification and reimbursement required by the preceding sentence shall be
made only out of assets of the one or more series whose shares were held by
said Shareholder at the time the act or event occurred which gave rise to the
claim against or liability of said Shareholder. The rights accruing to a
Shareholder under this Section 5.1 shall not exclude any other right to which
the Shareholder may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
Section 5.2. NON-LIABILITY OF TRUSTEES, ETC. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders or
to any Shareholder, Trustee, officer, employee or agent thereof for any action
or failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties.
Section 5.3. INDEMNIFICATION.
(a) The Trustees shall provide for indemnification by the Trust or by
one or more series thereof if the claim arises from conduct with respect to
only such series of every person who is, or has been, a Trustee or officer of
the Trust against all liability and against all expenses reasonably incurred
or paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred by him
in the settlement thereof, in such manner as the Trustees may provide from
time to time in the By-Laws.
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(b) The words "claim," "action," "suit" or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid
in settlement, fines, penalties and other liabilities.
Section 5.4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be
obligated to give any bond or other security for performance of any of his
duties hereunder.
Section 5.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS;
INSURANCE. No purchaser, lender, transfer agent or other Person dealing with
the Trustees or any officer, employee or agent of the Trust or any series
thereof shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made by the Trustees or by said officer, employee
or agent or be liable for the application of money or property paid, loaned or
delivered to or on the order of the Trustees or of said officer, employee or
agent. Every obligation, contract, instrument, certificate, Share, other
security of the Trust or any series thereof or undertaking, and every other
act or thing whatsoever executed in connection with the Trust or any series
thereof, shall be conclusively presumed to have been executed or done by the
executors thereof only in their capacity as Trustees under the Declaration or
in their capacity as officers, employees or agents of the Trust or any series
thereof. Every written obligation, contract, instrument, certificate, Share,
other security of the Trust or a series thereof or undertaking made or issued
by the Trustees shall recite that the same is executed or made by them not
individually, but as Trustees under the Declaration, and that the obligations
of any such instrument are not binding upon any of the Trustees or
Shareholders, individually, but bind only the Trust Property or a series
thereof, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees or Shareholders individually. The Trustees shall at all times
maintain insurance for the protection of the Trust Property and any property
of a series thereof, its Shareholders, Trustees, officers, employees and
agents in such amount as the Trustees shall deem adequate to cover possible
tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust or any series thereof shall, in the performance of his
duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust or any series thereof, upon an opinion of
counsel or upon reports made to the Trust or any series thereof by any of its
officers or employees or by the Investment Adviser, Administrator, Distributor,
Custodian, Transfer Agent, selected dealers, accountants, appraisers or other
experts or consultants selected with reasonable care by the Trustees, officers
or employees of the Trust or any series thereof, regardless of whether such
counsel or expert may also be a Trustee.
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ARTICLE VI.
SHARES OF BENEFICIAL INTEREST
Section 6.1. BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest
with $.01 par value. The number of such shares of beneficial interest
authorized hereunder is unlimited. All shares issued hereunder including,
without limitation, shares issued in connection with a dividend in Shares or a
split in Shares, shall be fully paid and nonassessable.
Section 6.2. RIGHTS OF SHAREHOLDERS. The ownership of the Trust
Property and the right to conduct any business hereinbefore described are
vested exclusively in the Trustees, and the Shareholders shall have no
interest therein other than the beneficial interest conferred by their Shares,
and they shall have no right to call for any partition or division of any
property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights specifically set forth in the Declaration. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion
or exchange rights, except as the Trustees may determine.
Section 6.3. TRUST ONLY. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
Section 6.4. ISSUANCE OF SHARES. The Trustees, in their discretion
may, from time to time without vote of the Shareholders, issues Shares, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times (including,
without limitation, each business day) and on such terms as the Trustees may
deem best, and may in such manner acquire other assets (including the
acquisition of assets subject to, and in connection with, the assumption of
liabilities) and businesses. In connection with any issuance of Shares, the
Trustees may issue fractional Shares. Reductions in the number of outstanding
Shares may be made pursuant to the provisions of Section 8.3. Contributions to
the Trust may be accepted for, and Shares shall be redeemed as, whole Shares
and/or fractions of a Share as described in the Prospectus.
Section 6.5. REGISTER OF SHARES. A register shall be kept at the
principal office of the Trust or at an office of the Transfer Agent which
shall contain the names and addresses of the Shareholders and the number of
Shares held by each of them and a record of all transfers thereof. Such
register may be in written form or any other form capable of being converted
into written form within a reasonable time for visual inspection. Such
register shall be conclusive as to who
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are the holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-Laws
provided, until he has given his address to the Transfer Agent or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of Share certificates and promulgate appropriate rules and regulations as to
their use.
Section 6.6. TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized in writing, upon delivery to the Trustees or the
Transfer Agent of a duly executed instrument of transfer, together with such
evidence of the genuineness of each such execution and authorization and of
other matters as may reasonably be required. Upon this delivery the transfer
shall be recorded on the register of the Trust. Until this record is made,
the Shareholder of record shall be deemed to be the holder of the Shares for
all purposes hereunder and neither the Trustee nor any Transfer Agent or
registrar nor any officer, employee or agent of the Trust shall be affected by
any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be
deemed to be the holder of such Shares for all purposes hereunder and neither
the Trustees nor any Transfer Agent or registrar nor any officer or agent of
the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law, except as may otherwise be provided
by the laws of The Commonwealth of Massachusetts.
Section 6.7. NOTICES. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any Shareholder of record at
his last known address as recorded on the register of the Trust.
Section 6.8. VOTING POWERS. The Shareholders shall have power to vote
(i) for the election of Trustees as provided in Section 2.2; (ii) with respect
to any advisory or management contract of a series as provided in Section 4.1;
(iii) with respect to the amendment of this Declaration as provided in Section
9.3; (iv) with respect to such additional matters relating to the Trust as may
be required or authorized by the 1940 Act, the laws of The Commonwealth of
Massachusetts or other applicable law or by this Declaration or the By-Laws of
the Trust; and (v) with respect to such additional matters relating to the Trust
as may be properly submitted for Shareholder approval. If the Shares of a
series shall be divided into classes as provided in Section 6.9 hereof, the
shares of each class shall have identical voting rights except that the
Trustees, in their discretion, may provide a class of a series with exclusive
voting rights with respect to matters related to expenses being borne solely by
such class.
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Section 6.9. SERIES DESIGNATION. The Trustees, in their discretion
from time to time, may authorize the division of Shares into two or more
series, each series relating to a separate portfolio of investments. The
different series shall be established and designated, and the variations in
the relative rights and preferences as between the different series shall be
fixed and determined, by the Trustees; provided that all Shares shall be
identical except that there may be variations between different series as to
purchase price, determination of net asset value, the price, terms and manner
of redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several series shall have
separate voting rights.
The Trustees, in their discretion without a vote of the Shareholders,
may divide the Shares of any series into classes. In such event, each class
of a series shall represent interests in the Trust Property of a series and
have identical voting, dividend, liquidation and other rights and the same
terms and conditions except that expenses related directly or indirectly to
the distribution of the Shares of a class of a series may be borne solely by
such class (as shall be determined by the Trustees) and, as provided in
Section 6.8, a class of a series may have exclusive voting rights with respect
to matters relating to the expenses being borne solely by such class. The
bearing of such expenses solely by a class of Shares shall be appropriately
reflected (in the manner determined by the Trustees) in the net asset value,
dividend and liquidation rights of the Shares of such class. The division of
the Shares of a series into classes and the terms and conditions pursuant to
which the Shares of the classes of a series will be issued must be made in
compliance with the 1940 Act. No division of Shares of a series into classes
shall result in the creation of a class of Shares having a preference as to
dividends or distributions or a preference in the event of any liquidation,
termination or winding up of the Trust.
If the Trustees shall divide the Shares into two or more series, the
following provisions shall be applicable:
(a) The number of Shares of each series and of each class of a series
that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired
of any series into one or more series that may be established and designated
from time to time. The Trustees may hold as treasury Shares (of the same or
some other series), reissue Shares for such consideration and on such terms as
they may determine, or cancel any Shares of any series reacquired by the Trust
at their discretion from time to time.
(b) The power of the Trustees to invest and reinvest the Trust
Property of each series that may be established shall be governed by Section
3.2 of this Declaration.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of
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account of the Trust. In the event that there are any assets, income, earnings,
profits, and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular series, the Trustees shall allocate
them among any one or more of the series established and designated from time to
time in such manner and on such basis as they, in their sole discretion, deem
fair and equitable. Each such allocation by the Trustees shall be conclusive
and binding upon the Shareholders of all series for all purposes.
(d) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series only and all
expenses, costs, charges and reserves attributable to that series and shall
not be charged with the liabilities, expenses, costs, charges and reserves
attributable to other series and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as
belonging to any particular series shall be allocated and charged by the
Trustees to and among any one or more of the series established and designated
from time to time in such manner and on such basis as the Trustees in their
sole discretioon deem fair and equitable. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be conclusive and
binding upon the shareholders of all series for all purposes. The Trustees
shall have full discretion, to the extent not inconsistent with the 1940 Act,
to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders.
(e) The power of the Trustees to pay dividends and make distributions
with respect to any one or more series shall be governed by Section 8.2 of
this Declaration. Dividends and distributions on Shares of a particular
series may be paid with such frequency as the Trustees may determine, to the
holders of Shares of that series, from such of the income and capital gains,
accrued or realized, from the assets belonging to that series, as the Trustees
may determine, after providing for actual and accrued liabilities belonging to
that series. All dividends and distributions on Shares of a particular series
shall be distributed pro rata to the shareholders of that series in proportion
to the number of Shares of that series held by such holders at the date and
time of record established for the payment of such dividends or distributions,
except that such dividends and distributions shall appropriately reflect
expenses related directly or indirectly to the distribution of Shares of a
class of such series.
The establishment and designation of any series or class within such
series of Shares shall be effective upon the execution by a majority of the
then Trustees (or by an officer of the Trust pursuant to a vote of a majority
of the Trustees) of an instrument setting forth the establishment and
designation of such series or class within such series. Such instrument shall
also set forth any rights and preferences of such series or class within such
series which are in addition to the rights and preferences of Shares set forth
in this eclaration. At any time that there are no Shares outstanding of any
particular series or class within such series previously established and
designated, the Trustees may by an instrument executed by a majority of their
number (or by an officer of the Trust pursuant to a vote of a majority of the
Trustees) abolish that series or class within such series and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration.
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ARTICLE VII.
REDEMPTIONS
Section 7.1. REDEMPTIONS. All outstanding Shares may be redeemed at
the option of the holders thereof, upon and subject to the terms and
conditions provided in this Article VII. The Trust shall, upon application of
any Shareholder or pursuant to authorization from any Shareholder, redeem or
repurchase from the Shareholder outstanding Shares for an amount per share
determined by the Trustees in accordance with any applicable laws and
regulations; provided that (a) the amount per share shall not exceed the cash
equivalent of the proportionate interest of each share in the assets of the
Trust or any series thereof at the time of the redemption or repurchase and
(b) if so authorized by the Trustees, the Trust may, at any time and from time
to time, charge fees for effecting such redemption or repurchase, at rates the
Trustees may establish, as and to the extent permitted under the 1940 Act, and
may, at any time and from time to time, pursuant to the Act, suspend the right
of redemption. The procedures for effecting and suspending redemption shall
be as set forth in the Prospectus from time to time. Payment will be made in
the manner described in the Prospectus.
Section 7.2. REDEMPTION OF SHARES; DISCLOSURE OF HOLDING. If the
Trustee shall, at any time and in good faith, be of the opinion that direct or
indirect ownership of Shares or other securities of the Trust or any series
thereof has or may become concentrated in any Person to an extent which would
disqualify the Trust as a regulated investment company under the Code, then
the Trustees shall have the power by lot or other means deemed equitable by
them (i) to call for redemption by any such Person a number, or principal
amount, of Shares or other securities of the Trust or series thereof
sufficient, in the opinion of the Trustees, to maintain or bring the direct or
indirect ownership of Shares or other securities of the Trust or series
thereof into conformity with the requirements for such qualification and (ii)
to refuse to transfer or issue Shares or other securities of the Trust or any
series thereof to any Person whose acquisition of the Shares or other
securities of the Trust in question would in the opinion of the Trustees
result in such disqualification. The redemption shall be effected at a
redemption price determined in accordance with Section 7.1 hereof.
The holders of Shares or other securities of the Trust or any series
thereof shall upon demand disclose to the Trustees in writing such information
with respect to direct and indirect ownership of Shares or other securities of
the Trust or series thereof as the Trustees deem necessary to comply with the
provisions of the Code, or to comply with the requirements of any other
authority.
Section 7.3. REDEMPTIONS OF ACCOUNTS OF LESS THAN $500. The Trustees
shall have the power at any time to redeem Shares of any Shareholder at a
redemption price determined in accordance with Section 7.1 if at such time the
aggregate net asset value of the Shares in the Shareholder's account is less
than $500. A Shareholder will be notified that the value of his account is less
than $500 and allowed at least sixty (60) days to make an additional investment
before redemption is processed.
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Section 7.4. PAYMENT FOR REDEEMED SHARES IN KIND. Subject to any
applicable provisions of the 1940 Act, payment for any Shares redeemed
pursuant to Section 7.1 or 7.2 hereof may, at the option of the Trustees or
such officer or officers of the Trust as they may authorize for the purpose,
be made in cash or in kind, or partially in cash and partially in kind, and,
in case of full or partial payment in kind, the Trustees or such authorized
officer or officers shall have absolute discretion to determine the securities
or other assets of the Trust and the amount thereof to be distributed in kind.
For such purpose, the value of any securities or other non-cash assets
delivered in payment for Shares redeemed shall be determined in the same
manner as the value of such securities or other non-cash assets are determined
in accordance with Section 8.1 hereof for purposes of determining the net
asset value per Share applicable to such Shares, as of the same time that the
net asset value per Share applicable to such Shares is determined.
Section 7.5. OTHER REDEMPTIONS. The Trust or any series thereof may
also reduce the number of outstanding Shares pursuant to the provisions of
Section 8.3 hereof.
ARTICLE VIII.
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 8.1. NET ASSET VALUE. The net asset value of each outstanding
Share of each series of the Trust shall be determined at such time or times on
such days as the Trustees may determine, in accordance with the 1940 Act, with
respect to each series. The method of determination of net asset value of
Shares of each class of a series shall be determined by the Trustees and shall
be as set forth in the Prospectus with respect to the applicable series with
any expenses being borne solely by a class of Shares being reflected in the
net asset value of Shares of each class. The power and duty to make the daily
calculations for any series may be delegated by the Trustees to the adviser,
administrator, manager, custodian, transfer agent or such other person as the
Trustees may determine. The Trustees may suspend the daily determination of
net asset value to the extent permitted by the 1940 Act.
Section 8.2. DISTRIBUTION TO SHAREHOLDERS. The Trustees shall from
time to time distribute ratably among the Shareholders of any series such
proportion of the net profits, surplus (including paid-in-surplus), capital, or
assets with respect to such series held by the Trustees as they deem proper with
any expenses being borne solely by a class of Shares of any series being
reflected in the net profits or other assets being distributed to such class.
Such distribution may be made in cash or property (including without limitation
any type of obligations of the Trust or any assets thereof), and the Trustees
may distribute ratably among the Shareholders of any series additional Shares of
such series issuable hereunder in such manner, at such times, and on such terms
as the Trustees may deem proper. Such distributions may be among the
Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such later
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date as the Trustees shall determine. The Trustees may always retain from the
net profits such amount as they may deem necessary to pay the debts or expenses
of the Trust or to meet obligations of the Trust, or as they deem desirable to
use in the conduct of its affairs or to retain for future requirements or
extensions of the business. The Trustees may adopt and offer to Shareholders of
any series such dividend reinvestment plans, cash dividends payout plans, or
related plans as the Trustee shall deem appropriate for such series.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
Section 8.3. DETERMINATION OF NET INCOME. The Trustees shall have the
power to determine the net income of the Trust or any series thereof one or
more times on each business day and at each determination to declare the net
income as dividends in additional Shares. The determination of net income and
the resultant declaration of dividends shall be as set forth in the
Prospectus. It is expected that the Trust or any series thereof will have a
positive net income at the time of each determination. If for any reason the
net income is a negative amount, the Trustees shall have authority to reduce
the number of outstanding Shares. The reduction will be effected by having
each Shareholder proportionately contribute to the capital the necessary
Shares that represent the amount of the excess upon such determination. Each
Shareholder will be deemed to have agreed to such contribution in these
circumstances by his investment in the Trust or any series thereof. The
Trustees shall have full discretion to determine whether any cash or property
received shall be treated as income or as principal and whether any item of
expenses shall be charged to the income or the principal account, and their
determination made in good faith shall be conclusive upon the Shareholders.
In the case of stock dividends received, the Trustees shall have full
discretion to determine, in the light of the particular circumstances, how
much, if any, of the value thereof shall be treated as income, with the
balance, if any, to be treated as principal.
Section 8.4. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe,
in their absolute discretion, such other bases and times for determining the
per share net asset value of the Trust's Shares or net income, or the
declaration and payment of dividends and distributions as they deem necessary
or desirable or to enable the Trust to comply with any provision of the 1940
Act, including any rule or regulation adopted pursuant to Section 22 of the
1940 Act by the Securities and Exchange Commission or any securities
association registered under the Securities Exchange Act of 1934, all as in
effect now or hereafter amended or modified.
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ARTICLE IX.
DURATION; TERMINATION OF
TRUST; AMENDMENT; MERGERS, ETC.
Section 9.1. DURATION. The Trust or any series thereof shall continue
without limitation of time but subject to the provisions of this Article IX.
Section 9.2. TERMINATION.
(a) The Trust may be terminated by (1) the affirmative vote of the
holders of not less than two-thirds of the Shares of each series of the Trust
at any meeting of Shareholders, (2) by an instrument in writing, without a
meeting, signed by a majority of the Trustees and consented to by the holders
of not less than two-thirds of such Shares, or (3) by the Trustees by written
notice to the Shareholders. In addition, any series may be so terminated by
vote or written consent of not less than two-thirds of the Shares of such
series. Upon the termination of the Trust of any series:
(i) The Trust or such series shall carry on no business except
for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust or such series and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust or such series
shall have been wound up, including the power to fulfill or discharge
the contracts of the Trust or such series, collect its assets, sell,
convey, assign, exchange, transfer or otherwise dispose of all or any
part of the remaining Trust Property to one or more persons at public or
private sale for consideration which may consist in whole or in part of
cash, securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property shall require approval of the principal terms of the
transaction and the nature and amount of the consideration by vote or
consent of the holders of a majority of the Shares entitled to vote.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and
refunding agreements, as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property of any series, in
cash or in kind or partly each, among the Shareholders of such series
and each class of such series, according to their respective rights
taking into account their respective net asset values and the proper
allocation of expenses being borne solely by any series or any class of
Shares of a series.
(b) After termination of the Trust or a series and distribution to the
Shareholders as herein provided, a majority of the Trustees (or an officer of
the Trust pursuant to a vote of a
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majority of the Trustees) shall execute and lodge among the records of the Trust
an instrument in writing setting forth the fact of such termination, and such
instrument shall be filed with the Secretary of The Commonwealth of
Massachusetts, as well as with any other governmental office where such filing
may from time to time be required by the laws of Massachusetts. Upon termination
of the Trust, the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease. Upon termination of any series, the
Trustees shall thereupon be discharged from all further liabilities and duties
with respect to such series, and the rights and interests of all Shareholders of
such series shall thereupon cease.
Section 9.3. AMENDMENT PROCEDURE.
(a) This Declaration may be amended by a Majority Shareholder Vote, at
a meeting of Shareholders, or by written consent without a meeting. The
Trustees may also amend this Declaration without the vote or consent of
Shareholders to change the name of the Trust or a series, to supply any
omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or if they deem it necessary to conform this
Declaration to the requirements of applicable federal laws or regulations or
the requirements of the regulated investment company provisions of the
Internal Revenue Code, but the Trustees shall not be liable for failing so to
do.
(b) No amendment may be made under this Section 9.3 which would change
any rights with respect to any Shares of the Trust or a series by reducing the
amount payable thereon upon liquidation of the Trust or a series or by
diminishing or eliminating any voting rights pertaining thereto, except with
the vote or consent of the holders of two-thirds of the Shares outstanding and
entitled to vote. Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from personal liability
of the Shareholders, Trustees, officers, employees and agents of the Trust or
a series or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the
Secretary or any Assistant Secretary of the Trust, setting forth an amendment
and reciting that it was duly adopted by the Shareholders or by the Trustees
as aforesaid or a copy of the Declaration, as amended, and executed by a
majority of the Trustees or certified by the Secretary or any Assistant
Secretary of the Trust, shall be conclusive evidence of such amendment when
lodged among the records of the Trust. Such amendment shall be effective when
lodged among the records of the Trust unless some later effective date is
specified.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust or a series thereof shall
have become effective, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees or by an
instrument signed by a majority of the Trustees.
20
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Section 9.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust or
any series thereof may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all or
substantially all of the Trust Property or property of a series, including its
good will, upon such terms and conditions and for such consideration when and
as authorized, at any meeting of Shareholders called for the purpose, by the
affirmative vote of the holders of not less than two-thirds of the Shares;
provided, however, that, if the merger, consolidation, sale, lease or exchange
is recommended by the Trustees, a Majority Shareholder Vote shall be
sufficient authorization.
Section 9.5. INCORPORATION. With approval of a Majority Shareholder
Vote, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take all of the Trust
Property or property of a series or to carry on any business in which the
Trust or any series shall directly or indirectly have any interest, and to
sell, convey and transfer the Trust Property or the property of a series to
any corporation, trust, association or organization in exchange for the shares
or securities thereof or otherwise, and to lend money to, subscribe for the
Shares or securities of, and enter into any contracts with any corporation,
trust, partnership, association or organization in which the Trust or any
series holds or is about to acquire shares or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
series or any successor thereto and any corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize
or assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organizations or entities.
ARTICLE x.
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust or a series thereof,
including financial statements which shall at least annually be certified by
independent public accountants.
ARTICLE XI.
MISCELLANEOUS
Section 11.1. FILING. This Declaration and any amendment hereto shall
be filed in the office of the Secretary of The Commonwealth of Massachusetts
and in such other places as may be required under the laws of Massachusetts
and may also be filed or recorded in such other places as the Trustees deem
appropriate. Each amendment so filed shall be accompanied by a certificate
signed and acknowledged by a Trustee or by the Secretary or any Assistant
Secretary
21
<PAGE>
of the Trust stating that such action was duly taken in a manner
provided herein. A restated Declaration, integrating into a single instrument
all of the provisions of the Declaration which are then in effect and
operative, may be executed from time to time by a majority of the Trustees and
shall, upon filing with the Secretary of The Commonwealth of Massachusetts, be
conclusive evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration and the various amendments
thereto.
Section 11.2. RESIDENT AGENT. The Trust may appoint and maintain a
resident agent in The Commonwealth of Massachusetts.
Section 11.3. GOVERNING LAW. This Declaration is executed by the
Trustees with reference to the laws of The Commonwealth of Massachusetts, and
the rights of all parties and the validity and construction of every provision
hereof shall be subject to and construed according to the laws of the
Commonwealth, notwithstanding any Massachusetts law governing choice of law
which may require the construction of this Declaration in accordance with the
laws of another state or jurisdiction.
Section 11.4. COUNTERPARTS. The Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 11.5. RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust, appears to be a Trustee
hereunder, or Secretary or Assistant Secretary of the Trust, certifying to:
(a) the number or identity of Trustees or Shareholders, (b) the due
authorization of the excecution of any instrument or writing, (c) the form of
any vote passed at a meeting of Trustees or Shareholders, (d) the fact that
the number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (e) the
form of any By-Laws adopted by or the identity of any officers elected by the
Trustees or (f) the existence of any fact of facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees and their
successors.
Section 11.6. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of the Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provisions shall be deemed never to have
constituted a part of the Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of the
Declaration or render invalid or inproper any action taken or omitted prior to
such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
affect only the provision in the jurisdiction
22
<PAGE>
and shall not in any manner affect the provision in any other jurisdiction or
any other provision of the Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned has set her seal this ____ day of
_____________, 1994.
-------------------------------------
S. Jane Rose, Secretary
23
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A C K N O W L E D G M E N T
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK ) , 199
------------ -
Then personally appeared before me the above named S. Jane Rose and
acknowledged the foregoing instrument to be her free act and deed.
-------------------------------------
Notary Public
24
<PAGE>
CERTIFICATE OF DESIGNATION
PRUDENTIAL-BACHE FLEXIFUND
The undersigned, being the Secretary of Prudential-Bache FlexiFund
(hereinafter referred to as the "Trust"), a trust with transferable shares of
the type commonly called a Massachusetts business trust, DOES HEREBY CERTIFY
that, pursuant to the authority conferred upon the Trustee of the Trust to
Section 6.9 and Section 9.3 of the Declaration of Trust, dated February 23,
1987 (referred to as the "Declaration of Trust"), and by the affirmative vote
of a majority of the Trustees at a meeting duly called and held on October 11,
1989, the Declaration of Trust is amended as follows:
(1) The shares of beneficial interest of each Portfolio of the Trust
are hereby classified into two classes, designated "Class A Shares" and "Class
B Shares," respectively.
(2) The Class A Shares and the Class B Shares represent identical
interests in each Portfolio and have identical voting, dividend, liquidation
and other rights, as set forth in the Declaration of Trust, including without
limitation Section 6.9 of the Declaration of Trust; provided, however, that
(a) expenses relating to the distribution of any class of shares shall be
borne solely by such class, and (b) such expenses shall be appropriately
reflected in the net asset value and the dividends, distribution and
liquidation rights of such class.
(3) The Class A Shares shall be subject to a front-end sales load and
Rule 12b-1 distribution fee as determined from time to time by the Trustees.
(4) The Class B Shares shall be subject to a contingent deferred sales
charge and Rule 12b-1 distribution fee as determined from time to time by the
Trustees.
IN WITNESS WHEREOF, the undersigned has set her seal this 11th day of
January, 1990.
/S/ S. JANE ROSE
----------------------------------
S. Jane Rose, Secretary
<PAGE>
A C K N O W L E D G M E N T
STATE OF NEW YORK )
ss. January 11, 1990
COUNTY OF NEW YORK )
Then personally appeared before me the above named S. Jane Rose and
acknowledged the foregoing instrument to be her free act and deed.
/s/ Anita L. Jennings
-------------------------------
Notary Public
<PAGE>
PRUDENTIAL ALLOCATION FUND
Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest, $.01 Par Value
The undersigned, being a majority of the Trustees of Prudential
Allocation Fund, a Massachusetts business trust (the "Fund"), acting pursuant
to Section 6.9 and 9.3 of the Declaration of Trust dated February 23, 1987
(the "Declaration of Trust") of the Fund, have determined to change the name
of the Aggressively Managed Portfolio of the Fund's shares of beneficial
interest to "Strategy Portfolio" and to create a new class of shares of the
Fund and have duly adopted the following amendments and restatement of the
Fund's Establishment and Designation of Series of Shares of Beneficial
Interest, $.01 Par Value, dated _____________, 1994, reflecting such changes:
The shares of beneficial interest of the Fund shall be divided into two
separate series, each series to have the following special and relative
rights:
1. The series shall be designated as follows:
Conservatively Managed Portfolio
Strategy Portfolio
2. Each series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Fund's
then currently effective registration statement under the Securities Act of
1933. Each share of beneficial interest of each series ("share") shall be
redeemable, shall be entitled to one vote or fraction thereof in respect of a
fractional share on matters on which shares of that series shall be entitled
to vote and shall represent a pro rata beneficial interest in the assets
allocated to that series, and shall be entitled to receive its pro rata share
of net assets of that series upon liquidation of that series, all as provided
in the Declaration of Trust.
3. The shares of beneficial interest of each series of the Trust are
classified into three classes, designated "Class A Shares," "Class B Shares,"
and "Class C Shares." An unlimited number of each such class of each such
series may be issued. All Class A Shares and Class B Shares of each such
series outstanding on the date on which the amendments provided for herein
<PAGE>
become effective shall be and continue to be Class A Shares and Class B
Shares, respectively, of such series.
4. The holders of Class A Shares, Class B Shares and Class C Shares
of each series having the same shall be considered Shareholders of such
series, and shall have the relative rights and preferences set forth herein
and in the Declaration of Trust with respect to Shares of such series, and
shall also be considered Shareholders of the Trust for all other purposes
(including, without limitation, for purposes of receiving reports and notices
and the right to vote) and, for matters reserved to the Shareholders of one or
more other classes or series by the Declaration of Trust or by any instrument
establishing and designating a particular class or series, or as required by
the Investment Company Act of 1940 and/or the rules and regulations of the
Securities and Exchange Commission thereunder (collectively, as from time to
time in effect, the "1940 Act") or other applicable laws.
5. The Class A Shares, Class B Shares and Class C Shares of each series
shall represent an equal proportionate interest in the share of such class in
the Trust Property belonging to that series, adjusted for any liabilities
specifically allocable to the Shares of that class, and each Share of any such
class shall have identical voting, dividend, liquidation and other rights and
the same terms and conditions, except that the expenses related directly or
indirectly to the distribution of the Shares of a class, and any service fees to
which such class is subject (as determined by the Trustees), shall be borne
solely by such class, and such expenses shall be appropriately reflected in the
determination of net asset value and the dividend, distribution and liquidation
rights of such class.
6. (a) Class A Shares of each series shall be subject to (i) a
front-end sales charge and (ii) (A) an asset-based sales charge pursuant to a
plan under Rule 12b-1 of the 1940 Act (a "Plan"), and/or (B) a service fee for
the maintenance of shareholder accounts and personal services, in such amounts
as shall be determined from time to time.
(b) Class B Shares of each series shall be subject to (i) a
contingent deferred sales charge and (ii) (A) an asset-based sales charge
pursuant to a Plan, and/or (B) a service fee
2
<PAGE>
for the maintenance of shareholder accounts and personal services, in such
amounts as shall be determined from time to time.
(c) Class C Shares of each series shall be subject to (i) a
contingent deferred sales charge and (ii) (A) an asset-based sales charge
pursuant to a Plan, and/or (B) a service fee for the maintenance of
shareholder accounts and personal services, in such amounts as shall be
determined from time to time.
7. Subject to compliance with the requirements of the 1940 Act, the
Trustees shall have the authority to provide that holders of Shares of any
series shall have the right to convert said Shares into Shares of one or more
other series of registered investment companies specified for the purpose in
this Trust's Prospectus for the series accorded such right, that holders of
any class of Shares of a series shall have the right to convert such Shares
into Shares of one or more other classes of such series, and that Shares of
any class of a series shall be automatically converted into Shares of another
class of such series, in each case in accordance with such requirements and
procedures as the Trustees may from time to time establish. The requirements
and procedures applicable to such mandatory or optional conversion of Shares
of any such class or series shall be set forth in the Prospectus in effect
with respect to such Shares.
8. Shareholders of each series and class shall vote as a separate
series or class, as the case may be, on any matter to the extent required by,
and any matter shall be deemed to have been effectively acted upon with
respect to any series or class as provided in, Rule 18f-2, as from time to
time in effect, under the 1940 Act, or any successor rule and by the
Declaration of Trust. Except as otherwise required by the 1940 Act, the
Shareholders of each class of any series having more than one class of Shares,
voting as a separate class, shall have sole and exclusive voting rights with
respect to the provisions of any Plan applicable to Shares of such class, and
shall have no voting rights with respect to provisions of any Plan applicable
solely to any other class of Shares of such series.
9. The assets and liabilities of the Fund shall be allocated among
the above-referenced series as set forth in Section 6.9 of the Declaration of
Trust, except as provided below.
3
<PAGE>
(a) Costs incurred and payable by the Fund in connection with
its organization and initial registration and public offering of shares shall
be divided equally between the Conservatively Managed Portfolio and Strategy
Portfolio and shall be amortized for each such series over the period
beginning on the date that such costs become payable and ending sixty months
after the commencement of operations of the Fund.
(b) The liabilities, expenses, costs, charges or reserves of the
Fund (other than the investment advisory fee or the organization expenses paid
by the Fund) which are not readily identifiable as belonging to any particular
series shall be allocated among the series on the basis of their relative
average daily net assets.
10. The Trustees (including any successor Trustees) shall have the
right at any time and from time to time to reallocate assets and expenses or
to change the designation of any series now or hereafter created, or to
otherwise change the special and relative rights of any such series provided
that such change shall not adversely affect the rights of holders of shares of
a series.
11. This Amended and Restated Establishment and Designation of Series
may be executed in several counterparts, each of which shall be an original
and all of which shall constitute one instrument.
Dated: ____________________, 1994
- ----------------------------------- -------------------------------------
EDWARD D. BEACH DOUGLAS H. McCORKINDALE
- ----------------------------------- -------------------------------------
DONALD D. LENNOX RICHARD A. REDEKER
- ----------------------------------- -------------------------------------
LAWRENCE C. McQUADE LOUIS A. WEIL, III
- -----------------------------------
THOMAS F. MOONEY
4
<PAGE>
Exhibit 2(b)
RESTATED BY-LAWS
OF
PRUDENTIAL ALLOCATION FUND
__________________, 1994
-1-
<PAGE>
RESTATED BY-LAWS
OF
PRUDENTIAL ALLOCATION FUND
ARTICLE I.
DEFINITIONS
The terms "ADMINISTRATOR," "COMMISSION," "CUSTODIAN,"
"DECLARATION," "DISTRIBUTOR," "INVESTMENT ADVISER," "1940 ACT,"
"SHAREHOLDER," "SHARES," "TRANSFER," "TRANSFER AGENT," "TRUST,"
"TRUST PROPERTY," "TRUSTEES," and "MAJORITY SHAREHOLDER VOTE,"
have the respective meanings given them in the Declaration of Trust of
Prudential-Bache FlexiFund dated February 23, 1987, as amended from time to
time.
ARTICLE II.
OFFICES
Section 1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in The Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
Section 2. OTHER OFFICES. The Trust may have offices in such other
places without as well as within the Commonwealth as the Trustee may from time
to time determine.
ARTICLE III.
SHAREHOLDERS
Section 1. MEETINGS. Meetings of the Shareholders shall be held to
the extent provided in the Declaration at such place within or without The
Commonwealth of Massachusetts as the Trustees shall designate. The holders of
a majority of outstanding Shares of the Trust or series of the Trust present
in person or by proxy and entitled to vote shall constitute a quorum with
respect to Shares of the Trust or such series at any meeting of the
Shareholders.
Section 2. NOTICE OF MEETINGS. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each
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<PAGE>
Shareholder at his or her address as recorded on the register of the Trust
mailed at least (10) days and not more than ninety (90) days before the
meeting. Only the business stated in the notice of the meeting shall be
considered at such meeting. Any adjourned meeting may be held as adjourned
without further notice. No notice need be given to any Shareholder who shall
have failed to inform the Trust of his or her current address or if a written
waiver of notice, executed before or after the meeting by the Shareholder or
his or her attorney thereunto authorized, is filed with the records of the
meeting.
Section 3. RECORD DATE FOR MEETINGS AND OTHER PURPOSES. For the
purpose of determining the Shareholders who are entitled to notice of and to
vote at any meeting, or to participate in any distribution, or for the purpose
of any other action, the Trustees may from time to time close the transfer
books for such period, not exceeding ninety (90) days, as the Trustees may
determine; or without closing the transfer books the Trustees may fix a date
not more than sixty (60) days prior to the date of any meeting of Shareholders
or distribution or other action as a record date for the determinations of the
persons to be treated as Shareholders of record for such purposes, except for
dividend payments which shall be governed by the Declaration.
Section 4. PROXIES. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy
shall be voted at any meeting unless it shall have been placed on file with
the Secretary, or with such other officer or agent of the Trust as the
Secretary may direct, for verification prior to the time at which such vote
shall be taken. Proxies may be solicited in the name of one or more Trustees
or one or more of the officers of the Trust. Only Shareholders of record
shall be entitled to vote. Each whole Share shall be entitled to one vote as
to any matter on which it is entitled by the Declaration to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. When
any Share is held jointly by several persons, any one of them may vote at any
meeting in person or by proxy in respect of such Share, but if more than one
of them shall be present at such meeting in person or by proxy, and such joint
owners or their proxies so present disagree as to any vote to be cast, such
vote shall not be received in respect of such Share. A proxy purporting to be
executed by or
-3-
<PAGE>
on behalf of a Shareholder shall be deemed valid unless challenged at or prior
to its exercise, and the burden of proving invalidity shall rest on the
challenger. If the holder of any such Share is a minor or a person of unsound
mind, and subject to guardianship or the legal control of any other person as
regards the charge or management of such Share, he or she may vote by his or
her guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
Section 5. INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
Section 6. ACTION WITHOUT MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders of
the Trust or the applicable series of the Trust entitled to vote on the matter
(or such larger proportion thereof as shall be required by law, the
Declaration or these By-Laws for approval of such matter) consent to the
action in writing and the written consents are filed with the records of the
meetings of Shareholders. Such consents shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
ARTICLE IV.
TRUSTEES
Section 1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the
President, or by any one of the Trustees, at the time being in office. Notice
of the time and place of each meeting other than regular or stated meetings
shall be given by the Secretary or an Assistant Secretary or by the officer or
Trustee calling the meeting and shall be mailed to each Trustee at least two
days before the meeting, or shall be telegraphed, cabled, or wired to each
Trustee at his or her business address, or personally delivered to him or her
at least one day before the meeting. Such notice may, however, be waived by
any Trustee. Notice of a meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her
-4-
<PAGE>
before or after the meeting, is filed with the records of the meeting, or to
any Trustee who attends the meeting without protesting prior thereto or at
its commencement the lack of notice to him or her. A notice or waiver of
notice need not specify the purpose of any meeting. The Trustees may meet by
means of a telephone conference circuit or similar communications equipment
by means of which all persons participating in the meeting are connected,
which meeting shall be deemed to have been held at a place designated by the
Trustees at the meeting. Except as hereinafter described, participation in a
telephone conference meeting shall constitute presence in person at such
meeting. Except as otherwise required by law, any action required or
permitted to be taken at any meeting of the Trustees may be taken by the
Trustees without a meeting if all the Trustees consent to the action in
writing and the written consents are filed with the records of the Trustees'
meetings. Such consents shall be treated for all purposes as a vote taken
at a meeting of the Trustees. Matters required by law to be approved by vote
of a majority of the Trustees cast in person at a meeting called for the
purpose of voting on such approval may not be delegated to any other Trustee
for vote, nor shall participation in a telephone conference meeting constitute
presence in person for such a meeting.
Section 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees
shall be present in person at any regular or special meeting of the Trustees
in order to constitute a quorum for the transaction of business at such
meetings and (except as otherwise required by law, the Declaration or these
By-Laws) the act of a majority of the Trustees present at any such meeting, at
which a quorum is present, shall be the act of the Trustees. In the absence
of a quorum, a majority of the Trustees present may adjourn the meeting from
time to time until a quorum shall be present. Notice of an adjourned meeting
need not be given.
ARTICLE V.
COMMITTEES
Section 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) Trustees to hold office at the
pleasure of the Trustees, which shall have the power
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<PAGE>
to conduct the current and ordinary business of the Trust while the Trustees are
not in session, including the purchase and sale of securities and the
designation of securities to be delivered upon redemption of Shares of the
Trust, and such other powers of the Trustees as the Trustees may, from time to
time, delegate to them except those powers which by law, the Declaration or
these By-Laws they are prohibited from delegating. The Trustees may also elect
from their own number or otherwise other Committees from time to time, the
number composing such Committees, the powers conferred upon the same (subject to
the same limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees
may designate a chairman of any such Committee. In the absence of such
designation the Committee may elect its own Chairman.
Section 2. MEETINGS, QUORUM AND MANNER OF ACTING. The Trustees may
(1) provide for stated meetings of any Committee, (2) specify the manner of
calling and notice required for special meetings of any Committee, (3) specify
the number of members of a Committee required to constitute a quorum and the
number of members of a Committee required to exercise specified powers
delegated to such Committee, (4) authorize the making of decisions to exercise
specified powers by written assent of the requisite number of members of a
Committee without a meeting, and (5) authorize the members of a Committee to
meet by means of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in
a book designated for that purpose and kept in the Office of the Trust.
ARTICLE VI
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the
business of the Trust may require, including one or more Vice Presidents, one
or more Assistant Secretaries, and one or more Assistant Treasurers.
-6-
<PAGE>
The Trustees may delegate to any officer or committee the power to appoint any
subordinate officers or agents.
Section 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise
provided by law, the Declaration or these By-Laws, the President, the
Treasurer and the Secretary shall each hold office until his or her successor
shall have been duly elected and qualified, and all other officers shall hold
office at the pleasure of the Trustees. The Secretary and Treasury may be the
same person. A Vice President and the Treasurer or a Vice President and the
Secretary may be the same person, but the offices of Vice President, Secretary
and Treasurer shall not be held by the same person. The President shall hold
no other office. Except as above provided, any two offices may be held by the
same person. Any officer may be but none need be a Trustee or Shareholder.
Section 3. REMOVAL. The Trustees, at any regular or special meeting
of the Trustees, may remove any officer without cause, by a vote of a majority
of the Trustees then in office. Any officer or agent appointed by an officer
or committee may be removed with or without cause by such appointing officer
or committee.
Section 4. POWERS AND DUTIES OF THE PRESIDENT. The President shall
be the principal executive officer of the Trust. He or she may call meetings
of the Trustees and of any Committee thereof when he or she deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control
of the Trustees and to the control of any Committees of the Trustees, within
their respective spheres, as provided by the Trustees, the President shall at
all times exercise a general supervision and direction over the affairs of the
Trust. The President shall have the power to employ attorneys and counsel for
the Trust and to employ such subordinate officers, agents, clerks and
employees as he or she may find necessary to transact the business of the
Trust. He or she shall also have the power to grant, issue, execute or sign
such powers of attorney, proxies or other documents as may be deemed advisable
or necessary in furtherance of the interests of the Trust. The President
shall have such other powers and duties as from time to time may be
conferred upon or assigned to him or her by the Trustees.
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<PAGE>
Section 5. POWERS AND DUTIES OF VICE PRESIDENT. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform
all the duties and may exercise any of the powers of the President, subject to
the control of the Trustees. Each Vice President shall perform such other
duties as may be assigned to him or her from time to time by the Trustees and
the President.
Section 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall
be the principal financial and accounting officer of the Trust. The Treasurer
shall deliver all funds of the Trust which may come into his or her hands to
such Custodian as the Trustees may employ pursuant to Article X of these
By-Laws. He or she shall render a statement of condition of the finances of
the Trust to the Trustees as often as they shall require the same and he or
she shall in general perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the Trustees. The Treasurer shall give a bond for the faithful
discharge of his or her duties, if required so to do by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
Section 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall
keep the minutes of all meetings of the Trustees and of the Shareholders in
proper books provided for that purpose; he or she shall have custody of the
seal of the Trust; he or she shall have charge of the Share transfer books,
lists and records unless the same are in the charge of the Transfer Agent.
The Secretary shall attend to the giving and serving of all notices by the
Trust in accordance with the provisions of these By-Laws and as required by
law; and subject to these By-Laws, he or she shall in general perform all
duties incident to the office of Secretary and such other duties as from time
to time may be assigned to him or her by the Trustees.
Section 8. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence
or disability of the Treasurer, any Assistant Treasurer designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Treasurer. Each Assistant Treasurer shall give a bond for the faithful
discharge of his or her duties, if required so to do by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
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<PAGE>
Section 9. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the
absence or disability of the Secretary, any Assistant Secretary designated by
the Trustees shall perform all the duties, and may exercise any of the powers,
of the Secretary. Each Assistant Secretary shall perform such other duties as
from time to time may be assigned to him by the Trustees.
Section 10. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers,
by any Committee or officer upon whom such power may be conferred by the
Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he or she is also a Trustee.
ARTICLE VII.
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of August in
each year and shall end on the last day of July in each year, provided,
however, that the Trustees may from time to time change the fiscal year.
ARTICLE VIII.
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX.
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed
to have been telegraphed, cabled or wired for the purposes of these By-Laws
when it has been delivered to a representative of any telegraph, cable or wire
company with instructions that it be telegraphed, cabled or wired.
-9-
<PAGE>
ARTICLE X.
CUSTODY OF SECURITIES
Section 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall place and at
all times maintain in the custody of a Custodian (including any sub-custodian
for the Custodian) all funds, securities and similar investments included in
the Trust Property. The Custodian (and any sub-custodian) shall be a bank
having not less than $20,000,000 aggregate capital, surplus and undivided
profits and shall be appointed from time to time by the Trustees, who shall
fix its remuneration.
Section 2. ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian, but in
the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Trust
shall function without a custodian or shall be liquidated. If so directed by
a Majority Shareholder Vote, the Custodian shall deliver and pay over all
Trust Property held by it as specified in such vote.
Section 3. PROVISIONS OF CUSTODIAN CONTRACT. The following
provisions shall apply to the employment of a Custodian and to any contract
entered into with the Custodian so employed: The Trustees shall cause to be
delivered to the Custodian all securities included in the Trust Property or to
which the Trust may become entitled, and shall order the same to be delivered
by the Custodian only in completion of a sale, exchange, transfer, pledge,
loan of portfolio securities to another person, or other disposition thereof,
all as the Trustees may generally or from time to time require or approve or
to a successor Custodian; and the Trustees shall cause all funds included in
the Trust Property or to which it may become entitled to be paid to the
Custodian, and shall order the same disbursed only for investment against
delivery of the securities acquired (including securities acquired under a
repurchase agreement), or the return of cash held as collateral for loans of
portfolio securities, or in payment of expenses, including management
compensation, and liabilities of the Trust, including distributions to
Shareholders, or to a
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<PAGE>
successor Custodian. Notwithstanding anything to the contrary in these
By-Laws, upon receipt of proper instructions, which may be standing
instructions, the Custodian may deliver funds in the following cases. In
connection with repurchase agreements, the Custodian shall transmit prior to
receipt on behalf of the Fund of any securities or other property, funds from
the Fund's custodian account to a special custodian approved by the Trustees of
the Fund, which funds shall be used to pay for securities to be purchased by the
Fund subject to the Fund's obligation to sell and the seller's obligation to
repurchase such securities. In such case, the securities shall be held in the
custody of the special custodian. In connection with the Trust's purchase or
sale of financial futures contracts, the Custodian shall transmit, prior to
receipt on behalf of the Fund of any securities or other property, funds from
the Trust's custodian account in order to furnish to and maintain funds with
brokers as margin to guarantee the performance of the Trust's futures
obligations in accordance with the applicable requirements of commodities
exchanges and brokers.
Section 4. CENTRAL CERTIFICATE SYSTEM. Subject to applicable rules,
regulations and orders adopted by the Commission, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal
only upon the order of the Trust.
ARTICLE XI.
INDEMNIFICATION
A representative of the Trust shall be indemnified by the Trust with
respect to each proceeding against such representative, except a proceeding
brought by or on behalf of the Trust,
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<PAGE>
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such representative in
connection with such proceeding, provided that such representative acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Trust and, with respect to any criminal proceeding,
had no reasonable cause to believe his or her conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith in a manner which he or
she reasonably believed to be in or not opposed to the best interests of the
Trust and, with respect to any criminal proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
A representative of the Trust shall be indemnified by the Trust, with
respect to each proceeding brought by or on behalf of the Trust to obtain
judgment or decree in its favor, against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection with the defense
or settlement of such proceeding, if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Trust; except that no indemnification shall be made in
respect of any claim, issue, or matter as to which such representative has
been adjudged to be liable for negligence or misconduct in the performance of
his or her duty to the Trust, unless and only to the extent that the court in
which the proceeding was brought, or a court of equity in the county in which
the Trust has its principal office, determines upon application that, despite
the adjudication of liability but in view of all circumstances of the case,
such representative is fairly and reasonably entitled to indemnity for the
expenses which the court considers proper.
To the extent that the representative of the Trust has been successful
on the merits or otherwise in defense of any proceeding referred to in the
preceding two paragraphs, or in defense of any claim, issue or matter therein,
the Trust shall indemnify him or her against all expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
therewith.
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<PAGE>
Except as provided in the preceding paragraph any indemnification under
the first two paragraphs of this Article XI (unless ordered by a court) shall
be made by the Trust only as authorized in the specific case upon a
determination that indemnification of the representative of the Trust is
proper in the circumstances because he or she has met the applicable standard
of conduct set forth in such paragraphs. The determination shall be made (1)
by the Trustees by a majority vote of a quorum consisting of Trustees who were
not parties to the proceeding, or (2) if a quorum is not obtainable or if a
quorum of disinterested Trustees so directs, by independent legal counsel in a
written opinion, or (3) by a Majority Shareholder Vote.
Expenses (including attorneys' fees) incurred in defending a proceeding
may be paid by the Trust in advance of the final disposition thereof if (1)
authorized by the Trustees in the specific case, and (2) the Trust receives an
undertaking by or on behalf of the representative of the Trust to repay the
advance if it is not ultimately determined that he or she is entitled to be
indemnified by the Trust as authorized in this Article XI.
The indemnification provided by this Article XI shall not be deemed
exclusive of any other rights to which a representative of the Trust or other
person may be entitled under any agreement, vote of Shareholders or
disinterested Trustees or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding the office, and
shall continue as to a person who has ceased to be a Trustee, officer,
employee or agent and inure to the benefit of his or her heirs and personal
representatives.
The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee or agent of the Trust, or is or was
serving at the request of the Trust as a trustee, director, officer, employee
or agent of another trust, corporation, partnership, joint venture or other
enterprise, against any liability asserted against him or her and incurred by
him or her in any such capacity or arising out of his or her status as such,
regardless of whether the Trust would have the power to indemnify him or her
against the liability under the provisions of this Article XI, provided such
insurance shall be consistent with the provisions of applicable federal and
state laws.
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<PAGE>
Nothing contained in this Article XI shall be construed to indemnify any
representative of the Trust against any liability to the Trust or to its
Shareholders to which he or she would otherwise be subject by reason of
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
As used in this Article XI, "representative of the Trust" means an
individual (1) who is a present or former Trustee, officer, agent or employee
of the Trust or who serves or has served another trust, corporation,
partnership, joint venture or other enterprise in one of such capacities at
the request of the Trust, and (2) who by reason of his or her position is, has
been or is threatened to be made a party to a proceeding; and "proceeding"
includes any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administration or investigative.
ARTICLE XII.
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-Laws may be adopted by (a) a Majority Shareholder Vote or (b) by the
Trustees, provided, however, that no By-Law may be amended, adopted or
repealed by the Trustees if such amendment, adoption or repeal requires,
pursuant to law, the Declaration or these By-Laws, a vote of the Shareholders.
End of By-Laws
-14-
<PAGE>
Exhibit 99.6(c)
PRUDENTIAL _________ FUND
Form of
Distribution Agreement
(CLASS A SHARES)
Agreement made as of _____________199_, between Prudential ________
Fund [a Maryland Corporation/Massachusetts Business Trust] (the Fund) and
Prudential Mutual Fund Distributors, Inc., a Delaware Corporation (the
Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class A shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class A
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class A shares; and
WHEREAS, upon approval by the Class A shareholders of the Fund it is
contemplated that the Fund will adopt a plan of distribution pursuant to Rule
12b-1 under the Investment Company Act (the Plan) authorizing payments by the
Fund to the Distributor with respect to the distribution of Class A shares of
the Fund and the maintenance of Class A shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class A shares of the Fund to sell Class A shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class A shares of the Fund to the Distributor on the terms and conditions set
forth below.
<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class A shares,
except that:
2.1 The exclusive rights granted to the Distributor to purchase Class
A shares from the Fund shall not apply to Class A shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class A shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class A shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF CLASS A SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund the
Class A shares needed, but not more than the Class A shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class A shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class A shares so purchased from the Fund
shall be the net asset value, determined as set forth in the Prospectus.
3.2 The Class A shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its Class A
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale of its Class
A shares if a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class A shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class A shares. The Fund (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class A shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF CLASS A SHARES BY THE FUND
4.1 Any of the outstanding Class A shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class A
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class A shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh calendar day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of Class A
shares shall be paid by the Fund to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions of the
Prospectus.
4.3 Redemption of Class A shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Class A shares
as provided herein, the Fund agrees to sell its Class A shares so long as it has
Class A shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class A shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class A shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class A shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class A shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class A shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
A shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
4
<PAGE>
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class A shares of the Fund, but shall not be obligated to sell any
specific number of Class A shares. Sales of the Class A shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class A shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class A shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class A shares only to such
selected dealers as are members in good standing of the NASD. Class A shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
The Distributor shall receive and may retain any portion of any
front-end sales charge which is imposed on sales of Class A shares and not
reallocated to selected dealers as set forth in the Prospectus, subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of the Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of .30
of 1% (including an asset-based sales charge of .05 of 1% and a service fee of
.25 of 1%) per annum
5
<PAGE>
of the average daily net assets of the Class A shares of the Fund. Amounts
payable under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Article III, Section 26 of the NASD Rules
of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions and account
servicing fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions which have dealer
agreements with the Distributor. So long as the Plan (or any amendment thereto)
is in effect, at the request of the Board of Directors or any agent or
representative of the Fund, the Distributor shall provide such additional
information as may reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such activities.
8.3 Expenses of distribution with respect to the Class A shares of
the Fund include, among others:
(a) amounts paid to Prudential Securities for performing
services under a selected dealer agreement between
Prudential Securities and the Distributor for sale of Class
A shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, account
executives and indirect and overhead costs associated with
distribution activities, including central office and branch
expenses;
(b) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class A shares of the Fund, including sales
commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with
distribution activities;
(c) sales commissions and trailer commissions paid to, or on
account of, broker-dealers and financial institutions (other
than Prudential Securities and Prusec) which have entered
into selected dealer agreements with the Distributor with
respect to Class A shares of the Fund.
(d) amounts paid to, or an account of, account executives of
Prudential Securities, Prusec,
6
<PAGE>
or of other broker-dealers or financial institutions for personal
service and/or the maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clauses (a) and (b) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. ALLOCATION OF EXPENSES
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class A shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class A shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class A shares, so long as the
Plan is in effect.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, directors or any such controlling person may incur under the
Securities Act, or under common law or
7
<PAGE>
otherwise, arising out of or based upon any untrue statement of a material fact
contained in the Registration Statement or Prospectus or arising out of or based
upon any alleged omission to state a material fact required to be stated in
either thereof or necessary to make the statements in either thereof not
misleading, except insofar as such claims, demands, liabilities or expenses
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, director, trustee
or controlling person unless a court of competent jurisdiction shall determine
in a final decision on the merits, that the person to be indemnified was not
liable by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of directors or trustees who are neither
"interested persons" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors or trustees and any such controlling
person as aforesaid is expressly conditioned upon the Fund's being promptly
notified of any action brought against the Distributor, its officers or
directors or trustees, or any such controlling person, such notification to be
given by letter or telegram addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issue and sale of any Class A shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state
8
<PAGE>
a material fact in connection with such information required to be stated in the
Registration Statement or Prospectus or necessary to make such information not
misleading. The Distributor's agreement to indemnify the Fund, its officers and
Directors and any such controlling person as aforesaid, is expressly conditioned
upon the Distributor's being promptly notified of any action brought against the
Fund, its officers and Directors or any such controlling person, such
notification being given to the Distributor at its principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class A shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities", when used in
this Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class A shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Directors cast in
person at a meeting called for the purpose of voting on such amendment.
Section 13. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the
9
<PAGE>
Investment Company Act. To the extent that the applicable law of the State of
New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall control.
*[Section 14. LIABILITIES OF THE FUND
The name "Prudential ___________ Trust" is the designation of the
Trustees under a Declaration of Trust dated ______, 19__ and all persons dealing
with the Fund must look solely to the property of the Fund for the enforcement
of any claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: ________________________
________________________
(Title)
Prudential______________Fund
By: ________________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
10
<PAGE>
Exhibit 99.6(d)
PRUDENTIAL ___________ FUND
Form of
Distribution Agreement
(CLASS B SHARES)
Agreement made as of ______ __, 199_, between Prudential ________
Fund, [a Maryland Corporation/Massachusetts Business Trust] (the Fund) and
Prudential Securities Incorporated, a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class B shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class B
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class B shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant
to Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments
by the Fund to the Distributor with respect to the distribution of Class B
shares of the Fund and the maintenance of Class B shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class B shares of the Fund to sell Class B shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class B shares of the Fund to the Distributor on the terms and conditions set
forth below.
1
<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class B shares,
except that:
2.1 The exclusive rights granted to the Distributor to purchase
Class B shares from the Fund shall not apply to Class B shares of the Fund
issued in connection with the merger or consolidation of any other investment
company or personal holding company with the Fund or the acquisition by
purchase or otherwise of all (or substantially all) the assets or the
outstanding shares of any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class B shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class B shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF CLASS B SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund the
Class B shares needed, but not more than the Class B shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class B shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class B shares so purchased from the Fund
shall be the net asset value, determined as set forth in the Prospectus.
3.2 The Class B shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of its Class B
shares at times when redemption is suspended pursuant
2
<PAGE>
to the conditions in Section 4.3 hereof or at such other times as may be
determined by the Board of Directors. The Fund shall also have the right to
suspend the sale of its Class B shares if a banking moratorium shall have been
declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class B shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class B shares. The Fund (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class B shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF CLASS B SHARES BY THE FUND
4.1 Any of the outstanding Class B shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class B
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class B shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Class B shares
as provided herein, the Fund agrees to sell its Class B shares so long as it has
Class B shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class B shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class B shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class B shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class B shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class B shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its
Class B shares. Any such qualification may be withheld, terminated or
withdrawn by the Fund at any time in its discretion. As provided in Section 9.1
hereof, the expense of qualification and maintenance of qualification shall be
borne by the Fund. The Distributor shall furnish such information and other
material relating to its affairs and activities as may be required by the Fund
in connection with such qualifications.
4
<PAGE>
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class B shares of the Fund, but shall not be obligated to sell any
specific number of Class B shares. Sales of the Class B shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class B shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class B shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class B shares only to such
selected dealers as are members in good standing of the NASD. Class B shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
The Distributor shall receive and may retain any contingent deferred
sales charge which is imposed with respect to repurchases and redemptions of
Class B shares as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales charge of .75 of 1% and a service fee of .25 of
1%) per annum of
5
<PAGE>
the average daily net assets of the Class B shares of the Fund. Amounts payable
under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Article III, Section 26 of the NASD Rules
of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer commissions) and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor. So
long as the Plan (or any amendment thereto) is in effect, at the request of the
Board of Directors or any agent or representative of the Fund, the Distributor
shall provide such additional information as may reasonably be requested
concerning the activities of the Distributor hereunder and the costs incurred in
performing such activities.
8.3 Expenses of distribution with respect to the Class B shares of
the Fund include, among others:
(a) sales commissions (including trailer commissions) paid to,
or on account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated
with performance of distribution activities, including
central office and branch expenses;
(c) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class B shares of the Fund, including sales
commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with
distribution activities;
(d) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and financial institutions
(other than Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class B
shares of the Fund;
(e) amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial
institutions for
6
<PAGE>
personal service and/or the maintenance of shareholder accounts; and
(f) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. ALLOCATION OF EXPENSES
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class B shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class B shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class B shares, so long as the
Plan is in effect.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and Directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, Directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, Director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class B shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, its officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing at its principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class B shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class B shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the latter shall
control.
*[Section 14. LIABILITIES OF THE FUND
The name "Prudential ___________ Trust" is the designation of the
Trustees under a Declaration of Trust dated ______, 19__ and all persons dealing
with the Fund must look solely to the property of the Fund for the enforcement
of any claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities
Incorporated
By: ________________________
________________________
(Title)
Prudential ________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
10
<PAGE>
Exhibit 99.6(e)
PRUDENTIAL ___________ FUND
Form of
Distribution Agreement
(CLASS C SHARES)
Agreement made as of ______ __, 199_, between Prudential ________
Fund, [a Maryland Corporation/Massachusetts Business Trust] (the Fund) and
Prudential Securities Incorporated, a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class C shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class C
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class C shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant
to Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments
by the Fund to the Distributor with respect to the distribution of Class C
shares of the Fund and the maintenance of Class C shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class C shares of the Fund to sell Class C shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class C shares of the Fund to the Distributor on the terms and conditions set
forth below.
1
<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class C shares,
except that:
2.1 The exclusive rights granted to the Distributor to purchase Class
C shares from the Fund shall not apply to Class C shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class C shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class C shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF CLASS C SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund the
Class C shares needed, but not more than the Class C shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class C shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class C shares so purchased from the Fund
shall be the net asset value, determined as set forth in the Prospectus.
3.2 The Class C shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of its Class C
shares at times when redemption is suspended pursuant
2
<PAGE>
to the conditions in Section 4.3 hereof or at such other times as may be
determined by the Board of Directors. The Fund shall also have the right to
suspend the sale of its Class C shares if a banking moratorium shall have been
declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class C shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class C shares. The Fund (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class C shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF CLASS C SHARES BY THE FUND
4.1 Any of the outstanding Class C shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class C
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class C shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class C shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class C shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Class C shares
as provided herein, the Fund agrees to sell its Class C shares so long as it has
Class C shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class C shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class C shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class C shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class C shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class C shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
C shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
4
<PAGE>
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class C shares of the Fund, but shall not be obligated to sell any
specific number of Class C shares. Sales of the Class C shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class C shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class C shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class C shares only to such
selected dealers as are members in good standing of the NASD. Class C shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
The Distributor shall receive and may retain any contingent deferred
sales charge which is imposed with respect to repurchases and redemptions of
Class C shares as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales charge of .75 of 1% and a service fee of .25 of
1%) per annum of
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<PAGE>
the average daily net assets of the Class C shares of the Fund. Amounts payable
under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Article III, Section 26 of the NASD Rules
of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer commissions) and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor. So
long as the Plan (or any amendment thereto) is in effect, at the request of the
Board of Directors or any agent or representative of the Fund, the Distributor
shall provide such additional information as may reasonably be requested
concerning the activities of the Distributor hereunder and the costs incurred in
performing such activities.
8.3 Expenses of distribution with respect to the Class C shares of
the Fund include, among others:
(a) sales commissions (including trailer commissions) paid to,
or on account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated
with performance of distribution activities, including
central office and branch expenses;
(c) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class C shares of the Fund, including sales
commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with
distribution activities;
(d) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and financial institutions
(other than Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class C
shares of the Fund;
(e) amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial
institutions for
6
<PAGE>
personal service and/or the maintenance of shareholder accounts; and
(f) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. ALLOCATION OF EXPENSES
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class C shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class C shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class C shares, so long as the
Plan is in effect.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and Directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, Directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, Director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class C shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, its officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing at its principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class C shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class C shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class C shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the latter shall
control.
*[Section 14. LIABILITIES OF THE FUND
The name "Prudential ___________ Trust" is the designation of the
Trustees under a Declaration of Trust dated ______, 19__ and all persons dealing
with the Fund must look solely to the property of the Fund for the enforcement
of any claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities
Incorporated
By: ________________________
________________________
(Title)
Prudential ________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
10
<PAGE>
Exhibit 99.11
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 11 to Registration
Statement No. 33-12531 of Prudential Allocation Fund of our report dated
September 9, 1993, appearing in the Statement of Additional Information, which
is a part of such Registration Statement, and to the references to us under the
headings "Financial Highlights" in the Prospectus, which is a part of such
Registration Statement, and "Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants" in the Statement of Additional Information.
/s/ Deloitte & Touche
Deloitte & Touche
New York, New York
April 29, 1994
<PAGE>
Exhibit 99.15(c)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(CLASS A SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential __________ Fund (the Fund) and by
Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors or Trustees of the Fund, including a
majority of those Directors or 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 or 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
<PAGE>
likelihood that adoption of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
A shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
distribution networks of Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities Corporation (Prusec), including sales personnel
and branch office and central support systems, and also using such other
qualified broker-dealers and financial institutions as the Distributor may
select. Services provided and activities undertaken to distribute Class A
shares of the Fund are referred to herein as "Distribution Activities."
2
<PAGE>
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class A
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/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 Article III, Section 26 of the NASD Rules of
Fair Practice.
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
3
<PAGE>
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors or Trustees. The allocation of distribution expenses among
classes will be subject to the review of the Board of Directors or Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) amounts paid to Prudential Securities for performing
services under a selected dealer agreement between
Prudential Securities and the Distributor for sale of Class
A shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, account
executives and indirect and overhead costs associated with
Distribution Activities, including central office and branch
expenses;
(b) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class A shares of the Fund, including sales
commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with
Distribution Activities;
(c) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund prospectuses, statements of additional information and
periodic financial reports and sales literature to persons
other than current shareholders of the Fund; and
(d) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and financial institutions
(other than Prudential Securities and Prusec) which have
entered into selected dealer agreements with the Distributor
with respect to shares of the Fund.
4
<PAGE>
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
or 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 or Trustees of the Fund such
additional information as the Board or Trustees shall from time to time
reasonably request, including information about Distribution Activities
undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors or 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
5
<PAGE>
majority of the Board of Directors or Trustees of the Fund and a majority of the
Rule 12b-1 Directors or 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 or 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 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 or the Trustees of the Fund and a majority of the Rule 12b-1 Directors
or Trustees by votes cast in person at a meeting called for the purpose of
voting on the Plan.
8. RULE 12B-1 DIRECTORS OR TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors or Trustees shall be committed to the discretion of the Rule 12b-1
Directors or Trustees.
6
<PAGE>
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
*[10. ENFORCEMENT OF CLAIMS.
The name "Prudential ___________ Trust" is the designation of the Trustees
under a Declaration of Trust dated ______, 19__ and all persons dealing with the
Fund must look solely to the property of the Fund for the enforcement of any
claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
Dated:
7
<PAGE>
Exhibit 99.15(d)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(CLASS B SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential __________ Fund, (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will continue to employ the Distributor to distribute Class B shares
issued by the Fund (Class B shares). Under the Plan, the Fund wishes to pay to
the Distributor, as compensation for its services, a distribution and service
fee with respect to Class B shares.
A majority of the Board of Directors or 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 or Trustees), have determined by votes cast in person at a meeting
called for the purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
<PAGE>
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of
Class B shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class B shares of the Fund are referred to herein as
"Distribution Activities."
2
<PAGE>
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class B
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/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 Article III, Section 26 of the NASD
Rules of Fair Practice.
Amounts paid to the Distributor by the Class B shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors or Trustees. The allocation of distribution
3
<PAGE>
expenses among classes will be subject to the review of the Board of Directors
or 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
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
B shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
or 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 or Trustees of
4
<PAGE>
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 or 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 or Trustees of the Fund and a majority of
the Rule 12b-1 Directors or 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 or Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment
5
<PAGE>
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
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors or Trustees of the Fund and a majority of the Rule 12b-1 Directors or
Trustees by votes cast in person at a meeting called for the purpose of voting
on the Plan.
8. RULE 12b-1 DIRECTORS OR TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors or Trustees shall be committed to the discretion of the Rule 12b-1
Directors or Trustees.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
*[10. ENFORCEMENT OF CLAIMS.
The name "Prudential ___________ Trust" is the designation of the Trustees
under a Declaration of Trust dated ______, 19__ and all persons dealing with the
Fund must look solely to the property
6
<PAGE>
of the Fund for the enforcement of any claims against the Fund, and neither the
Trustees, officers, agents of shareholders assume any personal liability for
obligations entered into on behalf of the Fund.]
Dated:
7
<PAGE>
Exhibit 99-15(e)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(CLASS C SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential __________ Fund, (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will continue to employ the Distributor to distribute Class C shares
issued by the Fund (Class C shares). Under the Plan, the Fund wishes to pay to
the Distributor, as compensation for its services, a distribution and service
fee with respect to Class C shares.
A majority of the Board of Directors or 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 or Trustees), have determined by votes cast in person at a meeting
called for the purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
<PAGE>
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
C shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class C shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class C shares of the Fund are referred to herein as
"Distribution Activities."
2
<PAGE>
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/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 Article III, Section 26 of the NASD
Rules of Fair Practice.
Amounts paid to the Distributor by the Class C shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors or Trustees. The allocation of distribution
3
<PAGE>
expenses among classes will be subject to the review of the Board of Directors
or 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
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
C shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
or 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 or Trustees of
4
<PAGE>
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 or 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 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 or Trustees of the Fund and a majority of the
Rule 12b-1 Directors or 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 or Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment
5
<PAGE>
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
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class C shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors or Trustees of the Fund and a majority of the Rule 12b-1 Directors or
Trustees by votes cast in person at a meeting called for the purpose of voting
on the Plan.
8. RULE 12b-1 DIRECTORS OR TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors or Trustees shall be committed to the discretion of the Rule 12b-1
Directors or Trustees.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
*[10. ENFORCEMENT OF CLAIMS.
The name "Prudential ___________ Trust" is the designation of the Trustees
under a Declaration of Trust dated ______, 19__ and all persons dealing with the
Fund must look solely to the property
6
<PAGE>
of the Fund for the enforcement of any claims against the Fund, and neither the
Trustees, officers, agents of shareholders assume any personal liability for
obligations entered into on behalf of the Fund.]
Dated:
7
