As filed with the Securities and Exchange Commission on May 10, 1994
Registration Statement No. 33-42093
===============================================================================
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. 5 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 9 [X]
(Check appropriate box or boxes)
--------------------
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
(Formerly The Prudential Intermediate Income Fund, Inc.)
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
--------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 214-1250
S. JANE ROSE, ESQ.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
[ ] immediately upon filing pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (b)
[ ] on (date), ____ pursuant to paragraph (a), of Rule 485
Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for the Registrant's most recent fiscal year
ended December 31, 1993 was filed on February 28, 1994.
===============================================================================
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
- ------------- --------
Part A
<S> <C> <C>
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . Fund Expenses
Item 3. Condensed Financial Information. . . . . . . . . . . . Fund Expenses; Financial
Highlights; How the Fund
Calculates Performance
Item 4. General Description of Registrant. . . . . . . . . . . Cover Page; How the Fund
Invests; General Information
Item 5. Management of Fund . . . . . . . . . . . . . . . . . . Financial Highlights; How
the Fund is Managed
Item 5A. Management's Discussion of Fund Performance . . . . . Not Applicable
Item 6. Capital Stock and Other Securities . . . . . . . . . . Taxes, Dividends and
Distributions; General
Information
Item 7. Purchase of Securities Being Offered . . . . . . . . . Shareholder Guide; How the
Fund Values Its Shares
Item 8. Redemption or Repurchase . . . . . . . . . . . . . . . Shareholder Guide; Hoe the
Values its Shares; General
Information
Item 9. Pending Legal Proceedings. . . . . . . . . . . . . . . Not Applicable
Part B
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents. . . . . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History. . . . . . . . . . . . General Information
Item 13. Investment Objectives and Policies . . . . . . . . . . Investment Objective and
Policies; Investment
Restrictions
Item 14. Management of the Fund . . . . . . . . . . . . . . . . Directors and Officers;
Manager; Distributor
Item 15. Control Persons and Principal Holders of Securities. . Not Applicable
Item 16. Investment Advisory and Other Services . . . . . . . . Manager; Distributor;
Custodian, Transfer and
Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other Practices . . . . . . . Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities . . . . . . . . . . Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered . . . . . . . . . . . . . . . . . . . . Purchase and Redemption of Fund
Shares; Shareholder Investment
Account; Net Asset Value
Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . . . Taxes
Item 21. Underwriters . . . . . . . . . . . . . . . . . . . . . Distributor
Item 22. Calculation of Performance Data. . . . . . . . . . . . Performance Information
Item 23. Financial Statements . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
<PAGE>
Prudential Intermediate Global
Income Fund, Inc.
- -----------------------------------------------------------------------------
Prospectus dated _______, 1994
- -----------------------------------------------------------------------------
Prudential Intermediate Global Income Fund, Inc. (the Fund) is an open-end
non-diversified management investment company, or a mutual fund, whose
investment objective is to seek to maximize total return, the components of
which are current income and capital appreciation. The Fund seeks to achieve
its objective through investment in a portfolio consisting primarily of U.S.
Government securities and Foreign Government securities. The Fund may also
purchase and sell put and call options on U.S. Government securities and
Foreign Government securities and engage in transactions involving futures
contracts and options on such futures with respect to U.S. Government
securities and Foreign Government securities. See "How the Fund
Invests--Investment Objective and Policies." THE FUND IS NON-DIVERSIFIED AND
MAY INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN THE SECURITIES OF ONE OR MORE
ISSUERS. INVESTMENT IN A NON-DIVERSIFIED PORTFOLIO INVOLVES GREATER RISK THAN
INVESTMENT IN A DIVERSIFIED PORTFOLIO. IN ADDITION, THE FUND MAY INVEST UP TO
10% OF ITS TOTAL ASSETS IN NON-INVESTMENT GRADE SECURITIES, WHICH MAY ENTAIL
ADDITIONAL RISKS. No assurance can be given that the Fund's investment
objective will be realized. Investing in Foreign Government securities,
options and futures contracts involves considerations and possible risks which
are different from those ordinarily associated with investing in U.S.
Government securities. See "How the Fund Invests--Investment Objective and
Policies--Foreign Government Securities--Special Considerations."
THE FUND MAY ENGAGE IN SHORT-TERM TRADING AND MAY ALSO BORROW MONEY FOR
INVESTMENT IN SECURITIES. THESE TECHNIQUES MAY BE CONSIDERED SPECULATIVE AND
MAY RESULT IN HIGHER RISKS AND COSTS TO THE FUND. See "How the Fund
Invests--Investment Objective and 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
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 Intermediate Global Income Fund, Inc.?
Prudential Intermediate Global Income Fund, Inc. is a mutual fund. A mutual
fund pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
non-diversified management investment company.
What Is the Fund's Investment Objective?
The Fund's investment objective is to seek to maximize total return, the
components of which are current income and capital appreciation. It seeks to
achieve this objective by investing primarily in a portfolio consisting of U.S.
Government securities and Foreign Government securities. See "How the Fund
Invests Investment Objective and Policies" at page 7.
What Are the Fund's Special Characteristics and Risks?
In seeking to achieve its investment objective, the Fund may also purchase
and sell put and call options on U.S. Government securities and Foreign
Government securities and engage in transactions involving futures contracts and
options on such futures contracts with respect to U.S. Government securities and
Foreign Government securities and options on foreign currencies. Investing in
Foreign Government securities, options and futures contracts involves
considerations and possible risks which are different from those ordinarily
associated with investing in U.S. Government securities. See "How the Fund
Invests--Investment Objective and Policies" at page 7. In addition, the Fund may
invest up to 10% of its total assets in securities rated below investment grade,
but with a minimum rating of B, as determined by Moody's Investors Service
(Moody's), Standard & Poor's Ratings Group (Standard & Poor's) or by another
nationally recognized statistical ratings organization, or if unrated, deemed to
be of equivalent quality by the investment adviser. Investment in non-investment
grade securities may entail additional risks to the Fund. See "Medium and
Lower-Rated Securities."
Who Manages the Fund?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .75 of 1%
of the Fund's average daily net assets. As of March 31, 1994, PMF served as
manager or administrator to [66] investment companies, including [37] mutual
funds, with aggregate assets of approximately [$49] 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 17.
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 .15 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 currently is paid for
its services at an annual rate of .75 of 1% of the average daily net assets of
each of the Class B and Class C shares, respectively. See "How the Fund is
Managed--Distributor" at page 18.
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 23 and "Shareholder Guide--Shareholder Services"
at page 30.
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 20 and "Shareholder Guide--How to Buy Shares of the Fund" at page 23.
What Are My Purchase Alternatives?
The Fund offers three classes of shares:
. Class A shares: Sold with an initial sales charge of up to 3% 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 3% to zero of the lower of the amount invested or
the redemption proceeds) which will be imposed on
certain redemptions made within four 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 five 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 24.
How Do I Sell My Shares?
You may redeem shares of the Fund at any time at the NAV next determined
after Prudential Securities or the Transfer Agent receives your sell order.
However, the proceeds of redemptions of Class B and Class C shares may be
subject to a CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 26.
How Are Dividends and Distributions Paid?
The Fund expects to declare daily and pay monthly dividends of net
investment income and make distributions of any net capital gains at least
annually. Dividends and distributions will be automatically reinvested in
additional shares of the Fund at NAV without a sales charge unless you request
that they be paid to you in cash. See "Taxes, Dividends and Distributions" at
page 21.
3
<PAGE>
FUND EXPENSES
<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) . . . . . . . . 3.0% None None
Maximum Sales Load or Deferred
Sales Load Imposed on Reinvested
Dividends . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage 3% during the first year,
of original purchase price or decreasing by 1% annually 1% on
redemption price, whichever None to 1% in the third year redeptions
is lower). . . . . . . . . . . and 1% in the fourth year made within one
and 0% in the fifth year* year of purchase
Redemption Fees. . . . . . . . . None None None
Exchange Fees. . . . . . . . . . None None None
<CAPTION>
Annual Fund Operating Expenses CLASS A SHARES CLASS B SHARES CLASS C SHARES
(as a percentage of average --------------- --------------- ---------------
net assets)
<S> <C> <C> <C>
Management Fees. . . . . . . . . .75% .75% .75%
12b-1 Fees+. . . . . . . . . . . .15%++ .75% [.75]%++
Other Expenses . . . . . . . . . .51% .51% .51%
---- ---- ----
Total Fund Operating Expenses. . 1.41% 2.01% 2.01%
==== ==== ====
</TABLE>
Example 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
You would pay the following expenses
on a $1,000 investment, assuming (1)
5% annual return and (2) redemption
at the end of each time
period: Class A. . . . . . . . $44 $73 $105 $194
Class B. . . . . . . . $50 $73 $108 $212
Class C**. . . . . . . $30 $63 $108 $234
You would pay the following expenses
on the same investment, assuming no
redemption: Class A. . . . . . . . $44 $73 $105 $194
Class B. . . . . . . . $20 $63 $108 $212
Class C**. . . . . . . $20 $63 $108 $234
The above example with respect to Class A and Class B shares is based on
restated data for the Fund's fiscal year ended December 31, 1993. The above
example with respect to Class C shares is based on expenses expected to have
been incurred if Class C Shares had been in existence during the fiscal year
ended December 31, 1993. The example should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than those
shown.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Fund is Managed." "Other Expenses" includes an estimate of
operating expenses of the Fund, such as directors' and professional fees,
registration fees, reports to shareholders and transfer agency and custodian
(domestic and foreign) fees.
- ------------
* Class B shares will automatically convert to Class A shares approximately
five 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 December 31,
1994.
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
each class of the Fund rather than on a per shareholder basis. Therefore,
long-term 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 and Class C Distribution and Service Plans provides
that the Fund may pay up to an annual rate of .30 of 1% and 1% of average
daily net assets of the Class A and Class C shares, respectively, the
Distributor has agreed to limit its distribution expenses with respect to
Class A and Class C shares of the Fund to no more than .15 of 1% and .75 of
1% of the average daily net assets of the Class A and Class C shares,
respectively, for the fiscal year ending December 31, 1994. See "How the
Fund is Managed--Distributor."
4
<PAGE>
FINANCIAL HIGHLIGHTS
Class A Shares
(for a share outstanding throughout each of the indicated periods)
The following financial highlights have been audited by Price Waterhouse,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and notes thereto,
which appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class A share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for each of the periods indicated. The information is based on data
contained in the financial statements. No Class C shares were outstanding during
the periods indicated.
<TABLE>
<CAPTION>
YEAR TEN MONTHS MAY 26,
ENDED ENDED YEAR ENDED FEBRUARY 28, 1988** TO
DECEMBER 31, DECEMBER 31, --------------------------------- FEBRUARY 28,
1993 1992@ 1992+ 1991+ 1990+ 1989+
----------- ----------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . . . . $ 7.77 $ 8.39 $ 8.79 $ 8.56 $ 8.93 $ 9.30
-------- -------- -------- -------- -------- --------
Income from investment operations
- ---------------------------------
Net investment income. . . . . . . . . . . . .59 .61 .71 .74 .73 .59
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions. . . . . . . . . . . . . . . . .63 (.36) (.36) .35 (.10) (.26)
-------- -------- -------- -------- -------- --------
Total from investment operations. . . . . . 1.22 .25 .35 1.09 .63 .33
-------- -------- -------- -------- -------- --------
Less distributions
- ------------------
Dividends from net investment income . . . . (.48) (.59) (.71) (.74) (.73) (.59)
Distributions from capital gains . . . . . . (.08) (.28) -- -- -- --
Distributions from paid-in capital in
excess of par . . . . . . . . . . . . . . . -- -- (.04) (.12) (.27) (.09)
-------- -------- -------- -------- -------- --------
Total distributions . . . . . . . . . . . . (.56) (.87) (.75) (.86) (1.00) (.68)
-------- -------- -------- -------- -------- --------
Capital charge resulting from the
issuance of Fund shares . . . . . . . . . . -- -- -- -- -- (.02)
-------- -------- -------- -------- -------- --------
Net asset value, end of period . . . . . . . $ 8.43 $ 7.77 $ 8.39 $ 8.79 $ 8.56 $ 8.93
======== ======== ======== ======== ======== ========
TOTAL RETURN#: . . . . . . . . . . . . . . . 16.12% 3.09% 4.24% 13.49% 7.20% 3.41%
======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:++
Net assets, end of period (000). . . . . . . $320,406 $378,865 $271,714 $449,178 $437,558 $456,224
Average net assets (000) . . . . . . . . . . $355,018 $331,339 $399,714 $437,752 $455,386 $463,039
Ratios to average net assets:
Expenses, including distribution
fees . . . . . . . . . . . . . . . . . . . 1.41% 1.30%* 1.20% 1.04% 1.07% .97%*
Expenses, excluding distribution
fees . . . . . . . . . . . . . . . . . . . 1.26% 1.15%* 1.15% 1.04% 1.07% .97%*
Net investment income . . . . . . . . . . . 7.42% 9.08%* 8.43% 8.61% 8.16% 8.54%*
Portfolio turnover rate. . . . . . . . . . . 361% 201% 170% 250% 231% 358%
Total debt outstanding at end of
period (000). . . . . . . . . . . . . . . . -- -- -- $ 20,240 $ 27,600 $ 34,960
Asset coverage@@ . . . . . . . . . . . . . . -- -- -- $ 23,193 $ 16,854 $ 14,050
- ------------
* Annualized.
** Commencement of investment operations.
+ During these periods, the Fund operated as a closed-end investment company. Effective October 7, 1991, the Fund commenced
operations as an open-end investment company. Accordingly, historical expenses and ratios of expenses to average net
assets are not necessarily indicative of future expenses and related ratios.
++ Because of the events referred to in + and the timing of such, the ratios for the Class A and B shares are not
necessarily comparable to each other or those of prior periods and are not necessarily indicative of future ratios.
@ The Fund changed its fiscal year end to December 31.
@@ Per $1,000 of debt outstanding.
# Total return does not consider the effect of sales loads. Total return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions.
Total returns for periods of less than a full year are not annualized.
5
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
Class B Shares
(for a share outstanding throughout each of the indicated periods)
The following financial highlights have been audited by Price Waterhouse,
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 B share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for each of the periods indicated. The information is based on data
contained in the financial statements. No Class C shares were outstanding during
the periods indicated.
<TABLE>
CAPTION>
YEAR TEN MONTHS JANUARY 15,
ENDED ENDED 1992[+] THROUGH
DECEMBER 31, DECEMBER 31, FEBRUARY 29,
1993 1992@ 1992
------------ ------------ ----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period. . . . . . . . . . . . . . . . . . . . . . . $ 7.79 $ 8.40 $ 8.43
------- ------- ------
Income from investment operations
- ---------------------------------
Net investment income.. . . . . . . . . . . . . . . . .54 .57 .08
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions . . . . . . . . . . . . . . . .63 (.35) (.03)
------- ------- ------
Total from investment operations. . . . . . . . . . 1.17 .22 .05
------- ------- ------
Less distributions
- ------------------
Dividends from net investment
income. . . . . . . . . . . . . . . . . . . . . . . (.44) (.55) (.08)
Distributions from capital gains. . . . . . . . . . . (.08) (.28) --
------- ------- ------
Total distributions . . . . . . . . . . . . . . . . (.52) (.83) (.08)
------- ------- ------
Net asset value, end of period. . . . . . . . . . . . $ 8.44 $ 7.79 $ 8.40
======= ======= ======
TOTAL RETURN#: . . . . . . . . . . . . . . . . . . . 15.29% 2.70% 0.58%
======= ======= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).. . . . . . . . . . . $39,440 $33,500 $1,049
Average net assets (000). . . . . . . . . . . . . . . $36,197 $18,358 $ 456
Ratios to average net assets:
Expenses, including distribution fees . . . . . . . 2.01% 1.90%* 1.03%*
Expenses, excluding distribution fees . . . . . . . 1.26% 1.15%* .28%*
Net investment income . . . . . . . . . . . . . . . 6.67% 8.54%* 9.43%*
Portfolio turnover rate . . . . . . . . . . . . . . . 361% 201% 170%
</TABLE>
- -----------
* Annualized.
[+ The Fund commenced a public offering of Class B shares on January 15, 1992.
Accordingly, historical expenses and ratios to average net assets of Class
B shares are not necessarily indicative of future expenses and related
ratios of Class B shares. See "How the Fund is Managed--Distributor."]
@ The Fund changed its fiscal year end to December 31.
# Total return does not consider the effect of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
6
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek to maximize total return,
the components of which are current income and capital appreciation. The Fund
will attempt to achieve its objective by investing primarily in obligations
issued or guaranteed by the U.S. Government, its agencies, authorities or
instrumentalities (U.S. Government securities) and in obligations issued or
guaranteed by certain foreign governments, quasi-governmental entities,
governmental agencies, supranational entities or any of their political
subdivisions or instrumentalities (Foreign Government securities). Total return
means net interest income plus or minus net realized and unrealized gains or
losses in the value of investments (including securities, options, futures,
options on futures, options on currencies and foreign currency forward
contracts) over a specified period of time. The Fund will invest primarily in a
pool of investment grade Foreign Government securities (i.e., those rated Baa or
better by Moody's, or BBB or better by Standard & Poor's or having an equivalent
rating from another NRSRO), or in non-rated securities determined by the Fund's
investment adviser to be of equivalent quality. The Fund may also invest up to
10% of its total assets in debt securities rated below investment grade, with a
minimum rating of B, by either Standard & Poor's or Moody's or by another NRSRO,
or, if unrated, deemed to be of equivalent quality by the investment adviser.
See "Medium and Lower-Rated Securities." Under normal circumstances, the Fund
intends to maintain investments in at least three countries (including the
United States). The Fund will maintain an average maturity of not more than ten
years and, in general, will not invest in securities with remaining maturities
greater than ten years. See "Investment Objective and Policies" in the Statement
of Additional Information. There is no assurance that the Fund will achieve its
investment objective.
The average maturity of the Fund's portfolio will be actively managed
in light of market conditions and trends. Generally, when the investment adviser
expects interest rates to rise, the average maturity of the Fund's portfolio
will be shortened. Conversely, when the investment adviser expects interest
rates to fall, the average maturity of the Fund's portfolio will be lengthened.
The investment adviser believes that this strategy will enable the Fund to
preserve capital while seeking to provide high current income. Intermediate-term
U.S. and Foreign Government securities generally are more stable and less
susceptible to principal loss than longer-term securities. While
intermediate-term securities in most cases offer lower yields than securities
with longer maturities, the Fund intends to enhance income by writing options on
U.S. and Foreign Government securities. Option writing can result in the loss of
principal under certain market conditions. See "Other Investments and Investment
Techniques--Hedging and Income Enhancement Strategies." For temporary defensive
purposes, the Fund may invest without limit in high-quality money market
instruments, including commercial paper of domestic and foreign corporations,
certificates of deposit, bankers' acceptances and other obligations of domestic
and foreign banks and short-term obligations issued or guaranteed by the U.S.
Government, its instrumentalities or agencies. See "Other Investments and
Investment Techniques." The Fund will, to a limited extent, also be permitted to
acquire other debt securities of U.S. corporate issuers, securities issued in
private placements, convertible securities, preferred stock, collateralized
mortgage obligations and warrants accompanied by debt securities.
The Fund's investment objective is a fundamental policy of the Fund.
Fundamental policies may not be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities as defined in the
Investment Company Act of 1940, as amended (the Investment Company Act). Fund
policies that are not fundamental may bemodified by the Board of Directors.
THE FUND IS A "NON-DIVERSIFIED" INVESTMENT COMPANY AND MAY INVEST MORE
THAN 5% OF ITS TOTAL ASSETS IN THE SECURITIES OF ONE OR MORE ISSUERS. INVESTMENT
IN A NON-DIVERSIFIED INVESTMENT COMPANY INVOLVES GREATER RISK THAN
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INVESTMENT IN A DIVERSIFIED INVESTMENT COMPANY BECAUSE A LOSS RESULTING FROM THE
DEFAULT OF A SINGLE ISSUER MAY REPRESENT A GREATER PORTION OF THE TOTAL ASSETS
OF A NON-DIVERSIFIED PORTFOLIO.
U.S. Government Securities
U.S. TREASURY SECURITIES. The Fund will invest in U.S. Treasury
securities, including Bills, Notes, Bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the United
States. They differ primarily in their interest rates, the lengths of their
maturities and the dates of their issuances.
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund will invest in securities issued by agencies of the
U.S. Government or instrumentalities of the U.S. Government. These obligations,
including those which are guaranteed by Federal agencies or instrumentalities,
may or may not be backed by the full faith and credit of the United States.
Obligations of the Government National Mortgage Association (GNMA), the Farmers
Home Administration and the Small Business Administration are backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Fund must look principally
to the agency issuing or guaranteeing the obligation for ultimate repayment and
may not be able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. Securities in which the Fund may
invest which are not backed by the full faith and credit of the United States
include obligations such as those issued by the Federal Home Loan Banks, the
Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association, the Student Loan Marketing Association, Resolution Funding
Corporation and the Tennessee Valley Authority, each of which has the right to
borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. FHLMC investments may include
collateralized mortgage obligations. See "Other Investments and Investment
Techniques" below.
Obligations issued or guaranteed as to principal and interest by the
United States Government may be acquired by the Fund in the form of custodial
receipts that evidence ownership of future interest payments, principal payments
or both on certain United States Treasury notes or bonds. Such notes and bonds
are held in custody by a bank on behalf of the owners. These custodial receipts
are commonly referred to as Treasury strips.
MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in mortgage-backed securities, including
those which represent undivided ownership interests in pools of mortgages. The
U.S. Government or the issuing agency or instrumentality guarantees the payment
of interest on and principal of these securities. However, the guarantees do not
extend to the yield or value of the securities nor do the guarantees extend to
the yield or value of the Fund's shares. These securities are in most cases
"pass-through" instruments, through which the holders receive a share of all
interest and principal payments from the mortgages underlying the securities,
net of certain fees. Because the prepayment characteristics of the underlying
mortgages vary, it is not possible to predict accurately the average life 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. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected to
accelerate. The Fund's ability to maintain a portfolio of high-yielding
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.
The Fund may also invest in mortgage pass-through securities where all
interest payments go to one class of holders (Interest Only Securities or IOs)
and all principal payments go to a second class of holders (Principal Only
Securities or POs). These securities are commonly referred to as mortgage-backed
securities strips or MBS strips. The yields to maturity on IOs are very
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on yield to maturity. If the
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underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund may not fully recoup its initial investment in these
securities. Conversely, if the underlying mortgage assets experience less than
anticipated prepayments of principal, the yield on POs could be materially
adversely affected. The Fund will only invest in MBS strips rated Aaa by Moody's
or AAA by Standard & Poor's. See "Investment Objective and Policies--U.S.
Government Securities--Mortgage-Related Securities Issued by U.S. Government
Instrumentalities" in the Statement of Additional Information.
The Fund will invest in both Adjustable Rate Mortgage Securities
(ARMs), which are pass-through mortgage securities collateralized by adjustable
rate mortgages, and Fixed-Rate Mortgage Securities (FRMs), which are
collateralized by fixed-rate mortgages. See "Investment Objective and Policies"
in the Statement of Additional Information.
The values of U.S. Government securities (like those of other
fixed-income securities generally) will change as interest rates fluctuate.
During periods of falling U.S. interest rates, the values of U.S. Government
securities generally rise and, conversely, during periods of rising interest
rates, the values of such securities generally decline. The magnitude of these
fluctuations will generally be greater for securities with longer-term
maturities.
ZERO COUPON BONDS. The Fund may invest up to 5% of the total assets in
zero coupon U.S. Government securities. Zero coupon bonds are purchased at a
discount from the face amount because the buyer receives only the right to
receive a fixed payment on a certain date in the future and does not receive any
periodic interest payments. The effect of owning instruments which do not make
current interest payments is that a fixed yield is earned not only on the
original investment but also, in effect, on all discount accretion during the
life of the obligations. This implicit investment of earnings at the same rate
eliminates the risk of being unable to reinvest distributions at a rate as high
as the implicit yield on the zero coupon bond, but at the same time eliminates
the holder's ability to reinvest at higher rates in the future. For this reason,
zero coupon bonds are subject to substantially greater price fluctuations during
periods of changing market interest rates than are comparable securities which
pay interest currently, which fluctuation increases the longer the period to
maturity. Although zero coupon securities pay no interest to holders prior to
maturity, interest on these securities is reported as income to the Fund and
distributed to its shareholders. These distributions must be made from the
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The Fund will not be able to purchase additional income-producing
securities with cash used to make such distributions and consequently its
current income may be reduced.
FOREIGN GOVERNMENT SECURITIES. "Foreign Government securities" include
debt securities issued or guaranteed, as to payment of principal and interest,
by governments, quasi-governmental entities, governmental agencies,
supranational entities and other governmental entities (collectively, Government
Entities). The Fund may invest in the Foreign Government securities of the
countries named below, among others. Such Foreign Government securities may be
denominated in the currencies of such countries or in U.S. dollars or the
currencies of other countries.
AMERICAS PACIFIC EUROPE
- --------- ---------- ---------------------------------------------
Argentina Australia Austria Ireland Spain
Canada Japan Belgium Italy Sweden
Mexico New Zealand Denmark The Netherlands Switzerland
Singapore Finland Norway United Kingdom
France Portugal Germany
The Fund may also invest in debt securities of Government Entities of
certain "emerging market" countries, such as, but not limited to, the Czech
Republic, Greece, South Korea, Hong Kong, Malaysia, Indonesia, Thailand, China,
Israel, Chile and Colombia.
A "supranational entity" is an entity constituted by the national
governments of several countries to promote economic development. Examples of
such supranational entities include, among others, the World Bank (International
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Bank for Reconstruction and Development), the European Investment Bank and the
Asian Development Bank. Debt securities of "quasi-governmental entities" are
issued by entities owned by a national, state, or equivalent government or are
obligations of a political unit that are not backed by the national government's
"full faith and credit" and general taxing powers. Examples of quasi-government
issuers include, among others, the Province of Ontario and the City of
Stockholm. "Foreign Government securities" shall also include debt securities of
Government Entities denominated in European Currency Units. A European Currency
Unit represents specified amounts of the currencies of certain of the twelve
member states of the European Community. Foreign Government securities shall
also include mortgage-backed securities issued by foreign Government Entities
including quasi-governmental entities and the remaining maturities of such
securities shall be treated by the Fund in the same manner as mortgage-backed
U.S. Government securities.
RETURNS AVAILABLE FROM FOREIGN CURRENCY DENOMINATED DEBT INSTRUMENTS
CAN BE ADVERSELY AFFECTED BY CHANGES IN EXCHANGE RATES. The Fund's investment
adviser believes that the use of foreign currency hedging techniques, including
"cross-currency hedges" may assist, under certain conditions, in helping to
protect against declines in the U.S. dollar value of income available for
distribution to shareholders and declines in the net asset value of the Fund's
shares resulting from adverse changes in currency exchange rates. For example,
the return available from securities denominated in a particular foreign
currency would diminish in the event the value of the U.S. dollar increased
against such currency. Such a decline could be partially or completely offset by
an increase in value of a cross-currency hedge involving a forward exchange
contract to sell a different foreign currency, where such contract is available
on terms more advantageous to the Fund than a contract to sell the currency in
which the position being hedged is denominated. Cross-currency hedges can,
therefore, under certain conditions, provide protection of net asset value in
the event of a general rise in the U.S. dollar against foreign currencies.
However, there can be no assurance that the Fund will be able to engage in
cross-currency hedging or that foreign exchange rate relationships will be
sufficiently predictable to enable the investment adviser to employ
cross-currency hedging techniques successfully. A cross-currency hedge cannot
protect against exchange rates risks perfectly, and if the investment adviser is
incorrect in its judgment of future exchange rate relationships, the Fund could
be in a less advantageous position than if such a hedge had not been
established.
The Fund may invest without limitation in commercial paper and other
instruments which are indexed to certain specific foreign currency exchange
rates. The terms of such instruments provide that its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the exchange rate between two currencies while the obligation is
outstanding. The Fund will purchase such instruments with the currency in which
it is denominated and, at maturity, will receive interest and principal payments
thereon in that currency, but the amount of principal payable by the issuer at
maturity will change in proportion to the change (if any) in the exchange rate
between the two specified currencies between the date the instrument is issued
and the date the instrument matures. The Fund will establish a segregated
account with respect to its investments in this type of instrument and maintain
in such account cash or liquid high quality debt securities having a value at
least equal to the aggregate principal amount of outstanding instruments of this
type. While such instruments entail the risk of loss of principal, the potential
for realizing gains as a result of changes in foreign currency exchange rates
enables the Fund to hedge (or cross-hedge) against a decline in the U.S. dollar
value of investments denominated in foreign currencies while providing an
attractive money market rate of return.
The Fund will invest in primarily investment grade debt securities.
Accordingly, the Fund's investments will consist of (i) U.S. Government
securities, (ii) Foreign Government securities which are rated at least BBB by
Standard & Poor's, or Baa by Moody's or of an equivalent rating by any other
NRSRO, or if unrated, are determined by the Fund's investment adviser to be of
equivalent rating using similar rating standards (investment grade), (iii)
corporate debt securities rated at least investment grade by Standard & Poor's,
Moody's or any other NRSRO, or if unrated, are determined by the Fund's
investment adviser to be of equivalent rating using similar rating standards,
(iv) certificates of deposit and bankers acceptances issued or guaranteed by, or
time deposits maintained at, banks (including foreign branches of U.S. Banks or
U.S. or foreign branches of foreign banks) having total assets of more than
[$500] million and determined by
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the investment adviser to be of investment grade using similar standards,
commercial paper rated [A-1 by Standard & Poor's, P-1] by Moody's, or if not
rated, issued by U.S. or foreign companies having outstanding long term debt
securities rated at least investment grade by Standard & Poor's, Moody's or any
other NRSRO, or if unrated, are determined by the Fund's investment adviser to
be of equivalent rating using similar rating standards; and (v) loan
participations having a remaining term not exceeding one year in loans extended
by banks to such companies. The value of long-term fixed income securities will
fluctuate inversely with interest rates. See the description of securities
ratings in the Appendix.
The Fund may also invest up to 10% of its total assets in securities
rated B or BB by Standard & Poor's or B/Ba by Moody's or an equivalent rating by
any other NRSRO, or if unrated, are determined by the Fund's investment adviser
to be of equivalent rating using similar rating standards. Investment in
non-investment grade securities may entail additional risks to the Fund. See
"Medium and Lower-Rated Securities."
The Fund will not normally invest in securities denominated in a
particular foreign currency if, immediately thereafter, securities denominated
in such currency would exceed 30% of the total assets of the Fund unless, in the
judgment of the investment adviser, the particular currency appears likely to
appreciate significantly relative to the U.S. dollar. However, the Fund may
invest up to 50% of its total assets in securities denominated in Canadian,
Japanese, British or German currencies. The Fund will not invest more than 25%
of its total assets in securities issued or guaranteed by foreign Government
Entities associated with any single foreign country, which shall be deemed to be
"industries." The foreign Government Entities of national and local governments
will be considered separate industries. See "Investment Restrictions" in the
Statement of Additional Information.
SPECIAL CONSIDERATIONS. The Fund will invest in Foreign Government
securities denominated in foreign currencies. A change in the value of any such
currency against the U.S. dollar will result in a corresponding change in the
U.S. dollar value of the Fund's assets denominated in that currency. These
changes will also affect the Fund's yield, income and distributions to
shareholders. In addition, although the Fund will receive income in such
currencies, the Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency decreases
after the Fund's income has been accrued and translated into U.S. dollars, the
Fund could be required to liquidate portfolio securities to make such
distributions. Similarly, if an exchange rate for any such currency decreases
between the time the Fund incurs expenses in U.S. dollars and the time such
expenses are paid, the amount of such currency required to be converted into
U.S. dollars in order to pay such expenses in U.S. dollars will be greater than
the equivalent amount of such currency at the time such expenses were incurred.
Under the Internal Revenue Code of 1986, as amended (the Internal Revenue Code),
changes in an exchange rate which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities will result in foreign exchange gains or
losses that increase or decrease distributable net investment income. Similarly,
dispositions of certain debt securities (by sale, at maturity or otherwise) at a
U.S. dollar amount that is higher or lower than the Fund's original U.S. dollar
cost may result in foreign exchange gains or losses, which will increase or
decrease distributable net investment income. The Fund will invest only in
foreign currency denominated Foreign Government securities that are freely
convertible into U.S. dollars without legal restriction at the time of
investment.
The Fund's interest income from Foreign Government securities issued in
local markets may, in some cases, be subject to applicable withholding taxes
imposed by governments in such markets. The Fund may sell a foreign security it
owns prior to maturity in order to avoid foreign withholding taxes on dividend
and interest income and buy back the same security for a future settlement date.
See "How the Fund Invests--Other Investments and Investment Techniques--When
Issued and Delayed Delivery Securities." Interest on Eurocurrency instruments is
not generally subject to foreign withholding taxes. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.
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RISK FACTORS
RISK FACTORS ON FOREIGN INVESTMENTS
INVESTING IN SECURITIES ISSUED BY FOREIGN GOVERNMENTS INVOLVES
CONSIDERATIONS AND POSSIBLE RISKS NOT TYPICALLY ASSOCIATED WITH INVESTING IN
OBLIGATIONS ISSUED BY THE U.S. GOVERNMENT AND DOMESTIC CORPORATIONS. The values
of foreign investments are affected by changes in currency rates or exchange
control regulations, application of foreign tax laws, including withholding
taxes, changes in governmental administration or economic or monetary policy (in
this country or abroad) or changed circumstances in dealings between nations.
Costs are incurred in connection with conversions between various currencies. In
addition, foreign brokerage commissions are generally higher than in the United
States, and foreign securities markets may be less liquid, more volatile and
less subject to governmental supervision than in the United States. Investments
in foreign countries could be affected by other factors not present in the
United States, including expropriation, confiscatory taxation, lack of uniform
accounting and auditing standards and potential difficulties in enforcing
contractual obligations and could be subject to extended settlement periods.
Shareholders should be aware that investing in the fixed-income markets
of developing countries involves exposure to economies that are generally less
diverse and mature, and to political systems which can be expected to have less
stability than those of developed countries. Historical experience indicates
that the markets of developing countries have been more volatile than the
markets of developed countries. The risks associated with investments in foreign
securities, described above, may be greater with respect to investments in
developing countries.
MEDIUM AND LOWER-RATED SECURITIES. The Fund may invest in medium (i.e.,
rated Baa by Moody's or BBB by Standard & Poor's) and lower-rated securities
(i.e., rated lower than Baa by Moody's or lower than BBB by Standard & Poor's).
However, the Fund will not purchase a security rated lower than B by Moody's or
Standard & Poor's. Securities rated Baa by Moody's or BBB by Standard & Poor's,
although considered investment grade, possess speculative characteristics, and
changes in economic or other conditions are more likely to impair the ability of
issuers of these securities to make interest and principal payments than is the
case with respect to issuers of higher-grade bonds.
Generally, lower-rated securities and unrated securities of comparable
quality, sometimes referred to as junk bonds (i.e., securities rated lower than
Baa by Moody's or BBB or Standard & Poor's), offer a higher current yield than
is offered by higher-rated securities, but also (i) will likely have some
quality and protective characteristics that, in the judgment of the rating
organizations, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (ii) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. The market values of certain of these securities also
tend to be more sensitive to individual issuer developments and changes in
economic conditions than higher-quality bonds. In addition, medium and
lower-rated securities and comparable unrated securities generally present a
higher degree of credit risk. The risk of loss due to default by these issuers
is significantly greater because medium and lower-rated securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. The investment
adviser, under the supervision of the Manager and the Directors, in evaluating
the creditworthiness of an issuer whether rated or unrated, takes various
factors into consideration, which may include, as applicable, the issuer's
financial resources, its sensitivity to economic conditions and trends and
regulatory matters.
In addition, the market value of securities in lower-rated categories
is more volatile than that of higher-quality securities, and the markets in
which medium and lower-rated or unrated securities are traded are more limited
than those in which higher-rated securities are traded. The existence of limited
markets may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing its portfolio and calculating its net asset
value. Moreover, the lack of a liquid trading market may restrict the
availability of securities for the Fund to purchase and may also have the effect
of limiting the ability of the Fund to sell securities at their fair value
either to meet redemption requests or to respond to changes in the economy or
the financial markets.
Lower-rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower-yielding security, resulting in a
decreased return for
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investors. Also, as the principal value of bonds moves inversely with movements
in interest rates, in the event of rising interest rates the value of the
securities held by the Fund may decline proportionately more than a portfolio
consisting of higher-rated securities. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher-rated bonds, resulting in a
decline in the overall credit quality of the securities held by the Fund and
increasing the exposure of the Fund to the risks of lower-rated securities.
Investments in zero coupon bonds may be more speculative and subject to greater
fluctuations in value due to changes in interest rates than bonds that pay
interest currently.
Subsequent to its purchase by a Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. Neither event will require sale of these securities by the Fund,
but the investment adviser will consider this event in its determination of
whether the Fund should continue to hold the securities.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES
In addition to U.S. Government securities and Foreign Government
securities, the Fund is permitted to make the investments described below. Under
normal circumstances, these investments will represent no more than 35% of the
total assets of the Fund.
The Fund is permitted to invest (i) up to 20% of its total assets in
any combination of debt securities of U.S. corporate issuers that are rated Baa
or better by Moody's or BBB or better by Standard & Poor's, (ii) up to 10% of
its total assets in convertible securities and (iii) up to 10% of its total
assets in common shares and warrants to purchase common shares when such shares
or warrants are accompanied by debt securities. [See "Medium and Lower-Rated
Securities."] [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. 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
weakened capacity to pay interest and repay principal for debt in this category
than for debt in higher rated categories. If the quality of securities held by
the Fund changes so that the securities would no longer qualify for investment
by the Fund, the Fund will seek to dispose of the securities as soon as is
reasonably practicable in light of the circumstances and consistent with the
interests of the Fund.]
The Fund may invest in obligations of foreign banks and foreign
branches of U.S. banks only if after giving effect to such investment all such
investments would constitute less than 20% of the Fund's total assets
(determined at the time of investment). This limitation shall not be construed
to apply to any forward commitments or options on foreign currencies purchased
by the Fund from any such banks for hedging purposes as described above under
"Hedging and Income Enhancement Strategies." These 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. In addition, there may be less publicly available information
about a foreign bank or foreign branch of a U.S. bank than about a domestic bank
and such entities may not be subject to the same accounting, auditing and
financial recordkeeping standards and requirements as domestic banks.
The Fund may also purchase collateralized mortgage obligations (CMOs)
if, after giving effect to such investment, all such investments would
constitute less than 10% of the Fund's total assets (determined at the time of
investment). CMOs are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by GNMA,
FNMA or FHLMC Certificates, but also may be collateralized by whole loans or
private mortgage pass-through securities (such collateral collectively
hereinafter referred to as Mortgage Assets). Multi-class pass-through securities
are equity interests in a trust composed of Mortgage Assets. Payments of
principal of and
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interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduled distributions on the
multi-class pass-through securities. CMOs may be issued by agencies or
instrumentalities of the U.S. Government, or by private originators of, or
investors in, mortgage loans, including depository institutions, mortgage banks,
investment banks and special-purpose subsidiaries of the foregoing. The issuer
of a series of CMOs may elect to be treated as a Real Estate Mortgage Investment
Conduit (REMIC). All future references to CMOs shall also be deemed to include
REMICs.
In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semi-annual basis. The principal of and interest on the
Mortgage Assets may be allocated among the several classes of a CMO series in a
number of different ways. Generally, the purpose of the allocation of the cash
flow of a CMO to the various classes is to obtain a more predictable cash flow
to the individual tranches than exists with the underlying collateral of the
CMO. As a general rule, the more predictable the cash flow is on a CMO tranche,
the lower the anticipated yield will be on that tranche at the time of issuance
relative to prevailing market yields on mortgage-backed securities. CMOs and
REMICs issued by an agency or instrumentality of the U.S. Government are
considered U.S. Government securities for purposes of this Prospectus.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks
or other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures an
irrevocable letter of credit in favor of the Fund in an amount equal to at least
100% of the market value of the securities loaned. During the time portfolio
securities are on loan, the borrower will pay the Fund an amount equivalent to
any dividend or interest paid on such securities and the Fund may invest the
cash collateral and earn additional income, or it may receive an agreed-upon
amount of interest income from the borrower. As is the case with any extension
of credit, portfolio securities loans involve certain risks in the event a
borrower should fail financially, including delays or inability to recover the
loaned securities or possible foreclosure against the collateral. As a matter of
fundamental policy, the Fund cannot lend more than 30% of the value of its total
assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place as much as a month or more in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. When the Fund engages in when-issued or delayed
delivery transactions, it relies on the seller to consummate the sale. The
seller's failure to do so may result in the Fund's losing the opportunity to
obtain an advantageous price and yield. 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 the period between
purchase and settlement. 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
Fund's assets committed to the purchase of securities on a when-issued or
delayed delivery basis may increase the volatility of the Fund's net asset
value.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements whereby the seller of a
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original
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purchase, although it may extend over a number of months. The resale price is in
excess of the purchase price, reflecting an agreed-upon rate of return effective
for the period of time the Fund's money is invested in the security. The Fund's
repurchase agreements will at all times be fully collateralized in an amount at
least equal to the purchase price including accrued interest earned on the
underlying securities. The instruments held as collateral are valued daily, and
as the value of instruments declines, the Fund will require additional
collateral. If the seller defaults and the value of the collateral securing the
repurchase agreement declines, the Fund may incur a loss. The Fund participates
in a joint repurchase account with other investment companies managed by
Prudential Mutual Fund Management, Inc. pursuant to an order of the Securities
and Exchange Commission (SEC).
BORROWING
The Fund may borrow money up to 20% of the value of its total assets
(computed at the time the loan is made) from banks for temporary, extraordinary
or emergency purposes or for the clearance of transactions. During periods when
the Fund has borrowed for temporary, extraordinary or emergency purposes or for
the clearance of transactions, the Fund may pursue its investment objective by
purchasing additional securities which can result in increased volatility of the
Fund's net asset value. The Fund will not borrow to take advantage of investment
opportunities. See "Additional Investment Policies--Borrowing" in the Statement
of Additional Information. The Fund may pledge up to 20% of its total assets to
secure these borrowings.
ILLIQUID SECURITIES
The Fund may not invest more than [15%] of its net assets in illiquid
securities, including repurchase agreements which have a maturity of longer than
seven days, securities with legal or contractual restrictions on resale 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 Board
of Directors. Repurchase agreements subject to demand are deemed to have a
maturity equal to the applicable notice period.
The staff of the SEC has taken the position that purchased OTC options
and the assets used as "cover" for written OTC options are illiquid securities
unless the Fund and the counterparty have provided for the Fund, at the Fund's
election, to unwind the over-the-counter option. The exercise of such an option
ordinarily would involve the payment by the Fund of an amount designed to
reflect the counterparty's economic loss from an early termination, but does
allow the Fund to treat the assets used as "cover" as "liquid."
HEDGING AND INCOME ENHANCEMENT STRATEGIES
THE FUND MAY ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE INCOME, BUT NOT FOR
SPECULATION. 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 Objective and
Policies--Additional Investment Policies" in the Statement of Additional
Information. New financial products and risk management techniques continue to
be developed and the Fund may use these new investments and techniques to the
extent consistent with its investment objective and policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES AND CURRENCIES THAT ARE TRADED ON NATIONAL SECURITIES EXCHANGES OR IN
THE OVER-THE-COUNTER MARKET TO ENHANCE INCOME OR TO HEDGE ITS PORTFOLIO
INVESTMENTS. THESE OPTIONS WILL BE ON DEBT SECURITIES, FINANCIAL INDICES (E.G.,
S&P 500), U.S. GOVERNMENT SECURITIES (LISTED ON AN EXCHANGE AND
OVER-THE-COUNTER, I.E., PURCHASED OR SOLD THROUGH U.S. GOVERNMENT SECURITIES
DEALERS), FOREIGN GOVERNMENT SECURITIES AND FOREIGN CURRENCIES. The Fund may
write covered put and call options to
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generate additional income through the receipt of premiums, purchase put options
in an effort to protect the value of a security that it owns against a decline
in market value and purchase call options in an effort to protect against an
increase in price of securities (or currencies) it intends to purchase. The Fund
may also purchase put and call options to offset previously written put and call
options of the same type. See "Additional Investment Policies--Options on
Securities" in the Statement of Additional Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR CURRENCY
SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE PRICE).
The writer of a call option, in return for the premium, has the obligation, upon
exercise of the option, to deliver, depending upon the terms of the option
contract, the underlying securities or a specified amount of cash to the
purchaser upon receipt of the exercise price. When the Portfolio writes a call
option, it gives up the potential for gain on the underlying securities or
currency in excess of the exercise price of the option during the period that
the option is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT,
FOR A SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO
THE OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer
of the put option, in return for the premium, has the obligation, upon exercise
of the option, to acquire the securities or currency underlying the option at
the exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, so
long as the Fund is obligated under the option, it owns an offsetting position
in the underlying security or currency or maintains cash, U.S. Government
securities or other liquid high-grade debt obligations with a value sufficient
at all times to cover its obligations. See "Additional Investment
Policies--Options on Securities--Additional Risks of Options, Futures Contracts,
Options on Futures Contracts and Forward Contracts" in the Statement of
Additional Information.
THERE IS NO LIMITATION ON THE AMOUNT OF COVERED CALL OPTIONS THE FUND
MAY WRITE. THE FUND MAY ONLY WRITE COVERED PUT OPTIONS TO THE EXTENT THAT COVER
FOR SUCH OPTIONS DOES NOT EXCEED 25% OF ITS NET ASSETS. THE FUND WILL NOT
PURCHASE AN OPTION IF, AS A RESULT OF SUCH PURCHASE, MORE THAN 20% OF ITS TOTAL
ASSETS WOULD BE INVESTED IN PREMIUMS FOR OPTIONS AND OPTIONS ON FUTURES.
Forward Currency Exchange Contracts
THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS PORTFOLIO AGAINST FUTURE CHANGES IN THE LEVEL OF
CURRENCY EXCHANGE RATES. The Fund may enter into such contracts on a spot, i.e.,
cash, basis at the rate then prevailing in the currency exchange market or on a
forward basis, by entering into a forward contract to purchase or sell currency.
A forward contract on foreign currency is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days agreed
upon by the parties from the date of the contract at a price set on the date of
the contract.
THE FUND'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in or convertible into that currency or in a different currency (cross
hedge). Although there are no limits on the number of forward contracts which
the Fund may enter into, the Fund may not position hedge with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of forward currency) of the
securities held in its portfolio denominated or quoted in, or currently
convertible into, such currency. If the Fund enters into a position hedging
transaction, the Fund's custodian or subcustodian will place cash or U.S.
Government securities or other high-grade debt obligations in a segregated
account of the Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of the given forward contract. If the value of the
securities placed in the segregated account declines,
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<PAGE>
additional cash or securities will be placed in the account so that the value of
the account will, at all times, equal the amount of the Fund's commitment with
respect to the forward contract. See "Investment Objective and
Policies--Additional Investment Policies--Forward Currency Exchange Contracts"
in the Statement of Additional Information.
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR CERTAIN
HEDGING, RETURN ENHANCEMENT AND RISK MANAGEMENT PURPOSES IN ACCORDANCE WITH
REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION. THESE FUTURES CONTRACTS
AND RELATED OPTIONS WILL BE ON DEBT SECURITIES, FINANCIAL INDICES, U.S.
GOVERNMENT SECURITIES, FOREIGN GOVERNMENT SECURITIES AND FOREIGN CURRENCIES. A
financial futures contract is an agreement to purchase or sell an agreed amount
of securities or currencies at a set price for delivery in the future.
THE FUND MAY NOT PURCHASE OR SELL FUTURES CONTRACTS AND RELATED OPTIONS
FOR RETURN ENHANCEMENT OR RISK MANAGEMENT PURPOSES, IF IMMEDIATELY THEREAFTER
THE SUM OF THE AMOUNT OF INITIAL MARGIN DEPOSITS ON THE FUND'S EXISTING FUTURES
AND OPTIONS ON FUTURES AND PREMIUMS PAID FOR SUCH RELATED OPTIONS WOULD EXCEED
5% OF THE MARKET VALUE OF THE FUND'S TOTAL ASSETS. THE FUND MAY PURCHASE AND
SELL FUTURES CONTRACTS AND RELATED OPTIONS WITHOUT LIMITATION, FOR BONA FIDE
HEDGING PURPOSES. THE VALUE OF ALL FUTURES CONTRACTS SOLD WILL NOT EXCEED THE
TOTAL MARKET VALUE OF THE FUND'S INVESTMENTS.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS
DEPENDS UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE
MARKET AND IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between
movements in the price of a futures contract and the price of the securities
being hedged is imperfect and there is a risk that the value of the securities
being hedged may increase or decrease at a greater rate than a specified futures
contract, resulting in losses to the Fund. Certain futures exchanges or boards
of trade have established daily limits on the amount that the price of a futures
contract or related options may vary, either up or down, from the previous day's
settlement price. These daily limits may restrict the Fund's ability to purchase
or sell certain futures contracts or related options on any particular day.
THE FUND'S ABILITY TO ENTER INTO FUTURES CONTRACTS AND OPTIONS THEREON
IS LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE FOR QUALIFICATION AS
A REGULATED INVESTMENT COMPANY. SEE "INVESTMENT OBJECTIVE AND
POLICIES--ADDITIONAL INVESTMENT POLICIES--FUTURES CONTRACTS--OPTIONS ON FUTURES
CONTRACTS" AND "TAXES, DIVIDENDS AND DISTRIBUTIONS" IN THE STATEMENT OF
ADDITIONAL INFORMATION.
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
THE FUND WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the
investment adviser's prediction of movements in the direction of the securities,
foreign currency and interest rate markets are inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of options, foreign currency
and futures contracts and options on futures contracts and foreign currencies
include (1) dependence on the investment adviser's ability to predict correctly
movements in the direction of interest rates, securities prices and currency
markets; (2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; and (6) the possible inability of the Fund to purchase
or sell a security at a time that otherwise would be favorable for it to do so,
or the possible need for the Fund to sell a security at a disadvantageous time,
due to the need for the Fund to maintain "cover" or to segregate securities in
connection with hedging techniques. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.
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SHORT SALES AGAINST-THE-BOX
The Fund may make short sales against-the-box for the purpose of
deferring realization of gain or loss for federal income tax purposes. A short
sale "against-the-box" is a short sale in which the Fund owns an equal amount of
the securities sold short or owns securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short.
PORTFOLIO TURNOVER AND BROKERAGE
The Fund has no fixed policy with respect to portfolio turnover;
however it is anticipated that the Fund's annual portfolio turnover rate will
not exceed 300%. The portfolio turnover rate is calculated by dividing the
lesser of sales or purchases of portfolio securities by the average monthly
value of the Fund's investment securities, excluding securities having a
maturity at the date of purchase of one year or less. While the Fund will pay
commissions in connection with its options and futures transactions, most of the
securities purchased by the Fund are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission.
Nevertheless, high portfolio turnover may involve correspondingly greater
brokerage commissions and other transaction costs which will be borne directly
by the Fund. See "Portfolio Transactions and Brokerage" in the Statement of
Additional Information.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
The Fund has a Board of Directors which, in addition to overseeing the
actions of the Fund's Manager, Subadviser and Distributor, as set forth below,
decide upon matters of general policy. The Fund's Manager conducts and
supervises the daily business operations of the Fund. The Fund's Subadviser
furnishes daily investment advisory services.
For the fiscal year ended December 31, 1993 the Fund's total expenses
as a percentage of average net assets for the Fund's Class A and Class B shares
were 1.41% and 2.01%, respectively. See "Financial Highlights." No Class C
shares were outstanding during the fiscal year ended December 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 .75 OF 1% OF THE FUND'S
AVERAGE DAILY NET ASSETS. It was incorporated in May 1987 under the laws of the
State of Delaware. For the fiscal year ended December 31, 1993, the Fund paid
management fees to PMF of .75% of the Fund's average net assets. This management
fee is higher than such fees charged by most investment companies. See "Manager"
in the Statement of Additional Information.
As of March 31, 1994, PMF served as the manager of [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 [$49] billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE
INVESTMENT OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE
AFFAIRS. SEE "MANAGER" IN THE STATEMENT OF ADDITIONAL INFORMATION.
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<PAGE>
UNDER A SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), A WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL,
PIC FURNISHES INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF
THE FUND AND IS REIMBURSED BY PMF FOR ITS REASONABLE COSTS AND EXPENSES INCURRED
IN PROVIDING SUCH SERVICES. PMF continues to have responsibility for all
investment advisory services pursuant to the Management Agreement and supervises
PIC's performance of such services.
The portfolio is managed by Global Advisors, a unit of The Prudential
Investment Corporation (PIC). Nicholas Sargen, as Chief Investment Officer of
Global Advisors, sets broad investment strategies which are then implemented by
a senior portfolio manager, Andrew Barnett, who has responsibility for the
day-to-day management of the portfolio. Mr. Barnett performs these duties with
the assistance of a mutual fund investment team. Mr. Sargen is a Managing
Director and Mr. Barnett is a Vice President of PIC. Mr. Sargen and Mr. Barnett
have managed the portfolio since October 1991 and January 1991, respectively.
Mr. Sargen has been employed by PIC since October 1991 and was previously
Director of International Bond Market Research at Salomon Brothers where he was
employed from 1984 to 1991. Mr. Barnett has been employed by PIC since 1987 and
also serves as the portfolio manager of The Global Government Plus Fund, Inc.
and for other institutional clients.
PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
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 ASSET VALUE OF THE CLASS A SHARES.
The Class A Plan provides that (i) up to .25 of 1% of the average daily net
assets of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of up to .25 of 1%) may not exceed .30 of 1% of
the average daily net assets of the Class A shares. PMFD has
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<PAGE>
agreed to limit its distribution related fees payable under the Class A Plan to
.15 of 1% of the average daily net assets of the Class A shares for the fiscal
year ending December 31, 1994.
For the fiscal year ended December 31, 1993, PMFD received payments of
$532,527 under the Class A Plan as reimbursement of expenses related to the
distribution of Class A shares. This amount was primarily expended for payment
of account servicing fees to financial advisers and other persons who sell Class
A shares. For the fiscal year ended December 31, 1993, PMFD also received
approximately $62,300 in initial sales charges from the Class A shareholders of
the Fund.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND MAY PAY PRUDENTIAL
SECURITIES FOR ITS DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS B AND
CLASS C SHARES AT AN ANNUAL RATE OF UP TO .75 OF 1% AND UP TO 1% OF THE AVERAGE
DAILY NET ASSETS OF THE CLASS B AND CLASS C SHARES, RESPECTIVELY. The Class B
Plan provides for the payment to Prudential Securities of (i) an asset-based
sales charge of up to .75 of 1% of the average daily net assets of the Class B
shares, and (ii) a service fee of up to .25 of 1% of the average daily net
assets of the Class B shares; provided that the total distribution-related fee
does not exceed .75 of 1%. The Class C Plan provides for the payment to
Prudential Securities of (i) an asset-based sales charge of up to 1% of the
average daily net assets of the Class C shares, and (ii) a service fee of up to
.25 of 1% of the average daily net assets of the Class C shares. The service fee
is used to pay for personal service and/or the maintenance of shareholder
accounts. Prudential Securities has agreed to limit its distribution-related
fees payable under the Class C Plan to .75 of 1% of the average daily net assets
of the Class C shares for the fiscal year ending December 31, 1994. 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 December 31, 1993, Prudential Securities
incurred distribution expenses of approximately $376,700 under the Class B Plan
and received $271,479 from the Fund under the Class B Plan. In addition,
Prudential Securities received approximately $101,000 in contingent deferred
sales charges from redemptions of Class B shares during this period. No Class C
shares were outstanding during the fiscal year ended December 31, 1993.
For the fiscal year ended December 31, 1993, the Fund paid distribution
expenses of .15% and .75% of the average daily net assets of the Class A and
Class B shares, 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 December 31, 1993.
Distribution expenses attributable to the sale of shares of the Fund
will be allocated to each class based upon the ratio of sales of each class to
the sales of all shares of the Fund other than expenses allocable to a
particular class. The distribution fee and initial sales charge of one class
will not be used to subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors
or of a majority of the outstanding shares of the applicable class of the Fund.
The Fund will not be obligated to pay expenses incurred under any plan if it is
terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments to dealers and other persons which distribute shares of the Fund.
Such payments may be calculated by reference to the net asset value of shares
sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor" in
the Statement of Additional Information.
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PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker and/or futures commission
merchant for the Fund provided that the commissions, fees or other remuneration
it receives are fair and reasonable. See "Portfolio Transactions and Brokerage"
in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc., (PMFS) Raritan Plaza One,
Edison, New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent
and in those capacities maintains certain books and records for the Fund. PMFS
is a wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
The Fund's net asset value per share or NAV is determined by
subtracting its liabilities from the value of its assets and dividing the
remainder by the number of outstanding shares. NAV is calculated separately for
each class. The Board of Directors has fixed the specific time of day for the
computation of the Fund's NAV to be as of 4:15 P.M., New York time.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York
Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem shares have been received by the Fund or days on which
changes in the value of the Fund's portfolio securities do not materially affect
the NAV. The New York Stock Exchange is closed on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. As long as the Fund declares dividends daily, the net asset
value of Class A, Class B and Class C shares will generally be the same. It is
expected, however, that the dividends will differ by approximately the amount of
the distribution-related expense accrual differential among the classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS "YIELD" AND "TOTAL RETURN"
(INCLUDING "AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) IN
ADVERTISEMENTS OR SALES LITERATURE. YIELD AND TOTAL RETURN ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B AND CLASS C SHARES. These figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" refers to the income generated by an investment in the Fund over a
one-month or 30-day period. This income is then "annualized" that is, the amount
of income generated by the investment during that 30-day period is assumed to be
generated each 30-day period for twelve periods and is shown as a percentage of
the investment. The income earned on the investment is also assumed to be
reinvested at the end of the sixth 30-day period.
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The "total return" shows how much an investment in the Fund would have
increased (decreased) over a specified period of time (i.e., one, five or ten
years or since inception of the Fund) assuming that all distributions and
dividends by the Fund were reinvested on the reinvestment dates during the
period and less all recurring fees. The "aggregate" total return reflects
actual performance over a stated period of time. "Average annual" total return
is a hypothetical rate of return that, if achieved annually, would have
produced the same aggregate total return if performance had been constant over
the entire period. "Average annual" total return smooths out variations in
performance and takes into account any applicable initial or contingent
deferred sales charges. Neither "average annual" total return nor "aggregate"
total return takes into account any federal or state income taxes which may be
payable upon redemption. The Fund also may include comparative performance
information in advertising or marketing the Fund's 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 the Fund in any
advertisement or information including performance data for the Fund. Further
performance information is contained in the Fund's annual and semi-annual
reports to shareholders, which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
Taxation of the Fund
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code. Accordingly, the
Fund will not be subject to federal income taxes on its net investment income
and capital gains, if any, that it distributes to its shareholders.
Gains or losses on disposition of debt securities denominated in a
foreign currency attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security and the date of disposition also
are treated as ordinary gain or loss. These gains or losses increase or decrease
the amount of the Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If currency losses exceed
other investment company taxable income during a taxable year, distributions
made by the Fund during the year would be characterized as a return of capital
to you, reducing your basis in your Fund shares.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. Certain of these taxes may be credited to shareholders. The
Fund may be permitted to "pass through" to shareholders the right to take
credits against federal income taxes or deductions in respect of foreign taxes
paid by the Fund. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information.
In addition, under the Internal Revenue Code, special rules apply to
the treatment of certain options and futures contracts (Section 1256 contracts).
At the end of each year, such investments held by the Fund will be required to
be "marked to market" for federal income tax purposes; that is, treated as
having been sold at market value. Sixty percent of any gain or loss recognized
on these "deemed sales" and on actual dispositions may be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information.
TAXATION OF SHAREHOLDERS. All dividends out of net investment income,
together with distributions of short-term capital gains, will be taxable as
ordinary income to the shareholder whether or not reinvested. CERTAIN GAINS OR
LOSSES FROM FLUCTUATIONS IN EXCHANGE RATES (SECTION 988 GAINS OR LOSSES) WILL
AFFECT THE AMOUNT OF ORDINARY INCOME THE FUND WILL BE ABLE TO PAY AS DIVIDENDS.
SEE "TAXES, DIVIDENDS AND DISTRIBUTIONS" IN THE STATEMENT OF ADDITIONAL
INFORMATION. Any net long-term capital gains (i.e., the excess of net long-term
capital gains over net short-term capital
22
<PAGE>
losses) distributed to shareholders will be taxable as such to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares.
The Fund has obtained 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 taxable dividends,
capital gain income and redemption proceeds on the accounts of those
shareholders who fail to furnish their tax identification numbers on IRS Form
W-9 (or IRS Form W-8 in the case of certain foreign shareholders) with the
required certifications regarding the shareholder's status under the federal
income tax law. However, dividends of net investment income and short-term
capital gains to a foreign shareholder will generally be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to declare daily and pay monthly dividends of net
investment income and make distributions at least annually of any net capital
and currency gains. The per share dividends on Class B and Class C shares will
be lower than the per share dividends on Class A shares as a result of the
higher distribution fee applicable with respect to Class B and Class C shares.
Distributions of capital gains will be in the same amount for each class of
shares. See "How the Fund Values Its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES,
BASED ON THE NAV OF EACH CLASS ON THE PAYMENT DATE AND RECORD DATE,
RESPECTIVELY, OR SUCH OTHER DATE AS THE BOARD OF DIRECTORS MAY DETERMINE, UNLESS
THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN FIVE BUSINESS DAYS PRIOR TO THE
PAYMENT DATE TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS IN CASH. Such election
should be submitted to Prudential Mutual Fund Services, Inc., Attention: Account
Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015. The Fund will
notify each shareholder after the close of the Fund's taxable year of both the
dollar amount and the taxable status of that year's dividends and distributions
on a per share basis. If you hold shares through Prudential Securities, you
should contact your financial adviser to elect to receive dividends and
distributions in cash. To the extent that, in a given year, distributions to
shareholders exceed recognized net investment income and recognized short-term
and long-term capital gains for the year, shareholders will receive a return of
capital in respect of such year and, in an annual statement, will be notified of
the amount of any return of capital for such year.
As of December 31, 1993 the Fund had a capital loss carryforward for
federal income tax purposes of approximately $69,005,500.
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) for a
capital gain distribution, the price you pay will include the distribution. Such
distributions, although in effect a return of invested principal, are subject to
federal income taxes. Accordingly, prior to purchasing shares of the Fund, an
investor should carefully consider the impact of capital gains distributions
which are expected to be or have been announced.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes, Dividends
and Distributions" in the Statement of Additional Information.
23
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE FUND WAS INCORPORATED IN MARYLAND ON MARCH 15, 1988 UNDER THE NAME
"THE PRUDENTIAL INTERMEDIATE INCOME FUND, INC." AS A CLOSED-END, NON-DIVERSIFIED
MANAGEMENT INVESTMENT COMPANY. THE FUND OPERATED AS A CLOSED-END FUND PRIOR TO
OCTOBER 7, 1991. ON AUGUST 8, 1991, SHAREHOLDERS APPROVED OPEN-ENDING THE FUND
AND CHANGING THE FUND'S NAME TO "PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND,
INC." AND, SINCE OCTOBER 7, 1991, THE FUND HAS OPERATED AS AN OPEN-END FUND. THE
FUND IS AUTHORIZED TO ISSUE 2 BILLION SHARES OF COMMON STOCK, $.001 PAR VALUE
PER SHARE DIVIDED INTO THREE CLASSES, DESIGNATED CLASS A, CLASS B AND CLASS C
COMMON STOCK, EACH OF WHICH CONSISTS OF 6662/3 MILLION AUTHORIZED SHARES. Each
class of common stock represents an interest in the same assets of the Fund and
is identical in all respects except that (i) each class bears different
distribution expenses, (ii) each class has exclusive voting rights with respect
to its distribution and service plan (except that the Fund has agreed with the
SEC in connection with the offering of a conversion feature on Class B shares to
submit any amendment of the Class A Plan to both Class A and Class B
shareholders), (iii) each class has a different exchange privilege and (iv) only
Class B shares have a conversion feature. See "How the Fund is
Managed--Distributor." The Fund has received an order from the SEC permitting
the issuance and sale of multiple classes of common stock. Currently, the Fund
is offering three classes designated as Class A, Class B and Class C shares. In
accordance with the Fund's Articles of Incorporation, the Board of Directors may
authorize the creation of additional series of common stock and classes within
such series, with such preferences, privileges, limitations and voting and
dividend rights as the Board of Directors may determine.
The Board of Directors may increase or decrease the number of
authorized shares without the approval of shareholders. Shares of the Fund, when
issued, are fully paid, nonassessable, fully transferable and redeemable at the
option of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of the Fund
is entitled to its portion of all of the Fund's assets after all debt and
expenses of the Fund have been paid. Since Class B and Class C shares generally
bear higher distribution expenses than Class A shares, the liquidation proceeds
to shareholders of those classes are likely to be lower than to Class A
shareholders. The Fund's shares do not have cumulative voting rights for the
election of Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS FOR EXAMPLE THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OF THE FUND OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information
which has been incorporated by reference herein, does not contain all the
information set forth in the Registration Statement filed by the Fund with the
SEC under the Securities Act of 1933. Copies of the Registration Statement may
be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
24
<PAGE>
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. [IN ADDITION,
CLASS A SHARES MAY BE PURCHASED THROUGH A DEALER WHICH HAS ENTERED INTO A
SELECTED DEALER AGREEMENT WITH THE FUND'S DISTRIBUTOR.] The minimum initial
investment for Class A and Class B shares is $1,000 per class and $5,000 for
Class C shares. The minimum subsequent investment is $100 for all classes. All
minimum investment requirements are waived for certain retirement and employee
savings plans or custodial accounts for the benefit of minors. For purchases
made through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment is $50. See "Shareholder Services" below.
THE PURCHASE PRICE IS THE NAV NEXT DETERMINED FOLLOWING RECEIPT OF AN
ORDER BY THE TRANSFER AGENT OR PRUDENTIAL SECURITIES PLUS A SALES CHARGE WHICH,
AT YOUR OPTION, MAY BE IMPOSED EITHER (I) AT THE TIME OF PURCHASE (CLASS A
SHARES) OR (II) ON A DEFERRED BASIS (CLASS B OR CLASS C SHARES). SEE
"ALTERNATIVE PURCHASE PLAN" AND "HOW THE FUND VALUES ITS SHARES."
Application forms can be obtained from PMFS, Prudential Securities,
Prusec or a selected dealer (Class A only). If a stock certificate is desired,
it must be requested in writing for each transaction. Certificates are issued
only for full shares. Shareholders who hold their shares through Prudential
Securities will not receive share certificates.
The Fund reserves the right to reject any purchase order (including
an exchange) or to suspend or modify the continuous offering of its shares.
See "How to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the
Fund. The Distributor reserves the right to cancel any purchase order for
which payment has not been received by the fifth business day following the
investment.
Transactions in Fund shares may be subject to postage and handling
charges imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by
wire, you must first telephone PMFS at (800) 225-1852 (toll-free) to receive an
account number. The following information will be requested: your name, address,
tax identification number, dividend distribution election, amount being wired
and wiring bank. Instructions should then be given by you to your bank to
transfer funds by wire to State Street Bank and Trust Company, Boston,
Massachusetts, Custody and Shareholder Services Division, Attention: Prudential
Intermediate Global Income Fund, Inc., specifying on the wire the account number
assigned by PMFS and your name and identifying the sales charge alternative
(Class A, Class B or Class C shares).
If you arrange for receipt by State Street Bank and Trust Company of
Federal Funds prior to 4:15 P.M., New York time, on a business day, you may
purchase shares of the Fund as of that day.
In making a subsequent purchase order by wire, you should wire State
Street Bank and Trust Company directly and should be sure that the wire
specifies Prudential Intermediate Global Income Fund, Inc., Class A, Class B
or Class C shares and your name and individual account number. It is not
necessary to call PMFS to make subsequent purchase orders utilizing Federal
Funds. The minimum amount which may be invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS THREE CLASSES OF SHARES (CLASS A, CLASS B AND CLASS C
SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE
FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH
OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES
(ALTERNATIVE PURCHASE PLAN).
25
<PAGE>
<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 3% .30 of 1% (Currently Initial sales charge waived or reduced
of the public offering price being charged at a rate for certain purchases
of .25 of 1%)
CLASS B Maximum contingent deferred sales .75% Shares convert to Class A shares
charge or CDSC of 3% of the lesser approximately five years after
of the amount invested or the purchase
redemption proceeds; declines to
zero after four years
CLASS C Maximum CDSC of 1% of the lesser 1% (currently being Shares do not convert to another class
of the amount invested or the charged at a rate of
redemption proceeds on .75 of 1%)
redemptions made within one
year of purchase
</TABLE>
The three classes of shares represent an interest in the same portfolio
of investments of the Fund and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except as
noted under the heading "General Information--Description of Common Stock"), and
(iii) only Class B shares have a conversion feature. The three classes also have
separate exchange privileges. See "How to Exchange Your Shares" below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund
will receive different compensation for selling Class A, Class B and Class C
shares and will generally receive more compensation initially for selling Class
A and Class B shares than for selling Class C shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares automatically
convert to Class A shares approximately seven years after purchase (see
"Conversion Feature--Class B shares" below).
The following is provided to assist you in determining which method
of purchase best suits your individual circumstances and is based on current
fees and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 5
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 3% and Class B shares
are subject to a CDSC of 3% which declines to zero over a 4 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 5 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 5 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
26
<PAGE>
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 C shares, you would have to hold your investment for
more than 5 years for the higher cumulative annual distribution-related fee on
those shares to exceed the initial sales charge plus cumulative annual
distribution-related fees on Class A shares. This does not take into account
the time value of money, which further reduces the impact of the higher Class
C distribution-related fee on the investment, fluctuations in net asset value,
the effect of the return on the investment over the period of time or
redemptions during which the CDSC is applicable.]
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE
INVESTMENT OR [, EXCEPT IN THE CASE OF CERTAIN RETIREMENT PLANS,] UNDER RIGHTS
OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES. SEE "REDUCTION
AND WAIVER OF INITIAL SALES CHARGES" BELOW.
Class A Shares
The offering price is the NAV per share next determined following
receipt of an order by the Transfer Agent or Prudential Securities plus a sales
charge (expressed as a percentage of the offering price and of the amount
invested) as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION AS
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------ ---------------- --------------- -----------------
<S> <C> <C> <C>
Less than $100,000 3.0% 3.09% 2.75%
$100,000 but less than $250,000 2.5 2.56 2.25
$250,000 but less than $500,000 1.5 1.52 1.30
$500,000 but less than $1,000,000 1.0 1.01 0.90
$1,000,000 and above None None None
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is
defined under the Federal securities laws.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges
are available through Rights of Accumulation and Letters of Intent. Shares of
the Fund and shares of other Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) may be
aggregated to determine the applicable reduction. See "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) Directors and
officers of the Fund and other Prudential Mutual Funds, (b) employees of
Prudential
27
<PAGE>
Securities and PMF and their subsidiaries and members of the families of such
persons who maintain an "employee related" account at Prudential Securities or
the Transfer Agent, (c) employees and special agents of Prudential and its
subsidiaries and all persons who have retired directly from active service
with Prudential or one of its subsidiaries, (d) registered representatives and
employees of dealers who have entered into a selected dealer agreement with
Prudential Securities provided that purchases at NAV are permitted by such
person's employer and (e) investors who have a business relationship with a
financial adviser who joined Prudential Securities from another investment
firm, provided that (i) the purchase is made within 90 days of the
commencement of the financial adviser's employment at Prudential Securities,
(ii) the purchase is made with proceeds of a redemption of shares of any
open-end, non-money market fund sponsored by the financial adviser's previous
employer (other than a fund which imposes a distribution or service fee of .25
of 1% or less) 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 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 alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class B
and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV NEXT
DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. See "How the Fund Values Its Shares."
In 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 this right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Prudential
Preferred Financial Services Offices.
28
<PAGE>
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 CHECKS.
REDEMPTION IN KIND. If the Board of Directors determines that it
would be detrimental to the best interests of the remaining shareholders of
the Fund to make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by a distribution in kind of securities
from the investment portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the SEC. Securities will be readily marketable (i.e., U.S.
Government securities or securities listed on a national exchange) and will be
valued in the same manner as in a regular redemption. See "How the Fund Values
its Shares." If your shares are redeemed in kind, you would incur transaction
costs in converting the assets into cash. The Fund, however, has elected to be
governed by Rule 18f-1 under the Investment Company Act, under which the Fund
is obligated to redeem shares solely in cash up to the lesser of $250,000 or
1% of the net asset value of the Fund during any 90-day period for any one
shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the
Board of Directors may redeem all of the shares of any shareholder, other than
a shareholder which is an IRA or other tax-deferred retirement plan, whose
account has a net asset value of less than $500 due to a redemption. The Fund
will give such shareholders 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No contingent deferred
sales charge will be imposed on any 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 your shares. You must notify the Fund's
Transfer Agent, either directly or through Prudential Securities or Prusec, at
the time the repurchase privilege generally is exercised that you are entitled
to credit for the contingent deferred sales charge previously paid. Exercise
of the repurchase privilege generally will not affect federal income tax
treatment of any gain realized upon redemption. If the redemption resulted in
a loss, some or all of the loss, depending on the amount reinvested, will not
generally 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 3% to zero over a four-year
period. Class C shares redeemed within one year of purchase will be subject to
a 1% CDSC. The CDSC will be deducted from the redemption proceeds and reduce
the amount paid to you. The CDSC will be imposed on any redemption by you
which reduces the current value of your shares to an amount which is lower
than the amount of all payments by you for shares during the preceding four
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.
29
<PAGE>
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The following table sets forth the rates of the CDSC applicable
to redemptions of Class B shares:
CONTINGENT DEFERRED SALES CHARGE
YEAR SINCE PURCHASE AS A PERCENTAGE OF DOLLARS INVESTED
PAYMENT MADE OR REDEMPTION PROCEEDS
------------------ --------------------------
First ........................................ 3.0%
Second ....................................... 2.0%
Third ........................................ 1.0%
Fourth ....................................... 1.0%
Fifth ........................................ None
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value above the total
amount of payments for the purchase of Fund shares made during the preceding
four years; then of amounts representing the cost of shares held beyond the
applicable CDSC period; and finally, of amounts representing the cost of
shares held for the longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share
for a cost of $1,000. Subsequently, you acquired 5 additional Class B shares
through dividend reinvestment. During the second year after the purchase you
decided to redeem $500 of your investment. Assuming at the time of the
redemption the net asset value had appreciated to $12 per share, the value of
your Class B shares would be $1,260 (105 shares at $12 per share). The CDSC
would not be applied to the value of the reinvested dividend shares and the
amount which represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 2% (the
applicable rate in the second year after purchase) for a total CDSC of $4.80.
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 the
shareholder (provided that the shares were purchased prior to death or
disability). The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service. 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
401(k) plan, the CDSC will also be waived upon the redemption of shares
30
<PAGE>
purchased with amounts used to repay loans made from the account to the
participant and from which a CDSC was previously deducted.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to waiver of the CDSC. 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 five 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, on 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 five 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 five years
before such conversion date. For example, if 100 shares were initially
purchased at $10 per share (for a total of $1,000) and a second purchase of
100 shares was subsequently made at $11 per share (for a total of $1,100),
95.24 shares would convert approximately five years from the initial purchase
(i.e., $1,000 divided by $2,100 (47.62%) multiplied by 200 shares equals 95.24
shares). The Manager reserves the right to modify the formula for determining
the number of Eligible Shares in the future as it deems appropriate on notice
to shareholders.
Since annual distribution-related fees are lower for Class A shares
than Class B shares, the per share net asset value of the Class A shares may
be higher than that of the Class B shares at the time of conversion. Thus,
although the aggregate dollar value will be same, you may receive fewer Class
A shares than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for
conversions all payments for Class B shares during a month will be deemed to
have been made on the last day of the month, or for Class B shares acquired
through exchange, or a series of exchanges, on the last day of the month in
which the original payment for purchases of such Class B shares was made. For
Class B shares previous exchange for shares of 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 six 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
31
<PAGE>
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 Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH
CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY
MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS.
CLASS A, CLASS B AND CLASS C SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B AND
CLASS C SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE RELATIVE
NAV. 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 investment 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, on weekdays, except holidays, between the hours of 8:00
a.m. and 6:00 p.m., New York time. For your protection and to prevent
fraudulent exchanges, your telephone call will be recorded and you will be
asked to provide your personal identification number. A written confirmation
of the exchange transaction will be sent to you. NEITHER THE FUND NOR ITS
AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH RESULTS FROM
ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER THE FOREGOING
PROCEDURES. All exchanges will be made on the basis of the relative NAV of the
two funds next determined after the request is received in good order. The
exchange privilege is available only in states where the exchange may legally
be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S)
SHOWN ON THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE
SHARES TO BE EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
32
<PAGE>
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 in the Fund,
you can take advantage of the following additional services and privileges.
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A
SALES CHARGE. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than 5 full business days prior to the record date to have subsequent
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through Prudential Securities you should contact your financial
adviser.
o AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec registered
representative or the Transfer Agent directly.
o TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement
plans, including a 401(k) plan, self-directed individual retirement accounts
and "tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue
Code are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.
o SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is
available to shareholders which provides for monthly or quarterly checks.
Withdrawals of Class B and Class C shares may be subject to a CDSC. See "How
to Sell Your Shares--Contingent Deferred Sales Charges."
o REPORTS TO SHAREHOLDERS. The Fund will send to you annual and
semi-annual reports. The financial statements appearing in annual reports are
audited by independent accountants. In order to reduce duplicate mailing and
printing expenses, the Fund will provide one annual and semi-annual
shareholder report and annual prospectus per household. You may request
additional copies of such reports by calling (800) 225-1852 or by writing to
the Fund at One Seaport Plaza, New York, New York 10292. In addition, monthly
unaudited financial data are available upon request from the Fund.
o SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund
at One Seaport Plaza, New York, New York 10292, or by telephone, at (800)
225-1852 (toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges
described above, see "Shareholder Investment Account" in the Statement of
Additional Information.
33
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITY RATINGS
Moody's lnvestors Service
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt 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.
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.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Commercial Paper
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months.
P-1: The designation "Prime-1" or "P-1" indicates the highest quality
repayment capacity of the rated issue.
P-2: The designation "Prime-2" or "P-2" indicates a strong capacity for
repayment.
Standard & Poor's Ratings Group
AAA: Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. 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 higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
A-1
<PAGE>
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC: Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
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 of major risk exposures to adverse
conditions.
Commercial Paper
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 270 days.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is very strong.
A-2: Capacity for timely payment on issues with the designation A-2 is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
A-2
<PAGE>
APPENDIX B
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 Fund at (800) 225-1852 for a free prospectus. Read the
prospectus carefully before you invest or send money.
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential Government Income Fund, Inc.
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
Pennsylvania 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 Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible (R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
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
Page
----
FUND HIGHLIGHTS . . . . . . . . . . 2
FUND EXPENSES . . . . . . . . . . . 4
FINANCIAL HIGHLIGHTS. . . . . . . . 5
HOW THE FUND INVESTS. . . . . . . . 7
Investment Objective and Policies. 7
Risk Factors . . . . . . . . . . . 12
Other Investments and Investment
Techniques. . . . . . . . . . . . 13
Portfolio Turnover and Brokerage . 18
Investment Restrictions. . . . . . 18
HOW THE FUND IS MANAGED . . . . . . 18
Manager. . . . . . . . . . . . . . 18
Distributor. . . . . . . . . . . . 19
Portfolio Transactions . . . . . . 20
Custodian and Transfer and
Dividend Disbursing Agent . . . . 21
HOW THE FUND VALUES ITS SHARES. . . 21
HOW THE FUND CALCULATES
PERFORMANCE. . . . . . . . . . . . 21
TAXES, DIVIDENDS AND DISTRIBUTIONS. 22
GENERAL INFORMATION . . . . . . . . 23
Description of Common Stock. . . . 23
Additional Information . . . . . . 24
SHAREHOLDER GUIDE . . . . . . . . . 24
How to Buy Shares of the Fund. . . 24
Alternative Purchase Plan. . . . . 25
How to Sell Your Shares. . . . . . 28
How to Exchange Your Shares. . . . 32
Shareholder Services . . . . . . . 32
DESCRIPTION OF SECURITY RATINGS . . A-1
THE PRUDENTIAL MUTUAL FUND FAMILY . B-1
- ---------------------------------------------
MF 155A 123456J
*********************************************
* CUSIP Nos.: Class A: 74435G-10-4 *
* Class B: 74435G-30-2 *
* Class C: *
*********************************************
PRUDENTIAL
INTERMEDIATE
GLOBAL INCOME
FUND, INC.
----------------
PRUDENTIAL MUTUAL FUNDS
BUILDING YOUR FUTURE
ON OUR STRENGTH(SM)
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
Statement of Additional Information
dated ___________, 1994
Prudential Intermediate Global Income Fund, Inc. (the Fund) is an
open-end, non-diversified management investment company, or a mutual fund,
whose investment objective is to seek to maximize total return, the components
of which are current income and capital appreciation. The Fund will seek to
achieve this objective through investment in a portfolio consisting primarily
of U.S. Government securities and Foreign Government securities. The Fund may
also purchase and sell put and call options on U.S. Government securities and
Foreign Government securities and engage in transactions involving futures
contracts and options on such futures with respect to U.S. Government securities
and Foreign Government securities. No assurance can be given that the Fund's
investment objective will be realized. Investing in Foreign Government
securities, options and futures contracts involves considerations and possible
risks which are different from those ordinarily associated with investing in
U.S. Government securities.
The Fund's investment objective and policies are described in the Fund's
Prospectus. This statement contains additional information about those
policies. The Fund is also subject to certain investment restrictions. See
"Investment Restrictions" below.
The Fund's address is One Seaport Plaza, New York, New York 10292, and
its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should
only be read in conjunction with the Fund's Prospectus, dated _______, 1994,
a copy of which may be obtained from the Fund at the address noted above.
TABLE OF CONTENTS
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ----------
General Information . . . . . . . . . . . . . . . . . B-2 22
Investment Objective and Policies . . . . . . . . . . B-2 7
Additional Investment Policies. . . . . . . . . . . . B-4 11
Investment Restrictions . . . . . . . . . . . . . . . B-14 17
Directors and Officers. . . . . . . . . . . . . . . . B-15 17
Manager . . . . . . . . . . . . . . . . . . . . . . . B-17 17
Distributor . . . . . . . . . . . . . . . . . . . . . B-18 18
Portfolio Transactions and Brokerage. . . . . . . . . B-20 19
Purchase and Redemption of Fund Shares. . . . . . . . B-21 22
Shareholder Investment Account. . . . . . . . . . . . B-22 31
Net Asset Value . . . . . . . . . . . . . . . . . . . B-26 20
Performance Information . . . . . . . . . . . . . . . B-26 20
Taxes, Dividends and Distributions. . . . . . . . . . B-28 21
Organization and Capitalization . . . . . . . . . . . B-30 --
Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants. . . . . . . . . . . . . B-31 20
Report of Independent Accountants . . . . . . . . . . B-32 --
Financial Statements. . . . . . . . . . . . . . . . . B-33 --
Description of Securities Ratings . . . . . . . . . . A-1 --
==============================================================================
<PAGE>
GENERAL INFORMATION
The Fund was incorporated in Maryland on March 15, 1988 under the name
"The Prudential Intermediate Income Fund, Inc." as a closed-end,
non-diversified management investment company. The Fund operated as a
closed-end fund prior to October 7, 1991. On August 8, 1991, shareholders
approved open-ending the Fund and changing the Fund's name to "Prudential
Intermediate Global Income Fund, Inc." and since October 7, 1991, the Fund has
operated as an open-end fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek to maximize total return, the
components of which are current income and capital appreciation. The Fund will
seek to achieve this objective through investment in a portfolio consisting
primarily of U.S. Government securities and Foreign Government securities.
The Fund will also seek to enhance total return through capital appreciation
when such appreciation is available without significant risk to principal. The
Fund may also purchase and sell put and call options on U.S. Government
securities and Foreign Government securities and engage in transactions
involving futures contracts and options on such futures with respect to U.S.
Government securities and Foreign Government securities. See "How the Fund
Invests--Investment Objective and Policies" in the Prospectus.
U.S. Government Securities
Mortgage-Related Securities Issued by U.S. Government
Instrumentalities. Mortgages backing the securities purchased by the Fund
include conventional thirty year fixed rate mortgages, graduated payment
mortgages, fifteen year mortgages and adjustable rate mortgages. All of these
mortgages can be used to create pass-through securities. A pass-through
security is formed when mortgages are pooled together and undivided interests
in the pool or pools are sold. The cash flow from the mortgages is passed
through to the holders of the securities in the form of periodic payments of
interest, principal and prepayments (net of a service fee). Prepayments occur
when the holder of an individual mortgage prepays the remaining principal
before the mortgage's scheduled maturity date. As a result of the pass-through
of prepayments of principal on the underlying securities, mortgage-backed
securities are often subject to more rapid prepayment of principal than their
stated maturity would indicate. The remaining expected average life of a pool
of mortgage loans underlying a mortgage-backed security is a prediction of
when the mortgage loans will be repaid and is based upon a variety of factors,
such as the demographic and geographic characteristics of the borrowers and
the mortgaged properties, the length of time that each of the mortgage loans
has been outstanding, the interest rates payable on the mortgage loans and the
current interest rate environment.
During periods of declining interest rates, prepayments of mortgages
underlying mortgage-backed securities can be expected to accelerate. When
mortgage obligations are prepaid, the Fund reinvests the prepaid amounts in
securities, the yields of which reflect interest rates prevailing at that
time. Therefore, the Fund's ability to maintain a portfolio of high-yielding
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium generally will result in capital
losses.
GNMA Certificates. Certificates of the Government National Mortgage
Association (GNMA Certificates) are mortgage-backed securities, which evidence
an undivided interest in a pool or pools of mortgages. GNMA Certificates that
the Fund purchases are the "modified pass-through" type, which entitle the
holder to receive timely payment of all interest and principal payments due on
the mortgage pool, net of fees paid to the "issuer" and GNMA, regardless of
whether or not the mortgagor actually makes the payment.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration (FHA) or the Farmers'
Home Administration (FMHA), or guaranteed by the Veterans Administration (VA).
The GNMA guarantee is backed by the full faith and credit of the United
States. The GNMA is also empowered to borrow without limitation from the U.S.
Treasury if necessary to make any payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA Certificate is
likely to be substantially shorter than the original maturity of the mortgages
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of
principal investment long before the maturity of the mortgages in the pool.
Foreclosures impose no risk to principal investment because of the GNMA
guarantee, except to the extent that the Fund has purchased the certificates
above par in the secondary market.
FHLMC Securities. The Federal Home Loan Mortgage Corporation (FHLMC) was
created in 1970 through enactment of Title III of the Emergency Home Finance
Act of 1970. Its purpose is to promote development of a nationwide secondary
market in conventional residential mortgages.
The FHLMC presently issues two types of mortgage pass-through securities,
mortgage participation certificates (PCs) and guaranteed mortgage certificates
(GMCs). The Fund does not intend to invest in GMCs. PCs resemble GNMA
Certificates in that
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each PC represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. The FHLMC guarantees timely monthly
payment of interest on PCs and the stated principal amount.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year
in guaranteed minimum payments. The expected average life of these securities
is approximately ten years.
FNMA Securities. The Federal National Mortgage Association (FNMA) was
established in 1938 to create a secondary market in mortgages insured by the
FHA.
FNMA issues guaranteed mortgage pass-through certificates (FNMA
Certificates). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of
interest and principal on FNMA Certificates.
Adjustable Rate Mortgage Securities. Generally, Adjustable Rate Mortgage
securities (ARMs) have a specified maturity date and amortize principal over
their life. In periods of declining interest rates, there is a reasonable
likelihood that ARMs will experience increased rates of prepayment of
principal. However, the major difference between ARMs and Fixed Rate Mortgage
Securities (FRMs) is that the interest rate and the rate of amortization of
principal of ARMs can and do change in accordance with movements in a
particular, pre-specified, published interest rate index. The amount of
interest on an ARM is calculated by adding a specified amount, the "margin,"
to the index, subject to limitations on the maximum and minimum interest that
is charged during the life of the mortgage or to maximum and minimum changes
to that interest rate during a given period. Because the interest rate on ARMs
generally moves in the same direction as market interest rates, the market
value of ARMs tends to be more stable than that of long-term fixed-rate
securities.
Fixed-Rate Mortgage Securities. The Fund anticipates investing in
high-coupon fixed-rate mortgage securities. Such securities are collateralized
by fixed-rate mortgages and tend to have high prepayment rates when the level
of prevailing interest rates declines significantly below the interest rates
on the mortgages. Thus, under those circumstances, the securities are
generally less sensitive to interest rate movements than lower coupon FRMs.
Characteristics of Mortgage-Backed Securities. The interest rates paid on
the ARMs in which the Fund invests generally are readjusted at intervals of
one year or less to an increment over some predetermined interest rate index.
There are two main categories of indices: those based on U.S. Treasury
securities and those derived from a calculated measure such as a cost of funds
index or a moving average of mortgage rates. Commonly utilized indices include
the one-year and five-year constant maturity Treasury Note rates, the
three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates on
longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month or three-month
London Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or
commercial paper rates. Some indices, such as the one-year constant maturity
Treasury Note rate, closely mirror changes in market interest rate levels.
Others, such as the 11th District Home Loan Bank Cost of Funds index (often
related to ARMs issued by FNMA), tend to lag changes in market rate levels and
tend to be somewhat less volatile.
The underlying mortgages which collateralize the ARMs, collateralized
mortgage obligations and Real Estate Mortgage Investment Conduits in which the
Fund invests will frequently have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower may change up or
down (1) per reset or adjustment interval and (2) over the life of the loan.
Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization.
The market value of mortgage securities, like other U.S. Government
securities, will generally vary inversely with changes in market interest
rates, declining when interest rates rise and rising when interest rates
decline. However, mortgage securities, while having comparable risk of decline
during periods of rising rates, usually have less potential for capital
appreciation than other investments of comparable maturities due to the
likelihood of increased prepayments of mortgages as interest rates decline. In
addition, to the extent such mortgage securities are purchased at a premium,
mortgage foreclosures and unscheduled principal prepayments generally will
result in some loss of the holders' principal to the extent of the premium
paid. On the other hand, if such mortgage securities are purchased at a
discount, an unscheduled prepayment of principal will increase current and
total returns and will accelerate the recognition of income which when
distributed to shareholders will be taxable as ordinary income.
Foreign Securities
Foreign securities in which the Fund will invest will generally be
denominated in foreign currencies, will be traded on foreign markets,
including foreign stock exchanges, and will be affected by changes in currency
exchange rates and in exchange control regulations. A change in the value of a
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S.
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dollar value of the Fund's assets denominated in that currency. These
changes will affect the Fund's income and distributions to shareholders.
In addition, although the Fund will receive income in such currencies, the
Fund will be required to compute and distribute its income in U.S. dollars.
Therefore, if the value of the U.S. dollar strengthens against a foreign
currency after the Fund's income has been accrued and translated into U.S.
dollars, the Fund would experience a foreign currency loss. Similarly, if
the U.S. dollar value weakens against a foreign currency between the time
the Fund incurs expenses and the time such expenses are paid, the amount
of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater than the equivalent
amount of such currency at the time such expenses were incurred. Under
the Internal Revenue Code of 1986, as amended (the Internal Revenue
Code), changes in an exchange rate which occur between the time the Fund
accrues interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities will result in foreign currency gains or
losses that increase or decrease an investment company's taxable income.
Similarly, dispositions of certain debt securities (by sale, at maturity or
otherwise) at a U.S. dollar value that is higher or lower than the Fund's
original U.S. dollar cost may result in foreign exchange gains or losses which
will increase or decrease investment company taxable income. The exchange
rates between the U.S. dollar and other currencies can be volatile and are
determined by such factors as supply and demand in the currency exchange
markets, international balances of payments, government intervention,
speculation and other economic and political conditions.
Foreign securities include securities of any foreign country the
investment adviser considers appropriate for investment by the Fund. Foreign
securities may also include securities of foreign issuers that are traded in
U.S. dollars in the United States although the underlying security is usually
denominated in a foreign currency. These securities include but are not
limited to securities traded in the form of American Depositary Receipts.
The costs attributable to foreign investing are higher than the costs of
domestic investing. For example, the cost of maintaining custody of foreign
securities generally exceeds custodian costs for domestic securities, and
transaction and settlement costs of foreign investing are frequently higher
than those attributable to domestic investing. Foreign investment income may
be subject to foreign withholding or other government taxes that could reduce
the return to the Fund on those securities. Tax treaties between the United
States and certain foreign countries may, however, reduce or eliminate the
amount of foreign tax to which the Fund would be subject.
In the event of a default of foreign debt obligations, it may be
difficult for the Fund to obtain or enforce a judgment against the issuer of
the securities.
ADDITIONAL INVESTMENT POLICIES
In seeking to protect against the effect of changes in interest rates or
currency exchange rates that are adverse to the present or prospective
position of the Fund and to enhance returns, the Fund may employ certain
hedging, yield enhancement and risk management techniques including the
purchase and sale of options, futures and options on futures on debt
securities, financial indices, U.S. and foreign government debt securities and
foreign currencies and forward contracts on foreign currencies. The Fund's
ability to engage in these practices may be limited by tax considerations and
certain other legal considerations. See "Taxes, Dividends and Distributions."
Options On Securities
The Fund may purchase put and call options and write covered put and call
options on debt securities, aggregates of debt securities or indices of prices
thereof, other financial indices and U.S. and foreign government debt
securities. These may include options traded on U.S. or foreign exchanges and
options traded on U.S. or foreign over-the-counter markets (OTC Options).
When the Fund writes an option, it receives a premium which it retains
whether or not the option is exercised. The Fund's principal objective in
writing options is to realize, through the receipt of premiums, a greater
return than would be realized on the underlying securities alone.
The purchaser of a call option has the right, for a specified period of
time, to purchase the securities subject to the option at a specified price
(the exercise price). By writing a call option, the Fund becomes obligated
during the term of the option, upon exercise of the option, to sell, depending
upon the terms of the option contract, the underlying securities or a
specified amount of cash to the purchaser against receipt of the exercise
price.
Conversely, the purchaser of a put option has the right, for a specified
period of time, to sell the securities subject to the option to the writer of
the put at a specified exercise price. By writing a put option, the Fund
becomes obligated during the term of the option to purchase the securities
underlying the option at the exercise price, upon exercise of the option.
The Fund may write only "covered" options. This means that so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option or an option to purchase the same underlying
securities, having an
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exercise price equal to or less than the exercise price of the "covered"
option, or will establish and maintain with its Custodian for the term of
the option a segregated account consisting of cash, U.S. Government
securities or other liquid high-grade debt obligations having a value at
least equal to the fluctuating market value of the optioned securities. A put
option written by the Fund will be considered "covered" if, so long as the
Fund is obligated as the writer of the option, it owns an option to sell the
underlying securities subject to the option having an exercise price equal to
or greater than the exercise price of the "covered" option, or it deposits and
maintains with its Custodian in a segregated account cash, U.S. Government
securities or other liquid high-grade debt obligations having a value equal to
or greater than the exercise price of the option.
The Fund may also buy and write straddles (i.e., a combination of a call
and a put written on the same security at the same strike price where the same
segregated collateral is considered "cover" for both the put and the call). In
such cases, the Fund will also deposit in a segregated account with its
Custodian cash, U.S. Government securities or other liquid high-grade debt
obligations equivalent to the amount, if any, by which the put is
"in-the-money," i.e., the amount by which the exercise price of the put
exceeds the current market value of the underlying security. It is
contemplated that the Fund's use of straddles will be limited to 5% of the
Fund's net assets (meaning that the securities used for cover or segregated as
described above will not exceed 5% of the Fund's net assets at the time the
straddle is written).
The Fund may write both American style options and European style
options. An American style option is an option which may be exercised by the
holder at any time prior to its expiration. A European style option may only
be exercised as of the expiration of the option. The writer of an American
style option has no control over when the underlying securities must be sold,
in the case of a call option, or purchased, in the case of a put option, since
such options may be exercised by the holder at any time prior to the
expiration of the option. Whether or not an option expires unexercised, the
writer retains the amount of the premium. This amount may be offset or
exceeded, in the case of a covered call option, by a decline and, in the case
of a covered put option, by an increase in the market value of the underlying
security during the option period. If a call option is exercised, the writer
must fulfill the obligation to sell the underlying security at the exercise
price, which will usually be lower than the then market value of the
underlying security. If a put option is exercised, the writer must fulfill the
obligation to purchase the underlying security at the exercise price, which
will usually exceed the then market value of the underlying security.
Prior to being notified of exercise of the option, the writer of an
exchange-traded option that wishes to terminate its obligation may effect
a "closing purchase transaction" by buying an option of the same series as
the option previously written. (Options of the same series are options with
respect to the same underlying security, having the same expiration date and
the same strike price.) The effect of the purchase is that the writer's
position will be cancelled by the exchange's affiliated clearing organization.
However, the writer of an option may not effect a closing purchase transaction
after being notified of the exercise of the option. Likewise, the holder of an
option may liquidate a position by effecting a "closing sale transaction" by
selling an option of the same series as the option previously purchased. There
is no guarantee that either a closing purchase or a closing sale transaction
can be effected.
An exchange-traded option position may be closed out only where there
exists a secondary market for an option of the same series. If a secondary
market does not exist, the Fund might not be able to effect a closing sale
transaction in a particular option it has purchased with the result that the
Fund would have to exercise the option in order to realize any profit. If the
Fund is unable to effect a closing purchase transaction in an option the Fund
has written, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise or it
otherwise covers its position. Reasons for the absence of a liquid secondary
market include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by a securities exchange
(Exchange) on opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed with respect
to particular classes or series of options or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
Exchange; (v) the facilities of an Exchange or clearing organization may not
at all times be adequate to handle current trading volume; or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or
in that class or series of options) would cease to exist, although outstanding
options would continue to be exercisable in accordance with their terms.
Exchange-traded options in the U.S. are issued by a clearing organization
affiliated with the Exchange on which the option is listed which, in effect,
gives its guarantee to every exchange-traded option transaction. In contrast,
OTC Options are contracts between the Fund and its contra-party with no
clearing organization guarantee. Thus, when the Fund purchases an OTC Option,
it relies on the dealer from which it has purchased the OTC Option to make or
take delivery of the securities underlying the option. Failure by the dealer
to do so would result in the loss of the premium paid by the Fund as well as
the loss of the expected benefit of the transaction. The Board of Directors
will evaluate the creditworthiness of any dealer from which the Fund proposes
to purchase OTC Options.
Exchange-traded options generally have a continuous liquid market while
OTC Options may not. Consequently, the Fund will generally be able to realize
the value of an OTC Option it has purchased only by exercising it or reselling
it to the dealer who issued
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it. Similarly, when the Fund writes an OTC Option, it generally will be able
to close out the OTC Option prior to its expiration only by entering into a
closing purchase transaction with the dealer which originally purchased the OTC
Option. While the Fund will enter into OTC Options only with dealers which
agree to, and which are expected to be capable of, entering into closing
transactions with the Fund, there can be no assurance that the Fund will be
able to liquidate an OTC Option at a favorable price at any time prior to
expiration. Until the Fund is able to effect a closing purchase transaction
in a covered OTC call option the Fund has written, it will not be able to
liquidate securities used as cover until the option expires or is exercised
or different cover is substituted. In the event of insolvency of the
contra-party, the Fund may be unable to liquidate an OTC Option. With respect
to options written by the Fund, the inability to enter into a closing purchase
transaction could result in material losses to the Fund.
The Fund may write options in connection with buy-and-write transactions;
that is, the Fund may purchase a security and concurrently write a call option
against that security. The exercise price of the call the Fund determines to
write will depend upon the expected price movement of the underlying security.
The exercise price of a call option may be below (in-the-money), equal to
(at-the-money) or above (out-of-the-money) the current value of the underlying
security at the time the option is written. Buy-and-write transactions using
in-the-money call options may be used when it is expected that the price of
the underlying security will remain flat or decline moderately during the
option period. Buy-and-write transactions using at-the-money call options may
be used when it is expected that the price of the underlying security will
remain fixed or advance moderately during the option period. A buy-and-write
transaction using out-of-the-money call options may be used when it is
expected that the premium received from writing the call option plus the
appreciation in the market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. If the call option is exercised in such a transaction, the
Fund's maximum gain will be the premium received by it for writing the option,
adjusted upwards or downwards by the difference between the Fund's purchase
price of the security and the exercise price of the option. If the option is
not exercised and the price of the underlying security declines, the amount of
such decline will be offset in part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the
premium received. If the market price of the underlying security declines or
otherwise is below the exercise price, the Fund may elect to close out the
position or take delivery of the underlying security at the exercise price.
The Fund may purchase call options on debt securities it intends to
acquire in order to hedge against an anticipated market appreciation in the
price of the underlying securities at limited risk and with a limited cash
outlay. If the market price does rise as anticipated, the Fund will benefit
from that rise but only to the extent that the rise exceeds the premiums paid.
If the anticipated rise does not occur or if it does not exceed the premium,
the Fund will bear the expense of the option premiums and transaction costs
without gaining an offsetting benefit.
The Fund may purchase put options on debt securities to hedge against a
decline in the value of its portfolio. If the market price of the Fund's
portfolio should increase, however, the profit which the Fund might otherwise
have realized will be reduced by the amount of the premium paid for the put
option and by transaction costs. The Fund may purchase call options on debt
securities to hedge against an anticipated rise in the price it will have to
pay for debt securities it intends to buy in the future. If the market price
of the debt securities should fall instead of rise, however, the benefit the
Fund obtains from purchasing the securities at a lower price will be reduced
by the amount of the premium paid for the call options and by transaction
costs.
The Fund may purchase put options if the Fund believes that a defensive
posture is warranted for all or a portion of its portfolio. Protection is
provided during the life of the put because the put gives the Fund the right
to sell the underlying security at the put exercise price, regardless of a
decline in the underlying security's market price below the exercise price.
This right limits the Fund's losses from the security's possible decline in
value below the strike price of the option to the premium paid for the put
option and related transaction costs.
The Fund may wish to protect certain portfolio securities against a
decline in market value through purchase of put options on other carefully
selected securities. Which the Investment Adviser believes may move in the
direction as those portfolio securities. If the investment adviser's judgment
is correct, changes in the value of the put options should generally offset
changes in the value of the portfolio securities being hedged. If the
investment adviser's judgment is not correct, the value of the securities
underlying the put option may decrease less than the value of the Fund's
portfolio securities and therefore the put option may not provide complete
protection against a decline in the value of the Fund's portfolio securities
below the level sought to be protected by the put option.
The Fund may similarly wish to hedge against appreciation in the value of
debt securities that it intends to acquire through purchase of call options
on other carefully selected debt securities, which the Investment Adviser
believes may move in the direction as those portfolio securities. In such
circumstances the Fund will be subject to risks analogous to those summarized
above in the event that the correlation between the value of a call option so
purchased and the value of the securities intended to be
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acquired by the Fund is not as close as anticipated and the value of the
securities underlying the call option increases less than the value of the
securities to be acquired by the Fund.
Special Considerations Applicable to Options
On Treasury Bonds and Notes. Because trading interest in Treasury Bonds
and Notes tends to center on the most recently auctioned issues, the Exchanges
will not indefinitely continue to introduce new series of options with
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each series of Bonds or Notes will thus be phased out as new options are
listed on the more recent issues, and a full range of expiration dates will
not ordinarily be available for every series on which options are traded.
On Treasury Bills. Because the deliverable Treasury Bill changes from
week to week, writers of Treasury Bill call options cannot provide in advance
for their potential exercise settlement obligations by acquiring and holding
the underlying security. However, if the Fund holds a long position in
Treasury Bills with a principal amount corresponding to the option contract
size, the Fund may be hedged from a risk standpoint. In addition, the Fund
will maintain in a segregated account with its Custodian Treasury Bills
maturing no later than those which would be deliverable in the event of an
assignment of an exercise notice to ensure that it can meet its open option
obligations.
On GNMA Certificates. The Fund may purchase and write options on
GNMA Certificates in the over-the-counter market and, to the extent available,
on any Exchange.
Since the remaining principal balance of GNMA Certificates declines each
month as a result of mortgage payments, the Fund, as a writer of a covered
GNMA call option holding GNMA Certificates as "cover" to satisfy its delivery
obligation in the event of assignment of an exercise notice, may find that its
GNMA Certificates no longer have sufficient remaining principal balance for
this purpose. Should this occur, the Fund will enter into a closing purchase
transaction or will purchase additional GNMA Certificates from the same pool
(if obtainable) or replacement GNMA Certificates in the cash market in order
to remain covered or substitute cover.
A GNMA Certificate held by the Fund to cover a call option the Fund has
written in any but the nearest expiration month may cease to represent cover
for the option in the event of a decline in the GNMA coupon rate at which new
pools are originated under the FHA/VA loan ceiling in effect at any given
time. Should this occur, the Fund will no longer be covered, and the Fund will
either enter into a closing purchase transaction or replace the Certificate
with a Certificate which represents cover. When the Fund closes its option
position or replaces the Certificate, it may realize an unanticipated loss and
incur transaction costs.
Futures Contracts
The Fund will enter into futures contracts only for certain bona fide
hedging, yield enhancement and risk management purposes. The Fund may enter
into futures contracts for the purchase or sale of debt securities, aggregates
of debt securities or indices of prices thereof, other financial indices, U.S.
Government securities, corporate debt securities and certain foreign govern-
ment debt securities (collectively, interest rate futures contracts). It may
also enter into futures contracts for the purchase or sale of foreign
currencies or composite foreign currencies (such as the European Currency
Unit) in which securities held or to be acquired by the Fund are denominated,
or the value of which have a high degree of positive correlation to the value
of such currencies as to constitute an appropriate vehicle for hedging. The
Fund may enter into such futures contracts both on U.S. and foreign exchanges.
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time. A
"purchase" of a futures contract (or a "long" futures position) means the
assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price at a specified future time.
Certain futures contracts are settled on a net cash payment basis rather than
by the sale and delivery of the securities or currency underlying the futures
contract. U.S. futures contracts have been designed by exchanges that have
been designated as "contract markets" by the Commodity Futures Trading
Commission (the CFTC), an agency of the U.S. Government, and must be executed
through a futures commission merchant (i.e., a brokerage firm) which is a
member of the relevant contract market. Futures contracts trade on these
contract markets and the exchange's affiliated clearing organization
guarantees performance of the contracts as between the clearing members of
the exchange.
At the time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment (initial margin). It is
expected that the initial margin on U.S. exchanges will vary from one-half of
1% to 4% of the face value of the contract. Under certain circumstances,
however, such as during periods of high volatility, the Fund may be required
by an exchange to increase the level of its initial margin payment.
Thereafter, the futures contract is valued daily and the payment in cash of
"variation margin" may be required, a process known as "mark-to-the-market."
Each day the Fund is required to provide or is entitled to receive variation
margin in an amount equal to any change in the value of the contract since the
preceding day.
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Although futures contracts by their terms may call for the actual
delivery or acquisition of underlying assets, in most cases the contractual
obligation is extinguished by offset before the expiration of the contract.
The offsetting of a contractual obligation is accomplished by buying (to
offset an earlier sale) or selling (to offset an earlier purchase) an
identical futures contract calling for delivery in the same month. Such a
transaction cancels the obligation to make or take delivery of the underlying
commodity. When the Fund purchases or sells futures contracts, the Fund will
incur brokerage fees and related transaction costs.
The ordinary spreads between values in the cash and futures markets, due
to differences in the character of those markets, are subject to distortions.
In addition, futures contracts entail risks. First, all participants in the
futures market are subject to initial and variation margin requirements.
Rather than meeting additional variation margin requirements, investors may
close futures contracts through offsetting transactions which could distort
the normal relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering into
offsetting transactions rather than making or taking delivery. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced, thus producing price distortions. Third, from the point of
view of speculators, the margin deposit requirements in the futures market are
less onerous than margin requirements in the securities market. Increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of
general interest rate trends by the investment adviser may still not result
in a successful transaction.
If the Fund seeks to hedge against a decline in the value of its
portfolio securities and sells futures contracts on other securities which
historically have had a high degree of positive correlation to the value of
the portfolio securities, the value of its portfolio securities might decline
more rapidly than the value of a poorly correlated futures contract rises. In
that case, the hedge will be less effective than if the correlation had been
greater. In a similar but more extreme situation, the value of the futures
position might in fact decline while the value of the portfolio securities
holds steady or rises. This would result in a loss that would not have
occurred but for the attempt to hedge.
Options on Futures Contracts
The Fund will also enter into options on futures contracts for certain
bona fide hedging, yield enhancement and risk management purposes. The Fund
may purchase put and call options and write (i.e., sell) "covered" put and
call options on futures contracts that are traded on U.S. and foreign
exchanges. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the option exercise
period. The writer of the option is required upon exercise to assume a short
futures position (if the option is a call) or a long futures position (if the
option is a put). Upon exercise of the option, the assumption of offsetting
futures positions by the writer and holder of the option will be accompanied
by delivery of the accumulated cash balance in the writer's futures margin
account which represents the amount by which the market price of the futures
contract at exercise, exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract.
The Fund may only write (i.e., sell) covered put and call options on
futures contracts. The Fund will be considered "covered" with respect to a
call option it writes on a futures contract if the Fund owns the securities or
currency which is deliverable under the futures contract or an option to
purchase that futures contract having a strike price equal to or less than the
strike price of the "covered" option and having an expiration date not earlier
than the expiration date of the "covered" option, or if it segregates and
maintains with its Custodian for the term of the option cash, U.S. Government
securities or other liquid high-grade debt obligations equal to the
fluctuating value of the optioned futures. The Fund will be considered
"covered" with respect to a put option it writes on a futures contract if it
owns an option to sell that futures contract having a strike price equal to or
greater than the strike price of the "covered" option and having an expiration
date not earlier than the expiration date of the "covered" option, or if it
segregates and maintains with its Custodian for the term of the option cash,
U.S. Government securities or other liquid high-grade debt obligations at all
times equal in value to the exercise price of the put (less any initial margin
deposited by the Fund with its Custodian with respect to such put option).
There is no limitation on the amount of the Fund's assets which can be placed
in the segregated account.
Writing a put option on a futures contract serves as a partial hedge
against an increase in the value of debt securities the Fund intends to
acquire. If the futures price at expiration of the option is above the
exercise price, the Fund will retain the full amount of the option premium
which provides a partial hedge against any increase that may have occurred in
the price of the debt securities the Fund intends to acquire. If the market
price of the underlying futures contract is below the exercise price when the
option is exercised, the Fund will incur a loss, which may be wholly or
partially offset by the decrease in the value of the securities the Fund
intends to acquire.
Writing a call option on a futures contract serves as a partial hedge
against a decrease in the value of the Fund's portfolio securities. If the
market price of the underlying futures contract at expiration of a written
call option is below the exercise price, the Fund will retain the full amount
of the option premium, thereby partially hedging against any decline that may
have occurred in the
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Fund's holdings of debt securities. If the futures price when the option is
exercised is above the exercise price, however, the Fund will incur a loss,
which may be wholly or partially offset by the increase in the value of the
securities in the Fund's portfolio which were being hedged.
The Fund will purchase put options on futures contracts to hedge its
portfolio against the risk of a decline in the value of the debt securities it
owns as a result of rising interest rates or fluctuating currency exchange
rates. The Fund will also purchase call options on futures contracts as a
hedge against an increase in the value of securities the Fund intends to
acquire as a result of declining interest rates or fluctuating currency
exchange rates.
If the investment adviser wishes to shorten the effective average
maturity of the Fund, the Fund may sell a futures contract or a call option
thereon, or purchase a put option on that futures contract. If the investment
adviser wishes to lengthen the effective average maturity of the Fund, the
Fund may buy a futures contract or a call option thereon or sell a put option.
Interest Rate Futures Contracts and Options Thereon
The Fund will purchase or sell interest rate futures contracts to take
advantage of or to protect the Fund against fluctuations in interest rates
affecting the value of debt securities which the Fund holds or intends to
acquire. For example, if interest rates are expected to increase, the Fund
might sell futures contracts on debt securities, the values of which
historically have a high degree of positive correlation to the values of the
Fund's portfolio securities. Such a sale would have an effect similar to
selling an equivalent value of the Fund's portfolio securities. If interest
rates increase, the value of the Fund's portfolio securities will decline, but
the value of the futures contracts to the Fund will increase at approximately
an equivalent rate thereby keeping the net asset value of the Fund from
declining as much as it otherwise would have. The Fund could accomplish
similar results by selling debt securities with longer maturities and
investing in debt securities with shorter maturities when interest rates are
expected to increase. However, since the futures market may be more liquid
than the cash market, the use of futures contracts as a risk management
technique allows the Fund to maintain a defensive position without having to
sell its portfolio securities.
Similarly, the Fund may purchase interest rate futures contracts when it
is expected that interest rates may decline. The purchase of futures contracts
for this purpose constitutes a hedge against increases in the price of debt
securities (caused by declining interest rates) which the Fund intends to
acquire. Since fluctuations in the value of appropriately selected futures
contracts should approximate that of the debt securities that will be
purchased, the Fund can take advantage of the anticipated rise in the cost
of the debt securities without actually buying them. Subsequently, the Fund
can make the intended purchase of the debt securities in the cash market and
currently liquidate its futures position. To the extent the Fund enters into
futures contracts for this purpose, it will maintain a segregated asset
account with the Fund's Custodian sufficient to cover the Fund's obligations
with respect to such futures contracts, which will consist of cash, U.S.
Government securities or other liquid high-grade debt obligations from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the initial margin
deposited by the Fund with its Custodian with respect to such futures
contracts.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying debt
securities, it may or may not be less risky than ownership of the futures
contract or underlying debt securities. As with the purchase of futures
contracts, when the Fund is not fully invested it may purchase a call option
on a futures contract to hedge against a market advance due to declining
interest rates.
The purchase of a put option on a futures contract is similar to the
purchase of protective put options on portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates and consequent reduction in the
value of portfolio securities.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Fund's portfolio holdings. The writing of a put option on
a futures contract constitutes a partial hedge against increasing prices of
the securities which are deliverable upon exercise of the futures contract. If
the futures price at expiration of the option is higher than the exercise
price, the Fund will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of debt securities
which the Fund intends to purchase. If a put or call option the Fund has
written is exercised, the Fund will incur a loss which will be reduced by the
amount of the premium it received. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Fund's losses from options on futures it
has written may to some extent be reduced or increased by changes in the value
of its portfolio securities.
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Currency Futures and Options Thereon
Generally, foreign currency futures contracts and options thereon are
similar to the interest rate futures contracts and options thereon discussed
previously. By entering into currency futures and options thereon on U.S. and
foreign exchanges, the Fund will seek to establish the rate at which it will
be entitled to exchange U.S. dollars for another currency at a future time. By
selling currency futures, the Fund will seek to establish the number of
dollars it will receive at delivery for a certain amount of a foreign
currency. In this way, whenever the Fund anticipates a decline in the value
of a foreign currency against the U.S. dollar, the Fund can attempt to "lock
in" the U.S. dollar value of some or all of the securities held in its
portfolio that are denominated in that currency. By purchasing currency
futures, the Fund can establish the number of dollars it will be required to
pay for a specified amount of a foreign currency in a future month. Thus if
the Fund intends to buy securities in the future and expects the U.S. dollar
to decline against the relevant foreign currency during the period before the
purchase is effected, the Fund can attempt to "lock in" the price in U.S.
dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund, for the
price of the premium and related transaction costs it must pay for the option,
to decide whether or not to buy (in the case of a call option) or to sell (in
the case of a put option) a futures contract at a specified price at any time
during the period before the option expires. If the investment adviser, in
purchasing an option, has been correct in its judgment concerning the
direction in which the price of a foreign currency would move as against the
U.S. dollar, the Fund may exercise the option and thereby take a futures
position to hedge against the risk it had correctly anticipated or close out
the option position at a gain that will offset, to some extent, currency
exchange losses otherwise suffered by the Fund. If exchange rates move in a
way the Fund did not anticipate, however, the Fund will have incurred the
expense of the option without obtaining the expected benefit; any such
movement in exchange rates may also thereby reduce rather than enhance the
Fund's profits on its underlying securities transactions.
Options on Currencies
Instead of purchasing or selling futures or forward currency exchange
contracts, the Fund may attempt to accomplish similar objectives by purchasing
put or call options on currencies or by writing put options or covered call
options on currencies either on exchanges or in over-the-counter markets. A
put option gives the Fund the right to sell a currency at the exercise price
until the option expires. A call option gives the Fund the right to purchase a
currency at the exercise price until the option expires. Both options serve to
insure against adverse currency price movements in the underlying portfolio
assets designated in a given currency. The Fund's use of options on currencies
will be subject to the same limitations as its use of options or securities,
described above. Currency options may be subject to position limits which may
limit the ability of the Fund to fully hedge its positions by purchasing the
options.
As in the case of interest rate futures contracts and options thereon,
the Fund may hedge against the risk of a decrease or increase in the U.S.
dollar value of a foreign currency denominated debt security which the Fund
owns or intends to acquire by purchasing or selling options contracts, futures
contracts or options thereon with respect to a foreign currency other than the
foreign currency in which such debt security is denominated, where the values
of such different currencies (vis-a-vis the U.S. dollar) historically have a
high degree of positive correlation.
Forward Currency Exchange Contracts
The Fund may engage in currency transactions otherwise than on futures
exchanges to protect against future changes in the level of future currency
exchange rates. The Fund will conduct such currency exchange transactions
either on a spot, i.e., cash, basis at the rate then prevailing in the
currency exchange market or on a forward basis, by entering into forward
contracts to purchase or sell currency. A forward contract on foreign currency
involves an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days agreed upon by the parties from
the date of the contract, at a price set on the date of the contract. The risk
of shifting of a forward currency contract will be substantially the same as a
futures contract having similar terms. The Fund's dealing in forward currency
exchange will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward
currency with respect to specific receivables or payables of the Fund
generally arising in connection with the purchase or sale of its portfolio
securities and accruals of interest receivable and Fund expenses. Position
hedging is the forward sale of currency with respect to portfolio security
positions denominated or quoted in or convertible into that currency or in
a different currency.
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<PAGE>
The Fund may not position hedge with respect to a particular currency
for an amount greater than the aggregate market value (determined at the time
of making any sale of forward currency) of the securities held in its
portfolio denominated or quoted in, or currently convertible into, such
currency. If the Fund enters into a position-hedging transaction, the Fund's
Custodian or subcustodian will place cash or U.S. Government securities or
other high-grade debt obligations in a segregated account of the Fund in an
amount equal to the value of the Fund's total assets committed to the
consummation of the given forward contract. If the value of the securities
placed in the segregated account declines, additional cash or securities will
be placed in the account so that the value of the account will, at all times,
equal the amount of the Fund's commitment with respect to the forward
contract.
At or before the maturity of a forward sale contract, the Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and offset its contractual obligations to deliver the currency
by purchasing a second contract pursuant to which the Fund will obtain, on
the same maturity date, the same amount of the currency which it is obligated
to deliver. If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices. Should forward prices decline during the
period between the Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for the purchase
of the currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to purchase is less than the price of the currency it
has agreed to sell. Should forward prices increase, the Fund will suffer a
loss to the extent the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell. Closing out forward
purchase contracts involves similar offsetting transactions.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward transactions in
currency exchange are usually conducted on a principal basis, no fees or
commissions are involved. The use of foreign currency contracts does not
eliminate fluctuations in the underlying prices of the securities, but it
does establish a rate of exchange that can be achieved in the future. In
addition, although forward currency contracts limit the risk of loss due to a
decline in the value of the hedged currency, they also limit any potential
gain that might result if the value of the currency increases.
If a decline in any currency is generally anticipated by the investment
adviser, the Fund may not be able to contract to sell the currency at a price
above the level to which the currency is anticipated to decline.
Additional Risks of Options, Futures Contracts, Options on Futures Contracts
and Forward Contracts
Options, futures contracts, and options thereon and forward contracts on
securities and currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in
the U.S., may not involve a clearing mechanism and related guarantees, and
are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be
adversely affected by (i) other complex foreign political, legal and economic
factors, (ii) lesser availability than in the U.S. of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in the foreign markets during non-business hours in the
U.S., (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the U.S. and (v) lesser trading
volume.
Exchanges on which options, futures and options on futures are traded
may impose limits on the positions that the Fund may take in certain
circumstances.
Special Risk Considerations Relating to Futures and Options Thereon
The Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the development
and maintenance of liquid markets. Although the Fund generally will purchase
or sell only those futures contracts and options thereon for which there
appears to be a liquid market, there is no assurance that a liquid market on
an exchange will exist for any particular futures contract or option thereon
at any particular time. In the event no liquid market exists for a particular
futures contract or option thereon in which the Fund maintains a position, it
will not be possible to effect a closing transaction in that contract or to
do so at a satisfactory price and the Fund would have to either make or take
delivery under the futures contract or, in the case of a written option, wait
to sell the underlying securities until the option expires or is exercised
or, in the case of a purchased option, exercise the option. In the case of a
futures contract or an option on a futures contract which the Fund has
written and which the Fund is unable to close, the Fund would be required to
maintain margin deposits on the futures contract or option and to make
variation margin payments until the contract is closed.
Successful use of futures contracts and options thereon and forward
contracts by the Fund is subject to the ability of the investment adviser to
predict correctly movements in the direction of interest and foreign currency
rates. If the investment adviser's expectations are not met, the Fund would
be in a worse position than if a hedging strategy had not been pursued. For
example, if the Fund has hedged against the possibility of an increase in
interest rates which would adversely affect the price of securities in its
portfolio and the price of such securities increases instead, the Fund will
lose part or all of the benefit of the increased value of its securities
because it will have offsetting losses in its futures positions. In addition,
in such situations, if the
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<PAGE>
Fund has insufficient cash to meet daily variation margin requirements, it
may have to sell securities to meet the requirements. These sales may, but
will not necessarily, be at increased prices which reflect the rising market.
The Fund may have to sell securities at a time when it is disadvantageous to
do so.
Limitations on the Purchase and Sale of Futures Contracts and Options on
Futures Contracts
The Fund will engage in transactions in futures contracts and options
thereon only for bona fide hedging, yield enhancement and risk management
purposes, in each case in accordance with the rules and regulations of the
CFTC, and not for speculation.
In accordance with CFTC regulations, the Fund may not purchase or sell
futures contracts or options thereon for yield enhancement or risk management
purposes if immediately thereafter the sum of the amounts of initial margin
deposits on the Fund's existing futures and premiums paid for options on
futures would exceed 5% of the liquidation value of the Fund's total assets
after taking into account unrealized profits and unrealized losses on any
such contracts; provided, however, that in the case of an option that is in-
the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. The above restriction does not
apply to the purchase and sale of futures contracts and options thereon for
bona fide hedging purposes. In instances involving the purchase of futures
contracts or call options thereon or the writing of put options thereon by
the Fund, an amount of liquid assets equal to the market value of the futures
contracts and options thereon (less any related margin deposits), will be
deposited in a segregated account with the Fund's Custodian to cover the
position, or alternative cover will be employed, thereby insuring that the
use of such instruments is unleveraged.
The Fund's purchase and sale of futures contracts and purchase and
writing of options on futures contracts will be for the purpose of protecting
its portfolio against anticipated future changes in interest rates or foreign
currency exchange which might otherwise either adversely affect the value of
the Fund's portfolio securities or adversely affect the prices of securities
that the Fund intends to purchase at a later date, to change the effective
duration of the Fund's portfolio and to enhance the Fund's return. As an
alternative to bona fide hedging as defined by the CFTC, the Fund may comply
with a different standard established by CFTC rules with respect to futures
contracts and options thereon purchased by the Fund incidental to the Fund's
activities in the securities markets, under which the value of the assets
underlying such positions will not exceed the sum of (i) cash set aside in an
identifiable manner or short-term U.S. Government or other U.S. dollar
denominated high-grade short-term debt securities segregated for this
purpose, (ii) cash proceeds on existing investments due within thirty days
and (iii) accrued profits on the particular futures contract or option
thereon.
In addition, CFTC regulations may impose limitations on the Fund's
ability to engage in certain yield enhancement and risk management
strategies. There are no limitations on the Fund's use of futures contracts
and options on futures contracts beyond the restrictions set forth above.
Although the Fund intends to purchase or sell futures and options on
futures only on exchanges where there appears to be an active market, there
is no guarantee that an active market will exist for any particular contract
or at any particular time. If there is not a liquid market at a particular
time, it may not be possible to close a futures position at such time, and,
in the event of adverse price movements, the Fund would continue to be
required to make daily cash payments of variation margin. However, when
futures positions are used to hedge portfolio securities, such securities
will not be sold until the futures positions can be liquidated. In such
circumstances, an increase in the price of securities, if any, may partially
or completely offset losses on the futures contracts.
Illiquid Securities
The Fund has adopted the following investment policy which may be
changed by the vote of the Board of Directors:
The Fund may not invest more than 15% of its total assets in repurchase
agreements which have a maturity of longer than seven days or in other
illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual restrictions on
resale. Securities that have legal or contractual restrictions on resale but
have a readily available market are not considered illiquid for purposes of
this limitation. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
The staff of the Securities and Exchange Commission has taken the
position that purchased OTC Options and the assets used as "cover" for
written OTC Options are illiquid securities. However, the Fund may treat the
securities it uses as cover for written OTC Options as liquid provided it
follows a specified procedure. The Fund may sell OTC Options only to
qualified dealers who agree that the Fund may repurchase any OTC Options it
writes for a maximum price to be calculated by a predetermined formula. In
such cases, the OTC Option would be considered illiquid only to the extent
that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered
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<PAGE>
under the Securities Act are referred to as private placements or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays
on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment. The
fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the
liquidity of such investments.
During the coming year, the Fund may invest up to 5% of its total assets
in restricted securities issued under Section 4(2) of the Securities Act,
which exempts from registration "transactions by an issuer not involving any
public offering." Section 4(2) instruments are restricted in the sense that
they can only be resold through the issuing dealer and only to institutional
investors; they cannot be resold to the general public without registration.
The SEC has adopted Rule 144A which allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to
the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. The investment adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this new
regulation and the development of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the NASD.
The investment adviser will monitor the liquidity of restricted
securities in the Fund's portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or
sell the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
Repurchase Agreements
The Fund may enter into repurchase agreements, wherein the seller agrees
to repurchase a security from the Fund at a mutually agreed-upon time and
price. The period of maturity is usually quite short, possibly overnight or
a few days, although it may extend over a number of months. The resale price
is in excess of the purchase price, reflecting an agreed-upon rate of return
effective for the period of time the Fund's money is invested in the security.
The Fund's repurchase agreements will at all times be fully collateralized in
an amount at least equal to the purchase price including accrued interest
earned on the underlying securities. The instruments held as collateral are
valued daily, and as the value of instruments declines, the Fund will require
additional collateral. If the seller defaults and the value of the collateral
securing the repurchase agreement declines, the Fund may incur a loss.
The Fund participates in a joint repurchase account with other
investment companies managed by Prudential Mutual Fund Management, Inc. (PMF)
pursuant to an order of the Securities and Exchange Commission. On a daily
basis, any uninvested cash balances of the Fund may be aggregated with such
of other investment companies and invested in one or more repurchase
agreements. Each fund participates in the income earned or accrued in the
joint account based on the percentage of its investment.
Borrowing
When the Fund borrows money for temporary, extraordinary or emergency
purposes or for the clearance of transactions, it will borrow no more than
20% of its net assets and, in any event, the value of its total assets (i.e.,
including borrowings) less its liabilities (excluding borrowings) must at all
times be maintained at not less than 300% of all outstanding borrowings. If,
for any reason, including adverse market conditions, the Fund should fail to
meet this test, it will be required to reduce its borrowings within three
days (not including Sundays and holidays) to the extent necessary to meet the
test. This requirement may make it necessary for the Fund to sell a portion
of its portfolio securities at a time when it is disadvantageous to do so.
Portfolio Turnover
The Fund has no fixed policy with respect to portfolio turnover;
however, as a result of the Fund's investment policies, its annual portfolio
turnover rate may exceed 100% although the rate is not expected to exceed
300%. The portfolio turnover rate is
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calculated by dividing the lesser of sales or purchases of portfolio
securities by the average monthly value of the Fund's portfolio securities,
excluding securities having a maturity at the date of purchase of one year or
less. High portfolio turnover may involve correspondingly greater brokerage
commissions and other transaction costs which will be borne directly by the
Fund. The Fund's turnover rate was 170% for the fiscal year ended
February 29, 1992, 201% for the ten month period ended December 31, 1992
and 361% for the fiscal year ended December 31, 1993. The Fund's portfolio
turnover rate for the fiscal year ended December 31, 1993 exceeded 300% due
to the Subadvisor's attempt particularly in European bond markets, to take
advantage of investment opportunities that resulted from an overall downward
shift in interest rates.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental
policies are those which cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities as defined
in the Investment Company Act of 1940 (the Investment Company Act).
The Fund may not:
1. Invest 25% or more of its total assets in any one industry. For this
purpose "industry" does not include the U.S. Government and agencies and
instrumentalities of the U.S. Government.
2. Invest more than 5% of its total assets in securities of companies
having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to obligations of the
U.S. Government and obligations issued by agencies of the U.S. Government or
instrumentalities established or sponsored by the U.S. Government.
3. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions and except that the Fund may
make deposits on margin in connection with futures contracts and options.
4. Purchase securities of other investment companies, except in
accordance with applicable limits under the Investment Company Act.
5. Make short sales of securities or maintain a short position, with
the exception of "short sales against the box," provided that not more than
10% of the Fund's net assets (taken at market value) is held as collateral
for such sales at any one time.
6. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow up to 20% of the value of its total assets
(calculated when the loan is made) for temporary or extraordinary or
emergency purposes or for the clearance of transactions. The Fund may pledge
up to 20% of the value of its total assets to secure such borrowings. For
purposes of this restriction, the purchase or sale of securities on a when-
issued or delayed delivery basis, collateral arrangements with respect to
interest rate swaps, reverse repurchase agreements or dollar roll
transactions, options, futures contracts and options on futures contracts and
collateral arrangements with respect to initial and variation margins are not
deemed to be a pledge of assets or the issuance of a senior security; and
neither such arrangements, the purchase or sale of interest rate futures
contracts or other financial futures contracts or the purchase or sale of
related options nor obligations of the Fund to the Directors pursuant to
deferred compensation arrangements are deemed to be the issuance of a senior
security.
7. Buy or sell commodities, commodity contracts, real estate or
interests in real estate (including mineral leases or rights), except that
the Fund may purchase and sell futures contracts, options on futures
contracts and securities secured by real estate or interests therein or
issued by companies that invest therein. Transactions in foreign currencies
and forward contracts and options in foreign currencies are not considered by
the Fund to be transactions in commodities or commodity contracts.
8. Make loans (except that purchases of debt securities in accordance
with the Fund's investment objective and policies and loans of portfolio
securities and repurchase agreements are not considered by the Fund to be
"loans").
9. Make investments for the purpose of exercising control or management
over the issuers of any security.
10. Act as an underwriter (except to the extent the Fund may be deemed
to be an underwriter in connection with the sale of securities in the Fund's
investment portfolio).
In order to comply with certain state "blue sky" restrictions, the Fund
will not as a matter of operating policy:
1. Invest in oil, gas and mineral leases.
2. Invest in securities of any issuer if, to the knowledge of the
Fund, any officer or director of the Fund or the Fund's Manager or
Subadviser owns more than 1/2 of 1% of the outstanding securities of
such issuer, and such officers and directors who own more than 1/2 of 1%
own in the aggregate more than 5% of the outstanding securities of such
issuer.
3. Purchase warrants if as a result the Fund would then have more
than 5% of its assets (determined at the time of investment) invested in
warrants. Warrants will be valued at the lower of cost or market and
investment in warrants which are not listed on the New York Stock
Exchange or American Stock Exchange or a major foreign exchange will be
limited to 2% of the Fund's net assets (determined at the time of
investment). For purposes of this limitation, warrants acquired in units
or attached to securities are deemed to be without value.
B-14
<PAGE>
4. Purchase any security if as a result the Fund would hold more than 10%
of any class of securities of any issuer (taking all common stock issues of an
issuer as a single class, all preferred stock issues as a single class and all
debt issues as a single class) or more than 10% of the outstanding voting
securities of any issuer.
5. Invest more than 50% of its total assets in the securities of any one
issuer. This limitation will not apply to securities which are direct
obligations of the U.S. Government, its agencies or instrumentalities or to
obligations of the government of Canada.
6. Invest in securities of other registered investment companies, except
by purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 5% of its total assets (taken at
current value) would be invested in such securities, or except as part of a
merger, consolidation or other acquisition.
7. Invest more than 10% of its assets in securities which the Fund would
be restricted from selling to the public without registration under the
Securities Act, but excluding restricted securities eligible for resale
pursuant to Rule 144A under the Securities Act that are determined to be
liquid by the Board of Directors, securities of unseasoned issuers including
their predecessors, which have been in operation for less than three years.
8. Purchase or sell real property (including limited partnership
interests), excluding readily available interests in real estate investment
trusts or readily marketable securities of companies which invest in real
estate.
Whenever any fundamental investment policy or investment restriction
states a maximum percentage of the Fund's assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later
change in percentage resulting from changing total or net asset values will
not be considered a violation of such policy. However, in the event that the
Fund's asset coverage for borrowings falls below 300%, the Fund will take
prompt action to reduce its borrowings, as required by applicable law.
DIRECTORS AND OFFICERS
PRINCIPAL OCCUPATIONS AND POSITION
NAME AND ADDRESS OTHER AFFILIATIONS WITH FUND
- ---------------- ------------------------- ---------
John C. Davis Retired (since December 1982); Director
c/o Prudential Mutual formerly Senior Vice President,
Fund Executive Department and Director,
Management, Inc. The Atchison, Topeka and Santa Fe
One Seaport Plaza Railway Company and
New York, NY Vice President and Director,
Santa Fe Industries, Inc.
*Lawrence C. McQuade Vice Chairman of PMF (since 1988), President and
One Seaport Plaza Managing Director Investment Director
New York, NY Banking, of Prudential Securities
(1988-1991); Director of Quixote
Corporation (since February 1992)
and BUNZL, PLC (since June 1991);
formerly Director of Crazy Eddie
Inc. (1987-1990) and Director of
Kaiser Tech Ltd., and Kaiser
Aluminum and Chemical Corp. (March
1987-November 1988); formerly
Executive Vice President and Director
of W.R. Grace and Company until 1988;
President and Director of The High
Yield Income Fund, Inc., The Global
Government Plus Fund, Inc. and The
Global Yield Fund, Inc.
Thomas A. Owens, Jr. Consultant; Director of EMCORE Corp. Director
c/o Prudential Mutual (manufacturer of electronic
Fund materials).
Management, Inc.
One Seaport Plaza
New York, NY
- ------------
* "Interested" Director, as defined in the Investment Company Act, by
reason of his affiliation with Prudential Securities or PMF.
B-15
<PAGE>
PRINCIPAL OCCUPATIONS AND POSITION
NAME AND ADDRESS OTHER AFFILIATIONS WITH FUND
- ---------------- ------------------------- ---------
*Richard A. Redeker President, Chief Executive Officer
One Seaport Plaza and Director (since October 1993),
New York, NY PMF; Executive Vice President,
Director and Member of the
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 Yield Fund, Inc., The Global
Government Plus Fund, Inc. and The
High Yield Income Fund, Inc.
Robert J. Schultz Retired since January 1987; Director
c/o Prudential Mutual formerly Financial Vice President
Fund of Commonwealth Edison Company
Management, Inc. (electric power company).
One Seaport Plaza
New York, NY
Gerald A. Stahl President, Rochester Lumber Company Director
c/o Prudential Mutual
Fund
Management, Inc.
One Seaport Plaza
New York, NY
Stephen Stoneburn Senior Vice President and Managing Director
c/o Prudential Mutual Director, Cowles Business Media
Fund (since January 1993); Senior Vice
Management, Inc. President (January 1991-1992) and
One Seaport Plaza Publishing Vice President (May 1989-
New York, NY December 1990) of Gralla
Publications a division of United
Newspapers, U.K.; formerly Senior
Vice President of Fairchild
Publications, Inc.
Robert H. Wellington Retired (since January 1994); Director
c/o Prudential Mutual formerly Chairman and Chief
Fund Executive Officer, AMSTED
Management, Inc. Industries Incorporated
One Seaport Plaza (diversified manufacturer of
New York, NY railroad, construction and
industrial products);
Director of Centel Corporation,
L.E. Meyers, Co. and DeSoto Inc.
Robert F. Gunia Chief Administrative Officer Vice
One Seaport Plaza (since July 1990), Director (since President
New York, NY January 1989) and Executive Vice
President, Treasurer and Chief
Financial Officer of PMF; Senior
Vice President (since March 1987)
of Prudential Securities; Vice
President and Director of The Asia
Pacific Fund, Inc. (since May 1989).
S. Jane Rose Senior Vice President (since Secretary
One Seaport Plaza January 1991) and Senior Counsel
New York, NY and First Vice President (June
1987-December 1990) of PMF; Senior
Vice President and Senior Counsel
of Prudential Securities (since
July 1992) formerly Vice President
and Associate General Counsel of
Prudential Securities
- ------------
* "Interested" Director, as defined in the Investment Company Act, by reason
of his affliation with Purdential Securities or PMF.
B-16
<PAGE>
PRINCIPAL OCCUPATIONS AND POSITION
NAME AND ADDRESS OTHER AFFILIATIONS WITH FUND
- ---------------- ------------------------- ---------
Susan C. Cote Senior Vice President of PMF; Treasurer and
One Seaport Plaza Senior Vice President (since Principal
New York, NY January 1992) and Vice President Financial and
(January 1986-December 1991) of Accounting
Prudential Securities. Officer
Deborah A. Docs Vice President and Associate Assistant
One Seaport Plaza General Counsel (since January Secretary
New York, NY 1993) of PMF; Vice President
and Associate General Counsel
(since January 1993), of Prudential
Securities; previously Associate
Vice President (January 1990-
December 1992) Assistant General
Counsel (November 1991-December
1992) and Assistant Vice
President (January 1989-December
1989) of PMF.
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities or Prudential Mutual Fund Distributors, Inc. (PMFD).
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Fund pays each of its Directors who is not an affiliated person of
the investment adviser annual compensation of $7,500 in addition to certain
out-of-pocket expenses. Directors received $4,562 in out-of-pocket expenses
for the fiscal year ended December 31, 1993. Directors may receive their
Directors' fees pursuant to a deferred fee agreement with the Fund. Under the
terms of the agreement, the Fund accrues daily the amount of such Directors'
fees which accrue interest at a rate equivalent to the prevailing rate
applicable to 90-day U.S. Treasury bills at the beginning of each calendar
quarter or, pursuant to an SEC exemptive order, at the daily rate of return
of the Fund. Payment of the interest so accrued is also deferred and accruals
become payable at the option of the Director. The Fund's obligation to make
payments of deferred Board of Directors' fees, together with interest thereon,
is a general obligation of the Fund.
As of March 31, 1994, the Directors and officers of the Fund as a group
owned less than 1% of the outstanding common stock of the Fund.
As of March 31,1994, Prudential Securities was record holder of
21,284,583 Class A shares (or 59% of the outstanding Class A shares) and
3,751,414 Class B shares (or 82% of the outstanding Class B shares) of the
Fund. In the event of any meetings of shareholders, Prudential Securities will
forward, or cause the forwarding of, proxy materials to the beneficial owners
for which it is the record holder.
B-17
<PAGE>
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF
or the investment adviser), One Seaport Plaza, New York, New York 10292. PMF
serves as manager to all of the other investment companies that, together with
the Fund, comprise the "Prudential Mutual Funds." See "How the Fund is
Managed" in the Prospectus. As of March 31, 1994, PMF managed and/or
administered open-end and closed-end management investment companies with
assets of approximately [$49] billion and 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 Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities. In
connection therewith, PMF is obligated to keep certain books and records of
the Fund. PMF also administers the Fund's corporate affairs and, in connection
therewith, furnishes the Fund with office facilities, together with those
ordinary clerical and bookkeeping services which are not being furnished by
State Street Bank and Trust Company, the Fund's custodian, and 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 .75 of 1% of the Fund's average daily net assets. The
fee is computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of the Fund (including the fees of
PMF, but excluding interest, taxes, brokerage commissions, distribution fees
and litigation and indemnification expenses and other extraordinary expenses
not incurred in the ordinary course of the Fund's business) for any fiscal
year exceed the lowest applicable annual expense limitation established and
enforced pursuant to the statutes or regulations of any jurisdiction in which
the Fund's shares are qualified for offer and sale, the compensation due to
PMF will be reduced by the amount of such excess. Reductions in excess of the
total compensation payable to PMF will be paid by PMF to the Fund. No such
reductions were required during the fiscal year ended December 31, 1993.
Currently, the Fund believes that the most restrictive expense limitation of
state securities commissions is 2 1/2% of the Fund's average daily net assets
up to $30 million, 2% of the next $70 million of such assets and 1 1/2% of such
assets in excess of $100 million.
In connection with its management of the business affairs of the Fund,
PMF bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel
except the fees and expenses of members of the Board of Directors who are not
affiliated persons of PMF or the Fund's investment adviser;
(b) all expenses incurred, by PMF or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those assumed
by the Fund as described below; and
(c) the costs and expenses payable to The Prudential Investment
Corporation (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 investment
adviser, (b) the fees and expenses of Directors who are not affiliated persons
of the investment adviser or the Fund's investment adviser, (c) the fees and
certain expenses of the Custodian and Transfer Agent, including the cost of
providing records to the investment adviser in connection with its obligation
of maintaining required records of the Fund and of pricing the Fund's shares,
(d) the charges and expenses of legal counsel and independent accountants for
the Fund, (e) brokerage commissions and any issue or transfer taxes chargeable
to the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of
any trade associations of which the Fund may be a member, (h) the cost of
stock certificates representing shares of the Fund, (i) the cost of fidelity
and liability insurance, (j) certain organization expenses of the Fund and the
fees and expenses involved in registering and maintaining registration of the
Fund and of its shares with the Securities and Exchange Commission,
registering the Fund as a broker or dealer and qualifying its shares under
state securities laws, including the preparation and printing of the Fund's
registration statements and prospectuses for such purposes, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Board of Directors' meetings and of preparing, printing and
mailing reports, proxy statements and prospectuses to shareholders in the
amount necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any
error of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically
if assigned, and that it may be terminated without penalty by either party
upon not more than 60 days' nor less than
B-18
<PAGE>
30 days' written notice. The Management Agreement will continue in effect for
a period of more than two years from the date of execution only so long as
such continuance is specifically approved at least annually in conformity with
the Investment Company Act. The Management Agreement was last approved by the
Board of Directors of the Fund, including all of the Board of Directors who
are not parties to the contract or interested persons of any such party as
defined in the Investment Company Act, on May 4, 1993 and by shareholders of
the Fund on February 25, 1988.
PMF earned management fees of $2,934,112 for the fiscal year ended
December 31, 1993, $2,203,927, for the fiscal period ended December 31, 1992
and $2,997,852 and $3,291,755 for the years ended February 29, 1992 and
February 28, 1991, respectively.
PMF has entered into the Subadvisory Agreement with PIC (the Subadviser),
a wholly-owned subsidiary of The Prudential Insurance Company of America
(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 services to PMF.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Board of Directors who are not interested persons
as defined in the Investment Company Act, on May 12, 1993 and was approved by
shareholders of the Fund on May 12, 1988.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days' nor less than
3O days' written notice. The Subadvisory Agreement provides that it will
continue in effect for a period of more than two years from its execution only
so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act.
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 institutions in the world 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 October 7, 1991, the Fund operated as a closed-end fund and
offered only one class of shares (the then existing Class A shares). On April
18, 1991, the Board of Directors, including a majority of the Directors who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Class A or Class B Plan or in any
agreement related to either Plan (the Rule 12b-1 Directors), at a meeting
called for the purpose of voting on the Class A Plan, adopted a plan of
distribution for the Class A shares of the Fund. The Class A Plan was approved
by shareholders of the Fund on August 8, 1991. On April 18, 1991, the Rule
12b-1 Directors, at a meeting called for the purpose of voting on the Class B
Plan, adopted a plan of distribution for the Class B shares of the Fund. The
Class B Plan was approved by Class B shareholders on December 3, 1992.
On May 12, 1993, the Directors, 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/or the maintenance of shareholder accounts (service fee) and (ii)
total distribution fees (including the service fee of .25 of 1%) may not
exceed .30 of 1%. As so modified, the Class B Plan provides that (i) up to .25
of 1% of the average daily net assets of the Class B shares may be paid as a
service fee and (ii) up to .75 of 1% ( 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 12, 1993, the Board of Directors,
including a
B-19
<PAGE>
majority of the Rule 12b-1 Directors, at a meeting called for the purpose of
voting on each Plan, adopted a plan of distribution for the Class C shares of
the Fund and approved further amendments to the plans of distribution for the
Fund's Class A and Class B shares changing them from reimbursement type plans
to compensation type plans. The Plans were last approved by the Board of
Directors, including a majority of the Rule 12b-1 Directors, on May 3, 1993.
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 December 31, 1993, PMFD received
payment of $532,527 under the Class A Plan as reimbursement of expenses
related to the distribution of Class A shares. This amount was primarily
expended for payment of account servicing fees to financial advisers and other
persons who sell Class A shares.
In addition, for the fiscal year ended December 31, 1993, PMFD received
approximately $62,300 in initial sales charges.
Class B Plan. For the fiscal year ended December 31, 1993, the
Distributor received $271,479 from the Fund under the Class B Plan. It is
estimated that the Distributor spent approximately $376,700 on behalf of the
Fund during such year. It is estimated that of the latter amount approximately
($12,700) 3.4% was spent on printing and mailing of prospectuses to other than
current shareholders; ($8,500) 2.3% was spent on interest and/or carrying
costs; ($50,900) 13.5% on compensation to Pruco Securities Corporation, an
affiliated broker-dealer (Prusec), for commissions to its account executives
and other expenses, including an allocation on account of overhead and other
branch office distribution-related expenses, incurred by it for its
distribution of Fund shares; and ($304,600) 80.8% on the aggregate of (i)
payments of commissions to financial advisers ($141,800) 37.6% and (ii) an
allocation of overhead and other branch office distribution related expenses
($162,800) 43.2%. The term "overhead and other branch office
distribution-related expenses" represents (a) the expenses of operating the
Distributor's branch offices in connection with the sale of Fund shares,
including lease costs, the salaries and employee benefits of operations and
sales support personnel, utility costs, communications costs and the costs of
stationery and supplies, (b) the costs of client sales seminars, (c) expenses
of mutual fund sales coordinators to promote the sale of Fund shares and (d)
other incidental expenses relating to branch promotion of Fund sales.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by holders of Class B shares upon certain redemptions of
Class B shares. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charge" in the Prospectus. For the fiscal year ended December
31, 1993, Prudential Securities received $101,000 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 Board of Directors, including a majority vote of the Rule 12b-1
Directors, cast in person at a meeting called for the purpose of voting on
such continuance. The Class A and Class B Plans may be terminated at any time,
without penalty, by the vote of a majority of the Rule 12b-1 Directors or by
the vote of the holders of a majority of the outstanding shares of the Fund on
not more than 30 days' written notice to any other party to the Plans. The
Plans may not be amended to increase materially the amounts to be spent for
the services described therein without approval by the shareholders of the
applicable class (by both Class A and Class B shareholders, voting separately,
in the case of material amendments to the Class A Plan), and all material
amendments are required to be approved by the Board of Directors in the manner
described above. Each Plan will automatically terminate in the event of its
assignment. The Fund will not be contractually obligated to pay expenses
incurred under any Plan if they are terminated or not continued.
Pursuant to each Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf of
each class of shares of the Fund by the distributors. The report will include
an itemization of the distribution expenses and the purposes of such
expenditures. In addition, as long as the Plans remain in effect, the
selection and nomination of Rule 12b-1 Directors shall be committed to the
Rule 12b-1 Directors.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law
against certain liabilities under the Securities Act of 1933. Each
Distribution Agreement was last approved by the Board of Directors, including
a majority of the Rule 12b-1 Directors, on May 12, 1993.
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-20
<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 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,
futures contracts and options on such securities and futures for the Fund, the
selection of brokers, dealers and futures commission merchants to effect the
transactions and the negotiation of brokerage commissions, if any. (For
purposes of this section, the term "Manager" includes the Subadviser.) On a
national securities exchange, broker-dealers may receive negotiated brokerage
commissions on Fund portfolio transactions, including options, futures, and
options on futures transactions and the purchase and sale of underlying
securities upon the exercise of options. On a foreign securities exchange,
commission may be fixed. Orders may be directed to any broker or futures
commission merchant including, to the extent and in the manner permitted by
applicable law, Prudential Securities and its affiliates.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a
profit to the dealer. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On
occasion, certain money market instruments and agency securities may be
purchased directly from the issuer, in which case no commissions or discounts
are paid. The Fund will not deal with Prudential Securities in any transaction
in which Prudential Securities acts as principal. Thus, it will not deal in
over-the-counter market with Prudential Securities acting as market maker, and
it will not execute a negotiated trade with Prudential Securities if execution
involves Prudential Securities' acting as principal with respect to any part
of the Fund's order.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price
and efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provide the most
favorable total cost or proceeds reasonably attainable in the circumstances.
While the Manager generally seeks reasonably competitive spreads or
commissions, the Fund will not necessarily be paying the lowest spread or
commission available. Within the framework of this policy, the Manager will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio
transactions of the Fund, the Manager or the Manager's other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data
and research reports on particular companies and industries. Such services are
used by the Manager in connection with all of its investment activities, and
some of such services obtained in connection with the execution of
transactions for the Fund may be used in managing other investment accounts.
Conversely, brokers, dealers or futures commission merchants furnishing such
services may be selected for the execution of transactions of such other
accounts, whose aggregate assets are far larger than the Fund, and the
services furnished by such brokers, dealers or futures commission merchants
may be used by the Manager in providing investment management for the Fund.
Commission rates are established pursuant to negotiations with the broker,
dealer or futures commission merchant based on the quality and quantity of
execution services provided by the broker, dealer or futures commission
merchant in the light of generally prevailing rates. The Manager's policy is
to pay higher commissions to brokers and futures commission merchants, other
than Prudential Securities, for particular transactions than might be charged
if a different broker had been selected, on occasions when, in the Manager's
opinion, this policy furthers the objective of obtaining best price and
execution. In addition, the Manager is authorized to pay higher commissions on
brokerage transactions for the Fund to brokers and futures commission
merchants other than Prudential Securities in order to secure research and
investment services described above, subject to review by the Fund's Board of
Directors from time to time as to the extent and continuation of this
practice. The allocation of orders among brokers and futures commission
merchants and the commission rates paid are reviewed periodically by the
Fund's Board of Directors. Portfolio securities may not be purchased from any
underwriting or selling syndicate of which Prudential Securities (or any
affiliate), during the existence of the syndicate, is a principal underwriter
(as defined in the Investment Company Act), except in accordance with rules of
the Securities and Exchange Commission. This limitation, in the opinion of the
Fund, will not significantly affect the Fund's ability to pursue its present
investment objective. However, in the future, in other circumstances, the Fund
may be at a disadvantage because of this limitation in comparison to other
funds with similar objectives but not subject to such limitations.
Subject to the above considerations, Prudential Securities (or any
affiliate) may act as a broker or futures commission merchant for the Fund. In
order for Prudential Securities (or any affiliate) to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration
received by Prudential Securities (or any affiliate) must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
such brokers or futures commission merchants in connection with comparable
transactions involving similar securities or futures contracts being purchased
or sold on an exchange or board of trade during a comparable period of time.
This standard would allow Prudential Securities (or any affiliate)
B-21
<PAGE>
to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker or futures commission merchant in a
commensurate arm's-length transaction. Furthermore, the Board of Directors of
the Fund, including a majority of the Directors who are not "interested"
Directors, 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) under the Securities Exchange Act of 1934, Prudential
Securities may not retain compensation for effecting transactions on a
national securities exchange for the Fund unless the Fund has expressly
authorized the retention of such compensation. Prudential Securities must
furnish to the Fund at least annually a statement setting forth the total
amount of all compensation retained by Prudential Securities for transactions
effected by the Fund during the applicable period. Brokerage transactions with
Prudential Securities (or any affiliate) are also subject to such fiduciary
standards as may be imposed upon Prudential Securities (or such affiliates) by
applicable law.
The Fund paid no brokerage commissions to Prudential Securities for the
fiscal year ended December 31, 1993, the fiscal period ended December 31, 1992
and the year ended February 29, 1992.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next
determined net asset value per share plus a sales charge which, at the
election of the investor, may be imposed either (i) at the time of purchase
(Class A shares) or (ii) on a deferred basis(Class B or Class C shares). See
"Shareholder Guide--How to Buy Shares of the Fund" in the Prospectus.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan, (except
that the Fund has agreed with the Securities and Exchange Commission in
connection with the offering of a conversion feature on Class B shares to
submit any amendment of the Class A distribution and service plan to both
Class A and Class B shareholders) and (iii) only Class B shares have a
conversion feature. See "Distributor." Each class also has separate exchange
privileges. See "Shareholder Investment Account--Exchange Privilege."
Specimen Price Make-up
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares of the Fund are sold at a maximum sales charge of
3.0% and Class B* and Class C* shares are sold at net asset value. Using the
Fund's net asset value at December 31, 1993, the maximum offering price of the
Fund's shares is as follows:
Class A
Net asset value and redemption price per Class A share. . . . . . . $8.43
-----
Maximum sales charge (3.0% of offering price) . . . . . . . . . . . .26
-----
Offering price to public. . . . . . . . . . . . . . . . . . . . . . $8.69
=====
Class B
Net asset value, offering price and redemption price per Class B
share* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8.44
=====
Class C
Net asset value, offering price and redemption price per Class C
share* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [$8.44]
=====
- ----------
* 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 Charge" in the Prospectus.
Reduced 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--How to Buy Shares of the Fund" 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);
B-22
<PAGE>
(d) any company controlled by the individual (a person, entity or group
that holds 25% or more of the outstanding voting securities of a
company will be deemed to control the company, and a partnership will
be deemed to be controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
[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. The Combined
Purchase and Cumulative Purchase Privilege does not apply to individual
participants in retirement and group plans described above under "Retirement
and Group Plans."
Rights of Accumulation. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of
related investors, as described above under "Combined Purchase and Cumulative
Purchase Privilege," may aggregate the value of their existing holdings of
shares of the Fund and shares of other Prudential Mutual Funds (excluding
money market funds other than those acquired pursuant to the exchange
privilege) to determine the reduced sales charge. However, the value of shares
held directly with the Transfer Agent and through Prudential Securities will
not be aggregated to determine the reduced sales charge. All shares must be
held either directly with the Transfer Agent or through Prudential Securities.
The value of existing holdings for purposes of determining the reduced sales
charge is calculated using the maximum offering price (net asset value plus
maximum sales charge) as of the previous business day. See "Net Asset Value"
in the Prospectus. The Distributor must be notified at the time of purchase
that the investor is entitled to a reduced sales charge. The reduced sales
charges will be granted subject to confirmation of the investor's holdings.
Rights of accumulation are not available to individual participants in any
retirement or group plans.
Letter of Intent. Reduced sales charges are available to investors (or an
eligible group of related investors) who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of shares of the
Fund and shares of other Prudential Mutual Funds. All shares of the Fund and
shares of other Prudential Mutual Funds (excluding money market funds other
than those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
and through Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the
Transfer Agent or through Prudential Securities. The Distributor must be
notified at the time of purchase that the investor is entitled to a reduced
sales charge. The reduced sales charge will be granted subject to confirmation
of the investor's holdings. Letters of Intent are not available to individual
participants in any retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment
goal to be achieved by any number of investments over a thirteen-month period.
Each investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter of Intent will be held by the Transfer Agent in the name of the
purchaser. 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 sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the
Distributor will liquidate sufficient escrowed shares to obtain such
difference. If the goal is exceeded in an amount which qualifies for a lower
sales charge, a price adjustment is made by refunding to the purchaser the
amount of excess sales charge, if any, paid during the thirteen-month period.
Investors electing to purchase Class A shares of the Fund pursuant to a Letter
of Intent should carefully read such Letter of Intent.
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
B-23
<PAGE>
$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:
Contingent Deferred Sales Charge
as a Percentage of Dollars Invested
Year Since Purchase or Redemption Proceeds
Payment Made $500,001 to $1 million Over $1 million
First. . . . . . . . . . 3.0% 2.0%
Second . . . . . . . . . 2.0% 1.0%
Third. . . . . . . . . . 1.0% 0%
Fourth and thereafter. . 0% 0%
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.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment
Account is established for each investor under which the shares are held for
the investor by the Transfer Agent. If a stock certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for issuance of a certificate. Whenever a transaction
takes place in the Shareholder Investment Account, the shareholder will be
mailed a statement showing the transaction and the status of the Account. The
Fund makes available to the shareholders the following privileges and plans.
Automatic Reinvestment of Dividends and/or Distributions.
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at net
asset value on the record date. An investor may direct the Transfer Agent in
writing not less than five (5) full business days prior to the record date to
have subsequent dividends and/or distributions sent in cash rather than
reinvested. In the case of recently purchased shares for which registration
instructions have not been received on the record date, cash payment will be
made directly to the dealer. Any shareholder who receives a cash payment
representing a dividend or distribution may reinvest such distribution at net
asset value by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. Such investment will be made at the net
asset value per share next determined after receipt of the check or proceeds
by the Transfer Agent. Such shareholder will receive credit for any contingent
deferred sales charge paid in connection with the amount of proceeds being
reinvested.
Exchange Privilege.
The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to
the minimum investment requirements of such funds. Shares of such other
Prudential Mutual Funds may also be exchanged for shares of the Fund. All
exchanges are made on the basis of relative net asset value next determined
after receipt of an order in proper form. An exchange will be treated as a
redemption and purchase for tax purposes. Shares may be exchanged for shares
of another fund only if shares of such fund may legally be sold under
applicable state laws. For retirement and group plans having a limited menu of
Prudential Mutual Funds, the Exchange Privilege is available for those funds
eligible for investment in the particular program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
Class A Shareholders of the Fund will be able to exchange their Class A
shares for Class A shares of certain other Prudential Mutual Funds, shares of
Prudential Government Securities Trust (Intermediate Term Series) and shares
of the money market funds specified below. No fee or sales load will be
imposed upon the exchange. Shareholders of money market funds who acquired
such shares upon exchange of Class A shares may use the Exchange Privilege
only to acquire Class A shares of the Prudential Mutual Funds participating
in the Class A Exchange Privilege.
B-24
<PAGE>
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund
Class B and Class C. Shareholders of the Fund may exchange their Class B
and Class C shares for Class B and Class C shares, respectively, of certain
other Prudential Mutual Funds and shares of Prudential Special Money Market
Fund, Inc., a money market fund. No CDSC may be payable upon such exchange,
but a CDSC may be payable upon the redemption of Class B and Class C shares
acquired as a result of the exchange. The applicable sales charge will be that
imposed by the Fund in which shares were initially purchased and the purchase
date will be deemed to be the first day of the month after of the initial
purchase, rather than the date of the exchange.
Class B and Class C shares of the Fund may also be exchanged for shares
of an eligible money market fund without imposition of any CDSC at the time of
exchange. Upon subsequent redemption from such money market fund or after
re-exchange into the Fund, such shares will be subject to the CDSC calculated
by excluding the time such shares were held in the money market fund. In order
to minimize the period of time in which shares are subject to a CDSC, shares
exchanged out of the money market fund will be exchanged on the basis of their
remaining holding periods, with the longest remaining holding periods being
transferred first. [In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month.] Thus, if
shares are exchanged into the Fund from a money market fund during the month
(and are held in the Fund at the end of the month), the entire month will be
included in the CDSC holding period. Conversely, if shares are exchanged into
a money market fund prior to the last day of the month (and are held in the
money market fund on the last day of the month), the entire month will be
excluded from the CDSC holding period. For purposes of calculating the five
year holding period applicable to the Class B conversion feature, the time
period during which Class B shares were held in a money market fund will be
excluded.
At any time after acquiring shares of other funds participating in the
Class B or Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B or Class C
shares of the Fund, respectively without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares, respectively of other funds without
being subject to any CDSC.
Additional details about the exchange privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The exchange privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the
Fund, or the Distributor, has the right to reject any exchange application
relating to such fund's shares.
Dollar Cost Averaging
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more
shares when the price is low and fewer shares when the price is high. The
average cost per share is lower that 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)
B-25
<PAGE>
The following chart shows how much you would need in monthly investments
to achieve specified lump sums to finance your investment goals.(2)
Period of
Monthly investments: $100,000 $150,000 $200,000 $250,000
- -------------------- -------- -------- -------- --------
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."
- -------------
(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.
(2) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of the Fund.
The investment return and principal value of an investment will fluctuate so
that an investor's shares when redeemed may be worth more or less than their
original cost.
Automatic Savings Accumulation Plan (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account
or Prudential Securities account (including a Command Account) to be debited
to invest specified dollar amounts in shares of the Fund. The investor's bank
must be a member of the Automatic Clearing House System. Share certificates
are not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
Systematic Withdrawal Plan
A systematic withdrawal plan is available to shareholders through
Prudential Securities or the Transfer Agent. Such withdrawal plan provides for
monthly or quarterly checks in any amount, except as provided below, up to the
value of the shares in the shareholder's account. Withdrawals of Class B or
Class C shares may be subject to a CDSC. See "Shareholder Guide--How to Sell
Your Shares--Contingent Deferred Sales Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000
minimum account value applies, (ii) withdrawals may not be for less than $100
and (iii) the shareholder must elect to have all dividends and/or
distributions automatically reinvested in additional full and fractional
shares at net asset value on shares held under this plan. See "Shareholder
Investment Account--Automatic Reinvestment of Dividends and/or Distributions."
B-26
<PAGE>
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 applicable sales charges to (i) the purchase of
Class A shares and (ii) the withdrawal of Class B and Class C shares. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the plan, particularly used in connection with a retirement
plan.
Tax-Deferred Retirement Plans.
Various qualified retirement plans, including a 401(k) plan,
self-directed individual retirement accounts and "tax-deferred accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, the administration, custodial fees and other
details are available from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
Tax-Deferred Retirement Accounts.
Individual Retirement Accounts. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account
until the earnings are withdrawn. The following chart represents a comparison
of the earnings in a personal savings account with those in an IRA, assuming a
$2,000 annual contribution, and 8% rate of return and a 39.6% federal income
tax bracket and shows how much more retirement income can accumulate within an
IRA as opposed to a taxable individual savings account.
Tax-Deferred Compounding(1)
Contributions Personal
Made Over: Savings IRA
------------- -------- -------
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
- ------------
(1) The chart is for illustrative purposes only and does not represent
the performance of the Fund or any specific investment. It shows taxable
versus tax-deferred compounding for the periods and on the terms indicated.
Earnings in the IRA account will be subject to tax when withdrawn from the
account.
NET ASSET VALUE
The net asset value per share is the net worth of the Fund (assets,
including securities at value, minus liabilities) divided by the number of
shares outstanding. Net asset value is calculated separately for each class.
The Fund computes its net asset value at 4:15 P.M., New York time, on each day
the New York Stock Exchange is open for trading except days on which no orders
to purchase, sell or redeem Fund shares have been received or on days on which
changes in the value of the Fund's portfolio investments do not affect net
asset value. 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.
B-27
<PAGE>
Under the Investment Company Act, the Board of Directors is responsible
for determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of the
Fund's portfolio will be determined as follows:
Government securities for which quotations are available will be based on
the prices provided by independent pricing services. Pricing services consider
such factors as security prices, yields, maturities, call features, ratings
and developments relating to specific securities in arriving at securities
valuations. Other portfolio securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, will be valued at the average of
the quoted bid and asked prices provided by an independent pricing service or
by principal market makers. Any security for which the primary market is on an
exchange is valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, the last bid price quoted on
such day. Quotations of foreign securities in a foreign currency will be
converted to U.S. dollar equivalents at the spot currency value. Forward
currency exchange contracts will be valued at the current cost of covering or
offsetting the contract. Options will be valued at their last sale price as of
the close of options trading on the applicable exchanges. If there is no sale
on the applicable options exchange on a given day, options will be valued at
the average of the quoted bid and asked prices as of the close of the
applicable exchange. The Fund may engage pricing services to obtain such
prices. Over-the-counter options will be valued at the average of the bid and
asked prices provided by principal market makers. Options will be valued at
market value or fair value if no market exists. Futures contracts are marked
to market daily, and options thereon are valued at their last sale price, as
of the close of the applicable commodities exchanges. Short-term instruments
which mature in 60 days or less are valued at amortized cost, if their
original maturity was 60 days or less, or by amortizing their value on the
61st day prior to maturity, unless the Fund's Manager determines that such
valuation does not represent fair value. Repurchase agreements will be valued
at cost plus accrued interest. Securities or other assets for which reliable
market quotations are not readily available are valued by the Manager in good
faith at fair market value in accordance with procedures adopted by the Board
of Directors on the basis of the following factors: cost of the security,
transactions in comparable securities, relationships among various securities
and such other factors as may be determined by the Manager to materially
affect the value of the security.
As long as the Fund declares dividends daily, the net asset value of
Class A, Class B and Class C shares will generally be the same. It is
expected, however, that the dividends will differ by approximately the amount
of the distribution expense differential among the classes.
PERFORMANCE INFORMATION
Average Annual Total Return. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See "How the Fund
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following
formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the one, five or ten
year periods (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of the
one, five or ten year periods.
Average annual total return takes into account any applicable initial or
contingent deferred sales charge but does not take into account any federal or
state income taxes that may be payable upon redemption.
The average annual total return for Class A shares for the one, five and
five and seven-twelfths year periods ended December 31, 1993 was 12.64%, 7.99%
and 7.79%, respectively. The average annual total return for Class B shares
for the one year and one year and eleven and one-half month periods ended
December 31, 1993 was 12.29%, 8.84%, respectively. During these periods, no
Class C shares were outstanding.
Aggregate Total Return. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B
and Class C shares. See "How the Fund Calculates Performance" in the
Prospectus.
B-28
<PAGE>
Aggregate total return represents the cumulative change in the value of
an investment in the Fund and is computed according to the following formula:
ERV = P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one, five or ten year
periods (or fractional portion thereof) at the end of the
one, five or ten year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The Fund's aggregate total return for Class A shares for the one, five
and five and seven-twelfths year periods ended December 31, 1993 was 16.12%,
51.46% and 56.98%, respectively. The aggregate total return for Class B shares
for the one year and one year and eleven and one-half month periods ended on
December 31, 1993 was 15.29% and 19.08%, respectively. During these periods,
no Class C shares were outstanding.
Yield. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B and
Class C shares. The yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
6
(a - b )
YIELD = 2( (----- +1) -1)
( cd )
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
Yield fluctuates and an annualized yield quotation is not a
representation by the Fund as to what an investment in the Fund will actually
yield for any given period.
The Fund's 30-day yields for the 30 days ended December 31, 1993, were
4.95% and 4.50% for Class A and Class B shares, respectively. During these
periods, no Class C shares were outstanding.
From time to time, the performance of the fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of
inflation.(1)
A Look At Performance Over the Long-Term
(1926-1992)
12% Average Annual
Return 10.3%
10% ******
******
8% ******
****** Average Annual
6% ****** Return 4.8%
****** ******
4% ****** ****** 3.1%
****** ****** ******
2% ****** ****** ******
****** ****** ******
0%--------------------------------------------------------
Common Long-Term Inflation
Stocks Goverment Bonds
(1) Source: Ibbotson Associates, "Stocks, Bonds, Bills and
Inflation--1993 Yearbook" (annually updates the work of Roger G. Ibbotson and
Rex A. Sinquefield). Common stock returns are based on the Standard & Poor's
500 Stock Index, a market-weighted, unmanaged index of 500 common stocks in a
variety of industry sectors. It is a commonly used indicator of broad stock
price movements. This chart is for illustrative purposes only, and is not
intended to represent the performance of any particular investment or fund.
B-29
<PAGE>
TAXES, DIVIDENDS AND DISTRIBUTIONS
General. The Fund has qualified and intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code
for each taxable year. Accordingly, the Fund must, among other things, (a)
derive at least 90% of its gross income (without offset for losses from the
sale or other disposition of securities or foreign currencies) from dividends,
interest, proceeds from loans of securities and gains from the sale or other
disposition of securities or foreign currencies or other income, including,
but not limited to, gains derived from options and futures on such securities
or foreign currencies; (b) derive less than 30% of its gross income from gains
(without offset for losses) from the sale or other disposition of securities
or options thereon held less than three months; and (c) diversify its holdings
so that, at the end of each fiscal quarter, (i) 50% of the market value of the
Fund's assets is represented by cash, U.S. Government securities and other
securities limited, in respect of any one issuer, to an amount not greater
than 5% of the Fund's assets and no more than 10% of the outstanding voting
securities of any such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities). These requirements may limit the Fund's ability to
engage in transactions involving options on securities, futures contracts and
options thereon.
The Fund declares dividends on a daily basis in an amount based on actual
net investment income determined in accordance with generally accepted
accounting principles. A portion of such dividend may also include projected
net investment income. Such dividends will be payable monthly in additional
shares of the Fund unless otherwise requested by the shareholder.
Net capital gains, if any, will be distributed at least annually. In
determining the amount of capital gains to be distributed, any capital loss
carryforwards from prior years will be offset against capital gains. The Fund
had a capital loss carryforward for federal income tax purposes at December
31, 1993 of approximately $69,005,500 of which $45,765,500 expires in 1997,
and $23,240,000 expires in 1998.
Accordingly, no capital gains distribution (short-term or long-term) is
expected to be paid to shareholders until net capital gains have been realized
in excess of the aggregate of such amounts. Distributions, if any, will be
paid in additional Fund shares based on the net asset value unless the
shareholder elects in writing not less than 5 full business days prior to the
record date to receive such distributions in cash.
The per share dividends on Class B and Class C shares typically will be
lower than the per share dividends on Class A shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions of net capital gains, if any, will be paid in the same
amount for Class A, Class B and Class C shares. See "Net Asset Value."
As a regulated investment company, the Fund will not be subject to
federal income tax on its net investment income and capital gains, if any,
that it distributes to its shareholders, provided that it distributes at least
90% of its net investment income and short-term capital gains earned in each
year. Distributions of net investment income, net currency gains and net
short-term capital gains will be taxable to the shareholder at ordinary income
rates regardless of whether the shareholder receives such distributions in
additional shares or in cash. Distributions of net long-term capital gains, if
any, are taxable as long-term capital gains regardless of how long the
investor has held his or her Fund shares. However, if a shareholder holds
shares in the Fund for not more than six months, then any loss recognized on
the sale of such shares will be treated as long-term capital loss to the
extent of any distribution on the shares which was treated as long-term
capital gain. To the extent that, in a given year, distributions to
shareholders exceed recognized net investment income and recognized short-term
and long-term capital gains for the year, shareholders will receive a return
of capital in respect of such year and, in an annual statement, will be
notified of the amount of any return of capital for such year. Shareholders
will be notified annually by the Fund as to the federal tax status of
dividends and distributions made by the Fund. A 4% nondeductible excise tax
will be imposed on the Fund to the extent the Fund does not meet certain
distribution requirements by the end of each calendar year. Distributions may
be subject to additional state and local taxes. See "Taxes, Dividends and
Distributions" in the Prospectus.
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and
the time the Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly, gains or losses on
disposition of debt securities denominated in a foreign currency attributable
to fluctuations in the value of the foreign currency between the date of
acquisition of the security and the date of disposition also are treated as
ordinary gain or loss. These gains, referred to under the Code as "Section
988" gains or losses, increase or decrease the amount of the Fund's investment
company taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount of the Fund's
net capital gain, as was the case prior to 1987. If Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund would
not be able to make any taxable ordinary dividend distributions, or
distributions made before the losses were realized would be recharacterized as
a return of capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his or her shares.
B-30
<PAGE>
Any loss realized on a sale, redemption or exchange of shares of the Fund
by a shareholder will be disallowed to the extent the shares are replaced
within a 61-day period (beginning 30 days before the disposition of shares).
Shares purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes
of calculating gain or loss realized upon a sale or exchange of shares of the
Fund.
Distributions of net investment income made to a nonresident alien
individual fiduciary of a foreign estate or trust or foreign corporation or
foreign partnership (foreign shareholder) will be subject to U.S. withholding
tax at a rate of 30% (or lower treaty rate), unless the dividends are
effectively connected with the U.S. trade or business of the shareholder.
Gains realized upon the sale or redemption of shares of the Fund by a foreign
shareholder, and distributions of net long-term capital gains to a foreign
shareholder will generally not be subject to U.S. income tax unless the gain
is effectively connected with a trade or business carried on by the
shareholder within the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for more than 182 days during the taxable year and certain other conditions
are met. In the case of a foreign shareholder who is a nonresident alien
individual, the Fund may be required to withhold U.S. federal income tax at
the rate of 20% of distributions of net long-term capital gains unless IRS
Form W-8 is provided. If distributions are effectively connected with a U.S.
trade or business carried on by a foreign shareholder, distributions of net
investment income and net long-term capital gains will be subject to U.S.
income tax at the graduated rates applicable to U.S. citizens or domestic
corporations. Transfers by gift of shares of the Fund by a foreign shareholder
who is a nonresident alien individual will not be subject to U.S. federal gift
tax, but the value of the shares of the Fund held by such a shareholder at his
death will be includable in his gross estate for U.S. federal estate tax
purposes. The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of an investment in
the Fund.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested in
various countries is not known.
If the Fund is liable for foreign taxes, the Fund expects to meet the
requirements of the Internal Revenue Code for "passing-through" to its
shareholders foreign taxes paid, but there can be no assurance that the Fund
will be able to do so. Under the Internal Revenue Code, if more than 50% of
the value of the Fund's total assets at the close of its taxable year consists
of stock or securities of foreign corporations, the Fund will be eligible and
may file an election with the Internal Revenue Service to "pass-through" to
the Fund's shareholders the amount of foreign taxes paid by the Fund. Pursuant
to this election shareholders will be required to: (i) include in gross income
(in addition to taxable dividends actually received) their pro rata share of
the foreign taxes paid by the Fund; (ii) treat their pro rata share of foreign
taxes as paid by them; and (iii) either deduct their pro rata share of foreign
taxes in computing their taxable income or, subject to certain limitations,
use it as a foreign tax credit against U.S. income taxes. No deduction for
foreign taxes may be claimed by a shareholder who does not itemize deductions.
A shareholder that is a nonresident alien individual or foreign corporation
may be subject to U.S. withholding tax on the income resulting from the
election described in this paragraph, but may not be able to claim a credit or
deduction against such tax for the foreign taxes treated as having been paid
by such shareholder. A tax-exempt shareholder will not ordinarily benefit from
this election. The amount of foreign taxes for which a shareholder may claim a
credit in any year will generally be subject to various limitations including
a separate limitation for "passive income," which includes, among other
things, dividends, interest and certain foreign currency gains.
Each shareholder will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund will
"pass-through" for that year and, if so, such notification will designate (a)
the shareholder's portion of the foreign taxes paid to each such country and
(b) the portion of the dividend which represents income derived from sources
within each such country.
Listed Options and Futures. Exchange-traded futures contracts, listed
options on futures contracts and listed options on U.S. Government securities
constitute "Section 1256 contracts" under the Internal Revenue Code. Section
1256 contracts are required to be "marked-to-market" at the end of the Fund's
tax year; that is, treated as having been sold at market value. Sixty percent
of any gain or loss recognized as a result of such "deemed sales" will be
treated as long-term capital gain or loss and the remainder will be treated as
short-term capital gain or loss.
Backup Withholding. With limited exceptions, the Fund is required to
withhold federal income tax at the rate of 31% of all taxable distributions
payable to shareholders who fail to provide the Fund with their correct
taxpayer identification number or to make required certification or who have
been notified by the Internal Revenue Service that they are subject to backup
withholding. Any amounts withheld may be credited against a shareholder's
federal income tax liability.
B-31
<PAGE>
Other Taxation. Distributions may also be subject to state, local and
foreign taxes depending on each shareholder's particular situation.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
ORGANIZATION AND CAPITALIZATION
The Fund was initially incorporated in Maryland on March 15, 1988. On
August 8, 1991, the Fund's shareholders voted to change the name of the Fund
to Prudential Intermediate Global Income Fund, Inc. and to change the Fund
from a closed-end company to an open-end company. On October 20, 1992, the
Fund's Board of Directors approved a change in the Fund's fiscal year end to
December 31.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING
AGENT AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities
and cash, and in that capacity maintains certain financial and accounting
books and records pursuant to an agreement with the Fund. Subcustodians
provide custodial services for the Fund's foreign assets held outside the
United States. See "How the Fund is Managed--Custodian and Transfer and
Dividend Disbursing Agent" in the Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the
Fund. PMFS is a wholly-owned subsidiary of PMF. PMFS provides customary
transfer agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions, and
related functions. For these services, PMFS receives an annual fee per
shareholder account, a new account set-up fee for each manually-established
account and a monthly inactive zero balance account fee per shareholder
account. PMFS is also reimbursed for its out-of-pocket expenses, including but
not limited to postage, stationery, printing, allocable communications
expenses and other costs. For the fiscal year December 31, 1993, the Fund
incurred fees of approximately $616,000 for the services of PMFS.
Price Waterhouse, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Fund's independent accountants and in that capacity audits the
Fund's annual financial statements.
B-32
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL INCOME Portfolio of Investments
FUND, INC. December 31, 1993
Principal
Amount Value
(000) Description (Note 1)
LONG-TERM INVESTMENTS--89.6%
Australia--2.0%
Australian Gov't.
Bonds,
A$ 9,000 9.00%, 9/15/04......... $ 7,152,896#
------------
Canada--5.9%
Canadian Gov't. Bonds,
Can$ 8,000 6.25%, 2/1/98.......... 6,191,528#
7,300 5.75%, 3/1/99.......... 5,513,024#
Prov. of Quebec,
12,440## 7.50%, 12/1/03......... 9,524,307#
------------
21,228,859
------------
Denmark--5.9%
Danish Gov't. Bonds,
DKr 32,900 9.00%, 11/15/98........ 5,507,951#
93,250 8.00%, 5/15/03......... 15,566,757#
------------
21,074,708
------------
France--6.9%
French Gov't. Bonds,
FF 57,620 8.50%, 11/12/97........ 10,910,665#
ECU 2,000 10.00%, 2/26/01........ 2,761,560#
FF 51,700 8.50%, 4/25/23......... 11,319,317#
------------
24,991,542
------------
Germany--4.0%
Fed. Rep. of Germany,
DM 18,575 8.00%, 7/22/02......... 12,339,871#
Treuhandanstalt,
2,250 6.125%, 6/25/98........ 1,350,259#
1,200 6.875%, 6/11/03........ 742,302#
------------
14,432,432
------------
Ireland--5.5%
Irish Gov't. Bonds,
IEP 7,625 9.00%, 7/15/01......... 12,490,760#
Irish Gov't. Bonds,
IEP 5,200 6.25%, 10/18/04........ $ 7,256,762#
------------
19,747,522
------------
Italy--6.7%
Italian Gov't. Bonds,
L 17,270,000 12.00%, 1/20/98........ 11,178,698#
19,720,000 12.00%, 5/19/98........ 12,872,822#
------------
24,051,520
------------
Japan--8.8%
Japan Development Bank,
(YEN)770,000 6.50%, 9/20/01......... 8,356,356#
Japanese Gov't. Bonds,
1,861,000 3.90%, 12/22/03........ 17,441,701#
540,000 5.50%, 9/20/13......... 5,807,900#
------------
31,605,957
------------
Mexico--1.1%
Mexican Treasury
Bills,**
MP 15,000 11.75%, 9/7/95......... 4,032,435#
------------
Netherlands--4.6%
Netherlands Gov't.
Bonds,
NLG 29,200 7.50%, 6/15/99......... 16,671,165#
------------
Spain--3.9%
Spanish Gov't. Bonds,
Pts 1,779,000 11.45%, 8/30/98........ 14,187,418#
------------
Sweden--7.3%
Statens Bostads
Finansier,
SKr 35,000 13.00%, 9/20/95........ 4,619,119
61,000 12.50%, 1/23/97........ 8,452,168
Swedish Gov't. Bonds,
91,500 11.00%, 1/21/99........ 13,126,984
------------
26,198,271
------------
B-33 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL INCOME
FUND, INC.
Principal
Amount Value
(000) Description (Note 1)
United Kingdom--9.0%
United Kingdom Treasury
Notes,
(Brpd)13,524 10.50%, 5/19/99........ $ 24,239,963#
4,600 8.00%, 9/27/13......... 7,991,997#
------------
32,231,960
------------
United States--18.0%
United States Treasury
Bonds,
US$ 7,000 12.375%, 5/15/04....... 10,487,960#
United States Treasury
Notes,
19,500 5.125%, 11/30/98....... 19,432,920#
10,000 6.375%, 1/15/00........ 10,503,100#
8,120(D)(D)5.50%, 4/15/00....... 8,185,934#
5,400(D) 7.50%, 11/15/01........ 6,024,348#
5,700 6.25%, 2/15/03......... 5,890,608#
4,450 5.75%, 8/15/03......... 4,434,692#
------------
64,959,562
------------
Total long-term
investments
(cost
US$322,716,198)...... 322,566,247
------------
SHORT-TERM INVESTMENTS--9.0%
Mexico--5.5%
Mexican Treasury
Bills,**
MP 15,000 12.00%, 8/4/94......... 4,547,130#
50,000 11.72%, 9/8/94......... 15,013,526#
------------
19,560,656
------------
United States--2.9%
Joint Repurchase
Agreement
Account,
US$ 5,427 3.15%, 1/3/94, (cost
US$5,427,000; Note
5)................... $ 5,427,000
United States Treasury
Bills,**
5,060 2.98%, 3/31/94......... 5,023,214
------------
10,450,214
------------
Outstanding Options
Purchased*--0.6%
Contracts Call Options
(000)
- ------------
German Gov't. Bonds,
84,900 6.75%, 4/22/03,
expiring 3/22/94
@ DM107.80........... 271,680
Japanese Gov't. Bonds,
2,457,000 5.50%, 3/20/02,
expiring 3/14/94
@ (YEN)110.748....... 144,963
1,500,000 4.50%, 6/20/03,
expiring 1/31/94
@ (YEN)107.631....... 1,153,950
Currency Call Options
German Deutschemarks,
18,670 expiring 1/19/94
@ DM1.71............. 369,666
Cross-Currency Call Options
Swiss Francs,
expiring 1/6/94
33,957 @CHF .8635 per German
Deutschemark........... 4,075
B-34 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL INCOME
FUND, INC.
Contracts Value
(000) Description (Note 1)
Currency Put Options
Australian Dollars,
29,904 expiring 1/20/94
@ A$ .6815........... $ 222,785
German Deutschemarks,
18,350 expiring 1/6/94 @
DM1.70............... 734
38,404 expiring 1/6/94 @
DM1.60............... 3,840
------------
Total outstanding
options
purchased............ 2,171,693
------------
Total short-term
investments
(cost
US$31,547,522)....... 32,182,563
------------
Total Investments
Before Outstanding
Options
Written--98.6%
(cost US$354,263,720;
Note 4).............. 354,748,810
------------
OUTSTANDING OPTIONS
WRITTEN*--(0.3%)
Currency Call Options
Australian Dollars,
29,708 expiring 1/20/94
@ A$ .686............ (75,755)
German Deutschemarks,
38,404 expiring 1/6/94
@DM1.70.............. (890,973)
Currency Put Options
Australian Dollars,
30,349 expiring 1/20/94
@ A$ .6715........... $ (88,012)
German Deutschemarks,
18,350 expiring 1/4/94 @
DM1.675.............. --
------------
Total outstanding
options
written
(premiums received
US$663,233).......... (1,054,740)
------------
Total Investments, Net
of
Outstanding Options
Written--98.3%......... 353,694,070
Other assets in excess
of other
liabilities--1.7%.... 6,151,536
------------
Net Assets--100%....... $359,845,606
============
- ------------------
Portfolio securities are classified according to the securities currency
denomination. Currency option contracts are expressed in thousands of local
currency units.
# Principal amount segregated as collateral for forward currency contracts,
delayed delivery securities and call options written. Aggregate value of
segregated securities-- $315,928,632.
## Indicates a delayed delivery security.
* Non-income producing security.
** Percentages quoted represent yields to maturity as of purchase date.
(D) Partially pledged as initial margin on financial futures contracts.
(D)(D) Represents security; a portion ($6,620,000) of which is on loan.
ECU--European Currency Units.
B-35 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL INCOME
FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets December 31, 1993
-----------------
<S> <C>
Investments, at value (cost $354,263,720)............................................. $ 354,748,810
Receivable for investments sold....................................................... 16,574,565
Interest receivable................................................................... 8,419,607
Collateral for securities loaned, at value............................................ 7,228,034
Forward contracts-net amount receivable from counterparties........................... 809,394
Receivable for Fund shares sold....................................................... 240,545
Deferred expenses and other assets.................................................... 72,553
-----------------
Total assets........................................................................ 388,093,508
-----------------
Liabilities
Bank overdraft........................................................................ 514,507
Payable for investments purchased..................................................... 16,841,751
Payable upon return of securities loaned.............................................. 7,228,034
Payable for Fund shares reacquired.................................................... 1,550,736
Outstanding options written, at value (premiums received $663,233).................... 1,054,740
Accrued expenses...................................................................... 361,699
Due to broker-variation margin payable................................................ 287,970
Management fee payable................................................................ 231,920
Dividend Payable...................................................................... 80,337
Distribution fee payable.............................................................. 66,758
Withholding taxes payable............................................................. 29,450
-----------------
Total liabilities................................................................... 28,247,902
-----------------
Net Assets............................................................................ $ 359,845,606
=================
Net assets were comprised of:
Common stock, at par................................................................ $ 42,703
Paid-in capital in excess of par.................................................... 426,422,758
-----------------
426,465,461
Undistributed net investment income................................................. 2,751,990
Accumulated net realized loss on investments and foreign currency transactions...... (70,131,468)
Net unrealized appreciation......................................................... 759,623
-----------------
Net assets, December 31, 1993......................................................... $ 359,845,606
=================
Class A:
Net asset value and redemption price per share ($320,405,814 / 38,027,986 shares of
common stock issued and outstanding).............................................. $8.43
Maximum sales charge (3.00% of offering price)...................................... .26
------
Maximum offering price to public.................................................... $8.69
======
Class B:
Net asset value, offering price and redemption price per share ($39,439,792 /
4,674,784 shares of common stock issued and outstanding).......................... $8.44
======
</TABLE>
See Notes to Financial Statements.
B-36
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
Statement of Operations
Year Ended
December 31,
Net Investment Income 1993
-----------------
Income
Interest and discount earned....... $34,401,251
Income from securities loaned...... 91,129
-------------
34,492,380
-------------
Expenses
Management fee..................... 2,934,112
Distribution fee--Class A.......... 532,527
Distribution fee --Class B......... 271,479
Transfer agent's fees and
expenses........................... 775,000
Custodian's fees and expenses...... 759,000
Reports to shareholders............ 180,000
Registration fees.................. 68,000
Audit fee.......................... 67,000
Directors' fees.................... 50,000
Insurance expense.................. 46,000
Legal fees and expenses............ 35,000
Amortization of organization
expense............................ 2,578
Miscellaneous...................... 8,462
-------------
Total expenses................... 5,729,158
-------------
Net investment income................ 28,763,222
-------------
Net Realized and Unrealized Gain (Loss)
on Investment and Foreign
Currency Transactions
Net realized gain (loss) on:
Investment transactions............ 8,207,303
Foreign currency transactions...... 1,914,101
Financial futures transactions..... 2,297,507
Written option transactions........ 5,337,290
-------------
17,756,201
-------------
Net change in net unrealized
appreciation/depreciation on:
Investments........................ 16,250,917
Foreign currencies................. (3,478,978)
Financial futures.................. 5,188
Written options.................... (391,507)
-------------
12,385,620
-------------
Net gain on investments and foreign
currencies......................... 30,141,821
-------------
Net Increase in Net Assets
Resulting from Operations............ $58,905,043
=============
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
Statement of Changes in Net Assets
Ten months
Year Ended Ended
Increase (Decrease) December 31, December 31,
in Net Assets 1993 1992
------------ ------------
Operations
Net investment
income................. $ 28,763,222 $ 26,470,840
Net realized gain on
investment and
foreign currency
transactions......... 17,756,201 5,090,415
Net change in net
unrealized
appreciation/depreciation
on investments and
foreign currencies... 12,385,620 (23,926,935)
------------ ------------
Net increase in net
assets resulting from
operations........... 58,905,043 7,634,320
------------ ------------
Net equalization
debits................. (35,899) --
------------ ------------
Dividends and distributions (Note 1)
Dividends to
shareholders from net
investment income
Class A.............. (20,557,518) (24,091,902)
Class B.............. (1,903,164) (1,222,290)
------------ ------------
(22,460,682) (25,314,192)
------------ ------------
Distributions to
shareholders from net
realized gains on
investment
transactions
Class A.............. (3,742,148) (7,977,489)
Class B.............. (346,439) (521,712)
------------ ------------
(4,088,587) (8,499,201)
------------ ------------
Fund share transactions
(Note 6)
Net proceeds from
shares subscribed.... 23,663,564 257,728,106
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 5,464,081 5,534,034
Cost of shares
reacquired............. (113,967,037) (97,480,338)
------------ ------------
Net increase (decrease)
in net assets from
Fund share
transactions......... (84,839,392) 165,781,802
------------ ------------
Total increase
(decrease)............. (52,519,517) 139,602,729
Net Assets
Beginning of year........ 412,365,123 272,762,394
------------ ------------
End of year.............. $359,845,606 $412,365,123
============ ============
See Notes to Financial Statements.
B-37
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
Notes to Financial Statements
Prudential Intermediate Global Income Fund, Inc., (the ``Fund'') was
organized in Maryland on March 15, 1988, as a closed-end, non-diversified
management investment company. The Fund had no transactions until May 17, 1988,
when it sold 11,000 shares of common stock for $102,300 to Prudential Mutual
Fund Management, Inc. (``PMF''). Investment operations commenced on May 26,
1988. On October 4, 1991 the Fund concluded operations as a closed-end
investment company. Effective October 7, 1991, trading in the Fund's shares was
discontinued on the New York and Pacific Stock Exchanges and the Fund commenced
operations as an open-end, non-diversified investment company. Subsequent to
February 29, 1992 (the Fund's former fiscal year-end) the Fund changed its
fiscal year-end to December 31.
The Fund's investment objective is to provide high current income consistent
with the preservation of capital by investing in a portfolio consisting
primarily of U.S. and foreign government securities. The Fund will also engage
in certain hedging strategies to meet its investment objective. The ability of
issuers of debt securities held by the Fund to meet their obligations may be
affected by economic and political developments in a specific country or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund in the preparation of
its financial statements.
Security Valuation: In valuing the Fund's assets, quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
then current currency rate. U.S. government securities for which quotations are
available are based on the valuation provided by an independent pricing service
on the day of valuation. Portfolio securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at the mean between the
most recently quoted bid and asked prices provided by an independent pricing
service or by principal market makers. Any security for which the primary market
is on an exchange is valued at the last sale price on such exchange on the day
of valuation or, if there was no sale on such day, the last bid price quoted on
such day. Forward currency exchange contracts are valued at the current cost of
covering or offsetting the contract on the day of valuation. Options are valued
at their last sales price as of the close of options trading on the applicable
exchanges. If there is no sale on the applicable options exchange on such day,
options are valued at the average of the quoted bid and asked prices as of the
close of the applicable exchange. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Fund.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that it's custodian take possession of the
underlying collateral securities, the value of which exceeds the principal
amount of the repurchase transaction including accrued interest. If the seller
defaults and the value of the collateral declines or if bankruptcy proceedings
are commenced with respect to the seller of the security, realization of the
collateral by the Fund may be delayed or limited.
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 current rates of exchange;
(ii) purchases and sales of investment securities, income and expenses--at
the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the year, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at year end. Similarly, the Fund does not isolate
the effect of changes in foreign exchange rates from the fluctuations arising
from changes in the market prices of long-term debt securities sold during the
year. Accordingly, such realized foreign currency gains and losses are included
in the reported net realized gains/losses on investment transactions.
Net realized losses on foreign currency transactions represents net foreign
exchange gains and losses from sales and maturities of short-term securities and
forward currency contracts, 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
B-38
<PAGE>
interest and foreign taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net currency gains and losses from
valuing foreign currency denominated assets (excluding investments) and
liabilities at year end exchange rates are reflected as a component of net
unrealized appreciation/depreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. companies as a result of,
among other factors, the possibility of political or economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
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 at a negotiated forward rate. The gain
or loss arising from the difference between the settlement value of the original
and renegotiated forward contracts, if any, is isolated and is included in net
realized gains/losses from foreign currency transactions. Risks may arise upon
entering into these contracts from the potential inability of the counterparties
to meet the terms of their contracts.
Option Writing: When the Fund writes an option, an amount equal to the premium
received by the Fund is recorded as a liability and is subsequently adjusted to
the current market value of the option written. Premiums received from writing
options which expire unexercised are treated by the Fund on the expiration date
as realized gains from written options transactions. The difference between the
premium and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is also treated as a realized gain, or if the
premium is less than the amount paid for the closing purchase transaction, as a
realized loss. If a call option is exercised, the premium is added to the
proceeds from the sale of the underlying security or currency in determining
whether the Fund has realized a gain or loss. If a put option is exercised, the
premium reduces the cost basis of the securities or currencies purchased by the
Fund. The Fund as writer of an option may have no control over whether the
underlying securities or currencies may be sold (called) or purchased (put) and
as a result bears the market risk of an unfavorable change in the price of the
security or currency underlying the written option.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt 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. The 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
conditions. Should market 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 Lending: The Fund may lend its U.S. Government securities to
broker-dealers or government securities dealers. The loans are secured by
collateral at least equal at all times to the market value of the securities
loaned. The Fund may bear the risk of delay in recovery of, or even loss of
rights in, the securities loaned should the borrower of the securities fail
financially. The Fund receives compensation for lending its securities in the
form of fees or it retains a portion of interest on the investment of any cash
received as collateral. The Fund also continues to receive interest on the
securities loaned and any gain or loss in the market price of the securities
loaned that may occur during the term of the loan will be for the account of the
Fund.
Security Transactions and Investment Income: Security transactions are recorded
on the trade date. Realized gains and losses from security and currency
transactions are calculated on the identified cost basis. Interest income is
recorded on the accrual basis.
Net investment income (other than distribution fees), and unrealized gains or
losses are allocated daily to each class of shares based upon the relative
proportion of net assets of each class at the beginning of the day.
Taxes: It is the Fund's policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders. Therefore, no federal
income tax provision is required.
B-39
<PAGE>
Withholding taxes on foreign interest have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules and rates.
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.
Dividends and Distributions: The Fund declares daily and pays dividends of net
investment income monthly and makes distributions at least annually of any net
capital gains. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions.
Deferred Organization Expenses: Approximately $50,000 was incurred in connection
with the organization of the Fund. These costs were deferred and amortized over
the sixty month period ended May 1993.
Reclassification of Capital Accounts: Effective January 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 increase paid-in capital by $66,030,945, increase undistributed
net investment income by $4,125,398 and increase accumulated net realized losses
on investments and foreign currency transactions by $70,156,343 compared to
amounts previously reported through December 31, 1992. During the year ended
December 31, 1993, the Fund reclassified $8,843,795 of foreign currency losses
to undistributed net investment income from accumulated net realized loss on
investments and foreign currency transactions. In addition, the Fund increased
paid-in capital by $194,670, increased undistributed net investment income by
$47,098 and decreased accumulated net realized loss on investments and foreign
currency transactions by $241,768 due to a reclassification of market discount
during the year ended December 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 PMF. Pursuant to this agreement,
PMF has responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PMF has entered into a subadvisory
agreement with The Prudential Investment Corporation (``PIC''); PIC furnishes
investment advisory services in connection with the management of the Fund. PMF
pays for the cost of the subadviser's services, the compensation of officers of
the Fund, occupancy and certain clerical and bookkeeping costs of the Fund. The
Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an
annual rate of .75% of the Fund's average daily net assets.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and Prudential Securities Incorporated (``PSI''), which 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 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 at the annual rate of .15 of 1% of the average daily net assets of the
Class A shares for the fiscal year ended December 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 Class B shares at an annual rate
of up to .75 of 1% of the average daily net assets of the Class B shares. The
Class B 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
B-40
<PAGE>
advertising incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and account servicing 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 $62,300 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended December 31, 1993. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons.
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 payments made by the Fund pursuant to
the Class B Plan. PSI has advised the Fund that for the fiscal year ended
December 31, 1993, it received approximately $101,000 in contingent deferred
sales charges imposed upon certain redemptions by investors. PSI, as
distributor, has also advised the Fund that at December 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 $276,800. 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 Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the fiscal year ended December 31, 1993, the Fund incurred fees of
approximately $616,000 for the services of PMFS. As of December 31, 1993, fees
of approximately $44,900 were due to PMFS. Transfer agent fees and expenses in
the Statement of Operations include certain out-of-pocket expenses paid to
non-affiliates.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments and written options, for
the fiscal year ended December 31, 1993, aggregated $1,255,321,182 and
$1,281,511,234, respectively.
At December 31, 1993, the Fund had outstanding forward currency contracts,
both to purchase and sell foreign currencies, as follows:
Foreign Currency Value at
Purchase Settlement Date Current Appreciation
Contracts Payable Value (Depreciaton)
- ----------------- --------------- ------------ --------------
Australian
Dollars,
expiring 1/24-
2/7/94......... $ 135,659,159 $137,317,669 $ 1,658,510
Belgian Francs,
expiring
1/31/94........ 9,600,000 9,439,274 (160,726)
British Pounds,
expiring 1/20-
2/7/94......... 36,388,114 35,983,002 (405,112)
Canadian Dollars,
expiring
2/15/94........ 14,323,069 14,549,694 226,625
French Francs,
expiring 1/5-
2/15/94........ 12,403,202 12,271,254 (131,948)
German
Deutschemarks,
expiring 1/18-
2/15/94........ 277,812,090 273,014,484 (4,797,606)
Italian Lira,
expiring
1/18/94........ 28,645,000 27,257,561 (1,387,439)
Japanese Yen,
expiring 1/26-
2/8/94......... 111,607,197 108,186,343 (3,420,854)
New Zealand
Dollars,
expiring
2/8/94......... 19,699,782 19,825,987 126,205
Swiss Francs,
expiring
1/18/94........ 39,588,845 39,763,433 174,588
--------------- ------------ --------------
$ 685,726,458 $677,608,701 $ (8,117,757)
=============== ============ ==============
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciaton)
- ----------------- --------------- ------------ --------------
Australian
Dollars,
expiring 1/4-
1/31/94........ $ 121,661,812 $123,481,281 $ (1,819,469)
British Pounds,
expiring 1/20-
2/8/94......... 18,170,105 18,019,243 150,862
Canadian Dollars,
expiring 1/6-
2/15/94........ 30,341,561 30,531,401 (189,840)
Danish Kroner,
expiring
1/24/94........ 10,531,939 10,400,944 130,995
B-41
<PAGE>
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciaton)
- ----------------- --------------- ------------ --------------
French Francs,
expiring
2/15/94........ $ 9,226,099 $ 9,127,517 $ 98,582
German
Deutschemarks,
expiring 1/4-
2/15/94........ 398,821,442 391,880,693 6,940,749
Irish Punts,
expiring
2/15/94........ 19,723,640 19,595,375 128,265
Italian Lira,
expiring 1/18-
2/15/94........ 22,403,387 22,168,247 235,140
Japanese Yen,
expiring 1/26-
2/8/94......... 109,335,617 106,975,709 2,359,908
New Zealand
Dollars,
expiring
2/8/94......... 19,551,522 19,591,016 (39,494)
Netherland
Guilders,
expiring 1/5-
2/15/94........ 53,504,576 52,497,896 1,006,680
Spanish Pesetas,
expiring
2/15/94........ 14,590,455 14,270,361 320,094
Swedish Krona,
expiring
1/10/94........ 23,023,602 23,016,675 6,927
Swiss Francs,
expiring
1/18/94........ 37,870,035 38,272,283 (402,248)
--------------- ------------ --------------
$ 888,755,792 $879,828,641 $ 8,927,151
=============== ============ ==============
Transactions in options written during the fiscal year ended December 31,
1993, were as follows:
Number of
Contracts Premiums
(000) Received
---------- -----------
Options outstanding at
December 31, 1992................. -- --
Options written..................... 700,397 $ 3,830,711
Options terminated in closing
purchase transactions............. (143,118) (730,824)
Options expired..................... (302,885) (1,655,558)
Options exercised................... (137,583) (781,096)
---------- -----------
Options outstanding at
December 31, 1993................. 116,811 $ 663,233
========== ===========
The federal income tax basis of the Portfolio's investments at December 31,
1993 was $354,452,876 and, accordingly, net unrealized appreciation for federal
income tax purposes was $295,934 (gross unrealized appreciation--$5,108,512
gross unrealized depreciation-- $4,812,578).
For federal income tax purposes, the Fund has a capital loss carryforward as
of December 31, 1993, of approximately $69,005,500 of which $45,765,500 expires
in 1997, and $23,240,000 expires in 1998. Such carryforward is after utilization
of approximately $18,455,500 of net taxable gains realized and recognized during
the year ended December 31, 1993.
As of December 31, 1993 the Fund had securities on loan with an aggregate
market value of $6,673,754. As of such date, the Fund held U.S. Treasury Notes
in the principal amount of $6,565,000, 7.875%, due 2/15/96 with an aggregate
value, including accrued interest, of $7,228,034 as collateral for the
securities loaned.
At December 31, 1993, the Fund sold 182 financial futures contracts on U.S.
Treasury Bonds expiring March 1994. The value at disposition of such contracts
is $20,671,188. The value of such contracts on December 31, 1993 was
$20,666,000, thereby resulting in an unrealized gain of $5,188.
Note 5. Joint The Fund, along with other
Repurchase affiliated registered invest-
Agreement Account ment 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. Treasury or Federal agency
obligations. As of December 31, 1993, the Fund has a .45% undivided interest in
the joint account. The undivided interest for the Fund represents $5,427,000 in
the principal amount. As of such date, each repurchase agreement in the joint
account and the collateral therefore were as follows:
Bear, Stearns & Co., 3.18%, in the principal amount of $323,000,000,
repurchase price $323,085,595, due 1/3/94; collateralized by $200,000,000 U.S.
Treasury Notes, 3.875%, due 3/31/95, $5,745,000 U.S. Treasury Notes, 4.25%, due
7/31/95, $85,000 U.S. Treasury Notes, 7.375%, due 5/15/96, $30,000,000 U.S.
Treasury Notes, 5.625%, due 1/31/98 and $80,030,000 U.S. Treasury Notes, 7.50%,
due 11/15/01; approximate aggregate value including accrued
interest--$329,564,341.
Kidder, Peabody & Co. Inc., 3.20%, in the principal amount of $375,000,000,
repurchase price $375,100,000, due 1/3/94; collateralized by $200,000,000 U.S.
Treasury Bonds, 11.625%, due 11/15/04, $38,000,000 U.S. Treasury Bonds, 12.75%,
due 11/15/10, $11,730,000 U.S. Treasury Notes, 7.25%, due 11/15/96, $90,000 U.S.
Treasury Bonds, 9.00%, due 2/15/94 and $15,000,000 U.S. Treasury Notes, 7.375%,
B-42
<PAGE>
due 5/15/96; approximate aggregate value including accrued
interest--$382,608,562.
Goldman, Sachs & Co., 3.10%, in the principal amount of $399,000,000,
repurchase price $399,103,075, due 1/3/94; collateralized by $363,720,000 U.S.
Treasury Bonds, 7.50%, due 11/15/16; approximate value including accrued
interest--$408,104,889.
Barclays de Zoete Wedd, Inc., 3.10%, in the principal amount of $100,000,000,
repurchase price $100,025,833, due 1/3/94; collateralized by $32,000,000 U.S.
Treasury Notes, 7.50%, due 11/15/01, $7,305,000 U.S. Treasury Notes, 8.50%, due
2/15/00 and $49,000,000 U.S. Treasury Notes, 8.875%, due 11/15/98; approximate
aggregate value including accrued interest--$102,043,014.
Note 6. Capital The Fund offers both Class A
and Class B shares. Class A shares are sold with a
front-end sales charge of up to 3.0%. Class B shares are sold with a contingent
deferred sales charge which declines from 3% 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.
There are 2 billion authorized shares of $.001 par value common stock divided
equally into two classes, designated Class A and Class B common stock. Of the
42,702,770 shares of common stock issued and outstanding at December 31, 1993,
PMF owned 12,263 Class A shares.
Transactions in shares of common stock were as follows:
Class A Shares Amount
----------- ------------
Year ended December 31, 1993:
Shares sold..................... 420,829 $ 3,430,997
Shares issued in reinvestment of
dividends and distributions... 537,723 4,448,300
Shares reacquired............... (11,665,755) (96,009,197)
----------- ------------
Net decrease in shares
outstanding................... (10,707,203) $(88,129,900)
=========== ============
Period ended December 31, 1992:
Shares sold..................... 707,260 $ 5,689,697
Shares issued*.................. 26,390,197 212,441,089
Shares issued in reinvestment of
dividends and distributions... 603,583 4,842,287
Shares reacquired............... (11,354,743) (91,201,784)
----------- ------------
Net increase in shares
outstanding................... 16,346,297 $131,771,289
=========== ============
Class B Shares Amount
----------- ------------
Year ended December 31, 1993:
Shares sold..................... 2,410,382 $ 20,232,567
Shares issued in reinvestment of
dividends and distributions... 122,288 1,015,781
Shares reacquired............... (2,158,964) (17,957,840)
----------- ------------
Net increase in shares
outstanding................... 373,706 $ 3,290,508
=========== ============
Period ended December 31, 1992:
Shares sold..................... 4,253,427 $ 34,481,862
Shares issued*.................. 633,886 5,115,458
Shares issued in reinvestment of
dividends and distributions... 86,820 691,747
Shares reacquired............... (797,981) (6,278,554)
----------- ------------
Net increase in shares
outstanding................... 4,176,152 $ 34,010,513
=========== ============
- ---------------
* Represents amounts issued in connection with the
acquisition of Prudential Strategic Income Fund.
Note 7. Capital On February 2, 1994 the
Gain Distribution Board of Directors of the
Fund declared a distribution of long-term capital
gains of $0.014 per share payable February 18, 1994 to shareholders of record on
February 10, 1994.
B-43
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A(D)(D) Class B
-------------------------------------------------------------------------------- ------------
Year Ten Months May 26, Year
Ended Ended Year Ended February 28, 1988** Ended
December 31, December 31, ---------------------------------- to February December 31,
1993 1992@ 1992 1991 1990 28, 1989 1993
------------ ------------ -------- ------------ -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period............... $ 7.77 $ 8.39 $ 8.79 $ 8.56 $ 8.93 $ 9.30 $ 7.79
------------ ------------ -------- ------------ -------- ------------- ------------
Income from investment
operations
Net investment income..... .59 .61 .71 .74 .73 .59 .54
Net realized and
unrealized gain (loss)
on investment and
foreign currency
transactions............ .63 (.36) (.36) .35 (.10) (.26) .63
------------ ------------ -------- ------------ -------- ------------- ------------
Total from investment
operations............ 1.22 .25 .35 1.09 .63 .33 1.17
------------ ------------ -------- ------------ -------- ------------- ------------
Less distributions
Dividends from net
investment income....... (.48) (.59) (.71) (.74) (.73) (.59) (.44)
Distributions from capital
gains................... (.08) (.28) -- -- -- -- (.08)
Distributions from paid-in
capital in excess of
par..................... -- -- (.04) (.12) (.27) (.09) --
------------ ------------ -------- ------------ -------- ------------- ------------
Total distributions..... (.56) (.87) (.75) (.86) (1.00) (.68) (.52)
------------ ------------ -------- ------------ -------- ------------- ------------
Capital charge resulting
from the issuance of
Fund shares............. -- -- -- -- -- (.02) --
------------ ------------ -------- ------------ -------- ------------- ------------
Net asset value, end of
period.................. $ 8.43 $ 7.77 $ 8.39 $ 8.79 $ 8.56 $ 8.93 $ 8.44
============ ============ ======== ============ ======== ============= ============
TOTAL RETURN#: 16.12% 3.09% 4.24% 13.49% 7.20% 3.41% 15.29%
============ ============ ======== ============ ======== ============= ============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $320,406 $378,865 $271,714 $ 449,178 $437,558 $ 456,224 $ 39,440
Average net assets
(000)................... $355,018 $331,339 $399,714 $ 437,752 $455,386 $ 463,039 $ 36,197
Ratios to average net
assets:
Expenses, including
distribution fees..... 1.41% 1.30%* 1.20% 1.04% 1.07% .97%* 2.01%
Expenses, excluding
distribution fees..... 1.26% 1.15%* 1.15% 1.04% 1.07% .97%* 1.26%
Net investment income... 7.42% 9.08%* 8.43% 8.61% 8.16% 8.54%* 6.67%
Portfolio turnover rate 361% 201% 170% 250% 231% 358% 361%
Total debt outstanding at
end
of period (000)......... -- -- -- $ 20,240 $ 27,600 $ 34,960 --
Asset coverage@@.......... -- -- -- $ 23,193 $ 16,854 $ 14,050 --
</TABLE>
Ten Months
Ended January 15, 1992(D)
December 31, Through February
1992@ 29, 1992
------------ -----------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period............... $ 8.40 $ 8.43
-------- -------
Income from investment
operations
Net investment income..... .57 .08
Net realized and
unrealized gain (loss)
on investment and
foreign currency
transactions............ (.35) (.03)
------------ ------
Total from investment
operations............ .22 .05
------------ ------
Less distributions
Dividends from net
investment income....... (.55) (.08)
Distributions from capital
gains................... (.28) --
Distributions from paid-in
capital in excess of
par..................... -- --
------------ ------
Total distributions..... (.83) (.08)
------------ ------
Capital charge resulting
from the issuance of
Fund shares............. -- --
------------ ------
Net asset value, end of
period.................. $ 7.79 $ 8.40
============ ======
TOTAL RETURN#: 2.70% 0.58%
============ ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $ 33,500 $ 1,049
Average net assets
(000)................... $ 18,358 $ 456
Ratios to average net
assets:
Expenses, including
distribution fees..... 1.90%* 1.03%*
Expenses, excluding
distribution fees..... 1.15%* .28%*
Net investment income... 8.54%* 9.43%*
Portfolio turnover rate 201% 170%
Total debt outstanding at
end
of period (000)......... -- --
Asset coverage@@.......... -- --
- ---------------
* Annualized.
** Commencement of investment operations.
(D) Commencement of offering of Class B shares.
(D)(D) Prior to October 7, 1991, the Fund was organized as a closed-end fund.
@ The Fund changed its fiscal year end to December 31.
@@ Per $1,000 of debt outstanding.
# Total return does not consider the effect of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
See Notes to Financial Statements.
B-44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Prudential Intermediate Global Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Intermediate Global
Income Fund, Inc. (the ``Fund'') at December 31, 1993, the results of its
operations for the year then ended, the changes in its net assets for the year
then ended and for the ten month period ended December 31, 1992 and the
financial highlights for the year ended December 31, 1993, for the ten month
period ended December 31, 1992, for each of the three years in the period ended
February 29, 1992 and for the period from May 26, 1988 (commencement of
operations) through February 28, 1989, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as ``financial statements'') are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1993 by correspondence with the
custodian and brokers, and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
February 11, 1994
B-45
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Financial Statements incorporated by reference in the Prospectus
constituting Part A of this Registration Statement:
Financial highlights for the fiscal year ended December 31, 1993,
ten month period ended December 31, 1992 and for each of the three
years in the period ended February 29, 1992 and the period from May
26, 1988 through February 28, 1989 with respect to the Class A
shares, and for the fiscal year ended December 31, 1993, ten month
period ended December 31, 1992 and from January 15, 1992 through
February 29, 1992 with respect to the Class B shares.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at December 31, 1993.
Statement of Assets and Liabilities at December 31, 1993.
Statement of Operations for the Fiscal Year Ended December 31, 1993.
Statement of Changes in Net Assets for the Fiscal Year ended
December 31, 1993 and the Ten Month Period Ended December 31, 1992.
Notes to Financial Statements.
Financial Highlights.
Report of Independent Accountants.
(b) Exhibits:
1. (a) Amended and Restated Articles of Incorporation of Registrant.
(Incorporated by reference to Exhibit 1(b) to Registration Statement
on Form N-1A, File No. 33-42093, filed on August 13, 1991.)
(b) Form of Amended Restated Articles of Incoporation.*
2. Amended By-Laws of Registrant. (Incorporated by reference to Exhibit
2 (b) to Registration Statement on Form N-1A, File No. 33-42093,
filed on August 13, 1991.)
3. Not Applicable.
4. (a) Specimen stock certificates for Class A and Class B shares.
(Incorporated by reference to Exhibit 4 to Post-Effective Amendment
No. 1 to Registration Statement on Form N-1A, File No. 33-42093.)
(b) Instruments Defining Rights of Shareholders. (Incorporated by
reference to Exhibit 4(b) to Post-Effective Amendment No. 4 to the
Registration Statement on form N-1A filed via EDGAR on March 2, 1994
(FileNo. 33-42093).)
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc. (Incorporated by reference to Exhibit
6(a) of Amendment No. 1 to Registration Statement on Form N-2, File
No. 2-82976.)
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation. (Incorporated by
reference to Exhibit 6(b) of Amendment No. 1 to Registration
Statement on Form N-2, File No. 2-82976.)
(c) Management Agreement between Registrant and Prudential Mutual
Fund Management, Inc. (Incorporated by reference to Exhibit 5(c) to
Registration Statement on Form N-1A, File No. 33-42093, filed on
August 13, 1991.)
(d) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation. (Incorporated by
reference to Exhibit 5(d) to Registration Statement on Form N-1A,
File No. 33-42093, filed on August 13, 1991.)
-----------
*Filed herewith.
C-1
<PAGE>
6. (a) Distribution Agreement between the Registrant and Prudential Mutual
Fund Distributors, Inc. for Class A shares. (Incorporated by reference to
Exhibit 6(a) to Registration Statement on Form N-1A, File No. 33-42093,
filed on August 13, 1991.)
(b) Distribution Agreement between the Registrant and
Prudential Securities Incorporated for Class B shares. (Incorporated by
reference to Exhibit 6(b) to Post-Effective Amendment No. 1 to
Registration Statement on Form N-1A, File No. 33-42093.)
(c) Selected Dealer Agreement. (Incorporated by reference to Exhibit 6(b)
to Registration Statement on Form N-1A, File No. 33-42093, filed on
August 13, 1991.)
(d) Amended and Restated Distribution Agreement with respect to Class A
shares between the Registrant and Prudential Mutual Fund Distributors,
Inc. (Incorporated by reference to Exhibit 6(d) to Post-Effective
Amendment No. 4 to the Registration Statement on form N-1A filed via
EDGAR on March 2, 1994 (File No. 33-42093).)
(e) Amended and Restated Distribution Agreement with respect to Class B
shares between the Registrant and Prudential Securities Incorporated.
(Incorporated by reference to Exhibit 6(e) to Post-Effective Amendment
No. 4 to the Registration Statement on form N-1A filed via EDGAR on March
2, 1994 (File No. 33-42093).)
(f) Form of Distribution Agreement with respect to Class A shares between
the Registrant and Prudential Mutual Fund Distributors.*
(g) Form of Distribution Agreement with respect to Class B shares between
the Registrant and Prudential Securities Incorporated.*
(h) Form of Distribution Agreement with respect to Class C shares
between the Registrant and Prudential Securities Incorporated.*
7. Not Applicable.
8. (a) Custodian Contract between the Registrant and State Street Bank and
Trust Company. (Incorporated by reference to Exhibit 9 to Registration
Statement on Form N-2, File No. 2-82976.)
(b) Custodian Contract between the Registrant and State Street Bank and
Trust Company. (Incorporated by reference to Exhibit 8(b) to Registration
Statement on Form N-1A, File No. 33-42093, filed on August 13, 1991.)
9. (a) Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. (Incorporated by reference to
Exhibit 10(a) of Amendment No. 2 to Registration Statement on Form N-2,
File No. 2-82976.)
(b) Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. (Incorporated by reference to
Exhibit 9(b) to Registration Statement on Form N-1A, File No. 33-42093,
filed on August 13, 1991.)
10. Opinion of Shereff, Friedman, Hoffman & Goodman. (Incorporated by
reference to Exhibit 10 to Post-Effective Amendment No. 4 to the
Registration Statement on form N-1A filed via EDGAR on March 2, 1994
(File No. 33-42093).)
11. Consent of Independent Accountants.*
12. Not Applicable.
13. Subscription Agreement between the Registrant and Prudential Mutual Fund
Management, Inc. (Incorporated by reference to Exhibit 14 to
Pre-Effective Amendment No. 2 to Registration Statement on Form N-2, File
No. 2-82976.)
14. Not Applicable.
15. (a) Plan of Distribution pursuant to Rule 12b-1 for Class A shares.
(Incorporated by reference to Exhibit 15 to Registration Statement on
Form N-1A, File No. 33-42093, filed on August 13, 1991.)
(b) Form of Plan of Distribution pursuant to Rule 12b-1 for Class B
shares. (Incorporated by reference to Exhibit 15(b) to Post-Effective
Amendment No. 1 to Registration Statement on Form N-1A, File No.
33-42093.)
(c) Distribution and Service Plan with respect to Class A shares between
the Registrant and Prudential Mutual Fund Distributors, Inc.
(Incorporated by reference to Exhibit 15(c) to Post-Effective Amendment
No. 4 to the Registration Statement on form N-1A filed via EDGAR on March
2, 1994 (File No. 33-42093).)
(d) Distribution and Service Plan with respect to Class B shares between
the Registrant and Prudential Securities Incorporated. (Incorporated by
reference to Exhibit 15(d) to Post-Effective Amendment No. 4 to the
Registration Statement on form N-1A filed via EDGAR on March 2, 1994
(File No. 33-42093).)
(e) Form of Distribution and Service Plan for Class A shares.*
(f) Form of Distribution and Service Plan for Class B shares.*
(g) Form of Distribution and Service Plan for Class C shares.*
16. (a) Schedule of Computation of Performance Quotations. (Incorporated by
reference to Exhibit 16 to Post-Effective Amendment No. 1 to Registration
Statement on Form N-1A File No. 33-42093.)
(b) Schedule of Calculation of Aggregate Total Return for Class A and
Class B shares. (Incorporated by reference to Exhibit 16(b) to
Post-Effective Amendment No. 4 to the Registration Statement on form N-1A
filed via EDGAR on March 2, 1994 (File No. 33-42093).)
------------
*Filed herewith.
C-2
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of March 31,1994 there were 21,297,444 record holders of Class A and
3,751,882 record holders of Class B shares of common stock, $.001 par value
per share, of the Registrant.
Item 27. Indemnification
As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940 (the 1940 Act) and pursuant to Article VII of the Fund's By-Laws (Exhibit
2 to the Registration Statement), officers, directors, employees and agents of
the Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of each Distribution Agreement (Exhibits 6(a)
and (b) to the Registration Statement), each Distributor of the Registrant may
be indemnified against liabilities which it may incur, except liabilities
arising from bad faith, gross negligence, willful misfeasance or reckless
disregard of duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (Securities Act) may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1940 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed
by the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers
and directors against liabilities, and certain costs of defending claims
against such officers and directors, to the extent such officers and directors
are not found to have committed conduct constituting willful misfeasance, bad
faith, gross negligence or reckless disregard in the performance of their
duties. The insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain
circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from
reckless disregard by them of their respective obligations and duties under
the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner
consistent with Release No. 11330 of the Securities and Exchange Commission
under the 1940 Act so long as the interpretation of Sections 17(h) and 17(i)
of such Act remain in effect and are consistently applied.
Item 28. Business and other Connections of Investment Adviser
(a) Prudential Mutual Fund Management, Inc.
See "How the Fund is Managed" in the Prospectus constituting Part A of
this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed on October 13, 1993).
C-3
<PAGE>
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>
<S> <C> <C>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ----------------------
(a) Prudential Mutual
Fund Management, Inc.
Brendan D. Boyle Executive Vice President Executive Vice President and
and Director of Marketing Director of Marketing, PMF
John D. Brookmeyer, Jr. Director Senior Vice President, The
Two Gateway Center Prudential Insurance Company of
Newark, NJ 07102 America (Prudential)
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
Raritan Plaza One Chief Operating Officer Operating Officer and Director, PMF;
Edison, NJ 08847 and Director Chairman, Chief Operating Officer
and Director, PMF
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior
Vice President, Prudential
Securities
Frank W. Giordano Executive Vice Executive Vice President, General
President, General Counsel and Secretary, PMF; Senior
Counsel and Secretary Vice President, Prudential
Securities
Robert F. Gunia Executive Vice Executive Vice President, Chief
President, Chief Financial and Administrative
Financial and Administrative Officer, Treasurer and Director,
Officer, Treasurer, and PMF; Senior Vice President,
Director Prudential Securities
Eugene B. Heimberg Director Senior Vice President, Prudential
Prudential Plaza
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)
Richard A. Redeker President, Chief President, Chief Executive Officer
Executive Officer and and Director, PMF; Executive Vice
Director President, Director and Member of
Operating Committee, Prudential
Securities; Director, PSG
S. Jane Rose Senior Vice President, Senior Vice President and Senior
Senior Counsel Counsel, PMF; Senior Vice President
and Assistant and Senior Counsel, Prudential
Secretary Securities
Donald G. Southwell Director Senior Vice President, Prudential;
213 Washington Street Director, PSG
Newark, NJ 07102
</TABLE>
C-4
<PAGE>
(b) Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Subadvisor" in the Prospectus constituting
Part A of this Registration Statement and "Subadvisor" 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>
<S> <C> <C>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
Martin A. Berkowitz Senior Vice President, Chief Senior Vice President and Chief Financial
Financial Officer and Officer and Compliance Officer, PIC; Vice
Compliance Officer President, Prudential
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior
Two Gateway Center Vice President, PIC
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President, Prudential; Senior
Two Gateway Center Vice President, PIC
Newark, NJ 07102
Eugene B. Heimberg President, Director and Chief Senior Vice President, Prudential;
Investment Officer President Director and Chief Investment
Officer, PIC
Garnett L. Keith, Jr. President and Director Vice Chairman and Director, Prudential
Harry E. Knapp, Jr. Vice President Vice President, Prudential; Vice
Four Gateway Center President, PIC
Newark, NJ 07102
William P. Link Senior Vice President Executive Vice President, Prudential;
Four Gateway Center Senior Vice President, PIC
Newark, NJ 07102
Robert E. Riley Executive Vice President Executive Vice President, Prudential;
800 Boylston Avenue Executive Vice President, PIC; Director,
Boston, MA 02199 PSG
James W. Stevens Executive Vice President Executive Vice President, Prudential;
Four Gateway Center Executive Vice President, PIC; Director,
Newark, NJ 07102 PSG
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 President Vice President, Prudential; Executive
Vice President, PIC
</TABLE>
C-5
<PAGE>
Item 29. Principal Underwriters
(a)(i) Prudential Securities Incorporated
Prudential Securities Incorporated 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., BlackRock Government Income Trust, Prudential California Municipal Fund
(California Series), Prudential Equity Fund, Inc., Prudential Equity Income
Fund, Prudential FlexiFund, Prudential Global Fund, Inc., Prudential-Bache
Global Genesis Fund, Inc. (d/b/a Prudential Global Genesis Fund),
Prudential-Bache Global Natural Resources Fund, Inc. (d/b/a Prudential Global
Natural Resources Fund), Prudential-Bache GNMA Fund, Inc. (d/b/a Prudential
GNMA Fund), Prudential-Bache Government Plus Fund, Inc. (d/b/a Prudential
Government Plus Fund), Prudential Growth Fund, Inc., Prudential-Bache Growth
Opportunity Fund, Inc. (d/b/a Prudential Growth Opportunity Fund),
Prudential-Bache High Yield Fund, Inc. (d/b/a Prudential High Yield Fund),
Prudential IncomeVertible (R) Plus 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-Bache National
Municipals Fund, Inc. (d/b/a Prudential National Municipals Fund), Prudential
Pacific Growth Fund, Inc., Prudential Short-Term Global Income Fund, Inc.,
Prudential Structured Maturity Fund, Inc., Prudential U.S. Government Fund,
Prudential-Bache Utility Fund, Inc. (d/b/a Prudential Utility Fund), The
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 the 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, New Jersey
Money Market Series and Florida Series), Prudential Institutional Liquidity
Portfolio, Inc., Prudential-Bache Special Money Market Fund, Inc. (d/b/a
Prudential Special Money Market Fund), Prudential-Bache Structured Maturity
Fund, Inc. (d/b/a Prudential Structured Maturity Fund), Prudential-Bache
Tax-Free Money Fund, Inc. (d/b/a Prudential Tax-Free Money Fund), and for
Class A shares of Prudential Adjustable Rate Securities Fund, Inc., The
BlackRock Government Income Trust, Prudential California Municipal Fund
(California Series), Prudential Equity Fund, Inc., Prudential Equity Income
Fund, Prudential FlexiFund, Prudential Global Fund, Inc., Prudential-Bache
Global Genesis Fund, Inc. (d/b/a Prudential Global Genesis Fund),
Prudential-Bache Global Natural Resources Fund, Inc. (d/b/a Prudential Global
Natural Resources Fund), Prudential-Bache GNMA Fund, Inc. (d/b/a Prudential
GNMA Fund), Prudential-Bache Government Plus Fund, Inc. (d/b/a Prudential
Government Plus Fund), Prudential Growth Fund, Inc., Prudential-Bache Growth
Opportunity Fund, Inc. (d/b/a Prudential Growth Opportunity Fund),
Prudential-Bache High Yield Fund, Inc. (d/b/a Prudential High Yield Fund),
Prudential IncomeVertible (R) Fund, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond
Fund, Prudential Municipal Series Fund (Arizona Series, Georgia Series,
Maryland Series, Massachusetts Series, Michigan Series, Minnesota Series, New
Jersey Series, North Carolina Series, Ohio Series and Pennsylvania Series),
Prudential-Bache National Municipals Fund, Inc. (d/b/a Prudential National
Municipals Fund), Prudential Pacific Growth Fund, Inc., Prudential Short-Term
Global Income Fund, Inc., Prudential U.S. Government Fund and Prudential-Bache
Utility Fund, Inc. (d/b/a Prudential Utility Fund), Global Utility Fund, Inc,.
and 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 is set forth below.
<TABLE>
<S> <C> <C>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- --------------
Alan D. Hogan . . . Executive Vice President, Chief Administrative
Officer and Director None
Howard A. Knight . Executive Vice President, Director, Corporate
Strategy and New Business Development None
George A. Murray . Executive Vice President, Director None
John P. Murray . . Executive Vice President and Director of Risk
Management None
Leland B. Paton . . Executive Vice President and Director None
Richard A. Redeker Director Director
Hardwick Simmons . Chief Executive Officer, President and Director None
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>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- --------------
Joanne Accurso-Soto Vice President None
Dennis Annarumma . Vice President, Assistant Treasurer and
Assistant Comptroller None
Phyllis J. Berman . Vice President None
Fred A. Fiandaca . President, Chief Executive Officer and Director None
Raritan Plaza One
Edison, NJ 08847
Stephen P. Fisher . Vice President None
Frank W. Giordano . Executive Vice President, General Counsel,
Secretary and Director None
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.
</FN>
</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, One Heritage Drive, North
Quincy, Massachusetts 02171, The Prudential Investment Corporation, Prudential
Plaza, 745 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 Three Gateway Center,
documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport
Plaza and the remaining accounts, books and other documents required by such
other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services, Inc.
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
Not Applicable.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on the 9th day of May, 1994.
PRUDENTIAL INTERMEDIATE GLOBAL INCOME
FUND, INC.
/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.
Signature Title Date
-------- ----- ----
/s/ Lawrence C. McQuade President and Director May 9, 1994
- ---------------------------
LAWRENCE C. MCQUADE
/s/ John C. Davis Director May 9, 1994
- ---------------------------
JOHN C. DAVIS
/s/ Thomas A. Owens, Jr. Director May 9, 1994
- ---------------------------
THOMAS A. OWENS, JR.
/s/ Richard A. Redeker Director May 9, 1994
- ---------------------------
RICHARD A. REDEKER
/s/ Gerald A. Stahl Director May 9, 1994
- ---------------------------
GERALD A. STAHL
/s/ Robert J. Schultz Director May 9, 1994
- ---------------------------
ROBERT J. SCHULTZ
/s/ Stephen Stoneburn Director May 9, 1994
- ---------------------------
STEPHEN STONEBURN
/s/ Robert H. Wellington Director May 9, 1994
- ---------------------------
ROBERT H. WELLINGTON
/s/ Susan C. Cote Principal Financial and May 9, 1994
- --------------------------- Accounting Officer
SUSAN C. COTE
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit No. Description Page
- ----------- ----------- ------------
1. (a) Amended and Restated Articles of Incorporation of
Registrant. (Incorporated by reference to Exhibit 1(b)
to Registration Statement on Form N-1A, File No.
33-42093, filed on August 13, 1991.)
(b) Form of Amendment to Articles of Incoporation.*
2. Amended By-Laws of Registrant. (Incorporated by
reference to Exhibit 2 (b) to Registration Statement on
Form N-1A, File No. 33-42093, filed on August 13, 1991.)
3. Not Applicable.
4. (a) Specimen stock certificates for Class A and Class B
shares. (Incorporated by reference to Exhibit 4 to
Post-Effective Amendment No. 1 to Registration Statement
on Form N-1A, File No. 33-42093.)
(b) Instruments Defining Rights of Shareholders.
(Incorporated by reference to Exhibit 4(b) to
Post-Effective Amendment No. 4 to the Registration
Statement on form N-1A filed via EDGAR on March 2, 1994
(File No. 33-42093).)
5. (a) Management Agreement between the Registrant and
Prudential Mutual Fund Management, Inc. (Incorporated by
reference to Exhibit 6(a) of Amendment No. 1 to
Registration Statement on Form N-2, File No. 2-82976.)
(b) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment
Corporation. (Incorporated by reference to Exhibit 6(b)
of Amendment No. 1 to Registration Statement on Form
N-2, File No. 2-82976.)
(c) Management Agreement between Registrant and
Prudential Mutual Fund Management, Inc. (Incorporated by
reference to Exhibit 5(c) to Registration Statement on
Form N-1A, File No. 33-42093, filed on August 13, 1991.)
(d) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment
Corporation. (Incorporated by reference to Exhibit 5(d)
to Registration Statement on Form N-1A, File No.
33-42093, filed on August 13, 1991.)
6. (a) Distribution Agreement between the Registrant and
Prudential Mutual Fund Distributors, Inc. for Class A
shares. (Incorporated by reference to Exhibit 6(a) to
Registration Statement on Form N-1A, File No. 33-42093,
filed on August 13, 1991.)
(b) Distribution Agreement between the Registrant and
Prudential Securities Incorporated for Class B shares.
(Incorporated by reference to Exhibit 6(b) to
Post-Effective Amendment No. 1 to Registration Statement
on Form N-1A, File No. 33-42093.)
(c) Selected Dealer Agreement. (Incorporated by
reference to Exhibit 6(b) to Registration Statement on
Form N-1A, File No. 33-42093, filed on August 13, 1991.)
(d) Amended and Restated Distribution Agreement with
respect to Class A shares between the Registrant and
Prudential Mutual Fund Distributors, Inc. (Incorporated
by reference to Exhibit 6(d) to Post-Effective Amendment
No. 4 to the Registration Statement on form N-1A filed
via EDGAR on March 2, 1994 (File No. 33-42093).)
(e) Amended and Restated Distribution Agreement with
respect to Class B shares between the Registrant and
Prudential Securities Incorporated. (Incorporated by
reference to Exhibit 6(e) to Post-Effective Amendment
No. 4 to the Registration Statement on form N-1A filed
via EDGAR on March 2, 1994 (File No. 33-42093).)
(f) Form of Distribution Agreement with respect to Class
A shares between the Registrant and Prudential Mutual
Fund Distributors.*
(g) Form of Distribution Agreement with respect to Class
B shares between the Registrant and Prudential
Securities Incorporated.*
(h) Form of Distribution Agreement with respect to
Class C shares between the Registrant and Prudential
Securities Incorporated.*
7. Not Applicable.
8. (a) Custodian Contract between the Registrant and State
Street Bank and Trust Company. (Incorporated by
reference to Exhibit 9 to Registration Statement on Form
N-2, File No. 2-82976.)
------------
*Filed herewith.
<PAGE>
Sequentially
Numbered
Exhibit No. Description Page
- ----------- ----------- ------------
(b) Custodian Contract between the Registrant and State
Street Bank and Trust Company. (Incorporated by
reference to Exhibit 8(b) to Registration Statement on
Form N-1A, File No. 33-42093, filed on August 13, 1991.)
9. (a) Transfer Agency and Service Agreement between the
Registrant and Prudential Mutual Fund Services, Inc.
(Incorporated by reference to Exhibit 10(a) of Amendment
No. 2 to Registration Statement on Form N-2, File No.
2-82976.)
(b) Transfer Agency and Service Agreement between the
Registrant and Prudential Mutual Fund Services, Inc.
(Incorporated by reference to Exhibit 9(b) to
Registration Statement on Form N-1A, File No. 33-42093,
filed on August 13, 1991.)
10. Opinion of Shereff, Friedman, Hoffman & Goodman.
(Incorporated by reference to Exhibit 10 to
Post-Effective Amendment No. 4 to the Registration
Statement on form N-1A filed via EDGAR on March 2, 1994
(File No. 33-42093).)
11. Consent of Independent Accountants.*
12. Not Applicable.
13. Subscription Agreement between the Registrant and
Prudential Mutual Fund Management, Inc. (Incorporated by
reference to Exhibit 14 to Pre-Effective Amendment No. 2
to Registration Statement on Form N-2, File No.
2-82976.)
14. Not Applicable.
15. (a) Plan of Distribution pursuant to Rule 12b-1 for
Class A shares. (Incorporated by reference to Exhibit 15
to Registration Statement on Form N-1A, File No.
33-42093, filed on August 13, 1991.)
(b) Form of Plan of Distribution pursuant to Rule 12b-1
for Class B shares. (Incorporated by reference to
Exhibit 15(b) to Post-Effective Amendment No. 1 to
Registration Statement on Form N-1A, File No. 33-42093.)
(c) Distribution and Service Plan with respect to Class
A shares between the Registrant and Prudential Mutual
Fund Distributors, Inc. (Incorporated by reference to
Exhibit 15(c) to Post-Effective Amendment No. 4 to the
Registration Statement on form N-1A filed via EDGAR on
March 2, 1994 (File No. 33-42093).)
(d) Distribution and Service Plan with respect to Class
B shares between the Registrant and Prudential
Securities Incorporated. (Incorporated by reference to
Exhibit 15(d) to Post-Effective Amendment No. 4 to the
Registration Statement on form N-1A filed via EDGAR on
March 2, 1994 (File No. 33-42093).)
(e) Form of Distribution and Service Plan for Class A
shares.*
(f) Form of Distribution and Service Plan for Class B
shares.*
(g) Form of Distribution and Service Plan for Class C
shares.*
16. (a) Schedule of Computation of Performance Quotations.
(Incorporated by reference to Exhibit 16 to
Post-Effective Amendment No. 1 to Registration Statement
on Form N-1A File No. 33-42093.)
(b) Schedule of Calculation of Aggregate Total Return
for Class A and Class B shares. (Incorporated by
reference to Exhibit 16(b) to Post-Effective Amendment
No. 4 to the Registration Statement on form N-1A filed
via EDGAR on March 2, 1994 (File No. 33-42093).)
----------
*Filed herewith.
EXHIBIT 1(b)
FORM OF AMENDMENT TO ARTICLES OF INCORPORATION
Article IV, Section 1 of the Fund's Articles of Incorporation are proposed
to be amended and restated as follows:
ARTICLE IV
COMMON STOCK
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is 2,000,000,000 shares of the par
value of $.001 per share and of the aggregate par value of $2,000,000 to be
divided initially into three classes, consisting of 666,666,666 shares of Class
A Common Stock, 666,666,666 shares of Class B Common Stock and 666,666,668
shares of Class C Common Stock.
(a) Each share of Class A Common Stock, Class B Common Stock and Class
C Common Stock of the Corporation shall represent the same interest in the
Corporation and have identical voting, dividend, liquidation and other
rights except that (i) Expenses related to the distribution of each class
of shares shall be borne solely by such class; (ii) The bearing of such
expenses solely by shares of each class shall be appropriately reflected
(in the manner determined by the Board of Directors) in the net asset
value, dividends, distribution and liquidation rights of the shares of such
class; (iii) The Class A Common Stock shall be subject to a front-end sales
load and a Rule 12b-1 distribution fee as determined by the Board of
Directors from time to time; (iv) The Class B Common Stock shall be subject
to a contingent deferred sales charge and a Rule 12b-1 distribution fee as
determined by the Board of Directors from time to time; and (v) The Class C
Common Stock shall not be subject to either an initial or a contingent
deferred sales charge but shall be subject to a Rule 12b-1 distribution fee
as determined by the Board of Directors from time to time. All shares of
each particular class shall represent an equal proportionate interest in
that class, and each share of any particular class shall be equal to each
other share of that class.
(b) Each share of the Class B Common Stock of the Corporation shall be
converted automatically, and without any action or choice on the part of
the holder thereof, into shares (including fractions thereof) of the Class
A Common Stock of the Corporation (computed in the manner hereinafter
described), at the applicable net asset value of each Class, at the time of
the calculation of the net asset value of such Class B Common Stock at such
times, which may vary between shares originally issued for cash and shares
purchased through the automatic reinvestment of dividends and distributions
with respect to Class B shares (each, a "Conversion Date"), determined by
the Board of Directors in accordance with applicable laws, rules,
regulations, and interpretations of the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc. and pursuant to
such procedures as may be established from time to
B-1
<PAGE>
time by the Board of Directors and disclosed in the Corporation's then
current prospectus for such Class A and Class B Common Stock.
(c) The number of shares of the Class A Common Stock of the
Corporation into which a share of the Class B Common Stock is converted
pursuant to Paragraph (l)(b) hereof shall equal the number (including for
this purpose fractions of a share) obtained by dividing the net asset value
per share of the Class B Common Stock for purposes of sales and redemptions
thereof at the time of the calculation of the net asset value on the
Conversion Date by the net asset value per share of the Class A Common
Stock for purposes of sales and redemptions thereof at the time of the
calculation of the net asset value on the Conversion Date.
(d) On the Conversion Date, the shares of the Class B Common Stock of
the Corporation converted into shares of the Class A Common Stock will
cease to accrue dividends and will no longer be outstanding and the rights
of the holders thereof will cease (except the right to receive declared but
unpaid dividends to the Conversion Date).
(e) The Board of Directors shall have full power and authority to
adopt such other terms and conditions concerning the conversion of shares
of the Class B Common Stock to shares of the Class A Common Stock as they
deem appropriate; provided such terms and conditions are not inconsistent
with the terms contained in this Section 1 and subject to any restrictions
or requirements under the Investment Company Act of 1940 and the rules,
regulations and interpretations thereof promulgated or issued by the
Securities and Exchange Commission, any conditions or limitations contained
in an order issued by the Securities and Exchange Commission applicable to
the Corporation, or any restrictions or requirements under the Internal
Revenue Code of 1986, as amended, and the rules, regulations and
interpretations promulgated or issued thereunder.
B-2
EXH 6(f)
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.
<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,
<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.
<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
<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,
<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
<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
<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
<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.
[mc]cla-comp.agr
EXH 6(g)
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.
<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
<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,
<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.
<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
<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
<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
<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
<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
<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.
[mc]clb-comp.agr
EXH 6(h)
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.
<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
<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,
<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.
<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
<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
<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
<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
<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
<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.
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
February 11, 1994, relating to the financial statements and financial high-
lights of Prudential Intermediate Global Income Fund, Inc. which appears in
such Statement of Additional Information, and to the incorporation by refer-
ence of our report into the Prospectus which constitutes part of this Regis-
tration Statement. We also consent to the reference to us under the heading
"Custodian, Transfer and Dividend Disbursing Agent and Independent Accoun-
tants" in such Statement of Additional Information and to the reference to us
under the heading "Financial Highlights" in such Prospectus.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
May 6, 1994
EXH 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."
<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
<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.
<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
<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.
<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:
[mc]cla-comp.pln
EXH 15(f)
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."
<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
<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
<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
<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
<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:
EXH 15(g)
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."
<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
<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
<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
<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
<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:
