As filed with the Securities and Exchange Commission on February 28, 1997
Securities Act File No. 33-42093
Investment Company Act File No. 811-5510
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 14 [X]
(Check appropriate box or boxes)
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE, NEWARK, NEW JERSEY 07102
(Address of Principal Executive Offices) (Zip Code)
-----------------
Registrant's Telephone Number, Including Area Code: (201) 367-7530
S. Jane Rose, Esq.
Gateway Center Three, Newark, New Jersey 07102
(Name and Address of Agent for Service of Process)
Approximate date of proposed public offering:
As soon as practicable after the effective date of the Registration Statement.
It is proposed that this filing will become effective
(check appropriate box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on [Date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER SHARE* OFFERING PRICE FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share 2,504,395 $8.57 N/A $0
================================================================================================================
</TABLE>
* The total number of shares redeemed during the fiscal year ended December 31,
1996 amounted to 5,152,285 shares. Of this number, no shares have been used
for reduction pursuant to paragraph (a) of Rule 24e-2 in all previous filings
of post-effective amendments during the current year and 2,647,890 shares have
been used for reduction pursuant to paragraph (c) of Rule 24f-2 in all
previous filings during the current year. 2,504,395 ($20,647,550) of the
redeemed shares for the fiscal year ended December 31, 1996 are being used for
the reductions in the post-effective amendment being filed herein.
-----------------
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 fiscal year ended December 31, 1996 was
filed on or about February 27, 1997.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------- --------
<S> <C>
Part A
Item 1. Cover Page ................................. Cover Page
Item 2. Synopsis ................................... Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information ............ Fund Expenses; Financial Highlights;
How the Fund Calculates Performance
Item 4. General Description of Registrant .......... Cover Page; Fund Highlights;How the Fund Invests;
General Information
Item 5. Management of the Fund ..................... Financial Highlights; How the Fund is Managed
Item 5A. Management's Discussion of Fund Performance Financial Highlights
Item 6. Capital Stock and Other Securities ......... Taxes, Dividends, and Distributions; General Information
Item 7. Purchase of Securities Being Offered ....... Shareholder Guide; How the Fund Values its Shares
Item 8. Redemption or Repurchase ................... Shareholder Guide; How the Fund Values its Shares;
General Information
Item 9. Pending Legal Proceedings .................. Not Applicable
Part B
Item 10. Cover Page ................................. Cover Page
Item 11. Table of Contents .......................... Table of Contents
Item 12. General Information and History ............ Not Applicable
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
Part C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Post-Effective Amendment to the
Registration Statement.
</TABLE>
<PAGE>
Prudential Intermediate Global
Income Fund, Inc.
- --------------------------------------------------------------------------------
Prospectus dated February 28, 1997
- --------------------------------------------------------------------------------
Prudential Intermediate Global Income Fund, Inc. (the Fund) is an open-end,
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 certain derivatives,
including put and call options on securities and foreign currencies and engage
in transactions involving futures contracts and options on such futures to hedge
its portfolio and to attempt to enhance return. 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. There can be no assurance that the Fund's investment objective
will be achieved. 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."
The Fund may engage in short-term trading and enter into bank borrowings. 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 Gateway Center Three, Newark, New Jersey 07102,
and its telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated February 28, 1997, 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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
- --------------------------------------------------------------------------------
What Is Prudential 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. There can be no
assurance that the Fund's objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies" at page 10.
What Are the Fund's Risk Factors and Special Characteristics?
Investing in securities issued by foreign governments involves
considerations and risks not typically associated with investing in obligations
issued by the U.S. Government and domestic corporations. See "How the Fund
Invests--Risk Factors--Risk Factors on Foreign Investments" at page 14. The Fund
may also engage in various hedging and return enhancement strategies, including
derivatives, which may be considered speculative and may result in higher risks
and costs to the Fund. See "How the Fund Invests--Hedging and Return Enhancement
Strategies--Risks of Hedging and Return Enhancement Strategies" at page 20. 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 NRSRO, or
if unrated, deemed to be of equivalent quality by the investment adviser.
Lower-rated securities are subject to a greater risk of loss of principal and
interest. See "How the Fund Invests--Risk Factors--Medium and Lower-Rated
Securities" at page 15. The amount of income available for distribution to
shareholders will be affected by any foreign currency gains or losses generated
by the Fund upon the disposition of debt securities denominated in a foreign
currency and by certain hedging activities of the Fund. Gains and losses on
security and currency transactions cannot be predicted. This fact coupled with
the different tax and accounting treatment of certain currency gains and losses
increases the likelihood of distributions in whole or in part constituting a
return of capital to shareholders. See "Taxes, Dividends and Distributions" at
page 25. As with an investment in any mutual fund, an investment in this Fund
can decrease in value and you can lose money.
Who Manages the Fund?
Prudential Mutual Fund Management LLC (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 January 31, 1997, PMF served as
manager or administrator to 62 investment companies, including 40 mutual funds,
with aggregate assets of approximately $55.8 billion. The Prudential Investment
Corporation, which does business under the name of Prudential Investments (PI,
the Subadviser or the investment adviser), 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 21.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
Who Distributes the Fund's 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 A, Class B, Class C and Class Z shares and is
paid an annual distribution and service fee which is currently being charged at
a rate of .15 of 1% of the average daily net assets of the Class A shares, an
annual distribution and service fee at the rate of .75 of 1% of the average
daily net assets of the Class B shares and an annual distribution and service
fee which is currently being charged at the rate of .75 of 1% of the average
daily net assets of the Class C shares. Prudential Securities incurs the expense
of distributing the Fund's Class Z shares under a Distribution Agreement with
the Fund, none of which is reimbursed or paid for by the Fund. See "How the
Fund is Managed--Distributor" at page 22.
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 Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. There is no minimum investment requirement for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings Accumulation
Plan, the minimum initial and subsequent investment is $50. See "Shareholder
Guide--How to Buy Shares of the Fund" at page 28 and "Shareholder
Guide--Shareholder Services" at page 39.
How Do I Purchase Shares?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent) at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at net asset value without any sales charge. See "How
the Fund Values its Shares" at page 24 and "Shareholder Guide--How to Buy Shares
of the Fund" at page 28.
What Are My Purchase Alternatives?
The Fund offers four classes of shares:
o Class A Shares: Sold with an initial sales charge of up to 3% of the
offering price.
o 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 distribution-related
expenses) approximately five years after purchase.
o 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.
o Class Z Shares: Sold without either an initial or contingent
deferred sales charge to a limited group of
investors. Class Z shares are not subject to any
ongoing service or distribution-related expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 29.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
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 33.
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. The amount of income available for
distribution to shareholders will be affected by any foreign currency gains or
losses generated by the Fund upon the disposition of debt securities denominated
in a foreign currency and by certain hedging activities of the Fund. See "Taxes,
Dividends and Distributions" at page 25.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
FUND EXPENSES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares Class Z Shares
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses+
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) ................. 3.0% None None None
Maximum Deferred Sales Load (as a
percentage of original purchase
price or redemption price,
whichever is lower) ............. None 3% during the first year, 1% on None
decreasing by 1% annually redemptions
to 1% in the third year and made within one
1% in the fourth year and year of purchase
0% in the fifth year*
Maximum Sales Load Imposed on
Reinvested Dividends ............ None None None None
Redemption Fees .................. None None None None
Exchange Fee...................... None None None None
Annual Fund Operating Expenses Class A Shares Class B Shares Class C Shares Class Z Shares
(as a percentage of average -------------- -------------- -------------- --------------
net assets)
Management Fees .................. .75% .75% .75% .75%
12b-1 Fees (After Reduction) ..... .15%++ .75% .75%++ None
Other Expenses ................... .50% .50% .50% .50%
Total Fund Operating Expenses
(After Reduction) ............... 1.40% 2.00% 2.00% 1.25%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------
Example 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
Class A ............................................... $44 $73 $104 $193
Class B ............................................... $50 $73 $108 $196
Class C ............................................... $30 $63 $108 $233
Class Z** ............................................. $13 $40 $ 69 $151
You would pay the following expenses on the same investment,
assuming no redemption:
Class A ............................................... $44 $73 $104 $193
Class B ............................................... $20 $63 $108 $196
Class C ............................................... $20 $63 $108 $233
Class Z** ............................................. $13 $40 $ 69 $151
</TABLE>
The above example is based on restated data for the Fund's fiscal year ended
December 31, 1996. 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" include 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 Z
shares had been in existence throughout the fiscal year ended December 31,
1996.
+ 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 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 provide
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 fee 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, 1997. Total Fund
Operating Expenses without such limitation would be 1.55% for Class A
shares and 2.25% for Class C shares. See "How the Fund is
Managed--Distributor."
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
(Class A Shares)
- --------------------------------------------------------------------------------
The following financial highlights with respect to each of the five
years in the period ended December 31, 1996, have been audited by Price
Waterhouse LLP, 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
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 the periods indicated. The information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Months May 26,
Year Ended December 31, Ended Year Ended February 28/29, 1988(b) to
-------------------------------- December 31, --------------------------- February 28,
1996 1995 1994 1993 1992(e) 1992(f) 1991(f) 1990(f) 1989(f)
---- ---- ---- ---- ----------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period ....... $ 8.30 $ 7.32 $ 8.43 $ 7.77 $ 8.39 $ 8.79 $ 8.56 $ 8.93 $ 9.30
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income ....... .56 .52(d) .50 .59 .61 .71 .74 .73 .59
Net realized and unrealized
gain (loss) on investment
and foreign currency
transactions .............. .33 1.20(d) (1.09) .63 (.36) (.36) .35 (.10) (.26)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations .............. .89 1.72 (.59) 1.22 .25 .35 1.09 .63 .33
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions
Dividends from net investment
income .................... (.56) (.52)(d) (.29) (.48) (.59) (.71) (.74) (.73) (.59)
Distributions in excess of net
investment income ......... (.29) (.22)(d) -- -- -- -- -- -- --
Distributions from capital gains -- -- (.01) (.08) (.28) -- -- -- --
Tax return of capital
distributions ............. -- -- (.22) -- -- (.04) (.12) (.27) (.09)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions ....... (.85) (.74) (.52) (.56) (.87) (.75) (.86) (1.00) (.68)
Capital charge resulting from
the issuance of Fund shares -- -- -- -- -- -- -- -- (.02)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value,
end of period ............. $ 8.34 $ 8.30 $ 7.32 $ 8.43 $ 7.77 $ 8.39 $ 8.79 $ 8.56 $ 8.93
======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN(c): ............ 11.13% 24.01% (7.02)% 16.12% 3.09% 4.24% 13.49% 7.20% 3.41%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000) .............. $165,829 $181,985 $207,153 $320,406 $378,865 $271,714 $449,178 $437,558 $456,224
Average net assets (000) .... $169,219 $200,759 $262,882 $355,018 $331,339 $399,714 $437,752 $455,386 $463,039
Ratios to average net assets:
Expenses, including
distribution fees ....... 1.40% 1.40% 1.46% 1.41% 1.30%(a) 1.20% 1.04% 1.07% .97%(a)
Expenses, excluding
distribution fees ....... 1.25% 1.25% 1.31% 1.26% 1.15%(a) 1.15% 1.04% 1.07% .97%(a)
Net investment income ..... 6.55% 6.09% 6.04% 7.42% 9.08%(a) 8.43% 8.61% 8.16% 8.54%(a)
Portfolio turnover rate ..... 45% 220% 554% 361% 201% 170% 250% 231% 358%
Total debt outstanding at
end of period (000) ....... -- -- -- -- -- -- $ 20,240 $ 27,600 $ 34,960
Asset coverage(g) ........... -- -- -- -- -- -- $ 23,193 $ 16,854 $ 14,050
</TABLE>
- ----------
(a) Annualized.
(b) Commencement of investment operations.
(c) 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.
(d) Calculated based upon average shares outstanding during the fiscal year.
(e) The Fund changed its fiscal year end to December 31.
(f) 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.
(g) Per $1,000 of debt outstanding.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
(Class B Shares)
- --------------------------------------------------------------------------------
The following financial highlights have been audited by Price Waterhouse
LLP, 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
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. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Months January 15,
Year Ended December 31, Ended 1992(b) Through
------------------------------------------- December 31, February 29,
1996 1995 1994 1993 1992(e) 1992
---- ---- ---- ---- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $ 8.31 $ 7.33 $ 8.44 $ 7.79 $ 8.40 $ 8.43
------ ------ ------- ------- ------- -------
Income from investment operations
Net investment income ................... .53 .47(d) .45 .54 .57 .08
Net realized and unrealized gain (loss) .
on investment and foreign currency
transactions ........................... .30 1.20(d) (1.09) .63 (.35) (.03)
------ ------ ------- ------- ------- -------
Total from investment operations ....... .83 1.67 (.64) 1.17 .22 .05
------ ------ ------- ------- ------- -------
Less distributions
Dividends from net investment income .... (.53) (.47)(d) (.26) (.44) (.55) (.08)
Distributions in excess of net investment
income ................................. (.27) (.22)(d) -- -- -- --
Distributions from capital gains ........ -- -- (.01) (.08) (.28) --
Tax return of capital distributions ..... -- -- (.20) -- -- --
------ ------ ------- ------- ------- -------
Total distributions .................... (.80) (.69) (.47) (.52) (.83) (.08)
------ ------ ------- ------- ------- -------
Net asset value, end of period .......... $ 8.34 $ 8.31 $ 7.33 $ 8.44 $ 7.79 $ 8.40
====== ====== ======= ======= ======= =======
TOTAL RETURN(c): 10.36% 23.25% (7.69)% 15.29% 2.70% 0.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ......... $12,987 $17,317 $22,906 $39,440 $33,500 $ 1,049
Average net assets (000) ................ $15,491 $19,336 $31,835 $36,197 $18,358 $ 456
Ratios to average net assets:
Expenses, including distribution fees .. 2.00% 2.00% 2.07% 2.01% 1.90%(a) 1.03%(a)
Expenses, excluding distribution fees .. 1.25% 1.25% 1.31% 1.26% 1.15%(a) .28%(a)
Net investment income .................. 5.94% 5.49% 5.44% 6.67% 8.54%(a) 9.43%(a)
Portfolio turnover rate ................. 45% 220% 554% 361% 201% 170%
</TABLE>
- ----------
(a) Annualized.
(b) 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."
(c) 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.
(d) Calculated based upon average shares outstanding during the fiscal year.
(e) The Fund changed its fiscal year end to December 31.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
(Class C Shares)
- --------------------------------------------------------------------------------
The following financial highlights have been audited by Price Waterhouse
LLP, 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
financial highlights contain selected data for a Class C share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. The information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 1,
Year Ended December 31, 1994(b) Through
----------------------- December 31,
1996 1995 1994
---- ---- ---------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........................... $8.31 $7.33 $7.69
----- ----- -----
Income from investment operations
Net investment income .......................................... .53 .47(d) .14
Net realized and unrealized gain (loss) on
investment and foreign currency transactions ................. .30 1.20(d) (.32)
----- ----- -----
Total from investment operations .............................. .83 1.67 (.18)
----- ----- -----
Less distributions
Dividends from net investment income ........................... (.53) (.47)(d) (.10)
Distributions in excess of net investment income ............... (.27) (.22)(d) --
Tax return of capital distributions ............................ -- -- (.08)
----- ----- -----
Total distributions ........................................... (.80) (.69) (.18)
----- ----- -----
Net asset value, end of period ................................. $8.34 $8.31 $7.33
===== ===== =====
TOTAL RETURN(c): ............................................... 10.36% 23.25% (2.44)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ................................ $190 $13 $193(e)
Average net assets (000) ....................................... $110 $11 $197(e)
Ratios to average net assets:
Expenses, including distribution fees ......................... 2.00% 2.00% 1.05%(a)
Expenses, excluding distribution fees ......................... 1.25% 1.25% .30%(a)
Net investment income ......................................... 6.02% 5.49% 3.30%(a)
Portfolio turnover rate ........................................ 45% 220% 554%
</TABLE>
- ----------
(a) Annualized.
(b) Commencement of offering of Class C shares.
(c) 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.
(d) Calculated based upon average shares outstanding during the fiscal year.
(e) Figures are actual and not rounded to the nearest thousand.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the indicated periods)
(Class Z Shares)
- --------------------------------------------------------------------------------
The following financial highlights have been audited by Price Waterhouse
LLP, 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
financial highlights contain selected data for a Class Z share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the period indicated. The information is based on data contained in the
financial statements. Further performance information is contained in the annual
report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."
- --------------------------------------------------------------------------------
September 13,
1996(a)
Through
December 31, 1996
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....................... $8.39
-----
Income from investment operations
Net investment income ...................................... .32
Net realized and unrealized gain (loss) on investment
and foreign currency transactions ........................ .12
-----
Total from investment operations .......................... .44
-----
Less distributions
Dividends in excess of net investment income ............... (.32)
Distributions from net realized gains ...................... (.17)
-----
Total distributions ....................................... (.49)
-----
Net asset value, end of period ............................. $8.34
=====
TOTAL RETURN(c): ........................................... 5.21%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ............................ $341
Average net assets (000) ................................... $142
Ratios to average net assets:
Expenses, including distribution fees ..................... 1.11%(b)
Expenses, excluding distribution fees ..................... 1.11%(b)
Net investment income ..................................... 6.94%(b)
Portfolio turnover rate .................................... 45%
- ----------
(a) Commencement of offering of Class Z shares.
(b) Annualized.
(c) 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.
- --------------------------------------------------------------------------------
9
<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). The Fund will
invest primarily in investment grade securities (i.e., those rated in one of the
four highest rating categories by Moody's, Standard & Poor's or another NRSRO),
or in non-rated securities determined by the Fund's investment adviser to be of
equivalent quality. The Fund may 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 comparably rated by another NRSRO, or, if
unrated, deemed to be of equivalent quality by the investment adviser. See "Risk
Factors--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. 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." There is no
assurance that the Fund will achieve its investment objective. As with an
investment in any mutual fund, an investment in this Fund can decrease in value
and you can lose money.
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 be modified by the Board of Directors.
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 return 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 Return Enhancement Strategies." 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 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 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.
10
<PAGE>
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 (FHLMC), 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 U.S.
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 U.S. 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 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
11
<PAGE>
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. Under adverse
market or economic conditions, the secondary market for these securities may not
be as liquid as the market for other mortgage-related securities and it may be
difficult for the investment adviser to sell these securities or the investment
adviser might have to sell these securities at a loss. 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 its total assets in zero
coupon 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 developed countries
and developing or emerging market countries that the investment adviser believes
to be stable. Foreign Government securities may be denominated in U.S. dollars
or in foreign currencies. The Fund's investments may include Foreign Government
securities of the countries named below, among others:
<TABLE>
<CAPTION>
Americas Asia and Pacific Europe
- -------- -------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Argentina Australia New Zealand Austria Ireland Spain
Canada China Pakistan Belgium Israel Sweden
Chile Hong Kong Philippines Czech Republic Italy Switzerland
Colombia India Singapore Denmark The Netherlands Turkey
Mexico Indonesia South Korea Finland Luxembourg United Kingdom
Peru Japan Taiwan France Norway Germany
Uruguay Korea Thailand Greece Poland
Venezuela Malaysia Hungary Portugal
</TABLE>
12
<PAGE>
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
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 rate 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. 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 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.
13
<PAGE>
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.
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. Gains and losses on security and currency transactions cannot be
predicted. This fact coupled with the different tax and accounting treatment of
certain currency gains and losses increases the likelihood of distributions in
whole or in part constituting a return of capital to shareholders.
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 Foreign
Government securities is not generally subject to foreign withholding taxes. See
"Taxes, Dividends and Distributions" in the Statement of Additional Information.
Shareholders should be aware that investing in the fixed-income markets of
emerging market 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.
14
<PAGE>
Medium and Lower-Rated Securities
The Fund may invest in medium grade securities (i.e., rated Baa by Moody's
or BBB by Standard & Poor's or comparably rated by another NRSRO, or if unrated,
deemed to be of equivalent quality by the investment adviser) and up to 10% of
its total assets in lower-rated securities (i.e., rated lower than Baa by
Moody's or lower than BBB by Standard & Poor's or comparably rated by another
NRSRO, or if unrated, deemed to be of equivalent quality by the investment
adviser). However, the Fund will not purchase a security rated lower than B by
Moody's or Standard & Poor's or comparably rated by another NRSRO, or if
unrated, deemed to be of equivalent quality by the investment adviser.
Securities rated Baa by Moody'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, commonly 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 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.
15
<PAGE>
During the year ended December 31, 1996, the monthly dollar weighted average
ratings of the debt obligations held by the Fund expressed as a percentage of
the Fund's total investments were as follows:
Percentage
of Total
Rating Investments
------ -----------
AAA/Aaa = 79.27
AA/Aa = 3.11
A/A = 0.87
BBB/Baa = 8.36
BB/Ba = 6.49
B/B = 0.77
CCC/Caa = --
CC/Ca = --
Unrated = 1.13
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 "Risk Factors--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.
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 below under "Hedging and Return
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
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
16
<PAGE>
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 and multi-class pass-through securities.
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, U.S. Government securities, equity
securities or other liquid, unemcumbered assets 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, equity
securities or other liquid, unencumbered assets having a value equal to or
greater than the Fund's purchase commitments. 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 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
17
<PAGE>
repurchase agreements will at all times be fully collateralized in an amount at
least equal to the resale prices. 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 LLC 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 hold 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), and privately placed commercial paper 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. Investing in Rule 144A
securities could, however, have the effect of increasing the level of Fund
illiquidity to the extent that qualified institutional buyers become, for a
limited time, uninterested in purchasing these securities. Repurchase agreements
subject to demand are deemed to have a maturity equal to the applicable notice
period.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
The Fund may engage in various portfolio strategies, including using
derivatives, to reduce certain risks of its investments and to attempt to
enhance return. The Fund, and thus the investor, may lose money through any
unsuccessful use of these strategies. 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 attempt to enhance return 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 attempt to generate additional income
through the receipt of premiums, purchase put options in an effort to protect
the value of a security that it owns against a decline in market value and
purchase call options in an effort to protect against an increase in 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.
18
<PAGE>
A call option gives the purchaser, in exchange for a premium paid, the
right for a specified period of time to purchase the securities 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 Fund 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. There is no limitation on the amount of call options the
Fund may write.
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. A written option is covered if,
as long as the Fund is obligated under the option, it (i) owns an offsetting
position in the underlying security or currency or (ii) maintains in a
segregated account cash, U.S. Government securities, equity securities or other
liquid, unencumbered assets, marked-to-market daily, in an amount equal to or
greater than its obligation under the option. Under this first circumstance, the
Fund's losses are limited because it owns the underlying security; under the
second circumstance, in the case of a written call option, the Fund's losses are
potentially unlimited. See "Investment Objective and Policies--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 (including cross
hedges) with respect to a particular currency for an amount greater than the
aggregate market value (determined at the time of making any sale of foreign
currency) of the securities being hedged. See "Investment Objective and
Policies--Additional Investment Policies--Forward Currency Exchange Contracts"
in the Statement of Additional Information.
19
<PAGE>
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 and risk management purposes and to attempt to enhance return in
accordance with regulations of the Commodity Futures Trading Commission (CFTC).
These futures contracts and related options will be on debt securities,
financial indices, U.S. Government securities, Foreign Government securities and
foreign currencies. The Fund, and thus the investor, may lose money through any
unsuccessful use of these strategies. 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 to
attempt to enhance return 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 liquidation
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
in accordance with regulations of the CFTC (i.e., to reduce certain risks of its
investments). 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 or close out 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.
Risks of Hedging and Return 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. The Fund, and thus the
investor, may lose money through any unsuccessful 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.
20
<PAGE>
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 (over 100%) 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, 1996, the Fund's total expenses as a
percentage of average net assets for the Fund's Class A, Class B, Class C and
Class Z shares were 1.40%, 2.00%, 2.00% and 1.11% (annualized), respectively.
See "Financial Highlights."
MANAGER
Prudential Mutual Fund Management LLC (PMF or the Manager), Gateway Center
Three, Newark, New Jersey 07102, 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. PMF is organized in New York as a limited liability company. It is the
successor to Prudential Mutual Fund Management, Inc., which transferred its
assets to PMF in September 1996. For the fiscal year ended December 31, 1996,
the Fund paid management fees to PMF of .75% of the Fund's average net assets.
This management fee is higher than such fees paid by most investment companies.
See "Manager" in the Statement of Additional Information.
As of January 31, 1997, PMF served as the manager of 40 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies. These companies have
aggregate assets of approximately $55.8 billion.
21
<PAGE>
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.
Under a Subadvisory Agreement between PMF and The Prudential Investment
Corporation, doing business as Prudential Investments (PI, the Subadviser or the
investment adviser), a wholly-owned subsidiary of Prudential, PI 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. Under the Management Agreement, PMF continues to have
responsibility for all investment advisory services pursuant to the Management
Agreement and supervises PI's performance of such services.
The portfolio is managed by J. Gabriel Irwin and Simon Wells who head a
Global Fixed Income Group of Prudential Investments. As a team, they have
responsibility for the day-to-day management of the Fund's portfolio. Messrs.
Irwin and Wells have been employed by PI and Prudential-Bache Securities (U.K.)
Inc. since April 1995. Messrs. Irwin and Wells were previously employed by Smith
Barney Global Capital Management Inc., where they worked together as Directors
and senior members of the Investment Policy Committee and managed approximately
$1.5 billion in institutional and mutual fund assets. Messrs. Irwin and Wells
also serve as the portfolio managers of Prudential Global Limited Maturity Fund,
Inc., The Global Government Plus Fund, Inc. and The Global Total Return Fund,
Inc.
PMF and PI are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
DISTRIBUTOR
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 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 a distribution agreement (the
Distribution Agreement), Prudential Securities (the Distributor) incurs the
expenses of distributing the Fund's Class A, Class B and Class C shares.
Prudential Securities also incurs the expenses of distributing the Fund's Class
Z shares under the Distribution Agreement, none of which is reimbursed by or
paid for by the Fund. These expenses include commissions and account servicing
fees paid to, or on account of, financial advisers of Prudential Securities and
representatives of Pruco Securities Corporation (Prusec), an affiliated
broker-dealer, commissions and account servicing fees paid to, or on account of,
other broker-dealers or financial institutions (other than national banks) which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of Prudential Securities and Prusec associated with the sale
of Fund shares, including lease, utility, communications and sales promotion
expenses.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
Under the Class A Plan, the Fund may pay Prudential Securities for its
distribution-related activities with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net 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. Prudential Securities has
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, 1997.
22
<PAGE>
Under the Class B and Class C Plans, the Fund may pay Prudential Securities
for its distribution-related activities 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 .75 of 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, 1997. 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, 1996, the Fund paid distribution
expenses of .15%, .75% and .75% of the average daily net assets of the Class A,
Class B and Class C shares, respectively. The Fund records all payments made
under the Plans as expenses in the calculation of net investment income. See
"Distributor" in the Statement of Additional Information.
Distribution expenses attributable to the sale of Class A, Class B and
Class C shares of the Fund will be allocated to each such class based upon the
ratio of sales of each such class to the sales of Class A, Class B and Class C
shares of the Fund other than expenses allocable to a particular class. The
distribution fee and 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 distribution and service fees incurred
under any plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to dealers (including Prudential
Securities) and other persons which distribute shares of the Fund (including
Class Z shares). Such payments may be calculated by reference to the net asset
value of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (the NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the allegations
asserted against it, PSI consented to the entry of an SEC Administrative Order
which stated that PSI's conduct violated the federal securities laws, directed
PSI to cease and desist from violating the federal securities laws, pay civil
penalties, and adopt certain remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of
23
<PAGE>
the settlement fund. PSI's settlement with the state securities regulators
included an agreement to pay a penalty of $500,000 per jurisdiction. PSI
consented to a censure and to the payment of a $5,000,000 fine in settling the
NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling (800) 225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
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 LLC (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
24
<PAGE>
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, Class C and Class Z shares will generally be the
same. It is expected, however, that the dividends will differ by approximately
the amount of the distribution and/or service fee expense accrual differential
among the classes.
- --------------------------------------------------------------------------------
HOW THE FUND CALCULATES PERFORMANCE
- --------------------------------------------------------------------------------
From time to time the 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, Class C and Class Z 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. 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., Morningstar Publications, Inc., other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. Further performance
information is contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder
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
25
<PAGE>
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 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. Any dividends out of net taxable investment
income, together with distributions of short-term gains (i.e., the excess of net
short-term capital gains over net long-term capital losses) distributed to
shareholders, will be taxable as ordinary income to the 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 capital gains (i.e., the excess
of net long-term capital gains over net short-term capital losses) distributed
to shareholders will be taxable as long-term capital gains to the shareholders,
whether or not reinvested and regardless of the length of time a shareholder has
owned his or her shares.
The Fund has obtained opinions of counsel to the effect that neither (i)
the conversion of Class B shares into Class A shares nor (ii) the exchange of
any class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
Withholding Taxes. Under 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. In any event,
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. Dividends paid by the Fund with respect to each class of
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount except
that each class will bear its own distribution charges, generally resulting in
lower dividends for Class B and Class C shares in relation to Class A shares and
Class Z shares and lower dividends for Class A shares in relation to Class Z
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, 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 LLC, Attention: Account Maintenance, P.O. Box
15015, New Brunswick, New Jersey 08906-5015. The Fund will notify each
shareholder after the
26
<PAGE>
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, 1996, the Fund had a capital loss carryforward for
federal income tax purposes of approximately $81,232,300.
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.
- --------------------------------------------------------------------------------
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 four classes, designated Class A, Class B, Class C and
Class Z common stock. Each of the Class A, Class B, Class C and Class Z common
stock consists of 500 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 is subject to different sales charges and
distribution and/or service fees (except for Class Z shares which are not
subject to any sales charge or distribution and/or service fee), which may
affect performance, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (iii) each
class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to a
limited group of investors. 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 (with the
exception of Class Z shares, which are not subject to any distribution or
service fees) bears the expenses related to the distribution of its shares.
27
<PAGE>
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 and to Class Z shareholders,
whose shares are not subject to any distribution and/or service fees. The Fund's
shares do not have cumulative voting rights for the election of Directors.
The 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.
- --------------------------------------------------------------------------------
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 LLC (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. Participants in programs sponsored by Prudential
Retirement Services should contact their client representative for more
information about Class Z shares. 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). Class Z shares are offered to a limited group of investors at net asset
value without any sales charge. See "Alternative Purchase Plan" and "How the
Fund Values its Shares."
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares, except that the minimum initial investment
for Class C shares may be waived from time to time. There is no minimum initial
investment requirement for Class Z shares. The minimum subsequent investment is
$100 for all classes, except for Class Z shares for which there is no such
minimum. All minimum investment requirements are waived for certain retirement
and employee savings plans or custodial accounts for the benefit of minors. For
purchases made through the Automatic Savings Accumulation Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services" below.
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 stock certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."
28
<PAGE>
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 third 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 class in which you are
eligible to invest (Class A, Class B, Class C or Class Z shares).
If you arrange for receipt by State Street Bank and Trust Company of
Federal Funds prior to the calculation of NAV (4:15 P.M., New York time), on a
business day, you may purchase shares of the Fund as of that day. See "Net Asset
Value" in the Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
Bank and Trust Company directly and should be sure that the wire specifies
Prudential Intermediate Global Income Fund, Inc., Class A, Class B, Class C or
Class Z shares and your name and individual account number. It is not necessary
to call PMFS to make subsequent purchase orders utilizing Federal Funds. The
minimum amount which may be invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
The Fund offers four classes of shares (Class A, Class B, Class C and Class
Z shares) which allows you to choose the most beneficial sales charge structure
for your individual circumstances given the amount of the purchase, the length
of time you expect to hold the shares and other relevant circumstances
(Alternative Purchase Plan).
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
------------ ------------------------ -----------------
<S> <C> <C> <C>
Class A Maximum initial sales charge 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 .15 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
Class Z None None Sold to a limited group of investors
</TABLE>
29
<PAGE>
The four classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
(with the exception of Class Z shares, which are not subject to any distribution
or service fees) bears the separate expenses of its Rule 12b-1 distribution and
service plan, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, and (iii)
only Class B shares have a conversion feature. The four classes also have
separate exchange privileges. See "How to Exchange Your Shares" below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee (if any) of
each class. Class B and Class C shares bear the expenses of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class Z
shares and will generally receive more compensation initially for selling Class
A and Class B shares than for selling Class C or Class Z shares.
In selecting a purchase alternative, you should consider, among other
things, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the 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 a maximum 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 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 when the CDSC is
applicable.
All purchases of $1 million or more, either as part of a single investment
or under Rights of Accumulation or Letters of Intent, must be for Class A shares
unless the purchaser is eligible to purchase Class Z shares. See "Reduction and
Waiver of Initial Sales Charges" and "Class Z Shares" below.
30
<PAGE>
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 $499,000 2.5 2.56 2.25
$500,000 but less than $999,000 2.0 2.04 1.75
$1,000,000 and above None None None
</TABLE>
The Distributor may reallow the entire initial sales charge to dealers.
Selling dealers may be deemed to be underwriters, as that term is defined under
the federal securities laws.
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisers and other persons which distribute shares a
finders' fee based on a percentage of the net asset value of shares sold by such
persons.
Reduction and Waiver of Initial Sales Charges. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Fund
Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares" in the
Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of
an initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the Internal
Revenue Code (collectively, Benefit Plans), provided that the Benefit Plan has
existing assets of at least $1 million invested in shares of Prudential Mutual
Funds (excluding money market funds other than those acquired pursuant to the
exchange privilege) or 250 eligible employees or participants. In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential Securities
does individual account record keeping (Direct Account Benefit Plans) and
Benefit Plans sponsored by 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.
PruArray and SmartPath Plans. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or
non-qualified under the Internal Revenue Code, including pension,
profit-sharing, stock-bonus or other employee benefit plans under Section 401 of
the Internal Revenue Code and deferred compensation and annuity plans under
Sections 457 and 403(b)(7) of the Internal Revenue Code that participate in the
Transfer Agent's PruArray and SmartPath Programs (benefit plan record keeping
services) (hereafter referred to as a PruArray or SmartPath Plan); provided that
the plan has at least $1 million in existing assets or 250 eligible employees or
participants. The term "existing assets" for this purpose includes stock issued
by a PruArray or SmartPath Plan sponsor, shares of non-money market Prudential
Mutual Funds and shares of certain unaffiliated non-money market mutual funds
that participate in the PruArray or SmartPath Programs (Participating Funds).
"Existing assets" also include shares of money market funds acquired by exchange
from a Participating Fund, monies
31
<PAGE>
invested in The Guaranteed Interest Account (GIA), a group annuity insurance
product issued by Prudential and units of The Stable Value Fund (SVF), an
unaffiliated bank collective fund. Class A shares may also be purchased at NAV
by plans that have monies invested in GIA and SVF, provided (i) the purchase is
made with the proceeds of a redemption from either GIA or SVF and (ii) Class A
shares are an investment option of the plan.
PruArray Association Benefit Plans. Class A shares are also offered at net
asset value to Benefit Plans or non-qualified plans sponsored by employers which
are members of a common trade, professional or membership association
(Association) that participate in the PruArray Program provided that the
Association enters into a written agreement with Prudential. Such Benefit Plans
or non-qualified plans may purchase Class A shares at net asset value without
regard to the assets or number of participants in the individual employer's
qualified Plan(s) or non-qualified plans so long as the employers in the
Association (i) have retirement plan assets in the aggregate of at least $1
million or 250 participants in the aggregate and (ii) maintain their accounts
with the Fund's transfer agent.
PruArray Savings Program. Class A shares are also offered at net asset
value to employees of companies that enter into a written agreement with
Prudential Retirement Services to participate in the PruArray Savings Program.
Under this Program, a limited number of Prudential Mutual Funds are available
for purchase at net asset value by Individual Retirement Accounts and Savings
Accumulation Plans of the company's employees. The Program is available only to
(i) employees who open an IRA or Savings Accumulation Plan account with the
Fund's transfer agent and (ii) spouses of employees who open an IRA account with
the Fund's transfer agent. The Program is offered to companies that have at
least 250 eligible employees.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray or SmartPath Plan qualifies to purchase Class A shares at NAV, all
subsequent purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers and current and former Directors/Trustees of the Prudential Mutual
Funds (including the Fund), (b)employees of Prudential Securities and PMF and
their subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent, (c)
employees of subadvisers of the Prudential Mutual Funds provided that the
purchases at NAV are permitted by such person's employer, (d) Prudential,
employees and special agents of Prudential and its subsidiaries and all persons
who have retired directly from active service with Prudential or one of its
subsidiaries, (e) registered representatives and employees of dealers who have
entered into a selected dealer agreement with Prudential Securities provided
that purchases at NAV are permitted by such person's employer and (f) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities, or within one year in the case of Benefit Plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end,
non-money market fund sponsored by the financial adviser's previous employer
(other than a fund which imposes a distribution or service fee of .25 of 1% or
less) and (iii) the financial adviser served as the client's broker on the
previous purchase.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--ClassA
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
32
<PAGE>
sales charge imposed at the time of purchase, redemptions of Class B and Class C
shares may be subject to a CDSC. See "How to Sell Your Shares--Contingent
Deferred Sales Charges." The Distributor will pay sales commissions of up to
3% of the purchase price of Class B shares to dealers, financial advisers and
other persons who sell Class B shares at the time of sale from its own
resources. This facilitates the ability of the Fund to sell the Class B shares
without an initial sales charge being deducted at the time of purchase. The
Distributor anticipates that it will recoup its advancementof sales commissions
from the combination of the CDSC and the distribution fee. See "How the Fund is
Managed--Distributor." In connection with the sale of Class C shares, the
Distributor will pay dealers, financial advisers and other persons which
distribute Class C shares a sales commission of up to 1% of the purchase price
at the time of the sale.
Class Z Shares
Class Z shares are available for purchase by (i) pension, profit sharing or
other employee benefit plans qualified under Section 401 of the Internal Revenue
Code, deferred compensation and annuity plans under Sections 457 and 403(b)(7)
of the Internal Revenue Code, and non-qualified plans for which the Fund is an
available option (collectively, Benefit Plans), provided such Benefit Plans (in
combination with other plans sponsored by the same employer or group of related
employers) have at least $50 million in defined contribution assets; (ii)
participants in any fee-based program sponsored by Prudential Securities (or one
of its affiliates) which includes mutual funds as investment options and for
which the Fund is an available option; and (iii) investors who were, or had
executed a letter of intent to become, shareholders of any series of Prudential
Dryden Fund (Dryden Fund) on or before one or more series of Dryden Fund
reorganized or who on that date had investments in certain products for which
Dryden Fund provided exchangeability. After a Benefit Plan qualifies to purchase
Class Z shares, all subsequent purchases will be for Class Z shares.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other persons
which distribute shares a finders' fee based on a percentage of the net asset
value of shares sold by such persons.
For more information about shares of the Fund contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fund at
(800) 225-1852. Participants in programs sponsored by Prudential Retirement
Services should contact their client representative for more information about
Class Z shares.
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 LLC, 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,
33
<PAGE>
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. In the
case of redemptions from a PruArray or SmartPath Plan, if the proceeds of the
redemption are invested in another investment option of the plan, in the name of
the record holder and at the same address as reflected in the Transfer Agent's
records, a signature guarantee is not required.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent of the certificate and/or written
request, except as indicated below. If you hold shares through Prudential
Securities, payment for shares presented for redemption will be credited to your
Prudential Securities account, unless you indicate otherwise. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the 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 CDSC will be imposed on any such
involuntary redemption.
90-day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. Any CDSC paid in connection with such redemption will be
credited (in shares) to your account. (If less than a full repurchase is made,
the credit will be on a pro rata basis.) You must notify the Fund's Transfer
Agent, either directly or through Prudential Securities, at the time the
repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales
Charges" below. Exercise of the repurchase privilege may affect federal tax
treatment of any gain or loss realized upon redemption. See "Taxes, Dividends
and Distributions" above and in the Statement of Additional Information.
34
<PAGE>
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 acquired through
reinvestment of dividends or distributions are not subject to a CDSC. The amount
of any CDSC will be paid to and retained by the Distributor. See "How the Fund
is Managed--Distributor" and "Waiver of the Contingent Deferred Sales
Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund. See "How
to Exchange Your Shares" below.
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
35
<PAGE>
individually or in joint tenancy (with rights of survivorship), or a trust, at
the time of death or initial determination of disability, provided that the
shares were purchased prior to death or disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i)in the case of a tax-deferred
retirement plan, a lump-sum or other distribution after retirement; (ii)in the
case of an IRA or Section 403(b) custodial account, a lump-sum or other
distribution after attaining age 59-1/2; and (iii)a tax-free return of an excess
contribution or plan distributions following the death or disability of the
shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service (i.e.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
redemptions otherwise qualify for a waiver as described above. In the case of
Direct Account and PSI or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC was
not previously deducted will thereafter be subject to a CDSC without regard to
the time such amounts were previously invested. In the case of a 401(k) plan,
the CDSC will also be waived upon the redemption of shares purchased with
amounts used to repay loans made from the account to the participant and from
which a CDSC was previously deducted.
Systematic Withdrawal Plan. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge.
In addition, the CDSC will be waived on redemptions of shares held by a
Director 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 and provide the Transfer Agent with such
supporting documentation as it may deem appropriate. The waiver will be granted
subject to confirmation of your entitlement. See "Purchase and Redemption of
Fund Shares--Waiver of the Contingent Deferred Sales Charge--Class B Shares" in
the Statement of Additional Information.
A quantity discount may apply to redemptions of Class B shares purchased
prior to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994" in the Statement of
Additional Information.
WAIVER OF CONTINGENT SALES CHARGES--CLASS C SHARES. PruArray or SmartPath
Plans. The CDSC will be waived on redemptions from certain qualified and
non-qualified retirement and deferred compensation plans that participate in the
Transfer Agent's PruArray and SmartPath Programs, provided that the investment
options of the plan include shares of Prudential Mutual Funds and shares of
non-affiliated mutual funds.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately five years after purchase. It is currently anticipated that
conversions will occur during the months of February, May, August and November.
Conversions will be effected at relative net asset value without the imposition
of any additional sales charge. The first conversion of Class B shares occurred
in February 1995, when the conversion feature was first implemented.
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
36
<PAGE>
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
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately 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 conversion period applicable to the original purchase of
such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B, 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 (the Exchange Privilege) including one or more
specified money market funds, subject to the minimum investment requirements of
such funds. Class A, Class B, Class C and Class Z shares may be exchanged for
Class A, Class B, Class C and Class Z shares, respectively, of another fund on
the basis of the relative NAV. No sales charge will be imposed at the time of
the exchange. Any applicable CDSC payable upon the redemption of shares
exchanged will be 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, Inc. For purposes of calculating the
holding period applicable to the Class B conversion feature, the time period
during which Class B shares were held in a money market fund will be excluded.
See "Conversion Feature--Class B Shares" above. An exchange will be treated as a
redemption and purchase for tax purposes. See "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information.
37
<PAGE>
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.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange
of shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services LLC at the address noted above.
Special Exchange Privileges. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in such a shareholder's account will be automatically
exchanged for Class A shares for shareholders who qualify to purchase Class A
shares at NAV on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C shares
and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities or Prusec that
they are eligible for this special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value. Similarly, participants in PSI's 401(k) Plan for which the Fund's Class Z
shares is an available option and who wish to transfer their Class Z shares out
of the PSI 401(k) Plan following separation from service (i.e., voluntary or
involuntary termination of employment or retirement) will have their Class Z
shares exchanged for Class A shares at NAV.
The Fund reserves the right to reject any exchange order including
exchanges (and market timing transactions) which are of size and/or frequency
engaged in by one or more accounts acting in concert or otherwise, that have or
may have an
38
<PAGE>
adverse effect on the ability of the Subadviser to manage the portfolio. The
determination that such exchanges or activity may have an adverse effect and the
determination to reject any exchange order shall be in the discretion of the
Manager and the Subadviser.
The exchange privilege is not a right and may be suspended, modified or
terminated 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 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 Gateway Center
Three, Newark, New Jersey 07102-4077. In addition, monthly unaudited financial
data are available upon request from the Fund.
o Shareholder Inquiries. Inquiries should be addressed to the Fund at
Gateway Center Three, Newark, New Jersey 07102-4077, 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.
39
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITY RATINGS
Moody's Investors 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 the best 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 the 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.
Short-Term Debt Ratings
Moody's short-term ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Prime-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment capacity of the rated issue of senior short-term debt
obligataions.
Prime-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
A-1
<PAGE>
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.
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 as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the lowest degree of speculation and
CC the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
Commercial Paper
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debt considered short-term in the relevant
market.
A-1: This highest category designation indicates that the degree of safety
regarding timely payment is very strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-2
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec 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 Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
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
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
------------
Global Funds
------------
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
------------
Equity Funds
------------
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Active Balanced Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small Companies Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
------------------
Money Market Funds
------------------
o Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o 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
What Are the Fund's Risk Factors and Special
Characteristics? 2
FUND EXPENSES 5
FINANCIAL HIGHLIGHTS 6
HOW THE FUND INVESTS 10
Investment Objective and Policies 10
Risk Factors 14
Other Investments and Investment Techniques 16
Hedging and Return Enhancement Strategies 18
Portfolio Turnover and Brokerage 21
Investment Restrictions 21
HOW THE FUND IS MANAGED 21
Manager 21
Distributor 22
Portfolio Transactions 24
Custodian and Transfer and
Dividend Disbursing Agent 24
HOW THE FUND VALUES ITS SHARES 24
HOW THE FUND CALCULATES PERFORMANCE 25
TAXES, DIVIDENDS AND DISTRIBUTIONS 25
GENERAL INFORMATION 27
Description of Common Stock 27
Additional Information 28
SHAREHOLDER GUIDE 28
How to Buy Shares of the Fund 28
Alternative Purchase Plan 29
How to Sell Your Shares 33
Conversion Feature--Class B Shares 36
How to Exchange Your Shares 37
Shareholder Services 39
DESCRIPTION OF SECURITY RATINGS A-1
THE PRUDENTIAL MUTUAL FUND FAMILY B-1
- --------------------------------------------------------------------------------
MF 155A 4445810
- --------------------------------------------------------------------------------
CUSIP Nos.: Class A: 74435G-20-3
Class B: 74435G-30-2
Class C: 74435G-40-1
Class Z: 74435G-50-0
- --------------------------------------------------------------------------------
Prudential
Intermediate
Global
Income
Fund, Inc.
P R O S P E C T U S
February 28, 1997
[Logo] Prudential Investments
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
Statement of Additional Information
dated February 28, 1997
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 certain derivatives, including 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. There
can be no assurance that the Fund's investment objective will be achieved.
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 Gateway Center Three, Newark, New Jersey 07102, 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 February 28, 1997,
a copy of which may be obtained from the Fund at the address noted above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference
to page in
Page Prospectus
---- ---------------
<S> <C> <C>
Investment Objective and Policies ........................................... B-2 10
Additional Investment Policies .............................................. B-4 16
Investment Restrictions ..................................................... B-14 21
Directors and Officers ...................................................... B-15 21
Manager ..................................................................... B-19 21
Distributor ................................................................. B-20 22
Portfolio Transactions and Brokerage ........................................ B-22 24
Purchase and Redemption of Fund Shares ...................................... B-24 28
Shareholder Investment Account .............................................. B-27 39
Net Asset Value ............................................................. B-30 24
Performance Information ..................................................... B-31 25
Taxes, Dividends and Distributions .......................................... B-33 25
Organization and Capitalization ............................................. B-35 27
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants B-35 24
Financial Statements ........................................................ B-36 --
Report of Independent Accountants ........................................... B-49 --
Appendix I--General Investment Information .................................. I-1 --
Appendix II--Historical Performance Data .................................... II-1 --
Appendix III--Information Relating to The Prudential ........................ III-1 --
</TABLE>
MF 155 B
================================================================================
<PAGE>
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 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. There can be no
assurance that the Fund's investment objective will be achieved. 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. During periods of rising interest rates, the rate of prepayment of
mortgages underlying mortgage-backed securities can be expected to decline,
extending the projected average maturity of the mortgage-backed securities. This
maturity extension risk may effectively change a security which was considered
short- or intermediate-term at the time of purchase into a long-term security.
Long-term securities generally fluctuate more widely in response to changes in
interest rates than short- or intermediate-term securities.
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 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.
B-2
<PAGE>
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. 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
B-3
<PAGE>
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, return
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 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, equity securities or other liquid, unencumbered assets,
marked-to-market daily, having a value at least equal to the fluctuating market
value of the optioned
B-4
<PAGE>
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, equity securities or other liquid, unencumbered assets,
marked-to-market daily, 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). In such cases
the same segregated collateral is considered "cover" for both the put and the
call and the Fund will also deposit in a segregated account with its Custodian
cash, U.S. Government securities, equity securities or other liquid,
unencumbered assets, marked-to-market daily, 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 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
B-5
<PAGE>
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 same 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 at through purchase of call options
on other carefully selected debt securities, which the investment adviser
believes may move in the same 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 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.
B-6
<PAGE>
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 to 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 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, return 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 Government
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.
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
B-7
<PAGE>
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, return 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, equity securities or other liquid, unencumbered assets,
marked-to-market daily, 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, equity securities or other
liquid, unencumbered assets, marked-to-market daily, 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
B-8
<PAGE>
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,
equity securities or other liquid, unencumbered assets, marked-to-market daily,
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.
B-9
<PAGE>
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.
B-10
<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 transaction will be
"covered" by the position being hedged or the Fund's Custodian or subcustodian
will place cash, U.S. Government securities, equity securities or other liquid,
unencumbered assets in a segregated account of the Fund (less the value of the
"covering" positions, if any) in an amount equal to the value of the Fund's
total assets committed to the consummation of the given forward contract. The
assets placed in the segregated account will be marked-to-market daily, and 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 net 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
B-11
<PAGE>
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 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, return 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 if the initial margin and premiums 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
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 within the meaning of the CFTC regulations. 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 cash and other 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 liquid
assets 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 return 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 may not hold more than 15% of its net 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 (either within or outside of the United States) or
legal or contractual restrictions on resale. Historically, illiquid securities
have included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (Securities Act), securities which are otherwise not readily marketable
and repurchase agreements having a maturity of longer than seven days.
Securities which have not been registered under the Securities Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
B-12
<PAGE>
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, 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). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (ii) it must not be "traded
flat" (i.e., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
The staff of the SEC has taken the position that purchased over-the-counter
options and the assets used as "cover" for written over-the-counter options are
illiquid securities unless 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."
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 resale prices. 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 LLC (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.
B-13
<PAGE>
Reverse Repurchase Agreements and Dollar Rolls
The Fund may enter into reverse repurchase agreements and dollar rolls. The
proceeds from such transactions will be used for the clearance of transactions
or to take advantage of investment opportunities.
Reverse repurchase agreements involve sales by the Fund of securities
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. During the reverse repurchase agreement period, the
Fund continues to receive principal and interest payments on these securities.
Dollar rolls involve sales by the Fund of securities for delivery in the
current month and a simultaneous contract to repurchase substantially similar
(same type and coupon) securities on a specified future date from the same
party. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll for which there
is an offsetting cash position or a cash equivalent security position which
matures on or before the forward settlement date of the dollar roll transaction.
The Fund will establish a segregated account with its custodian in which it
will maintain cash, U.S. Government securities or other liquid, unencumbered
assets, marked-to-market daily, equal in value to its obligations in respect of
reverse repurchase agreements and dollar rolls. Reverse repurchase agreements
and dollar rolls involve the risk that the market value of the securities
retained by the Fund may decline below the price of the securities the Fund has
sold but is obligated to repurchase under the agreement. In the event the buyer
of securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls, including covered dollar
rolls, are speculative techniques involving leverage and are considered
borrowings by the Fund for purposes of the percentage limitations applicable to
borrowings. See "Borrowings" above. The Fund does not presently intend to enter
into reverse repurchase agreements or dollar rolls.
Interest Rate Swap Transactions
The Fund may enter into interest rate swaps. Interest rate swaps involve
the exchange by the Fund with another party of their respective commitments to
pay or receive interest, for example, an exchange of floating rate payments for
fixed-rate payments. The Fund expects to enter into these transactions primarily
to preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment. The risk of loss
with respect to interest rate swaps is limited to the net amount of interest
payments that the Fund is contractually obligated to make and will not exceed 5%
of the Fund's net assets. The use of interest rate swaps may involve investment
techniques and risks different from those associated with ordinary portfolio
transactions. If the investment adviser is incorrect in its forecast of market
values, interest rates and other applicable factors, the investment performance
of the Fund would diminish compared to what it would have been if this
investment technique was never used. The Fund does not presently intend to enter
into interest rate swap transactions.
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 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 portfolio turnover rate was 45%
and 220% for the fiscal years ended December 31, 1996 and 1995, respectively.
The Fund's portfolio turnover rate for the fiscal year ended December 31, 1995
was high as a result of the Subadviser's attempt to minimize the impact on
principal of rising yields in the global bond market.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (i) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (ii) more than 50% of the outstanding voting
shares.
B-14
<PAGE>
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. 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.
3. Purchase securities of other investment companies, except in accordance
with applicable limits under the Investment Company Act.
4. 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.
5. 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.
6. 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.
7. 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").
8. Make investments for the purpose of exercising control or management
over the issuers of any security.
9. 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).
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
Position Principal Occupations
Name, Address and Age(1) with Fund During Past 5 Years
- ------------------------ --------- --------------------
Edward D. Beach (72) Director President and Director of BMC Fund,
Inc., a closed-end investment
company; prior thereto, Vice
Chairman of Broyhill Furniture
Industries, Inc.; Certified Public
Accountant; Secretary and Treasurer
of Broyhill Family Foundation,
Inc.; Member of the Board of
Trustees of Mars Hill College;
Director of The High Yield Income
Fund, Inc.
Delayne Dedrick Gold (58) Director Marketing and Management Consultant;
Director of The High Yield Income
Fund, Inc.
B-15
<PAGE>
Position Principal Occupations
Name, Address and Age(1) with Fund During Past 5 Years
- ------------------------ --------- --------------------
*Robert F. Gunia (50) Director Comptroller, Prudential Investments
(since May 1996); Executive Vice
President and Treasurer (since
December 1996), Prudential Mutual
Fund Management LLC (PMF); Senior
Vice President (since March 1987)
of Prudential Securities
Incorporated (Prudential
Securities); formerly Chief
Administrative Officer (July
1990-September 1996), Director
(January 1989-September 1996) and
Executive Vice President, Treasurer
and Chief Financial Officer (June
1987-September 1996) of Prudential
Mutual Fund Management, Inc.; Vice
President and Director of The Asia
Pacific Fund, Inc. (since May
1989); Director of The High Yield
Income Fund, Inc.
Donald D. Lennox (78) Director Chairman (since February 1990) and
Director (since April 1989) of
International Imaging Materials,
Inc. (thermal transfer ribbon
manufacturer); Retired Chairman,
Chief Executive Officer and
Director of Schlegel Corporation
(industrial manufacturing) (March
1987-February 1989); Director of
Gleason Corporation, Personal Sound
Technologies, Inc. and The High
Yield Income Fund, Inc.
Douglas H. McCorkindale (57) Director Vice Chairman, Gannett Co. Inc.
(publishing and media) (since March
1984); Director of Gannett Co.
Inc., Frontier Corporation and
Continental Airlines, Inc.
*Mendel A. Melzer, (35) Director Chief Investment Officer (since
CFA, ChFC, CLU October 1996) of Prudential Mutual
751 Broad St. Funds; formerly Chief Financial
Newark, NJ 07102 Officer (November 1995-September
1996) of Prudential Investments,
Senior Vice President and Chief
Financial Officer (April
1993-November 1995) of Prudential
Preferred Financial Services,
Managing Director (April 1991-April
1993) of Prudential Investment
Advisors and Senior Vice President
(July 1989-April 1991) of
Prudential Capital Corporation:
Chairman and Director of Prudential
Series Fund, Inc.; Director of The
High Yield Income Fund, Inc.
Thomas T. Mooney (55) Director President of the Greater Rochester
Metro Chamber of Commerce; former
Rochester City Manager; Trustee of
Center for Governmental Research,
Inc.; Director of Blue Cross of
Rochester, Monroe County Water
Authority, Rochester Jobs, Inc.,
Executive Service Corps of
Rochester, Monroe County Industrial
Development Corporation, Northeast
Midwest Institute, The Business
Council of New York State, First
Financial Fund, Inc., The High
Yield Income Fund, Inc. and The
High Yield Plus Fund, Inc.
Stephen P. Munn (54) Director Chairman (since January 1994),
Director and President (since 1988)
and Chief Executive Officer
(1988-December 1993) of Carlisle
Companies Incorporated
(manufacturer of industrial
products).
*Richard A. Redeker (53) President Employee of Prudential Investments;
751 Broad St. and formerly President, Chief Executive
Newark, NJ 07102 Director Officer and Director (October
1993-September 1996), Prudential
Mutual Fund Management, Inc.,
Executive Vice President, Director
and Member of the Operating
Committee (October 1993-September
1996), Prudential Securities,
Director (October 1993-September
1996) of Prudential Securities
Group, Inc., Executive Vice
President, The Prudential
Investment Corporation (PIC)
(January 1994-September 1996),
Director (January 1994-September
1996) of Prudential Mutual Fund
Distributors, Inc. and Prudential
Mutual Fund Services, Inc. and
Senior Executive Vice President and
Director of Kemper Financial
Services, Inc. (September
1978-September 1993); President and
Director of The High Yield Income
Fund, Inc.
B-16
<PAGE>
Position Principal Occupations
Name, Address and Age(1) with Fund During Past 5 Years
- ------------------------ --------- --------------------
Robin B. Smith (57) Director Chairman and Chief Executive Officer
(since August 1996) of Publishers
Clearing House; formerly President
and Chief Executive Officer
(January 1988-August 1996) and
President and Chief Operating
Officer (September 1981-December
1988) of Publishers Clearing House;
Director of BellSouth Corporation,
The Omnicom Group, Inc., Texaco
Inc., Springs Industries Inc. and
Kmart Corporation.
Louis A. Weil, III (55) Director Publisher and Chief Executive
Officer (since January 1996) and
Director (since September 1991) of
Central Newspapers, Inc.; Chairman
of the Board (since January 1996),
Publisher and Chief Executive
Officer (August 1991-December 1995
of Phoenix Newspapers, Inc.;
formerly Publisher of Time Magazine
(May 1989-March 1991); formerly
President, Publisher & CEO of The
Detroit News (February 1986-August
1989); formerly member of the
Advisory Board, Chase Manhattan
Bank-Westchester; Director of The
High Yield Income Fund, Inc.
Clay T. Whitehead (58) Director President of National Exchange Inc.
(new business development firm)
(since May 1983).
,
Susan C. Cote (42) Vice Executive Vice President and Chief
President Financial Officer (since May 1996),
PMF; ManagingDirector, Prudential
Investments and Vice President, PIC
Thomas A. Early (42) Vice Executive Vice President, Secretary
President and General Counsel, (since
December 1996), PMF; Vice President
and General Counsel (since March
1994), Prudential Retirement
Services; formerly Associate
General Counsel and Chief Financial
Services Officer, Frank Russell
Company (1988-1994).
S. Jane Rose (51) Secretary Senior Vice President (since
December 1996), PMF; formerly
Senior Vice President (January
1991-September 1996) and Senior
Counsel (June 1987-December 1990)
of Prudential Mutual Fund
Management, Inc.; Senior Vice
President and Senior Counsel of
Prudential Securities (since July
1992); formerly Vice President and
Associate General Counsel of
Prudential Securities.
Grace Torres (37) Treasurer First Vice President (since December
and 1996) of PMF; formerly First Vice
Chief President (March 1994-September
Accounting 1996) Prudential Mutual Fund
Officer Management, Inc.; First Vice
President of Prudential Securities
(since March 1994); prior
thereto, Vice President of Bankers
Trust Corporation.
Marguerite E.H. Morrison (40) Assistant Vice President (since December 1996)
Secretary of PMF; Vice President and
Associate General Counsel (June
1991-September 1996) of Prudential
Mutual Fund Management, Inc.; Vice
President and Associate General
Counsel of Prudential Securities.
Stephen M. Ungerman (43) Assistant Tax Director (since March 1996) of
Treasurer Prudential Investments and the
Private Asset Group of The
Prudential Insurance Company of
America (Prudential); formerly
First Vice President of Prudential
Mutual Fund Management, Inc.
(February 1993-September 1996);
prior thereto, Senior Tax Manager
of Price Waterhouse (1981-January
1993).
- ----------
(1) Unless otherwise stated, the address is c/o Prudential Mutual Fund
Management LLC, Gateway Center Three, Newark, New Jersey 07102-4077.
* "Interested" Director, as defined in the Investment Company Act, by reason
of his affiliation with Prudential Securities, Prudential or 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.
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.
B-17
<PAGE>
The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under this phase-in provision, Messrs. Lennox
and Beach are scheduled to retire on December 31, 1997 and 1999, respectively.
The Fund pays each of its Directors who is not an affiliated person of the
investment adviser annual compensation of $3,000. The amount of annual
compensation paid to each Director may change as a result of the introduction of
additional funds upon which the Director will be asked to serve. 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.
The following table sets forth the aggregate compensation paid by the Fund
to the Directors who are not affiliated with the Manager for the fiscal year
ended December 31, 1996 and the aggregate compensation paid to such Directors
for service on the Fund's board and that of all other funds managed by
Prudential Mutual Fund Management LLC (Fund Complex) for the calendar year ended
December 31, 1996. In October 1996, shareholders elected a new Board of
Directors. Below are listed all Directors who have served the Fund during its
most recent fiscal year, as well as new Directors who took office after the
shareholders meeting in October.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement Estimated From Fund
Aggregate Benefits Accrued Annual And Fund
Compensation As Part of Fund Benefits Upon Complex Paid
Name and Position From Fund Expenses Retirement to Directors
----------------- ------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Edward D. Beach--Director ........... -- None N/A $166,000(21/39)*
Delayne D. Gold--Director ........... -- None N/A 175,308(21/42)*
Robert F. Gunia--Director ........... -- None N/A --
Donald D. Lennox--Director .......... -- None N/A 90,000(10/22)*
Douglas H. McCorkindale--Director**.. -- None N/A 71,208(10/13)*
Mendel A. Melzer--Director .......... -- None N/A --
Thomas T. Mooney--Director**......... -- None N/A 135,375(18/36)*
Stephen P. Munn--Director ........... -- None N/A 49,125(6/8)*
Thomas A. Owens, Jr.--Former Director $7,500 None N/A 86,333(9/11)*
Richard A. Redeker--Director ........ -- None N/A --
Robin B. Smith--Director**........... -- None N/A 89,957(11/20)*
Gerald A. Stahl--Former Director .... $7,500 None N/A 9,375(1/1)*
Stephen Stoneburn--Former Director .. $7,500 None N/A 30,375(6/6)*
Robert H. Wellington--Former Director $7,500 None N/A 24,375(2/2)*
Louis A. Weil, III--Director ........ -- None N/A 91,250(13/18)*
Clay T. Whitehead--Director ......... -- None N/A 38,292(5/7)*
</TABLE>
- ----------
* Indicates number of Funds/portfolios in Fund Complex to which aggregate
compensation relates.
** Total compensation from all of the Funds in the Fund Complex for the
calendar year ended December 31, 1996, includes amounts deferred at the
election of Directors under the Fund's deferred compensation plans.
Including accrued interest, total compensation amounted to $71,034,
$139,869 and $109,294 for Douglas H. McCorkindale, Thomas T. Mooney and
Robin B. Smith, respectively.
+ Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker, who are
interested Directors, do not receive compensation from the Fund or any
other fund in the Fund Complex.
As of February 7, 1997, the Directors and officers of the Fund as a group
owned less than 1% of the outstanding common stock of the Fund.
As of February 7, 1997, the beneficial owners, directly or indirectly, of
more than 5% of the outstanding shares of any class of common stock were 401K
Holding Account, FBO ACEC Retirement Trust, P.O. Box 15040, New Brunswick, NJ
08903, who held 1,156,383 Class A shares (5.8%); Robert L. Mofenson, TTEE,
Robert L. Mofenson, MPP/PS Plan DTD 01/01/74, FBO Robert L. Mofenson, P.O. Box
1103, Great Neck, NY 11023-0103 who held 2,072 Class C shares (9%); Mrs. Pamela
B. Thayer TTEE, Pamela B. Thayer, Trust UA DTD 01/13/97, 2938 Cherry Lane,
Northbrook, IL 60062-4312, who held 5,358 Class C shares (23.3%); Frank
Huan-Ming Tseng & Emily Shu-Min Tseng JTTEN, 1702 E Utah Avenue, Fresno, CA
93720-1967, who held 12,349 Class C shares (53.8%); and Dr. J. Michael Flynn,
Dr. Glenn D. Manceaux CO-TTEES, Flynn-Manceaux APC PTC PS Plan, DTD 01/01/96,
6902 W. Main Street, Houma LA 70360-2833, who held 7,288 Class Z shares (9.6%).
As of February 7, 1997, Prudential Securities was record holder of
9,861,285 Class A shares (or 50.2% of the outstanding Class A shares), 1,130,996
Class B shares (or 73.8% of the outstanding Class B shares), 20,373 Class C
shares (or 88.8% of the outstanding Class C shares) and 75,111 Class Z shares
(or 99.8% of the outstanding Class Z shares) of the Fund. In the event of any
meetings of shareholders, Prudential Securities will forward, or cause the
forwarding of, proxy materials to the beneficial owners for which it is the
record holder.
B-18
<PAGE>
MANAGER
The manager of the Fund is Prudential Mutual Fund Management LLC (PMF or
the Manager), Gateway Center Three, Newark, New Jersey 07102. PMF serves as
manager to all of the other investment companies that, together with the Fund,
comprise the "Prudential Mutual Funds." See "How the Fund is Managed--Manager"
in the Prospectus. As of January 31, 1997, PMF managed and/or administered
open-end and closed-end management investment companies with assets of
approximately $55.8 billion. According to the Investment Company Institute, as
of December 31, 1996, the Prudential Mutual Funds were the 15th largest family
of mutual funds in the United States.
PMF, the Manager of the Fund, is a subsidiary of Prudential Securities and
Prudential. Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent)
serves as the transfer agent for the Prudential Mutual Funds and, in addition,
provides customer service recordkeeping and management and administration
services to qualified plans.
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 LLC
(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. No such reductions were required during
the fiscal year ended December 31, 1996. No jurisdiction currently limits the
Fund's expenses.
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, doing business as Prudential Investments (PI), pursuant to the
subadvisory agreement between PMF and PI (the Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated persons of the Manager
or the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer Agent, including the cost of providing records to the
Manager in connection with its obligation of maintaining required records of the
Fund and of pricing the Fund's shares, (d) the charges and expenses of legal
counsel and independent accountants for the Fund, (e) brokerage commissions and
any issue or transfer taxes chargeable to the Fund in connection with its
securities transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade associations of which the Fund
may be a member, (h) the cost of stock certificates representing shares of the
Fund, (i) the cost of fidelity and liability insurance, (j) certain organization
expenses of the Fund and the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the Securities and
Exchange Commission, registering the Fund and qualifying its shares under state
securities laws, including the preparation and printing of the Fund's
registration statements and prospectuses for such purposes, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and 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-19
<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 a majority of the Directors who are not
parties to the contract or interested persons of any such party as defined in
the Investment Company Act, on May 9, 1996 and by shareholders of the Fund on
February 25, 1988.
PMF earned management fees of $1,386,451, $1,650,798 and $2,210,372 for the
fiscal years ended December 31, 1996, 1995 and 1994, respectively.
PMF has entered into the Subadvisory Agreement with PI (the Subadvisor), a
wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides
that PI will furnish investment advisory services in connection with the
management of the Fund. In connection therewith, PI 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
PI's performance of such services. PI is reimbursed by PMF for the reasonable
costs and expenses incurred by PI 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 parties to the
contract or interested persons of any such party as defined in the Investment
Company Act, on May 9, 1996 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 PI 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.
DISTRIBUTOR
Prudential Securities, One Seaport Plaza, New York, New York 10292 acts as
the distributor of the shares of the Fund. Prior to January 2, 1996, Prudential
Mutual Fund Distributors, Inc. (PMFD) One Seaport Plaza, New York, New York
10292, acted as distributor of the Class A 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 a distribution agreement
(the Distribution Agreement), Prudential Securities (the Distributor) incurs the
expenses of distributing the Fund's Class A, Class B and Class C shares,
respectively. Prudential Securities also incurs the expenses of distributing the
Fund's Class Z shares under a Distribution Agreement, none of which are
reimbursed by or paid for by the Fund. 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
Directors, at a meeting called for the purpose of voting on each Plan, approved
the continuance of the Plans and Distribution Agreements and approved
modifications of the Fund's Class A and Class B Plans and Distribution
Agreements to conform them with recent amendments to the National Association of
Securities Dealers, Inc. (NASD) maximum sales charge rule described below. As so
modified, the Class A Plan provides that (i) up to .25 of 1% of the average
daily net assets of the Class A shares may be used to pay for personal service
and/or the maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30 of
1%. As so modified, the Class B Plan provides that (i) up to .25 of 1% of the
average daily net assets of the Class B shares may be paid as a service fee and
(ii) up to .75 of 1% ( 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
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
B-20
<PAGE>
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 9, 1996. The Class A Plan, as amended, was
approved by Class A and Class B shareholders, and the Class B Plan, as amended,
was approved by Class B shareholders, on July 19, 1994. The Class C Plan was
approved by the sole shareholder of Class C shares on August 1, 1994.
Class A Plan. For the fiscal year ended December 31, 1996, PSI received
payment of $253,828, under the Class A Plan. 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, 1996, PSI received
approximately $22,100 in initial sales charges.
Class B Plan. For the fiscal year ended December 31, 1996, the Distributor
received $116,182 from the Fund under the Class B Plan. It is estimated that the
Distributor spent approximately $41,400 on behalf of the Fund during such year.
It is estimated that of the latter amount approximately 7.7% ($3,200) was spent
on printing and mailing of prospectuses to other than current shareholders; 6.5
% ($2,700) on compensation to Pruco Securities Corporation, an affiliated
broker-dealer (Prusec), for commissions to its representatives and other
expenses, including an allocation on account of overhead and other branch office
distribution-related expenses, incurred by it for its distribution of Fund
shares; and 85.8% ($35,500) on the aggregate of (i) payments of commissions to
financial advisers 50.8% ($21,000) and (ii) an allocation of overhead and other
branch office distribution related expenses 35.0% ($14,500). 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 Charges" in the Prospectus. For the fiscal year ended December
31, 1996, Prudential Securities received approximately $34,900 in contingent
deferred sales charges.
Class C Plan. For the fiscal year ended December 31, 1996, Prudential
Securities received $824 under the Class C Plan and spent approximately $3,800
in distributing Class C shares. It is estimated that of the latter amount,
approximately 39.5% ($1,500) was spent on printing and mailing of prospectuses
to other than current shareholders; and 60.5% ($2,300) on the aggregate of (i)
payments of commissions and account servicing fees to financial advisers (13.1%
or $500) and (ii) an allocation of overhead and other branch office
distribution-related expenses for payments of related expenses (47.4% or
$1,800). Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class C shares. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges"
in the Prospectus. For the fiscal year ended December 31, 1996, Prudential
Securities received approximately $500 in contingent deferred sales charges
attributable to Class C shares.
The Class A, Class B and Class C Plans continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Directors, including a majority vote of the Rule 12b-1
Directors, cast in person at a meeting called for the purpose of voting on such
continuance. The Plans may each be terminated at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders
of a majority of the outstanding shares of the 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 Distributor. The report will include an
itemization of the distribution expenses and the purposes of such expenditures.
In addition, as long as the Plans remain in effect, the selection and nomination
of Rule 12b-1 Directors shall be committed to the Rule 12b-1 Directors.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
Prudential Securities to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933. The restated Distribution
Agreement was approved by the Board of Directors, including a majority of the
Rule 12b-1 Directors, on May 9, 1996.
B-21
<PAGE>
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In setting the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent "ombudsman" whom PSI
employees can call anonymously with complaints about ethics and compliance.
Prudential Securities shall report any allegations or instances of criminal
conduct and material improprieties to the new director. The new director will
submit compliance reports which shall identify all such allegations or instances
of criminal conduct and material improprieties every three months for a
three-year period.
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. Interest charges on unreimbursed distribution expenses equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not included in
the calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of the Fund may not exceed .75 of 1% per class. The 6.25% limitation
applies to 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, commissions 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.
B-22
<PAGE>
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) 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
non-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) of the Securities Exchange Act of 1934, Prudential
Securities may not retain compensation for effecting transactions on a national
securities exchange for the Fund unless the Fund has expressly authorized the
retention of such compensation. Prudential Securities must furnish to the Fund
at least annually a statement setting forth the total amount of all compensation
retained by Prudential Securities 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, 1996, 1995, and 1994.
B-23
<PAGE>
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). Class Z shares of the Fund
are offered to a limited group of investors at net asset value without any sales
charges. See "Shareholder Guide--How to Buy Shares of the Fund" in the
Prospectus.
Each class of shares represents an interest in the same 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
(except for Class Z shares, which are not subject to any sales charges and
distribution and/or service fees), (ii) each class has exclusive voting rights
on any matter submitted to shareholders that relates solely to its arrangement
and has separate voting rights on any matter submitted to shareholders in which
the interest of one class differ from the interest of any other class, (iii)
each class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to a
limited group of investors. See "Distributor" and "Shareholder Investment
Account--Exchange Privilege."
Specimen Price Make-up
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares of the Fund are sold at a maximum sales charge of
3.0% and Class B*, Class C* and Class Z shares are sold at net asset value.
Using the Fund's net asset value at December 31, 1996, the maximum offering
price of the Fund's shares is as follows:
Class A
Net asset value and redemption price per Class A share ................... $8.34
Maximum sales charge (3.0% of offering price) ............................ .26
-----
Offering price to public ................................................. $8.60
=====
Class B
Net asset value, offering price and redemption price per Class B share* .. $8.34
=====
Class C
Net asset value, offering price and redemption price per Class C share* .. $8.34
=====
Class Z
Net asset value, offering price and redemption price per Class Z share ... $8.34
=====
- ----------
* Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
Reduction and Waiver of Initial Sales Charges--Class A Shares
Combined Purchase and Cumulative Purchase Privilege. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See the table of breakpoints under "Shareholder
Guide--Alternative Purchase Plan in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group
that holds 25% or more of the outstanding voting securities of a
company will be deemed to control the company, and a partnership will
be deemed to be controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
B-24
<PAGE>
(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 a
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 any
retirement or group plans.
Rights of Accumulation. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must 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), including retirement and group plans, who
enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of the Fund and shares of other Prudential
Mutual Funds (Investment Letter of Intent). Retirement and group plans may also
qualify to purchase Class A shares at net asset value by entering into a Letter
of Intent whereby they agree to enroll, within a thirteen-month period, a
specified number of eligible employees or participants (Participant Letter of
Intent).
For purposes of the Investment Letter of Intent, all shares of the Fund and
shares of 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.
A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number of
investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish a minimum eligible employee or participant goal
over a thirteen-month period. Each investment made during the period, in the
case of an Investment Letter of Intent, will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. In the case of a Participant Letter of Intent, each investment made
during the period will be made at net asset value. Escrowed 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, except in the case of retirement
and group plans where the employer or plan sponsor will be responsible for
paying any applicable sales charge. The effective date of an Investment Letter
of Intent (except in the case of retirement and group plans) may be back-dated
up to 90 days, in order that any investments made during this 90-day period,
valued at the purchaser's cost, can be applied to the fulfillment of the Letter
of Intent goal.
The Investment Letter of Intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. Similarly, the Participant Letter of
Intent does not obligate the retirement or group plan to enroll the indicated
number of eligible employees or participants. In the event the Letter of Intent
goal is not achieved within the thirteen-month period, the purchaser (or the
employer or plan sponsor in the case of any retirement or group plan) is
required to pay the difference between the sales charge otherwise applicable to
the purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the Distributor
will liquidate sufficient escrowed shares to obtain such difference. If the goal
is exceeded in an amount which qualifies for a lower sales charge, a price
adjustment is made by refunding to the purchaser the amount of excess sales
charge, if any, paid during the thirteen-month period. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will, in the
case of an Investment Letter of Intent, be granted subject to confirmation of
the investor's holdings or in
B-25
<PAGE>
the case of a Participant Letter of Intent, subject to confirmation of the
number of eligible employees or participants in the retirement or group plan.
Letters of Intent are not available to individual participants in any retirement
or group plans.
Waiver of the Contingent Deferred Sales Charge--Class B Shares
The contingent deferred sales charge is waived under circumtances described
in the Prospectus. See "Shareholder Guide--How to Sell Your Shares--Waiver of
Contingent Deferred Sales Charges--Class B Shares" in the Prospectus. In
connection with these waivers, the Transfer Agent will require you to submit the
supporting documentation set forth below.
Category of Waiver Required Documentation
Death A copy of the shareholder's
death certificate or, in the
case of a trust, a copy of the
grantor's death certificate,
plus a copy of the trust
agreement identifying the
grantor.
Disability--An individual will be A copy of the Social Security
considered disabled if he or she is Administration award letter or
unable to engage in any substantial a letter from a physician on
gainful activity by reason of any the physician's letterhead
medically determinable physical or stating that the shareholder
mental impairment which can be expected (or, in the case of a trust,
to result in death or to be of the grantor) is permanently
long-continued and indefinite duration. disabled. The letter must also
indicate the date of
disability.
Distribution from an IRA or 403(b) A copy of the distribution
Custodial Account form from the custodial firm
indicating (i) the date of
birth of the shareholder and
(ii) that the shareholder is
over age 59-1/2 and is taking
a normal distribution--signed
by the shareholder.
Distribution from Retirement Plan A letter signed by the plan
administrator/trustee
indicating the reason for the
distribution.
Excess Contributions A letter from the shareholder
(for an IRA) or the plan
administrator/trustee on
company letterhead indicating
the amount of the excess and
whether or not taxes have been
paid.
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
Quantity Discount--Class B Shares Purchased Prior to August 1, 1994
The CDSC is reduced on redemptions of Class B shares of the Fund purchased
prior to August 1, 1994 if immediately after a purchase of such shares, the
aggregate cost of all Class B shares of the Fund owned by you in a single
account exceeded $500,000. For example, if you purchased $100,000 of Class B
shares of the Fund and the following year purchase an additional $450,000 of
Class B shares with the result that the aggregate cost of your Class B shares of
the Fund following the second purchase was $550,000, the quantity discount would
be available for the second purchase of $450,000 but not for the first purchase
of $100,000. The quantity discount will be imposed at the following rates
depending on whether the aggregate value exceeded $500,000 or $1 million:
Contingent Deferred Sales Charge
as a Percentage of Dollars Invested
or Redemption Proceeds
Year Since Purchase ----------------------------------------
Payment Made $500,001 to $1 million Over $1 million
------------------ ---------------------- ---------------
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.
B-26
<PAGE>
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to the
shareholders the following privileges and plans.
Automatic Reinvestment of Dividends and/or Distributions
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at net asset
value 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 (Short-Intermediate Term Series) and
shares of the money market funds specified below. No fee or sales load will be
imposed upon the exchange. Shareholders of money market funds who acquired such
shares upon exchange of Class A shares may use the Exchange Privilege only to
acquire Class A shares, of the Prudential Mutual Funds participating in the
Class A Exchange Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets, Inc.
Prudential Tax-Free Money Fund, Inc.
Class B and Class C. Shareholders of the Fund may exchange their Class B
and Class C shares for Class B and Class C shares, respectively, of certain
other Prudential Mutual Funds and shares of Prudential Special Money Market
Fund, 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.
B-27
<PAGE>
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.
Class Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
Additional details about the Exchange Privilege and prospectuses for each
of 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 60 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 $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class beginning in 2011, the cost of four years at a
private college could reach $210,000 and over $90,000 at a public
university.(1)
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
<TABLE>
<CAPTION>
Period of
Monthly investments: $100,000 $150,000 $200,000 $250,000
-------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years ................................ $ 110 $ 165 $ 220 $ 275
20 Years ................................ 176 264 352 440
15 Years ................................ 296 444 592 740
10 Years ................................ 555 833 1,110 1,388
5 Years ................................ 1,371 2,057 2,742 3,428
</TABLE>
See "Automatic Savings Accumulation Plan."
- ----------
(1)Source information concerning the costs of education at public and
private universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition, fees,
room and board for the 1993-1994 academic year.
(2)The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.
B-28
<PAGE>
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."
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.
B-29
<PAGE>
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.
Mutual Fund Programs
From time to time, the Fund (or a portfolio of the Fund, if applicable) may
be included in a mutual fund program with other Prudential Mutual Funds. Under
such a program, a group of portfolios will be selected and thereafter marketed
collectively. Typically, these programs are created with an investment theme,
e.g., to seek greater diversification, protection from interest rate movements
or access to different management styles. In the event such a program is
instituted, there may be a minimum investment requirement for the program as a
whole. The Fund may waive or reduce the minimum initial investment requirements
in connection with such a program.
The mutual funds in the program may be purchased individually or as a part
of a program. Since the allocation of portfolios included in the program may not
be appropriate for all investors, investors should consult their Prudential
Securities Financial Advisor or Prudential/Pruco Securities Representative
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
NET ASSET VALUE
Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board, the value of the investments
listed on a securities exchange and NASDAQ National Market System securities
(other than options on stock and stock indices) are valued at the last sale
price on the day of valuation or, if there was no sale on such day, the mean
between the last bid and asked prices on such day, as provided by a pricing
service or principal market maker. Corporate bonds (other than convertible debt
securities) and U.S. Government securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued on the basis of valuations
provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in comparable securities and various relationships between
securities in determining value. Convertible debt securities that are actively
traded in the over-the-counter market, including listed securities for which the
primary market is believed to be over-the-counter, are valued at the mean
between the last reported bid and asked prices provided by principal market
makers. Options on stock and stock indices traded on an exchange are valued at
the mean between the most recently quoted bid and asked prices on the respective
exchange and futures contracts and options thereon are valued at their last sale
prices as of the close of the commodities exchange or board of trade. Quotations
of foreign securities in a foreign currency are converted to U.S. dollar
equivalents at the current rate obtained from a recognized bank or dealer and
forward currency exchange contracts are valued at the current cost of covering
or offsetting such contracts. Should an extraordinary event, which is likely to
affect the value of the security, occur after the close of an exchange on which
a portfolio security is traded, such security will be valued at fair value
considering factors determined in good faith by the investment adviser under
procedures established by and under the general supervision of the Fund's Board
of Directors.
B-30
<PAGE>
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board. Short-term debt securities are valued at cost, with interest accrued or
discount amortized to the date of maturity, if their original maturity was 60
days or less, unless this is determined by the Board not to represent fair
value. Short-term securities with remaining maturities of more than 60 days, for
which market quotations are readily available, are valued at their current
market quotations as supplied by an independent pricing agent or principal
market maker. The Fund will compute its net asset value at 4:15 P.M., New York
time, on each day the New York Stock Exchange is open for trading except on days
on which no orders to purchase, sell or redeem Fund shares have been received or
days on which changes in the value of the Fund's portfolio securities do not
affect net asset value. In the event the New York Stock Exchange closes early on
any business day, the net asset value of the Fund's shares shall be determined
at the time between such closing and 4:15 P.M., New York time.
Net asset value is calculated separately for each class. As long as the
Fund declares dividends daily, the net asset value of Class A, Class B, Class C
and Class Z shares will generally be the same. It is expected, however, that the
dividends, if any, will differ by approximately the amount of the distribution
and/or service fee expense accrual 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, Class C and Class Z shares. See "How the Fund
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T)^(n) = ERV
Where: P = a hypothetical initial payment of $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 investment 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
since inception (May 26, 1988) periods ended December 31, 1996 was 7.8%, 8.4%
and 8.1%, respectively. The average annual total return for Class B shares for
the one year and since inception (January 15, 1992) periods ended December 31,
1996 was 7.4% and 8.4%, respectively. The average annual total return for Class
C shares for the one year and since inception (August 1, 1994) periods ended
December 31, 1996 was 9.4% and 12.4%, respectively.
Aggregate Total Return. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares. See "How the Fund Calculates Performance" in the
Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV-P
-----
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
since inception periods ended December 31, 1996 was 11.1%, 53.9% and 100.9%,
respectively. The aggregate total return for Class B shares for the one year and
since inception periods ended on December 31, 1996 was 10.4% and 49.5%,
respectively.The aggregate total return for Class C shares for the one year and
since inception (August 1, 1994) periods ended December 31, 1996 was 10.4% and
32.7%, respectively. The aggregate total return for the Class Z shares for the
since inception (September 13, 1996) period ended December 31, 1996 was 5.2%.
B-31
<PAGE>
Yield. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B, Class
C and Class Z shares. The yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
YIELD = 2[((a-b)/(cd)+1)^6-1]
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, 1996, were
5.56%, 5.13%, 5.13% and 5.89% for Class A, Class B, Class C and Class Z shares,
respectively.
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)
[NEW ART TO COME]
(1)Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1996
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. Common stock returns
are based on the Standard & Poor's 500 Stock Index, a market-weighted, unmanaged
index of 500 common stocks in a variety of industry sectors. It is a commonly
used indicator of broad stock price movements. This chart is for illustrative
purposes only, and is not intended to represent the performance of any
particular investment or fund. Investors cannot invest directly in an index.
Past performance is not a guarantee of future results.
B-32
<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,
payments with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies or certain other income,
including, but not limited to, gains derived from options and futures on such
securities or foreign currencies derived with respect to its business of
investing in securities and 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 (except for foreign
currencies directly related to the Fund's business of investing in securities);
(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 value of 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) and (d) the Fund distributes to its
shareholders at least 90% of its net investment income and net short-term gains
(i.e., the excess of net short-term capital gains over net long-term capital
losses) in each year. These requirements may limit the Fund's ability to engage
in, or close out, 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. 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.
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,
1996 of approximately $81,232,300 of which $39,358,200 expires in 1997,
$23,240,000 expires in 1998 and $18,634,100 expires in 2002.
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 and Class Z shares as a result of
the higher distribution-related fee applicable to the Class B and Class C
shares. The per share distributions of net capital gains, if any, will be paid
in the same amount for Class A, Class B, Class C and Class Z shares. See "Net
Asset Value."
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. Dividends paid by
the Fund will not be eligible for the dividends received deduction applicable to
corporate shareholders.
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 generally 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. 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
B-33
<PAGE>
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.
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.
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.
The Fund may purchase debt securities (such as zero-coupon bonds) that
contain original issue discount. Original issue discount that accrues in a
taxable year is treated as income earned by the Fund and therefore is subject to
the distribution requirements of the Internal Revenue Code. Because the original
issue discount income earned by the Fund in a taxable year may not be
represented by cash income, the Fund may have to dispose of other securities and
use the proceeds to make distributions to satisfy the Internal Revenue Code's
distribution requirements.
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 and
redemption payments 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.
Foreign Shareholders. 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
B-34
<PAGE>
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 31% 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.
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 LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
PMFS is a wholly-owned subsidiary of 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 ($13.00), a new account set-up fee ($2.00) for each
manually-established account and a monthly inactive zero balance account fee
($.20) per shareholder account. PMFS is also reimbursed for its out-of-pocket
expenses, including but not limited to postage, stationery, printing, allocable
communications expenses and other costs. For the fiscal year December 31, 1996,
the Fund incurred fees of approximately $317,000 for the services of PMFS.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants and in that capacity audits
the Fund's annual financial statements.
B-35
<PAGE>
Portfolio of Investments as of PRUDENTIAL INTERMEDIATE GLOBAL
December 31, 1996 INCOME FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
------------------------------------------------------------
LONG-TERM INVESTMENTS--87.4%
- --------------------------------------------------------------
Australia--5.1%
A$ 2,900 New South Wales Treasury
Corporation,
6.50%, 5/1/06 $ 2,125,407
9,500 Queensland Treasury
Corporation,
6.50%, 6/14/05 7,045,563
------------
9,170,970
- ------------------------------------------------------------
Canada--7.3%
C$ 3,000 British Columbia Provincial
Bonds,
7.75%, 6/16/03 2,374,754
Canadian Government Bonds,
10,000 9.00%, 12/1/04 8,556,115(a)
2,500 9.00%, 6/1/25, Ser. A-76 2,244,767(a)
------------
13,175,636
- ------------------------------------------------------------
Czech Republic--0.5%
CZK 10,000 International Finance
Corporation,
10.50%, 11/30/98 364,968
15,000 Skoda Finance,
11.625%, 2/9/98 549,378
------------
914,346
- ------------------------------------------------------------
Denmark--6.0%
Danish Government Bonds,
DKr 15,000 8.00%, 5/15/03 2,817,076
27,500 7.00%, 12/15/04 4,859,849(a)
16,500 8.00%, 3/15/06 3,070,821(a)
------------
10,747,746
- ------------------------------------------------------------
France--1.2%
FF 10,500 National Bank of Hungary,
8.00%, 11/12/99 2,198,237
Germany--10.2%
German Government Bonds,
DM 3,500 6.75%, 4/22/03 $ 2,441,491(a)
10,500 7.375%, 1/3/05 7,542,302(a)
2,500 6.25%, 1/4/24 1,534,846(a)
4,000 Republic of Columbia,
7.25%, 12/21/00 2,725,446
4,000 Tokyo Gas Co.,
7.00%, 7/27/05 2,752,674
2,000 United Mexican States,
8.125%, 9/10/04, FRN 1,312,805
------------
18,309,564
- ------------------------------------------------------------
Hungarian--0.6%
HUF 180,000 Hungary Government Bonds,
23.50%, 5/17/98 1,147,479
- ------------------------------------------------------------
Italy--4.5%
Lira 1,500,000 Bayerische Landesanstalt Bank,
10.625%, 5/12/00 1,097,501
9,000,000 Italian Government Bonds,
8.50%, 8/1/99 6,186,057
1,000,000 Republic of Italy,
8.50%, 1/1/04 702,598
------------
7,986,156
- ------------------------------------------------------------
Netherlands--6.7%
Dutch Government Bonds,
NLG 5,000 7.50%, 6/15/99 3,140,166
11,500 7.00%, 6/15/05 7,248,960(a)
2,600 7.50%, 1/15/23 1,694,477(a)
------------
12,083,603
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-36
<PAGE>
Portfolio of Investments as of PRUDENTIAL INTERMEDIATE GLOBAL
December 31, 1996 INCOME FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
------------------------------------------------------------
New Zealand--2.0%
NZ$ 4,800 New Zealand Government Bonds,
8.00%, 2/15/01 $ 3,506,686
- ------------------------------------------------------------
Poland--0.5%
PLZ 1,250 Poland Government Bonds,
16.00%, 10/12/98 409,981
1,250 General Electric Capital
Corporation,
18.25%, 2/27/98 427,329
------------
837,310
- ------------------------------------------------------------
Spain--4.1%
Spanish Government Bonds,
Pts 450,000 10.30%, 6/15/02 4,103,856(a)
375,000 8.20%, 2/28/09 3,156,303
------------
7,260,159
- ------------------------------------------------------------
United Kingdom--6.6%
BP 1,500 Guaranteed Export Finance
Corporation,
7.25%, 12/15/98 2,572,712
United Kingdom Treasury Bonds,
2,900 7.75%, 9/8/06 5,034,390
2,200 8.75%, 8/25/17 4,175,596
------------
11,782,698
- ------------------------------------------------------------
United States--32.1%
Corporate Bonds--3.4%
US$ 750 Banco Nacional de Commercio
Exterior SNC, (Mexico),
7.50%, 7/1/00 729,750
1,250 Bancomer S.A., SNC, (Mexico),
8.00%, 7/7/98 1,246,250
US$ 600 Empresas La Moderna S.A.,
(Mexico),
11.375%, 1/25/99 $ 630,000
1,450 Financiera Energetica Nacional,
(Colombia),
9.00%, 11/8/99 1,513,075
2,000 Petroleas Mexicano, (Mexico),
6.50%, 3/8/99, FRN 1,956,248
------------
6,075,323
Sovereign Bonds--7.8%
750 National Bank of Romania,
9.75%, 6/25/99 759,375
980 Republic of Argentina,
6.625%, 3/31/05, Ser. L, FRN 852,600
1,092 Republic of Brazil,
6.6875%, 1/1/01, IDU, FRN 1,057,875
Republic of Colombia,
2,185 7.125%, 5/11/98 2,192,647
1,500 7.25%, 2/23/04 1,435,500
3,500 Republic of Poland,
Disc. Note,
6.50%, 10/27/24, FRN 3,399,375
750 Rio De Janeiro Municipality,
10.375%, 7/12/99 774,375
500 Trinidad & Tobago Republic,
9.75%, 11/3/00 536,250
United Mexican States,
1,000 9.75%, 2/6/01 1,040,500
2,000 7.5625%, 8/6/01, FRN 2,004,800
------------
14,053,297
Supranational Bonds--0.8%
1,350 Corporacion Andina de Formento,
7.375%, 7/21/00 1,373,625
U.S. Government Obligations--20.1%
United States Treasury Notes,
15,000 6.75%, 6/30/99 15,264,900
6,500 6.125%, 9/30/00 6,495,905(a)
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-37
<PAGE>
Portfolio of Investments as of PRUDENTIAL INTERMEDIATE GLOBAL
December 31, 1996 INCOME FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
------------------------------------------------------------
U.S. Government Obligations (cont'd.)
United States Treasury Notes,
US$ 6,000 5.75%, 8/15/03 $ 5,820,000(a)
7,800 7.875%, 11/15/04 8,511,750(a)
------------
36,092,555
------------
57,594,800
------------
Total long-term investments
(cost US$148,296,553) 156,715,390
------------
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--10.4%
- ------------------------------------------------------------
Czech Republic--0.6%
CZK 30,000 ING Bank, Euro Commercial
Paper,
12.25%(b), 2/20/97 1,080,811
- ------------------------------------------------------------
Hungarian--0.3%
HUF 100,000 Hungarian Treasury Bills,
25.00%(b), 5/27/97 618,688
- ------------------------------------------------------------
Indonesia--0.2%
INR 1,000,000 Bank Tabungan Negara,
13.45%(b), 11/7/97 379,310
- ------------------------------------------------------------
Poland--0.8%
Polish Treasury Bills,
PLZ 1,000 19.00%(b), 1/22/97 345,753
1,000 19.00%(b), 2/5/97 343,282
2,340 19.00%(b), 2/12/97 799,206
------------
1,488,241
Spain--1.3%
Pts 300,000 Republic of Argentina,
12.80%, 12/9/97 $ 2,385,159
- ------------------------------------------------------------
United Kingdom--1.1%
BP 1,100 Mellon Bank Time Deposit,
5.75%, 1/6/97 1,881,950
- ------------------------------------------------------------
United States--6.1%
US$ 10,933 Joint Repurchase Agreement
Account,
6.61%, 1/2/97; (Note 5) 10,933,000
------------
Total short-term investments
(cost US$18,885,532) 18,767,159
------------
- ------------------------------------------------------------
Total Investments--97.8%
(cost US$167,182,085; Note 4) 175,482,549
Other assets in excess of
liabilities--2.2% 3,863,767
------------
Net Assets--100% $179,346,316
------------
------------
</TABLE>
- ---------------
Portfolio securities are classified according to the securities
currency denomination.
(a) Principal amount segregated as collateral for forward currency contracts.
Aggregate value of segregated securities-US$64,125,139.
(b) Percentages quoted represent yield-to-maturity as of purchase date.
FRB-Floating Rate Bond.
FRN-Floating Rate Note.
IDU-Interest Due and Unpaid Bonds.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-38
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL
Statement of Assets and Liabilities INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets December 31, 1996
Investments, at value (cost $167,182,085)............................................................... $ 175,482,549
Foreign currency, at value (cost $768,063).............................................................. 763,000
Cash.................................................................................................... 67,346
Interest receivable..................................................................................... 3,863,312
Forward currency contracts-net amount receivable from counterparties.................................... 247,726
Receivable for Fund shares sold......................................................................... 29,728
Other assets............................................................................................ 4,867
-----------------
Total assets......................................................................................... 180,458,528
-----------------
Liabilities
Payable for Fund shares reacquired...................................................................... 455,218
Accrued expenses........................................................................................ 372,392
Management fee payable.................................................................................. 113,616
Forward currency contracts-net amount payable to counterparties......................................... 110,550
Dividends payable....................................................................................... 30,719
Distribution fee payable................................................................................ 29,717
-----------------
Total liabilities.................................................................................... 1,112,212
-----------------
Net Assets.............................................................................................. $ 179,346,316
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................................. $ 21,513
Paid-in capital in excess of par..................................................................... 250,508,825
-----------------
250,530,338
Undistributed net investment income.................................................................. 1,676,080
Accumulated net realized loss on investments......................................................... (81,254,373)
Net unrealized appreciation on investments and foreign currencies.................................... 8,394,271
-----------------
Net assets, December 31, 1996........................................................................... $ 179,346,316
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($165,828,616 / 19,892,453 shares of common stock issued and outstanding)......................... $8.34
Maximum sales charge (3.00% of offering price)....................................................... .26
-----------------
Maximum offering price to public..................................................................... $8.60
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($12,986,899 / 1,556,607 shares of common stock issued and outstanding)........................... $8.34
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($189,666 / 22,736 shares of common stock issued and outstanding)................................. $8.34
-----------------
-----------------
Class Z:
Net asset value, offering price and redemption price per share
($341,135 / 40,924 shares of common stock issued and outstanding)................................. $8.34
-----------------
-----------------
</TABLE>
------------------------------------------------------------------------------
See Notes to Financial Statements.
B-39
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL
INCOME FUND, INC.
Statement of Operations
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Year Ended
Net Investment Income December 31, 1996
Income
Interest and discount earned (net of
foreign withholding taxes of
$12,892)........................... $14,703,425
-----------------
Expenses
Management fee........................ 1,386,451
Distribution fee--Class A............. 253,828
Distribution fee --Class B............ 116,182
Distribution fee--Class C............. 824
Transfer agent's fees and expenses.... 386,000
Custodian's fees and expenses......... 180,000
Reports to shareholders............... 153,000
Registration fees..................... 74,000
Audit fees and expenses............... 65,000
Directors' fees and expenses.......... 34,000
Legal fees and expenses............... 24,000
Insurance expense..................... 4,000
Miscellaneous......................... 10,761
-----------------
Total expenses..................... 2,688,046
-----------------
Net investment income.................... 12,015,379
-----------------
Net Realized and Unrealized Gain
(Loss) on Investments and Foreign
Currency Transactions
Net realized gain on:
Investment transactions............... 2,873,006
Foreign currency transactions......... 5,652,978
-----------------
8,525,984
-----------------
Net change in unrealized
appreciation/depreciation of:
Investments........................... (2,185,772)
Foreign currencies.................... 555,027
-----------------
(1,630,745)
-----------------
Net gain on investments and foreign
currencies............................ 6,895,239
-----------------
Net Increase in Net Assets
Resulting from Operations................ $18,910,618
-----------------
-----------------
</TABLE>
PRUDENTIAL INTERMEDIATE GLOBAL
Statement of Changes in Net Assets
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income.......... $ 12,015,379 $ 13,288,621
Net realized gain on investment
and foreign currency
transactions................ 8,525,984 18,708,769
Net change in net unrealized
appreciation/depreciation on
investments and foreign
currencies.................. (1,630,745) 15,737,917
------------ ------------
Net increase in net assets
resulting from operations... 18,910,618 47,735,307
------------ ------------
Net equalization debits........... -- (68,241)
------------ ------------
Dividends and distributions (Note 1)
Dividends from net investment
income
Class A..................... (11,085,209) (12,197,948)
Class B..................... (920,752) (1,089,996)
Class C..................... (6,619) (677)
Class Z..................... (2,799) --
------------ ------------
(12,015,379) (13,288,621)
------------ ------------
Distributions in excess of net
investment income
Class A..................... (5,793,623) (5,263,793)
Class B..................... (474,939) (470,367)
Class C..................... (4,101) (293)
Class Z..................... (4,774) --
------------ ------------
(6,277,437) (5,734,453)
------------ ------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
sold........................ 16,398,099 16,586,187
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 6,011,409 5,341,402
Cost of shares reacquired...... (42,995,654) (81,316,129)
------------ ------------
Net decrease in net assets from
Fund share transactions..... (20,586,146) (59,388,540)
------------ ------------
Total decrease.................... (19,968,344) (30,744,548)
Net Assets
Beginning of year................. 199,314,660 230,059,208
------------ ------------
End of year....................... $179,346,316 $199,314,660
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-40
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL
Notes to Financial Statements INCOME FUND, INC.
- --------------------------------------------------------------------------------
Prudential Intermediate Global Income Fund, Inc., (the ``Fund'') was organized
in Maryland as a closed-end, non-diversified management investment company and
commenced investment operations on May 26, 1988. On October 4, 1991 the Fund
concluded operations as a closed-end investment company and effective October 7,
1991, commenced operations as an open-end, non-diversified investment company.
The Fund's investment objective is to maximize total return, the components of
which are current income and capital appreciation, 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 Policies
The following is a summary of significant accounting policies 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. Portfolio securities (including options) are valued
at their current market value as determined by an independent pricing service,
principal market maker or by reference to the applicable exchange price. Forward
currency exchange contracts are valued at the current cost of covering or
offsetting the contract on the day of valuation. 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 its custodian or designated
subcustodians under triparty repurchase agreements, as the case may be 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 gains on foreign currency transactions represent 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 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: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The Fund enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its
- --------------------------------------------------------------------------------
B-41
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL
Notes to Financial Statements INCOME FUND, INC.
- --------------------------------------------------------------------------------
foreign portfolio holdings or on specific receivables and payables denominated
in a foreign currency. The contracts are valued daily at current exchange rates
and any unrealized gain or loss is included in net unrealized appreciation or
depreciation on investments. Gain or loss is realized on the settlement date of
the contract equal to the difference between the settlement value of the
original and renegotiated forward contracts. This gain or loss, if any, is
included in net realized gain (loss) on 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.
Security Transactions and Net 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. Expenses are recorded on the accrual basis which
may require the use of certain estimates by management.
Net investment income (other than distribution fees), and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
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.
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: Effective January 1, 1996, the Fund discontinued the accounting
practice of equalization. Equalization is a practice whereby a portion of the
proceeds from sales and costs of repurchases of capital 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. A portion ($402,412) of undistributed net investment income at December
31, 1995, resulting from equalization, was transferred to paid-in capital in
excess of par. Such reclassification has no effect on net assets, results from
operations, or net asset value per share.
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.
Reclassification of Capital Accounts: The Fund accounts for and reports
distributions to shareholders in accordance with AICPA Statement of Position
93-2: Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
effect of applying this Statement of Position was to reclassify $5,899,674 of
foreign currency gains from accumulated net realized loss on investments to
undistributed net investment income. Net investment income, net realized gains
and net assets were not affected by this change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management LLC
(``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 a distribution agreement with Prudential Securities Incorporated
(``PSI''), which acts as the distributor of the Class A, B, C and Z shares of
the Fund. The Fund compensates PSI for distributing and servicing the Fund's
Class A, Class B and Class C shares, pursuant to plans of distribution (the
``Class A, B and C Plans''), regardless of expenses actually incurred by them.
The distribution fees are accrued daily and payable monthly. No distribution or
service fees are paid to PSI as distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI with respect to
Class A, B and C shares, for distribution-related activities at an
- --------------------------------------------------------------------------------
B-42
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL
Notes to Financial Statements INCOME FUND, INC.
- --------------------------------------------------------------------------------
annual rate of up to .30 of 1%, .75 of 1% and 1%, of the average daily net
assets of the Class A, B and C shares, respectively. Such expenses under the
Plans were .15% of 1%, .75% of 1% and .75 of 1% of the average daily net assets
of the Class A, B and C shares, respectively, for the year ended December 31,
1996.
PSI has advised the Fund that it has received approximately $22,100 in front-end
sales charges resulting from sales of Class A shares during the year ended
December 31, 1996. From these fees, PSI paid such sales charges to Pruco
Securities Corporation, an affiliated broker-dealer, which in turn paid
commissions to salespersons and incurred other distribution costs.
PSI has advised the Fund that for the year ended December 31, 1996, it received
approximately $34,900 and $500 in contingent deferred sales charges imposed upon
certain redemptions by Class B and C shareholders, respectively.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.
The Fund, along with other affiliated registered investment companies (the
``Funds''), entered into a credit agreement (the ``Agreement'') on December 31,
1996 with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purposes of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of December 31,
1996. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and during the year ended December 31,
1996, the Fund incurred fees of approximately $317,000 for the services of PMFS.
As of December 31, 1996, fees of approximately $25,000 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 Securities
Purchases and sales of investment securities, other than short-term investments
for the year ended December 31, 1996, aggregated $73,338,409 and $95,925,619,
respectively.
At December 31, 1996, the Fund had outstanding forward currency contracts to
sell foreign currencies as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Payable Value (Depreciaton)
- ------------------------------- --------------- ----------- --------------
<S> <C> <C> <C>
Australian Dollars,
expiring 1/29/97.............. $ 1,714,535 $ 1,716,995 $ (2,460)
Deutschemarks,
expiring 1/29/97.............. 16,465,320 16,545,662 (80,342)
French Francs,
expiring 3/17/97.............. 6,849,047 6,759,979 89,068
Japanese Yen,
expiring 1/29/97.............. 4,428,698 4,335,068 93,630
Netherland Guilders,
expiring 1/29/97.............. 18,379,040 18,406,788 (27,748)
Swiss Francs,
expiring 1/29/97.............. 7,002,935 6,937,907 65,028
--------------- ----------- --------------
$54,839,575 $54,702,399 $ 137,176
--------------- ----------- --------------
--------------- ----------- --------------
</TABLE>
The federal income tax basis of the Fund's investments at December 31, 1996 was
$167,204,178 and, accordingly, net unrealized appreciation for federal income
tax purposes was $8,278,371 (gross unrealized appreciation--$9,615,041 gross
unrealized depreciation--$1,336,670).
For federal income tax purposes, the Fund has a capital loss carryforward as of
December 31, 1996, of approximately $81,232,300 of which $39,358,200 expires in
1997, $23,240,000 expires in 1998 and $18,634,100 expires in 2002. Such
carryforward is after utilization of approximately $2,531,798 of net taxable
gains realized and recognized during the year ended December 31, 1996.
Accordingly, no capital gains distribution is expected to be paid to
shareholders until net gains have been realized in excess of the aggregate of
such amounts.
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of
- --------------------------------------------------------------------------------
B-43
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL
Notes to Financial Statements INCOME FUND, INC.
- --------------------------------------------------------------------------------
December 31, 1996, the Fund has a 1.0% undivided interest in the joint account.
The undivided interest for the Fund represents $10,933,000 in the principal
amount. As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
Bear, Stearns & Co., 6.75%, in the principal amount of $341,000,000, repurchase
price $341,127,875, due 1/2/97. The value of the collateral including accrued
interest is $349,151,276.
Goldman, Sachs & Co. Inc., 6.60%, in the principal amount of $341,000,000,
repurchase price $341,125,033, due 1/2/97. The value of the collateral including
accrued interest is $347,820,889.
J.P. Morgan Securities, 6.60%, in the principal amount of $341,000,000,
repurchase price $341,125,033, due 1/2/97. The value of the collateral including
accrued interest is $347,822,540.
Sanwa Securities USA, 6.00%, in the principal amount of $68,014,000, repurchase
price $68,036,671, due 1/2/97. The value of the collateral including accrued
interest is $69,375,117.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 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. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately five
years after purchase. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value.
Effective September 13, 1996, the Fund commenced offering Class Z shares. Class
Z shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors.
There are 2 billion authorized shares of $.001 par value common stock divided
equally into Class A, B, C and Z shares. Of the 21,512,720 shares of common
stock issued and outstanding at December 31, 1996, PMF owned 12,717 Class A
shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------------- ----------- ------------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold....................... 1,627,906 $13,874,864
Shares issued in reinvestment of
dividends....................... 623,439 5,190,056
Shares reacquired................. (4,456,896) (37,256,995)
----------- ------------
Net decrease in shares outstanding
before conversion............... (2,205,551) (18,192,075)
Shares issued upon conversion from
Class B......................... 176,554 1,485,956
----------- ------------
Net decrease in shares
outstanding..................... (2,028,997) $(16,706,119)
----------- ------------
----------- ------------
Year ended December 31, 1995:
Shares sold....................... 1,850,612 $15,008,482
Shares issued in reinvestment of
dividends....................... 550,526 4,466,762
Shares reacquired................. (8,945,391) (72,011,740)
----------- ------------
Net decrease in shares outstanding
before conversion.............. . (6,544,253) (52,536,496)
Shares issued upon conversion from
Class B......................... 169,839 1,290,841
----------- ------------
Net decrease in shares
outstanding..................... (6,374,414) $(51,245,655)
----------- ------------
----------- ------------
<CAPTION>
Class B
- ----------------------------------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold....................... 221,716 $ 1,860,253
Shares issued in reinvestment of
dividends....................... 95,574 795,836
Shares reacquired................. (667,93) (5,574,736)
----------- ------------
Net decrease in shares outstanding
before conversion............... (350,643) (2,918,647)
Shares reacquired upon conversion
into Class A.................... (176,501) (1,485,956)
----------- ------------
Net decrease in shares
outstanding..................... (527,144) $(4,404,603)
----------- ------------
----------- ------------
Year ended December 31, 1995:
Shares sold....................... 195,759 $ 1,567,104
Shares issued in reinvestment of
dividends....................... 107,743 873,686
Shares reacquired................. (1,173,472) (9,304,389)
----------- ------------
Net decrease in shares outstanding
before conversion............... (869,970) (6,863,599)
Shares reacquired upon conversion
into Class A.................... (169,615) (1,290,841)
----------- ------------
Net decrease in shares
outstanding..................... (1,039,585) $(8,154,440)
----------- ------------
----------- ------------
</TABLE>
------------------------------------------------------------------------------
B-44
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL
Notes to Financial Statements INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Class C Shares Amount
- ---------------------------------- ----------- ------------
Year ended December 31, 1996:
Shares sold....................... 33,617 $ 278,856
Shares issued in reinvestment of
dividends....................... 1,399 11,666
Shares reacquired................. (13,861) (116,335)
----------- ------------
Net increase in shares
outstanding..................... 21,155 $ 174,187
----------- ------------
----------- ------------
Year ended December 31, 1995:
Shares sold....................... 1,439 $ 10,601
Shares issued in reinvestment of
dividends....................... 116 954
----------- ------------
Net increase in shares
outstanding..................... 1,555 $ 11,555
----------- ------------
----------- ------------
<CAPTION>
Class Z
- ----------------------------------
<S> <C> <C>
September 13, 1996(a) through
December 31, 1996:
Shares sold....................... 44,728 $ 384,126
Shares issued in reinvestment of
dividends and distributions..... 1,667 13,851
Shares reacquired................. (5,471) (47,588)
----------- ------------
Net increase in shares
outstanding..................... 40,924 $ 350,389
----------- ------------
----------- ------------
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
B-45
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL
Financial Highlights INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A(e)
----------------------------------------------------------------
Ten Months
Year Ended December 31, Ended
----------------------------------------------- December 31,
1996 1995 1994 1993 1992(b)
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 8.30 $ 7.32 $ 8.43 $ 7.77 $ 8.39
-------- -------- -------- -------- ------------
Income from investment operations
Net investment income........................................ .56 .52(d) .50 .59 .61
Net realized and unrealized gain (loss) on
investment and foreign currency transactions.............. .33 1.20(d) (1.09) .63 (.36)
-------- -------- -------- -------- ------------
Total from investment operations.......................... .89 1.72 (.59) 1.22 .25
-------- -------- -------- -------- ------------
Less distributions
Dividends from net investment income......................... (.56) (.52)(d) (.29) (.48) (.59)
Distributions in excess of net investment income............. (.29) (.22)(d) -- -- --
Distributions from capital gains............................. -- -- (.01) (.08) (.28)
Tax return of capital distributions.......................... -- -- (.22) -- --
-------- -------- -------- -------- ------------
Total distributions....................................... (.85) (.74) (.52) (.56) (.87)
-------- -------- -------- -------- ------------
Net asset value, end of period............................... $ 8.34 $ 8.30 $ 7.32 $ 8.43 $ 7.77
-------- -------- -------- -------- ------------
-------- -------- -------- -------- ------------
TOTAL RETURN(c):............................................. 11.13% 24.01% (7.02)% 16.12% 3.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $165,829 $181,985 $207,153 $320,406 $378,865
Average net assets (000)..................................... $169,219 $200,759 $262,882 $355,018 $331,339
Ratios to average net assets:
Expenses, including distribution fees..................... 1.40% 1.40% 1.46% 1.41% 1.30%(a)
Expenses, excluding distribution fees..................... 1.25% 1.25% 1.31% 1.26% 1.15%(a)
Net investment income..................................... 6.55% 6.09% 6.04% 7.42% 9.08%(a)
For Class A, B, C and Z shares:
Portfolio turnover rate...................................... 45% 220% 554% 361% 201%
<CAPTION>
<S> <C>
Year Ended
February 29,
1992
------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 8.79
------------
Income from investment operations
Net investment income........................................ .71
Net realized and unrealized gain (loss) on
investment and foreign currency transactions.............. (.36)
------------
Total from investment operations.......................... .35
------------
Less distributions
Dividends from net investment income......................... (.71)
Distributions in excess of net investment income............. --
Distributions from capital gains............................. --
Tax return of capital distributions.......................... (.04)
------------
Total distributions....................................... (.75)
------------
Net asset value, end of period............................... $ 8.39
------------
------------
TOTAL RETURN(c):............................................. 4.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $271,714
Average net assets (000)..................................... $399,714
Ratios to average net assets:
Expenses, including distribution fees..................... 1.20%
Expenses, excluding distribution fees..................... 1.15%
Net investment income..................................... 8.43%
For Class A, B, C and Z shares:
Portfolio turnover rate...................................... 170%
</TABLE>
- ---------------
(a) Annualized.
(b) The Fund changed its fiscal year end to December 31.
(c) 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.
(d) Calculated based upon average shares outstanding during the fiscal year.
(e) Prior to October 7, 1991, the Fund was organized as a closed-end fund.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-46
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL
Financial Highlights INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------
Ten Months
Year Ended December 31, Ended
-------------------------------------------- December 31,
1996 1995 1994 1993 1992(b)
-------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 8.31 $ 7.33 $ 8.44 $ 7.79 $ 8.40
-------- ------- ------- ------- ------------
Income from investment operations
Net investment income........................................ .53 .47(d) .45 .54 .57
Net realized and unrealized gain (loss) on
investment and foreign currency transactions.............. .30 1.20(d) (1.09) .63 (.35)
-------- ------- ------- ------- ------------
Total from investment operations.......................... .83 1.67 (.64) 1.17 .22
-------- ------- ------- ------- ------------
Less distributions
Dividends from net investment income......................... (.53 ) (.47)(d) (.26) (.44) (.55)
Distributions in excess of net investment income............. (.27 ) (.22)(d) -- -- --
Distributions from capital gains............................. -- -- (.01) (.08) (.28)
Tax return of capital distributions.......................... -- -- (.20) -- --
-------- ------- ------- ------- ------------
Total distributions....................................... (.80 ) (.69) (.47) (.52) (.83)
-------- ------- ------- ------- ------------
Net asset value, end of period............................... $ 8.34 $ 8.31 $ 7.33 $ 8.44 $ 7.79
-------- ------- ------- ------- ------------
-------- ------- ------- ------- ------------
TOTAL RETURN(c):............................................. 10.36 % 23.25% (7.69)% 15.29% 2.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $12,987 $17,317 $22,906 $39,440 $ 33,500
Average net assets (000)..................................... $15,491 $19,336 $31,835 $36,197 $ 18,358
Ratios to average net assets:
Expenses, including distribution fees..................... 2.00 % 2.00% 2.07% 2.01% 1.90%(a)
Expenses, excluding distribution fees..................... 1.25 % 1.25% 1.31% 1.26% 1.15%(a)
Net investment income..................................... 5.94 % 5.49% 5.44% 6.67% 8.54%(a)
<CAPTION>
<S> <C>
January 15,
1992(e)
Through
February 29,
1992
------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 8.43
-----
Income from investment operations
Net investment income........................................ .08
Net realized and unrealized gain (loss) on
investment and foreign currency transactions.............. (.03)
-----
Total from investment operations.......................... .05
-----
Less distributions
Dividends from net investment income......................... (.08)
Distributions in excess of net investment income............. --
Distributions from capital gains............................. --
Tax return of capital distributions.......................... --
-----
Total distributions....................................... (.08)
-----
Net asset value, end of period............................... $ 8.40
-----
-----
TOTAL RETURN(c):............................................. .58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $1,049
Average net assets (000)..................................... $ 456
Ratios to average net assets:
Expenses, including distribution fees..................... 1.03%(a)
Expenses, excluding distribution fees..................... .28%(a)
Net investment income..................................... 9.43%(a)
</TABLE>
- ---------------
(a) Annualized.
(b) The Fund changed its fiscal year end to December 31.
(c) 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.
(d) Calculated based upon average shares outstanding during the fiscal year.
(e) Figures are actual and not rounded to the nearest thousand.
- --------------------------------------------------------------------------------
14 See Notes to Financial Statements.
B-47
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL
Financial Highlights INCOME FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
-------------------------------------- -------------
August 1, September 13,
Year Ended December 1994(e) 1996(f)
31, Through Through
--------------------- December 31, December 31,
1996 1995 1994 1996
-------- -------- ------------ -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 8.31 $ 7.33 $ 7.69 $ 8.39
-------- -------- ----- -----
Income from investment operations
Net investment income........................................ .53 .47(d) .14 .32
Net realized and unrealized gain (loss) on investment and
foreign currency transactions............................. .30 1.20(d) (.32) .12
-------- -------- ----- -----
Total from investment operations.......................... .83 1.67 (.18) .44
-------- -------- ----- -----
Less distributions
Dividends from net investment income......................... (.53) (.47)(d) (.10) (.32)
Distributions in excess of net investment income............. (.27) (.22)(d) -- (.17)
Tax return of capital distributions.......................... -- -- (.08) --
-------- -------- ----- -----
Total distributions....................................... (.80) (.69) (.18) (.49)
-------- -------- ----- -----
Net asset value, end of period............................... $ 8.34 $ 8.31 $ 7.33 $ 8.34
-------- -------- ----- -----
-------- -------- ----- -----
TOTAL RETURN(c):............................................. 10.36% 23.25% (2.44)% 5.21%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $ 190 $ 13 $ 193(b) $ 341
Average net assets (000)..................................... $ 110 $ 11 $ 197(b) $ 142
Ratios to average net assets:
Expenses, including distribution fees..................... 2.00% 2.00% 1.05%(a) 1.11%(a)
Expenses, excluding distribution fees..................... 1.25% 1.25% .30%(a) 1.11%(a)
Net investment income..................................... 6.02% 5.49% 3.30%(a) 6.94%(a)
</TABLE>
- ---------------
(a) Annualized.
(b) Figures are actual and not rounded to the nearest thousand.
(c) 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.
(d) Calculated based upon average shares outstanding during the fiscal year.
(e) Commencement of offering of Class C shares.
(f) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-48
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL
Report of Independent Accountants INCOME FUND, INC.
- --------------------------------------------------------------------------------
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, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods presented 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, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 25, 1997
- --------------------------------------------------------------------------------
B-49
<PAGE>
APPENDIX I--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
Asset Allocation
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.
Diversification
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks and (general returns) of any one type of security.
Duration
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
Market Timing
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
Power of Compounding
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
I-1
<PAGE>
APPENDIX II--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This chart shows the long-term performance of various asset classes and the rate
of inflation.
EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY
[CAMERA READY GRAPH]
- ----------
Source: Stocks, Bonds, Bills, and Inflation 1996 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is for illustrative
purposes only and is not indicative of the past, present, or future performance
of any asset class or any Prudential Mutual Fund.
Generally, stock returns are due to capital appreciation and reinvesting any
gains. Bond returns are due mainly to reinvesting interest. Also, stock prices
are usually more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 are those of stocks comprising the 5th quintile of the New
York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the S&P
Composite Index, a market-weighted, unmanaged index of 500 stocks (currently) in
a variety of industries. It is often used as a broad measure of stock market
performance.
Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).
II-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1987
through 1995. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Fund Expenses" in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.
Historical Total Returns of Different Bond Market Sectors
<TABLE>
<CAPTION>
'87 '88 '89 '90 '91 '92 '93 '94 '95
------ ------ ------ ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Treasury Bonds(1) ......... 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4%
----- ----- ----- ----- ----- ----- ----- ----- -----
U.S. Government
Mortgage Securities(2) .... 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8%
----- ----- ----- ----- ----- ----- ----- ----- -----
U.S. Investment Grade
Corporate Bonds(3) ........ 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3%
----- ----- ----- ----- ----- ----- ----- ----- -----
U.S. High Yield
Corporate Bonds(4) ........ 5.0% 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2%
----- ----- ----- ----- ----- ----- ----- ----- -----
World Government
Bonds(5) .................. 35.2% 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6%
----- ----- ----- ----- ----- ----- ----- ----- -----
Difference between
highest and lowest
return percent ............ 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- ----------
(1) Lehman Brothers Treasury Bond Index is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one year.
(2) Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
(3) Lehman Brothers Corporate Bond Index includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds.All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. AlI bonds in
the index have maturities of at least one year.
(4) Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.
(5) Salomon Brothers World Government Index (Non U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the U.S.,
but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
II-2
<PAGE>
This chart below shows the historical volatility of general interest rates as
measured by the long U.S. Treasury Bond.
Long U.S. Treasury Bond Yield in Percent (1926-1995)
[CAMERA READY GRAPH]
- ----------
Source: Stocks, Bonds, Bills, and Inflation 1996 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. The chart illustrates the historical
yield of the long-term U.S. Treasury Bond from 1926-1995. Yields represent that
of an annually renewed one-bond portfolio with a remaining maturity of
approximately 20 years. This chart is for illustrative purposes and should not
be construed to represent the yields of any Prudential Mutual Fund.
Efficient Frontier of U.S. Bonds vs Non-U.S. Bonds
This chart below is a graphical representation of the risk/return possibilities
of a portfolio consisting of U.S. Bonds and non-U.S. Bonds (Unhedged).
[CAMERA READY GRAPH]
- ----------
Source:
II-3
<PAGE>
Efficient Frontier of U.S. Stocks vs Non-U.S. Bonds
This chart below is a graphical representation of the risk/return possibilities
of a portfolio consisting of U.S. Stocks and non-U.S. Bonds (Unhedged).
[CAMERA READY GRAPH]
- ----------
Source:
II-4
<PAGE>
Efficient Frontier of U.S. Stock/Bond Mix vs Non-U.S. Bonds
This chart below is a graphical representation of the risk/return possibilities
of a portfolio consisting of a U.S. Bond/Stock Mix and non-U.S. Bonds
(Unhedged).
[CAMERA READY GRAPH]
- ----------
Source:
Salomon Brothers International Ltd
Historical Risk-Return from a U.S. Dollar Perspective
Time Period: 31 Dec 1984 to 31 Jan 1996
All indices in U.S. Dollar terms unhedged
All annualized numbers
Risk is defined as the annualized standard deviation of monthly returns
Return Risk
------ ----
SB U.S. Treasury Index (All Maturities) .............. 10.38% 5.15%
SB Non-U.S. World Govt Bond Index (All Maturities) ... 15.08% 11.50%
Correlation between monthly returns ............ 0.33
Historical Risk and Return
U.S. Tsy Non U.S. WGBI Return Risk
-------- ------------- ------ ----
100% 0% 10.38% 5.15%
90% 10% 10.85% 5.13%
80% 20% 11.32% 5.35%
70% 30% 11.79% 5.76%
60% 40% 12.26% 6.34%
50% 50% 12.73% 7.04%
40% 60% 13.20% 7.83%
30% 70% 13.67% 8.69%
20% 80% 14.14% 9.59%
10% 90% 14.61% 10.53%
0% 100% 15.08% 11.50%
II-5
<PAGE>
Return Risk
------ ----
S&P 500 Return Index (Source: Datastream) ............ 16.45% 14.59%
SB Non-U.S. World Govt Bond Index (All Maturities) ... 15.08% 11.50%
Correlation between monthly returns ............ -0.03
Historical Risk and Return
S&P 500 Non U.S. WGBI Return Risk
------- ------------- ------ ----
100% 0% 16.45% 14.59%
90% 10% 16.32% 13.14%
80% 20% 16.18% 11.82%
70% 30% 16.04% 10.67%
60% 40% 15.90% 9.75%
50% 50% 15.77% 9.13%
40% 60% 15.63% 8.88%
30% 70% 15.49% 9.03%
20% 80% 15.36% 9.56%
10% 90% 15.22% 10.40%
0% 100% 15.08% 11.50%
Return Risk
------ ----
SB Non-U.S. World Govt Bond Index (All Maturities) 15.08% 11.50%
60% S&P 500/40% U.S. Treasuries 14.26% 9.64%
Correlation between monthly returns 0.04
Historical Risk and Return
60%/40%
Non U.S. WGBI S&P/USTs Return Risk
------------- -------- ------ ----
100% 0% 15.08% 11.50%
90% 10% 15.00% 10.43%
80% 20% 14.92% 9.48%
70% 30% 14.84% 8.66%
60% 40% 14.75% 8.04%
50% 50% 14.67% 7.65%
40% 60% 14.59% 7.53%
30% 70% 14.51% 7.70%
20% 80% 14.43% 8.14%
10% 90% 14.34% 8.80%
0% 100% 14.26% 9.64%
II-6
<PAGE>
Comparison of World Bond Markets
This table represents a percentage of total world bond assets broken down by
country.
Comparison of World Bond Markets
Country Dec. '85 Dec. '94
- ------- -------- --------
United States .......... 52% 42%
Japan .................. 18% 20%
Germany ................ 7% 11%
Italy .................. 4% 5%
United Kingdom ......... 4% 3%
France ................. 3% 5%
Canada ................. 3% 2%
Scandanavia ............ 3% 3%
Belgium ................ 2% 2%
Switzerland ............ 1% 1%
Holland ................ 1% 2%
Other .................. 2% 4%
---- ----
100% 100%
Source: Salomon Brothers
II-7
<PAGE>
APPENDIX III--INFORMATION RELATING TO THE PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1995 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.
Information about Prudential
The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1995. Its primary business is to offer a full range of products and services in
three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs more
than 92,000 persons worldwide, and maintains a sales force of approximately
13,000 agents and 5,600 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.
Insurance. Prudential has been engaged in the insurance business since
1875. It ensures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million life
insurance policies in force today with a face value of $1 trillion. Prudential
has the largest capital base ($11.4 billion) of any life insurance company in
the United States. Prudential provides auto insurance for more than 1.7 million
cars and insures more than 1.4 million homes.
Money Management. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It manages
$36 billion of individual retirement plan assets, such as 401(k) plans. In July
1996, Institutional Investor ranked Prudential the fifth largest institutional
money manager of the 300 largest money management organizations in the United
States as of December 31, 1995. As of December 31, 1995, Prudential had more
than $314 billion in assets under management. Prudential Investments, a business
group of Prudential (of which Prudential Mutual Funds is a key part) manages
over $190 billion in assets of institutions and individuals.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 34,000 brokers and
agents and more than 1,100 offices in the United States.(2)
Healthcare. Over two decades ago, Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
Information about the Prudential Mutual Funds
Prudential Mutual Fund Management is one of the fifteen largest mutual fund
companies in the country, with over 2.5 million shareholders invested in more
than 50 mutual fund portfolios and variable annuities with more than 3.7 million
shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
- ----------
(1) Prudential Investments, a business group of PIC, serves as the Subadviser
to substantially all of the Prudential Mutual funds. Wellington Management
Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as subadviser to Nicholas-Applegate
Fund, Inc., Jennison Associates Capital Corp. as the subadviser to
Prudential Jennison Series Fund, Inc. and Prudential Active Balanced Fund,
a portfolio of Prudential Dryden Fund, Mercator Asset Management LP as the
subadviser to International Stock Series, a portfolio of Prudential World
Fund, Inc. and BlackRock Financial Management, Inc. as subadviser to The
BlackRock Government Income Trust. There are multiple subadvisers for The
Target Portfolio Trust.
(2) As of December 31, 1994
III-1
<PAGE>
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York times, Barron's and USA Today.
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Fund, a growth-style equity
fund managed by Jennison Associates Capital Corp., a premier institutional
equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so other high yield bonds, which may be
considered for purchase.(3) Non-investment grade bonds, also known as junk bonds
or high yield bonds, are subject to a greater risk of loss of principal and
interest including default risk than higher-rated bonds. Prudential high yield
portfolio managers and analysts meet face-to-face with almost every bond issuer
in the High Yield Fund's portfolio annually, and have additional telephone
contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over
1,200 companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their
visits overseas, often holding private meetings with a company in a foreign
language (our global equity managers speak 7 different languages, including
Mandarin Chinese).
Trading Data.(4) On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing over
3.8 million shares with nearly 200 different firms. Prudential Mutual Funds'
bond trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets.(5) Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In 1994,
the Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities.(6)
Based on complex-wire data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.
- ----------
(3) As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
(4) Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-U.S. accounts
managed by Prudential Investments, a business group of PIC, for the year
ended December 31, 1995.
(5) Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General US. Government and Mortgage Funds.
(6) As of December 31, 1994.
III-2
<PAGE>
Information about Prudential Securities
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI.(7)
Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities' Financial
Advisor training programs receive a grade of A- (compared to an industry average
of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey. Five
Prudential Securities' analysts were ranked as first-team finishers.(8)
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architects(SM), a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ----------
(7) As of December 31, 1994.
(8) On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taking the number of votes awarded to an individual analyst
and weighing them based on the size of the voting institution. In total,
the magazine sends its survey to approximately 2,000 institutions and a
group of European and Asian institutions.
III-3
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Financial Statements incorporated by reference in the Prospectus
constituting Part A of this Registration Statement:
Financial Highlights.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at December 31, 1996.
Statement of Assets and Liabilities at December 31, 1996.
Statement of Operations for the Fiscal Year Ended December 31,
1996.
Statement of Changes in Net Assets for the Fiscal Years ended
December 31, 1996 and 1995.
Notes to Financial Statements.
Financial Highlights.
Report of Independent Accountants.
(b) Exhibits:
1. (a) Restated Articles of Incorporation. (Incorporated by
reference to Exhibit 1 to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed via EDGAR on March 1,
1995 (File No. 33-42093).)
(b) Articles Supplementary. (Incorporated by reference to
Exhibit 1(b) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A filed via EDGAR on August 15,
1996 (File No. 33-42093).)
2. Amended By-Laws of Registrant.*
3. Not Applicable.
4. (a) Specimen stock certificates.
(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 Registrant and Prudential Mutual
Fund Management, Inc.*
(b) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation.*
6. (a) Selected Dealer Agreement.*
(b) Amended and Restated Distribution Agreement. (Incorporated by
reference to Exhibit 6(b) to Post-Effective Amendment No. 9 to
the Registration Statement on Form N-1A filed via EDGAR on August
15, 1996 (File No. 33-42093).)
7. Not Applicable.
8. Custodian Contract between the Registrant and State Street Bank
and Trust Company.*
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc.*
10. (a) Opinion of Shereff, Friedman, Hoffman & Goodman, LLP, dated
October 3, 1991. (Incorporated by reference to Exhibit 10 to
Post-Effective Amendment No. 8 to the Registration Statement on
Form N-1A filed via EDGAR on March 1, 1996 (File No. 33-42093).)
(b) Opinion of Shereff, Friedman, Hoffman & Goodman, LLP dated
February 27, 1997.*
11. Consent of Independent Accountants.*
- ----------
*Filed herewith.
C-1
<PAGE>
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. (a) Distribution and Service Plan for Class A shares.
(Incorporated by reference to Exhibit 15(e) to Post-Effective
Amendment No. 7 to the Registration Statement on Form N-1A filed
via EDGAR on March 1, 1995 (File No. 33-42093).)
(b) Distribution and Service Plan for Class B shares.
(Incorporated by reference to Exhibit 15(f) to Post-Effective
Amendment No. 7 to the Registration Statement on Form N-1A filed
via EDGAR on March 1, 1995 (File No. 33-42093).)
(c) Distribution and Service Plan for Class C shares.
(Incorporated by reference to Exhibit 15(g) to Post-Effective
Amendment No. 7 to the Registration Statement on Form N-1A filed
via EDGAR on March 1, 1995 (File No. 33-42093).)
16. (a) Schedule of Computation of Performance Quotations.*
(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).)
17. Financial Data Schedules filed as Exhibit 27 for electronic
purposes.*
18. Rule 18f-3 Plan. (Incorporated by reference to Exhibit 18 to
Post-Effective Amendment No. 9 to the Registration Statement on
Form N-1A filed via EDGAR on August 15, 1996
(File No. 33-42093).)
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of February 7, 1997 there were 18,836, 1,080, 22 and 125 record holders
of Class A, Class B, Class C and Class Z shares of common stock, $.001 par value
per share, of the Registrant, respectively.
Item 27. Indemnification
As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940, as amended (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 the Distribution
Agreement (Exhibit 6 (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, as amended (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.
C-2
<PAGE>
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 LLC
See "How the Fund is Managed--Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of 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.
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 Gateway Center Three, Newark, NJ 07102.
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Brian Storms Officer-In-Charge, Officer-In-Charge, President, Chief Executive Officer and Chief
President, Chief Operating Officer, PMF
Executive officer and
Chief Operating Officer
Robert F. Gunia Executive Vice President Comptroller, Prudential Investments; Executive Vice
and Treasurer President and Treasurer, PMF; Senior Vice President of
Prudential Securities Incorporated (Prudential Securities)
Thomas A. Early Executive Vice President Executive Vice President, Secretary and General Counsel,
Secretary and General PMF; Vice President and General Counsel, Prudential
Counsel Retirement Services
,
Susan C. Cote Executive Vice President, Executive Vice President, Chief Financial Officer, PMF;
Chief Financial Officer Managing Director, Prudential Investments and Vice
President, PIC
Neil A. McGuiness Executive Vice President Executive Vice President, PMF
Robert J. Sullivan Executive Vice President Executive Vice President, PMF
</TABLE>
(b) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
C-3
<PAGE>
The business and other connections of PIC's directors and executive
officers are as set forth below. The address of each person is Prudential Plaza,
Newark, NJ 07102.
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of Prudential Investments of The
President and Chief Prudential Insurance Company of America (Prudential)
Executive Officer and
Director
Jonathan M. Greene Senior Vice President and President--Investment Management of Prudential Investments of Prudential
Director
John R. Strangfeld Vice President and Director President of Private Asset Management Group of Prudential
</TABLE>
Item 29. Principal Underwriters
(a) Prudential Securities Incorporated
Prudential Securities is distributor for The Black Rock Government Income
Trust, Command Government Fund, Command Money Fund, Command Tax-Free Fund, The
Global Government Plus Fund, Inc., The Global Total Return Fund, Inc., Global
Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth
Equity Fund), Prudential Allocation Fund, Prudential California Municipal Fund,
Prudential Diversified Bond Fund, Inc., Prudential Equity Fund, Inc., Prudential
Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential Distressed
Securities Fund, Inc., Prudential Dryden Fund, Prudential Emerging Growth Fund,
Inc., Prudential Global Genesis Fund, Inc., Prudential Global Limited Maturity,
Inc., Prudential Government Income Fund, Inc., Prudential Government Securities
Trust, Prudential High Yield Fund, Inc., Prudential Institutional Liquidity
Portfolio, Inc., Prudential Intermediate Global Income Fund, Inc., Prudential
Jennison Series Fund, Inc., Prudential MoneyMart Assets, Inc., Prudential
Mortgage Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund, Prudential National
Municipals Fund, Inc., Prudential Natural Resources Fund, Inc., Prudential
Pacific Growth Fund, Inc., Prudential Small Companies Fund, Inc., Prudential
Special Money Market Fund, Inc., Prudential Structured Maturity Fund, Inc.,
Prudential Tax-Free Money Fund, Inc., Prudential Utility Fund, Inc., Prudential
World Fund, Inc. and The Target Portfolio Trust. Prudential Securities is also a
depositor for the following unit investment trusts:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(b) Information concerning the officers and directors of Prudential
Securities Incorporated is set forth below.
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- -------------
<S> <C> <C>
Robert C. Golden .............. Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Alan D. Hogan ................. Executive Vice President, Chief Administrative Officer and Director None
George A. Murray .............. Executive Vice President and Director None
Leland B. Paton ............... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Martin Pfinsgraff ............. Executive Vice President, Chief Financial Officer and Director None
Vincent T. Pica, II ........... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Hardwick Simmons .............. Chief Executive Officer, President and Director None
Lee B. Spencer, Jr. ........... General Counsel, Executive Vice President and Director None
</TABLE>
- ----------
(1)The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
C-4
<PAGE>
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts 02171, The Prudential Investment Corporation, Prudential
Plaza, 745 Broad Street, Newark, New Jersey 07102, the Registrant, Gateway
Center Three, Newark, New Jersey 07102, and Prudential Mutual Fund Services LLC,
Raritan Plaza One, Edison, New Jersey 08837. Documents required by Rules
31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) 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 LLC.
Item 31. Management Services
Other than as set forth under the captions "How the Fund is
Managed--Manager" and "How the Fund is Managed-- Distributor" in the Prospectus
and the captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service contract.
Item 32. Undertakings
The Registrant hereby undertakes to furnish each person to whom a
Prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Newark, and State of New Jersey, on the 27th day of February, 1997.
PRUDENTIAL INTERMEDIATE GLOBAL INCOME
FUND, INC.
/s/ Richard A. Redeker
-------------------------------------
Richard A. Redeker, 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/ Edward D. Beach Director February 27, 1997
- ----------------------------
Edward D. Beach
/s/ Delayne D. Gold Director February 27, 1997
- ----------------------------
Delayne D. Gold
/s/ Robert F. Gunia Director February 27, 1997
- ----------------------------
Robert F. Gunia
/s/ Donald D. Lenox Director February 27, 1997
- ----------------------------
Donald D. Lenox
/s/ Douglas H. McCorkindale Director February 27, 1997
- ----------------------------
Douglas H. McCorkindale
/s/ Mendel A. Melzer Director February 27, 1997
- ----------------------------
Mendel A. Melzer
/s/ Thomas T. Mooney Director February 27, 1997
- ----------------------------
Thomas T. Mooney
/s/ Stephen P. Munn Director February 27, 1997
- ----------------------------
Stephen P. Munn
/s/ Richard A. Redeker President and Director February 27, 1997
- ----------------------------
Richard A. Redeker
/s/ Robin B. Smith Director February 27, 1997
- ----------------------------
Robin B. Smith
/s/ Louis A. Weil, III Director February 27, 1997
- ----------------------------
Louis A. Weil, III
/s/ Clay T. Whitehead Director February 27, 1997
- ----------------------------
Clay T. Whitehead
/s/ Grace C. Torres Principal Financial February 27, 1997
- ---------------------------- and Accounting Officer
Grace C. Torres
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
- ----------- ----------- ------------
<S> <C> <C>
1. (a) Restated Articles of Incorporation. (Incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 7 to the Registration Statement on
Form N-1A filed via EDGAR on March 1, 1995 (File No. 33-42093).)
(b) Articles Supplementary. (Incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 9 to the Registration Statement on Form N-1A filed
via EDGAR on August 15, 1996 (File No. 33-42093).)
2. Amended By-Laws of Registrant.*
3. Not Applicable.
4. (a) Specimen stock certificates.
(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 Registrant and Prudential Mutual Fund
Management, Inc.*
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation.*
6. (a) Selected Dealer Agreement.*
(b) Amended and Restated Distribution Agreement. (Incorporated by reference
to Exhibit 6 to Post-Effective Amendment No. 9 to the Registration Statement on
Form N-1A filed via EDGAR on August 15, 1996. (File No. 33-42093).)
7. Not Applicable.
8. Custodian Contract between the Registrant and State Street Bank and
Trust Company.*
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc.*
10. (a) Opinion of Shereff, Friedman, Hoffman & Goodman, LLP, dated October 3,
1991. (Incorporated by reference to Exhibit 10 to Post-Effective Amendment No. 8
to the Registration Statement on Form N-1A filed via EDGAR on March 1, 1996 File
No. 33-42093).)
(b) Opinion of Shereff, Friedman, Hoffman & Goodman, LLP dated February 27, 1997.*
11. Consent of Independent Accountants.*
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. (a) Distribution and Service Plan for Class A shares. (Incorporated by
reference to Exhibit 15(e) to Post-Effective Amendment No. 7 to the Registration
Statement on Form N-1A filed via EDGAR on March 1, 1995 (File No. 33-42093).)
(b) Distribution and Service Plan for Class B shares. (Incorporated by
reference to Exhibit 15(f) to Post-Effective Amendment No. 7 to the Registration
Statement on Form N-1A filed via EDGAR on March 1, 1995 (File No. 33-42093).)
(c) Distribution and Service Plan for Class C shares. (Incorporated by
reference to Exhibit 15(g) to Post-Effective Amendment No. 7 to the Registration
Statement on Form N-1A filed via EDGAR on March 1, 1995 (File No. 33-42093).)
16. (a) Schedule of Computation of Performance Quotations.*
(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).)
17. Financial Data Schedules filed as Exhibit 27 for electronic purposes.*
18. Rule 18f-3 Plan. (Incorporated by reference to Exhibit 18 to
Post-Effective Amendment No. 9 to the Registration Statement on Form N-1A filed
via EDGAR on August 15, 1996 (File No. 33-42093).
</TABLE>
- ----------
*Filed herewith.
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
Amended By-Laws
(June 26, 1991)
ARTICLE I.
Stockholders
Section 1. Place of Meeting. All meetings of the stockholders shall be held
at the principal office of the Corporation in the State of Maryland or at such
other place within the United States as may from time to time be designated by
the Board of Directors and stated in the notice of such meeting.
Section 2. Annual Meetings. The annual meeting of the stockholders of the
Corporation shall be held on a date and at such hour as may from time to time be
designated by the Board of Directors and stated in the notice of such meeting,
within the month ending four months after the end of the Corporation's fiscal
year, for the transaction of such business as may properly be brought before the
meeting; provided however, that an annual meeting shall not be required to be
held in any year in which the election of directors is not required to be acted
on by Stockholders under the Investment Company Act of 1940.
Section 3. Meetings. Meetings of the stockholders for any purpose or
purposes may be called by the Chairman of the Board, the President or a majority
of the Board of Directors, and shall be called by the Secretary upon receipt of
the request in writing signed by stockholders holding not less than 10% of the
common stock issued and outstanding and entitled to vote thereat. Such request
shall state the purpose or purposes of the proposed meeting. The Secretary shall
inform such stockholders of the reasonably estimated costs of preparing and
mailing such notice of meeting and upon payment to the Corporation of such
costs, the Secretary shall give notice stating the purpose
<PAGE>
or purposes of the meeting as required in this Article and by-law to all
stockholders entitled to notice of such meeting. No meeting need be called upon
the request of the holders of shares entitled to cast less than a majority of
all votes entitled to be cast at such meeting to consider any matter which is
substantially the same as a matter voted upon at any meeting of stockholders
held during the preceding twelve months.
Section 4. Notice of Meetings of Stockholders. Not less than ten days' and
not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof and the general nature of the
business proposed to be transacted thereat, shall be given to each stockholder
entitled to vote thereat by leaving the same with such stockholder or at such
stockholder's residence or usual place of business or by mailing it, postage
prepaid, and addressed to such stockholder at such stockholder's address as it
appears upon the books of the Corporation. If mailed, notice shall be deemed to
be given when deposited in the United States mail addressed to the stockholder
as aforesaid.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holdings thereof, waives such notice.
Section 5. Record Dates. The Board of Directors may fix, in advance, a date
not exceeding ninety days preceding the date of any meeting of stockholders, any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the stockholders entitled to notice of and to vote at
such meeting or entitled to receive such dividends or rights, as the case may
be; and only stockholders of record on such date shall be entitled to notice of
and to vote
2
<PAGE>
at such meeting or to receive such dividends or rights, as the case may be. In
the case of a meeting of stockholders, such date shall not be less than ten days
prior to the date fixed for such meeting.
Section 6. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of one-third of the shares of the common stock of
the Corporation issued and outstanding and entitled to vote thereat shall
constitute a quorum at all meetings of the stockholders except as otherwise
provided in the Articles of Incorporation. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the holders of a
majority of the stock present in person or by proxy shall have power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until stockholders owning the requisite amount of stock entitled to
vote at such meeting shall be present. At such adjourned meeting at which
stockholders owning the requisite amount of stock entitled to vote thereat shall
be represented, any business may be transacted which might have been transacted
at the meeting as originally notified.
Section 7. Voting and Inspectors. At all meetings, stockholders of record
entitled to vote thereat shall have one vote for each share of common stock
standing in his name on the books of the Corporation (and such stockholders of
record holding fractional shares, if any, shall have proportionate voting
rights) on the date for the determination of stockholders entitled to vote at
such meeting, either in person or by proxy appointed by instrument in writing
subscribed by such stockholder or his duly authorized attorney.
All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided by
statute or by the Articles of Incorporation or by these By-Laws.
3
<PAGE>
At any election of directors, the Chairman of the meeting may, and upon the
request of the holders of ten percent (10%) of the stock entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of, director shall be appointed such
inspector.
Section 8. Conduct of Stockholders' Meetings. The meetings the stockholders
shall be presided over by the Chairman of the Board, or if he or she is not
present, by the President, or if he or she is not present, by a Vice-President,
or if none of them is present, by a Chairman to be elected at the meeting. The
Secretary of the Corporation, if present, shall act as a Secretary of such
meetings, or if he or she is not present, an Assistant Secretary shall so act;
if neither the Secretary nor the Assistant Secretary present, then the meeting
shall elect its Secretary.
Section 9. Concerning Validity of Proxies, Ballots, etc. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the Secretary of the meeting, who
shall decide all questions concerning the qualification of voters, the validity
of the proxies and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed by the Chairman of the meeting, in which
event such inspectors of election shall decide all such questions.
ARTICLE II.
Board of Directors
Section 1. Number and Tenure of Office. The business and affairs of the
Corporation shall be conducted and managed by a Board of Directors of not less
than three nor more than twelve
4
<PAGE>
directors, as may be determined from time to time by vote of a majority of the
directors then in office, provided that if there is no stock outstanding the
number of directors may be less than three but not less than one. Directors need
not be stockholders.
Section 2. Vacancies. In case of any vacancy in the Board of Directors
through death, resignation or other cause, other than increase in the number of
directors, a majority of the remaining directors, although a majority is less
than a quorum, by an affirmative vote, may elect a successor to hold office
until the next meeting of stockholders or until his successor is chosen and
qualifies.
Section 3. Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of directors and may elect directors to fill the vacancies created by any
such increase in the number of directors until the next meeting of stockholders
or until their successors are duly chosen and qualified. The Board of Directors,
by the vote of a majority of the entire Board, may likewise decrease the number
of directors to a number not less than three.
Section 4. Place of Meeting. The directors may hold their meetings, have
one or more offices, and keep the books of the Corporation, outside the State of
Maryland, at any office or offices of the Corporation or at any other place as
they may from time to time by resolution determine, or in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice as the directors may from time to
time determine.
Section 6. Special Meetings. Special meetings of the Board Of Directors may
be held from time to time upon call of the Chairman of the Board, the President,
the Secretary or two or more
5
<PAGE>
of the directors, by oral or telegraphic or written notice duly served on
or sent or mailed to each director not less than one day before such meeting. No
notice need be given to any director who attends in person or to any director
who, in writing executed and filed with the records of the meeting either before
or after the holding thereof, waives such notice. Such notice or waiver of
notice need not state the purpose or purposes of such meeting.
Section 7. Quorum. One-third of the directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the directors present at any meeting at which there
is a quorum shall be the act of the directors, except as may be otherwise
specifically provided by statute or by the Articles of Incorporation or by these
By-Laws.
Section 8. Executive Committee. The Board of Directors may, by the
affirmative vote of a majority of the whole Board, appoint from the directors an
Executive Committee to consist of such number of directors (not less than three)
as the Board may from time to time determine. The Chairman of the Committee
shall be elected by the Board of Directors. The Board of Directors by such
affirmative vote shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
directors. When the Board of Directors is not in session, to the extent
permitted by law, the Executive Committee shall have and may exercise any or all
of the powers of the Board of Directors in the management of the business and
affairs of the Corporation. The Executive Committee may fix its own rules of
procedure, and may meet when and as provided by such rules or by resolution of
the Board of Directors, but in every case the
6
<PAGE>
presence of a majority shall be necessary to constitute a quorum. During the
absence of a member of the Executive Committee, the remaining members may
appoint a member of the Board of Directors to act in his place.
Section 9. Other Committees. The Board of Directors, by the affirmative
vote of a majority of the whole Board, may appoint from the directors other
committees which shall in each case consist of such number of directors (not
less than two) and shall have and may exercise such powers as the Board may
determine in the resolution appointing them. A majority of all the members of
any such committee may determine its action and fix the time and place of its
meetings, unless the Board of Directors shall otherwise provide. The Board of
Directors shall have power at any time to change the members and powers of any
such committee, to fill vacancies and to discharge any such committee.
Section 10. Telephone Meetings. Members of the Board of Directors or a
committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons in the
meeting can hear each other at the same time. Participation in a meeting by
these means constitutes presence in person at the meeting unless otherwise
provided by the Investment Company Act of 1940.
Section 11. Action Without a Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting, if a written consent to such action is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of the proceedings of the Board or such
committee, unless otherwise provided by the Investment Company Act of 1940.
7
<PAGE>
Section 12. Compensation of Directors. No director shall receive any stated
salary or fees from the Corporation for his services as such if such director
is, other than by reason of being such director, an interested person (as such
term is defined by the Investment Company Act of 1940) of the Corporation or of
its investment adviser, administrator or principal underwriter. Except as
provided in the preceding sentence, directors shall be entitled to receive such
compensation from the Corporation for their services as may from time to time be
voted by the Board of Directors.
Section 13. Removal of Directors. No director shall continue to hold office
after the holders of record of not less than two-thirds of the Corporation's
outstanding common stock of all series have declared that that director be
removed from office either by declaration in writing filed with the
Corporation's secretary or by votes cast in person or by proxy at a meeting
called for the purpose. The directors shall promptly call meeting of
stockholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do by the record holders of
not less than 10 percent of the Corporation's outstanding common stock of all
series.
ARTICLE III.
Officers
Section 1. Executive Officers. The executive officers of the Corporation
shall be chosen by the Board of Directors. These may include a Chairman of the
Board of Directors (who shall be a director) and shall include a President (who
shall be a director), one or more Vice-Presidents (the number thereof to be
determined by the Board of Directors), a Secretary and a Treasurer. The Board of
Directors or the Executive Committee may also in its discretion appoint
Assistant Secretaries, Assistant Treasurers and other officers, agents and
employees, who shall have such authority and
8
<PAGE>
perform such duties as the Board or the Executive Committee may determine. The
Board of Directors may fill any vacancy which may occur in any office. Any two
offices, except those of President and Vice-President, may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law or these By-Laws
to be executed, acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be one
year and until their respective successors are chosen and qualified. Any officer
may be removed from office at any time with or without cause by the vote of a
majority of the whole Board of Directors.
Section 3. Powers and Duties. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
ARTICLE IV.
Capital Stock
Section 1. Certificates for Shares. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of stock
of the Corporation owned by him in such form as the Board from time to time
prescribe.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof
9
<PAGE>
of the authenticity of the signature as the Corporation or its agents may
reasonably require; in the case of shares not represented by certificates, the
same or similar requirements may be imposed by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the Corporations, containing
the names and addresses of the stockholders and the number of shares held by
them respectively, shall be kept at the principal office of the Corporation or,
if the Corporation employs a Transfer Agent, at the office of the Transfer Agent
of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors
or the Executive Committee may determine the conditions upon which a new
certificate of stock of the Corporation of any class may be issued in place of a
certificate which is alleged to have been lost, stolen or destroyed; and may, in
its discretion, require the owner of such certificate or such owner's legal
representative to give bond, with sufficient surety, to the Corporation and each
Transfer Agent, if any, to indemnify it and each such Transfer Agent against any
and all loss or claims which may arise by reason of the issue of a new
certificate in the place of the one so lost, stolen or destroyed.
ARTICLE V.
Corporate Seal
The Board of Directors may provide for a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
10
<PAGE>
ARTICLE VI.
Fiscal Year
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII.
Indemnification
Directors, officers, employees and agents of the Corporation shall not be
liable to the Corporation, any stockholder, officer, director, employee or other
person for any action or failure to act except for willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office. The Corporation shall indemnify directors, officers,
employees and agents of the Corporation against judgments, fines, settlements
and expenses to the fullest extent authorized and in the manner permitted by
applicable federal and state law. The Corporation may purchase insurance to
protect itself and its directors, officers, employees and agents against
judgments, fines, settlements and expenses to the fullest extent authorized and
in the manner permitted by applicable federal and state law. Nothing contained
in this Article VII shall be construed to indemnify directors, officers,
employees and agents of the Corporation against nor to permit the Corporation to
purchase insurance that purports to protect against, any liability to the
Corporation or any stockholder, officer, director, employee, agent or other
person to whom he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
11
<PAGE>
ARTICLE VIII.
Custodian
Section 1. The Corporation shall have as custodian or custodians one or
more trust companies or banks of good standing, each having a capital, surplus
and undivided profits aggregating not less than fifty million dollars
($50,000,000), and, to the extent required by the Investment Company Act of
1940, the funds and securities held by the Corporation shall be kept in the
custody of one or more such custodians, provided such custodian or custodians
can be found ready and willing to act, and further provided that the Corporation
may use as subcustodians, for the purpose of holding any foreign securities and
related funds of the Corporation, such foreign banks as the Board of Directors
may approve and as shall be permitted by law.
Section 2. The Corporation shall upon the resignation or inability to serve
of its custodian or upon change of the custodian:
(a) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian;
(b) require that the cash and securities owned by the Corporation be
delivered directly to the successor custodian; and
(c) in the event that no successor custodian can be found, submit to
the stockholders before permitting delivery of the cash and securities
owned by the Corporation otherwise than to a successor custodian, the
question whether or not this Corporation shall be liquidated or shall
function without a custodian.
12
<PAGE>
ARTICLE IX.
Amendment of By-Laws
The By-Laws of the Corporation may be altered, amended, added to or
repealed by the stockholders or by majority vote of the entire Board of
Directors; but any such alteration, amendment, addition or repeal of the By-Laws
by action of the Board of Directors may be altered or repealed by stockholders.
13
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
MANAGEMENT AGREEMENT
Agreement, made this 7th day of October, 1991 between Prudential
Intermediate Global Income Fund, Inc., a Maryland corporation (the "Fund"), and
Prudential Mutual Fund Management, Inc., a Delaware corporation (the "Manager").
W I T N E S S E T H
WHEREAS, the Fund is a non-diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain the Manager to render or
contract to obtain as hereinafter provided investment advisory services to the
Fund and the Fund also desires to avail itself of the facilities available to
the Manager with respect to the administration of its day to day corporate
affairs, and the Manager is willing to render such investment advisory and
administrative services;
NOW THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of the
Fund and administrator of its corporate affairs for the period and on the terms
set forth in this Agreement. The Manager accepts such appointment and agrees to
render the services herein described, for the compensation herein provided. The
Manager will enter into an agreement, dated the date hereof, with The Prudential
Investment Corporation ("PIC") pursuant to which PIC shall furnish to the fund
the investment advisory services specified therein in connection with the
management of the Fund. Such agreement in the form attached as Exhibit A is
hereinafter referred to as the "Subadvisory Agreement." The Manager will
continue to have responsibility for all investment advisory services furnished
pursuant to the Subadvisory Agreement.
2. Subject to the supervision of the Board of Directors of the Fund,
the Manager shall administer the Fund's corporate affairs and, in connection
<PAGE>
therewith, shall furnish the Fund with office facilities and with clerical,
bookkeeping and recordkeeping services at such office facilities and, subject to
Section 1 hereof and the Subadvisory Agreement, the Manager shall manage the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof, in accordance with
the Fund's investment objectives, policies and restrictions as stated in the
Prospectus (hereinafter defined) and subject to the following understandings:
(a) The Manager shall provide supervision of the Fund's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or loaned by the Fund, and what portion of the
assets will be invested or held uninvested as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus (hereinafter defined) of the Fund
and with the instructions and directions of the Board of Directors of the
Fund and will conform to and comply with the requirements of the 1940 Act
and all other applicable federal and state laws and regulations.
(c) The Manager shall determine the securities and futures contracts
to be purchased or sold by the Fund and will place orders pursuant to its
determinations with or through such persons, brokers, dealers or futures
commission merchants (including but not limited to Prudential Securities
Incorporated) in conformity with the policy with respect to brokerage as
set forth in the Fund's Registration Statement and Prospectus (hereinafter
defined) or as the Board of Directors may direct from time to time. In
providing the Fund with investment supervision, it is recognized that the
Manager will give primary consideration to securing the most favorable
price
-2-
<PAGE>
and efficient execution. Consistent with this policy, the Manager may
consider the financial responsibility, research and investment information
and other services provided by brokers, dealers or futures commission
merchants who may effect or be a party to any such transaction or other
transactions to which other clients of the Manager may be a party. It is
understood that Prudential Securities Incorporated may be used as
principal broker for securities transactions but that no formula has been
adopted for allocation of the Fund's investment transaction business. It
is also understood that it is desirable for the Fund that the Manager have
access to supplemental investment and market research and security and
economic analysis provided by brokers or futures commission merchants and
that such brokers may execute brokerage transactions at a higher costs to
the Fund than may result when allocating brokerage to other brokers or
futures commission merchants on the basis of seeking the most favorable
price and efficient execution. Therefore, the Manager is authorized to pay
higher brokerage commissions for the purchase and sale of securities and
futures contracts for the Fund to brokers or futures commission merchants
who provide such research and analysis, subject to review by the Fund's
Board of Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided
by such broker or futures commission merchant may be useful to the Manager
in connection with its services to other clients.
On occasions when the Manager deems the purchase or sale of a
security or a futures contract to be in the best interest of the Fund as
well as other clients of the Manger or the subadviser, the Manager, to the
extent permitted by applicable laws and regulations, may, but shall be
under no obligation to, aggregate the securities or futures contracts to
be so sold or purchase in
-3-
<PAGE>
order to obtain the most favorable price or lower brokerage commissions
and efficient execution. In such event, allocation of the securities or
futures contracts so purchased or sold, as well as the expenses incurred
in the transaction, will be made by the Manager in the manner it considers
to be the most equitable and consistent with its fiduciary obligations to
the Fund and to such other clients.
(d) the Manager shall maintain all books and records with respect to
the Fund's portfolio transactions and shall render to the Fund's Board of
Directors such periodic and special reports as the Board may reasonably
request.
(e) The Manager shall be responsible for the financial and
accounting records to be maintained by the Fund (including those being
maintained by the Fund's Custodian).
(f) The Manager shall provide the Fund's Custodian on each business
day with information relating to all transactions concerning the Fund's
assets.
(g) The investment management services of the Manager to the Fund
under this Agreement are not to be deemed exclusive, and the Manager shall
be free to render similar services to others.
3. The Fund has delivered to the Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Fund, as filed with the
Secretary of State of Maryland (such Articles of Incorporation, as in
effect on the date hereof and as amended from time to time, are herein
called the "Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect on the date
hereof
-4-
<PAGE>
and as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Board of Directors of the Fund
authorizing the appointment of the Manager and approving the form of this
agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-1A (the "Registration Statement"), as filed
with the Securities and Exchange Commission (the "Commission") relating to
the Fund and shares of the Fund's Common Stock and all amendments thereto;
(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus of the Fund (such Prospectus and Statement of
Additional Information, as currently in effect and as amended or
supplemented from time to time, being herein called the "Prospectus").
4. The Manager shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of the Fund
to serve in the capacities in which they are elected. All services to be
furnished by the Manager under this Agreement may be furnished through the
medium of any such directors, officers or employees of the Manager.
5. The Manager shall keep the Fund's books and records required to
be maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
record which it maintains for the Fund are the property of the Fund and it will
surrender promptly to the Fund any such records upon the Fund's request,
provided however that the Manager may retain a copy of such records. The Manager
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act any such records as are required to be maintained by the Manager
pursuant to Paragraph 2 hereof.
-5-
<PAGE>
6. During the term of this Agreement, the Manager shall pay the
following expenses:
(i) the salaries and expenses of all personnel of the Fund and the
Manager except the fees and expenses of directors who are not affiliated
persons of the Manager or the Fund's investment adviser,
(ii) all expenses incurred by the Manager or by the Fund in
connection with managing the ordinary course of the Fund's business other
than those assumed by the Fund herein, and
(iii) the costs and expenses payable to PIC pursuant to the
Subadvisory Agreement.
The Fund assumes and will pay the expenses described below:
(a) the fees and expenses incurred by the Fund in connection with
the management of the investment and reinvestment of the Fund's assets,
(b) the fees and expenses of directors who are not affiliated
persons of the Manager or the Fund's investment adviser,
(c) the fees and expenses of the Custodian that relate to (i) the
custodial function and the recordkeeping connected therewith, (ii)
preparing and maintaining the general accounting records of the Fund and
the providing of any such records to the Manager useful to the Manager in
connection with the Manager's responsibility for the accounting records of
the Fund pursuant to Section 31 of the 1940 Act and the rules promulgated
thereunder, (iii) the pricing of the shares of the Fund, including the
cost of any pricing service or services which may be retained pursuant to
the authorization of the Board of Directors of the Fund, and (iv) for both
mail and wire orders, the cashiering function in connection with the
issuance and redemption of the Fund's securities.
-6-
<PAGE>
(d) the fees and expenses of the Fund's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the
maintenance of each shareholder account,
(e) the charges and expenses of legal counsel and independent
accountants for the Fund,
(f) brokers' commissions and any issue or transfer taxes chargeable
to the Fund in connection with its securities and futures transactions,
(g) all taxes and corporate fees payable by the Fund to federal,
state or other governmental agencies,
(h) the fees of any trade associations of which the Fund may be a
member,
(i) the cost of stock certificates representing, and/or
non-negotiable share deposit receipts evidencing, shares of the Fund,
(j) the cost of fidelity, directors and officers and errors and
omissions insurance,
(k) 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,
prospectuses and statements of additional information for filing under
federal and state securities laws for such purposes,
(l) allocable communications expenses with respect to investor
services and all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing reports to shareholders in the amount
necessary for distribution to the shareholders,
-7-
<PAGE>
(m) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
(n) any expenses assumed by the Fund pursuant to a Plan of
Distribution adopted in conformity with Rule 12b-1 under the 1940 Act.
7. In the event the expenses of the Fund for any fiscal year
(including the fees payable to the Manager but excluding interest, taxes,
brokerage commissions, distribution fees and litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Fund's business) exceed the lowest applicable annual expense limitation
established and enforced pursuant to the statute or regulations of any
jurisdictions in which shares of the Fund are then qualified for offer and sale,
the compensation due the Manager will be reduced by the amount of such excess,
or, if such reduction exceeds the compensation payable to the Manager, the
Manager will pay to the Fund the amount of such reduction which exceeds the
amount of such compensation.
8. For the services provided and the expenses assumed pursuant to
this Agreement, the Fund will pay to the Manager as full compensation therefor a
fee at an annual rate of .75 of 1% of the Fund's average daily net assets. This
fee will be computed daily and will be paid to the Manager monthly. Any
reduction in the fee payable and any payment by the Manager to the Fund pursuant
to paragraph 7 shall be made monthly. Any such reductions or payments are
subject to readjustment during the year.
9. The Manager shall not be liable for any error of judgment or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act)
-8-
<PAGE>
or loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
10. This Agreement shall continue in effect for a period of more
than two years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements of
the 1940 Act; provided, however, that this Agreement may be terminated by the
Fund at any time, without the payment of any penalty, by the Board of Directors
of the Fund or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund, or by the Manager at any time, without the
payment of any penalty, on not more than 60 days' nor less than 30 days' written
notice to the other party. this Agreement shall terminate automatically in the
event of its assignment (as defined in the 1940 Act).
11. Nothing in this Agreement shall limit or restrict the right of
any director, officer or employee of the Manager who may also be a director,
officer or employee of the Fund to engage in any other business or to devote his
or her time and attention in part to the management or other aspects of any
business, whether of a similar or dissimilar nature, nor limit or restrict the
right of the Manager to engage in any other business or to render services of
any kind to any other corporation, firm, individual or association.
12. Except as otherwise provided herein or authorized by the Board
of Directors of the Fund from time to time, the Manager shall for all purposes
herein be deemed to be an independent contractor and shall have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
13. During the term of this Agreement, the Fund agrees to furnish
the Manager at its principal office all prospectuses, proxy statements, reports
to
-9-
<PAGE>
shareholders, sales literature, or other material prepared for distribution to
shareholders of the Fund or the public which refer in any way to the Manager,
prior to use thereof and not to use such material if the Manager reasonably
objects in writing within five business day (or such other time as may be
mutually agreed) after receipt thereof. In the event of termination of this
Agreement, the Fund will continue to furnish the Manager copies of any of the
above mentioned materials which refer in any way to the Manager. Sales
literature may be furnished to the Manager hereunder by first-class or overnight
mail, facsimile transmission equipment or hand delivery. The Fund shall furnish
or others make available to the Manager such other information relating to the
business affairs of the Fund as the Manager at any time, or from time to time,
reasonably requests in order to discharge its obligations hereunder.
14. This Agreement may be amended by mutual consent, but the consent
of the Fund must be obtained in conformity with the requirements of the 1940
Act.
15. Any notice or other communication required to be given pursuant
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at One Seaport Plaza, New
York, N.Y. 10292, Attention: Secretary; or (2) to the Fund at One Seaport Plaza,
New York, N.Y. 10292, Attention: President.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
17. The Fund may use the name "Prudential Intermediate Global Income
Fund, Inc." or any name including the word "Prudential" only for so long as this
Agreement or any extension, renewal or amendment hereof remains in effect,
including any similar agreement with any organization which shall have succeeded
to the Manager's business as Manager or any extension, renewal or amendment
thereof remain
-10-
<PAGE>
in effect. At such time as such an agreement shall no longer be in effect, the
Fund will (to the extent that it lawfully can) cease to use such a name or any
other name indicating that it is advised by, managed by or otherwise connected
with the Manager, or any organization which shall have so succeeded to such
business. In no event shall the Fund use the name "Prudential Intermediate
Global Income Fund, Inc." or any name including the word "Prudential" if the
Manager's function is transferred or assigned to a company of which The
Prudential Insurance Company of America does not have control.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.
PRUDENTIAL INTERMEDIATE GLOBAL INCOME
FUND, INC.
By: /s/ Lawrence C. McQuade
-------------------------------
President
PRUDENTIAL MUTUAL FUND MANAGEMENT,
INC.
By: /s/ Michael J. Downey
-------------------------------
Chairman, Chief Executive Officer
and Director
-11-
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
SUBADVISORY AGREEMENT
Agreement made as of this 26th day of June 1991 between Prudential Mutual
Fund Management, Inc., a Delaware Corporation ("PMF" or the "Manager"), and The
Prudential Investment Corporation, a New Jersey Corporation (the "Subadviser").
WHEREAS, the Manager has entered into a Management Agreement, dated June
26, 1991 (the "Management Agreement"), with Prudential Intermediate Global
Income Fund, Inc. (the "Fund"), a Maryland corporation and a non-diversified
open-end management investment company registered under the Investment Company
Act of 1940 (the "1940 Act"), pursuant to which PMF will act as Manager of the
Fund.
WHEREAS, PMF desires to retain the Subadviser to provide investment
advisory services to the Fund in connection with the management of the Fund and
the Subadviser is willing to render such investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board of
Directors of the Fund, the Subadviser shall manage the investment
operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof, in accordance
with the Fund's investment objectives, policies and restrictions as stated
in the Prospectus, (such Prospectus and Statement of Additional Information
as currently in effect and as amended or supplemented from time to time,
being herein called the "Prospectus"), and subject to the following
understandings:
(i) The Subadviser shall provide supervision of the Fund's investments
and determine from time to time what investments and securities will
be purchased, retained, sold or loaned by the Fund, and what portion
of the assets will be invested or held uninvested as cash.
(ii) In the performance of its duties and obligations under this
Agreement, the Subadviser shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus of the Fund and with the
instructions and directions of the Manager and of the Board of
Directors of the Fund and will conform to and comply with the
requirements of the 1940 Act, the Internal Revenue Code of 1986 and
all other applicable federal and state laws and regulations.
(iii) The Subadviser shall determine the securities and futures
contracts to be purchased or sold by the Fund and will place orders
with or through such persons, brokers, dealers or futures commission
merchants (including
<PAGE>
but not limited to Prudential Securities Incorporated) to carry out
the policy with respect to brokerage as set forth in the Fund's
Registration Statement and Prospectus or as the Board of Directors may
direct from time to time. In providing the Fund with investment
supervision, it is recognized that the Subadviser will give primary
consideration to securing the most favorable price and efficient
execution. Within the framework of this policy, the Subadviser may
consider the financial responsibility, research and investment
information and other services provided by brokers, dealers or futures
commission merchants who may effect or be a party to any such
transaction or other transactions to which the Subadviser's other
clients may be a party. It is understood that Prudential Securities
Incorporated may be used as principal broker for securities
transactions but that no formula has been adopted for allocation of
the Fund's investment transaction business. It is also understood that
it is desirable for the Fund that the Subadvier have access to
supplemental investment and market research and security and economic
analysis provided by brokers or futures commission merchants who may
execute brokerage transactions at a higher cost to the Fund than may
result when allocating brokerage to other brokers on the basis of
seeking the most favorable price and efficient execution. Therefore,
the Subadviser is authorized to place orders for the purchase and sale
of securities and futures contracts for the Fund with such brokers or
futures commission merchants, subject to review by the Fund's Board of
Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers or futures commission merchants may be useful
to the Subadviser in connection with the Subadviser's services to
other clients.
On occasions when the Subadviser deems the purchase or sale of a
security or futures contract to be in the best interest of the Fund as
well as other clients of the Subadviser, the Subadviser, to the extent
permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities or futures contracts to be
sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event,
allocation of the securities or futures contracts so purchased or
sold, as well as the expenses incurred in the transaction, will be
made by the Subadviser in the manner the Subadviser considers to be
the most equitable and consistent with its fiduciary obligations to
the Fund and to such other clients.
(iv) The Subadviser shall maintain all books and records with respect
to the Fund's portfolio transactions required by subparagraphs (b)
(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1
under the 1940 Act
2
<PAGE>
and shall render to the Fund's Trustees such periodic and special
reports as the Trustees may reasonably request.
(v) The Subadviser shall provide the Fund's Custodian on each business
day with information relating to all transactions concerning the
Fund's assets and shall provide the Manager with such information upon
request of the Manager.
(vi) The investment management services provided by the Subadviser
hereunder are not to be deemed exclusive, and the Subadviser shall be
free to render similar services to others.
(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of the
Fund to serve in the capacities in which they are elected. Services to be
furnished by the Subadviser under this Agreement may be furnished through
the medium of any of such directors, officers or employees.
(c) The Subadviser shall keep the Fund's books and records required to be
maintained by the Subadviser pursuant to paragraph 1(a) hereof and shall
timely furnish to the Manager all information relating to the Subadviser's
services hereunder needed by the Manager to keep the other books and
records of the Fund required by Rule 31a-1 under the 1940 Act. The
Subadviser agrees that all records which it maintains for the Fund are the
property of the Fund and the Subadviser will surrender promptly to the Fund
any of such records upon the Fund's request, provided, however, that the
Subadviser may retain a copy of such records. The Subadviser further agrees
to preserve for the periods prescribed by Rule 31a-2 of the Commission
under the 1940 Act any such records as are required to be maintained by it
pursuant to paragraph 1(a) hereof.
2. The Manager shall continue to have responsibility for all services to be
provided to the Fund pursuant to the Management Agreement and shall oversee and
review the Subadviser's performance of its duties under this Agreement.
3. The Manager shall reimburse the Subadviser for reasonable costs and expenses
incurred by the Subadviser determined in a manner acceptable to the Manager in
furnishing the services described in paragraph 1 hereof.
4. The Subadviser shall not be liable for any error of judgment or for any loss
suffered by the Fund or the Manager in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the Subadviser's part in the performance of its duties or
from its reckless disregard of its obligations and duties under this Agreement.
3
<PAGE>
5. This Agreement shall continue in effect for a period of more than two years
from the date hereof only so long as such continuance is specifically approved
at least annually in conformity with the requirements of the 1940 Act; provided,
however, that this Agreement may be terminated by the Fund at any time, without
the payment of any penalty, by the Board of Directors of the Fund or by vote of
a majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund, or by the Manager or the Subadviser at any time, without the payment
of any penalty, on not more than 60 days' nor less than 30 days' written notice
to the other party. This Agreement shall terminate automatically in the event of
its assignment (as defined in the 1940 Act) or upon the termination of the
Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any of the
Subadviser's directors, officers, or employees who may also be a director,
officer or employee of the Fund to engage in any other business or to devote his
or her time and attention in part to the management or other aspects of any
business, whether of a similar or a dissimilar nature, nor limit or restrict the
Subadviser's right to engage in any other business or to render services of any
kind to any other corporation, firm, individual or association.
7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements, reports
to stockholders, sales literature or other material prepared for distribution to
stockholders of the Fund or the public, which refer to the Subadviser in any
way, prior to use thereof and not to use material if the Subadviser reasonably
objects in writing five business days (or such other time as may be mutually
agreed) after receipt thereof. Sales literature may be furnished to the
Subadviser hereunder by first-class or overnight mail, facsimile transmission
equipment or hand delivery.
8. This Agreement may be amended by mutual consent, but the consent of the Fund
must be obtained in conformity with the requirements of the 1940 Act.
9. This Agreement shall be governed by the laws of the State of New York.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By: /s/ Michael J. Downey
----------------------------------
THE PRUDENTIAL INVESTMENT CORPORATION
By: /s/ Gerald A. Lanzotti
------------------------------
4
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC.
One Seaport Plaza
New York, NY 10292
Selected Dealer Agreement
, 199__
[Name and Address
of Selected Dealer]
Dear Sirs:
As the principal distributor of shares of certain investment companies
presently or hereafter managed by Prudential Mutual Fund Management, Inc.,
shares of which companies are distributed by us at their respective net asset
values plus sales charges, if any, pursuant to our Distribution Agreements with
such companies (the Funds), we invite you to participate as a selected dealer in
the distribution of shares of any and all of the Funds upon the following terms
and conditions:
1. You are to offer and sell such shares only at the public offering
prices which shall be currently in effect, in accordance with the terms of the
then current prospectuses of the Funds. You agree to act only as principal in
such transactions and shall not have authority to act as agent for the Funds,
for us, or for any other dealer in any respect. All orders are subject to
acceptance by us and become effective only upon confirmation by us.
2. On each purchase of shares by you from us, the total sales charges and
discount, if any, to selected dealers shall be as stated in each Fund's then
current prospectus.
Such sales charges and discount to selected dealers are subject to
reductions under a variety of circumstances as described in each Fund's then
current prospectus. To obtain these reductions, we must be notified when the
sale takes place which would qualify for the reduced charge.
There is no sales charge or discount to selected dealers on the
reinvestment of dividends.
3. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Funds for their shares to be resold by us to you subject to
the applicable terms and conditions governing the placement of orders by us set
forth in the Distribution Agreement between each Fund and us and subject to the
applicable compensation provisions set forth in each Fund's then current
prospectus and (ii) to tender shares directly to the Funds or their agent for
redemption subject to the applicable terms and conditions set forth in the
Distribution Agreement.
<PAGE>
4. Repurchases of shares will be made at the net asset value of such
shares in accordance with the then current prospectuses of the Funds.
5. You represent that you are a member of the National Association of
Securities Dealers, Inc. and that you agree to abide by the Rules of Fair
Practice of such Association.
6. This Agreement is in all respects subject to Section 26 of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. which
shall control any provisions to the contrary in this Agreement.
7. You agree:
(a) To purchase shares only from us or only from your customers.
(b) To purchase shares from us only for the purpose of covering purchase
orders already received or for your own bona fide investment.
(c) That you will not purchase any shares from your customers at prices
lower than the redemption or repurchase prices then quoted by the
Fund. You shall, however, be permitted to sell shares for the
account of their record owners to the Funds at the repurchase prices
currently established for such shares and may charge the owner a
fair commission for handling the transaction.
(d) That you will not withhold placing customers' orders for shares so
as to profit yourself as a result of such withholding.
(e) That if any shares confirmed to you hereunder are redeemed or
repurchased by any of the Funds within seven days after such
confirmation of your original order, you shall forthwith refund to
us the full discount, if any, allowed to you on such sales. We shall
forthwith pay to the appropriate Fund our share of the sales charge,
if any, on the original sale, and shall also pay to such Fund the
refund from you as herein provided. Termination or cancellation of
this Agreement shall not relieve you us from the requirements of
this subparagraph.
8. We shall not accept from you any conditional orders for shares.
Delivery of certificates, if any, for shares purchased shall be made by the
Funds only against receipt of the purchase price, subject to deduction for the
discount reallowed to you and our portion of the sales charge on such sale, if
any. If payment for the shares purchased is not received within the time
customary for such payments, the sale may be cancelled forthwith without any
responsibility or liability on our part or on the part of the Funds (in which
case you will be responsible for any loss, including loss of profit, suffered by
the Funds resulting from your failure to make payments
2
<PAGE>
as aforesaid), or, at our option, we may sell the shares ordered back to the
Funds (in which case we may hold you responsible for any loss, including loss of
profit suffered by us resulting from your failure to make payment as aforesaid).
9. You will not offer or sell any of the shares except under circumstances
that will result in compliance with the applicable Federal and state securities
laws and in connection with sales and offers to sell shares you will furnish to
each person to whom any such sale or offer is made a copy of the applicable then
current prospectus. We shall be under no liability to you except for lack of
good faith and for obligations expressly assumed by us herein. Nothing herein
contained, however, shall be deemed to be a condition, stipulation or provision
binding any persons acquiring any security to waive compliance with any
provision of the Securities Act of 1933, or of the Rules and Regulations of the
Securities and Exchange Commission or to relieve the parties hereto from any
liability arising under the Securities Act of 1933.
10. From time to time during the term of this Agreement we may (but are
not hereby obliged to) make payments to you pursuant to one or more of the
distribution plans adopted by certain of the Funds pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (the Act), in consideration of your
furnishing distribution services hereunder with respect to each such Fund. Any
such payments made pursuant to this Section 10 shall be subject to the following
terms and conditions:
(a) Any such payments shall be in such amounts as we may from time to
time advise you in writing but in any event not in excess of the
amounts permitted by the plan in effect with respect to each
particular Fund. Any such payments shall be in addition to the
selling concession, if any, allowed to you pursuant to this
Agreement.
(b) The provisions of this Section 10 relate to the plan adopted by a
particular Fund pursuant to Rule 12b-1. In accordance with Rule
12b-1, any person authorized to direct the disposition of monies
paid or payable by a Fund pursuant to this Section 10 shall provide
the Fund's Board of Directors or Trustees, and the Directors or
Trustees shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures
were made.
(c) The provisions of this Section 10 applicable to each Fund shall
remain in effect for not more than a year and thereafter for
successive annual periods only so long as such continuance is
specifically approved at least annually in conformity with Rule
12b-1 and the Act. The provisions of this Section 10 shall
automatically terminate with respect to a particular plan in the
event of the assignment (as define by the Act) of this Agreement, in
the event such plan terminates or is not continued or in the event
this Agreement terminates or ceases to remain in effect. In
addition, the
3
<PAGE>
provisions of this Section 10 may be terminated at any time, without
penalty, by either party with respect to any particular plan on not
more than 60 days' nor less than 30 days' written notice delivered
or mailed by registered mail, postage prepaid, to the other party.
11. No person is authorized to make any representations concerning shares
of the Funds except those contained in the current prospectus and printed
information issued by each Fund or by us as information supplemental to each
prospectus. We shall supply prospectuses, reasonable quantities of supplemental
sales literature, sales bulletins, and additional information as issued. You
agree not to use other advertising or sales material relating to the Funds,
unless approved in writing by us in advance of such use. Any printed information
furnished by us other than the then current prospectus and statement of
additional information for each Fund, periodic reports and proxy solicitation
materials are our sole responsibility and not the responsibility of the Funds,
and you agree that the Funds shall have no liability or responsibility to you in
these respects unless expressly assumed in connection therewith.
12. Either party to this Agreement may cancel this Agreement by giving
written notice to the other. Such notice shall be deemed to have been given on
the date on which it was either delivered personally to the other party or any
officer or partner thereof, or was mailed postpaid or delivered to a telegraph
office for transmission to the other party at his or its address as shown below.
This Agreement may be amended by us at any time and your placing of an order
after the effective date of any such amendment shall constitute your acceptance
thereof.
4
<PAGE>
13. This Agreement shall be construed in accordance with the laws of the
State of New York and shall be binding upon both parties hereto when signed by
us and accepted by you in the space provided below.
Very truly yours,
PRUDENTIAL MUTUAL FUND
DISTRIBUTORS, INC.
By:______________________________________
Firm Name_______________________________________________________________________
Address_________________________________________________________________________
City____________________________ State____________ Zip Code_____________________
ACCEPTED BY (signature)_________________________________________________________
Name (print)________________________________ Title______________________________
Date__________________________ 19__ Phone #_____________________________________
Please return two signed copies of this Agreement (one of
which will be signed above by us and thereafter returned to
you) in the accompanying return envelope to:
Prudential Mutual Fund Distributors, Inc.
One Seaport Plaza, 18th Floor
New York, NY 10292
5
CUSTODIAN CONTRACT
Between
THE PRUDENTIAL INTERMEDIATE INCOME FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment of Custodian and Property to be
He1d By It ..........................................................1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States..................2
2.1 Holding Securities .........................................2
2.2 Delivery of Securities .....................................3
2.3 Registration of Securities .................................7
2.4 Bank Accounts ..............................................8
2.5 Availability of Federal Funds ..............................8
2.6 Collection of Income .......................................9
2.7 Payment of Fund Monies ....................................10
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased ...........................12
2.9 Appointment of Agents .....................................13
2.10 Deposit of Securities in Securities System ................13
2.l0A Fund Assets Held in the Custodians'
Direct Paper System .......................................16
2.11 Segregated Account ........................................18
2.12 Ownership Certificates for Tax Purposes ...................19
2.13 Proxies ...................................................19
2.14 Communications Relating to Fund
Portfolio Securities ......................................19
2.15 Reports to Fund by Independent Public
Accountants ...............................................20
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States ..........................21
3.1 Appointment of Foreign Sub-Custodians ......................21
3.2 Assets to be Held ..........................................21
3.3 Foreign Securities Depositories ............................22
3.4 Segregation of Securities ..................................22
3.5 Agreements with Foreign Banking Institutions................23
3.6 Access of Independent Accountants of the Fund...............23
3.7 Reports by Custodian .......................................24
3.8 Transactions in Foreign Custody Account ....................24
3.9 Liability of Foreign Sub-Custodians ........................25
3.10 Liability of Custodian .....................................26
3.11 Reimbursement of Advances ..................................27
3.12 Monitoring Responsibilities ................................27
3.13 Branches of U.S. Banks .....................................28
4. Proper Instructions .................................................28
5. Actions Permitted Without Express Authority .........................29
6. Evidence of Authority ...............................................30
7. Duties of Custodian with Respect to the Books of
Account and Calculations of Net Asset Value and
Net Income ..........................................................30
<PAGE>
8. Records..............................................................31
9. Opinion of Fund's Independent Accountant............................32
10. Compensation of Custodian............................................32
11. Respnsibility of Custodian...........................................32
12. Effective Period, Termination and Amendment..........................34
13. Successor Custodian..................................................35
14. Interpretive and Addition Provisions.................................37
15. Massachusetts Law to Apply...........................................37
16. Prior Contracts......................................................38
<PAGE>
CUSTODIAN CONTRACT
This Contract between The Prudential Intermediate Income Fund, Inc., a
corporation organized and existing under the laws of Maryland, having its
principal place of business at One Seaport Plaza, New York, New York 10292,
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation. The Fund agrees to deliver to the Custodian all securities and
cash owned by it, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the Fund
from time to time, and the cash consideration received by it for such new or
treasury shares of capital stock, $.01 par value, ("Shares") of the Fund as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to the
Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of Article
4), the Custodian shall from time to time employ one or more sub-custodians
located in the United States, but only in accordance with an applicable vote by
the Board of Directors of the Fund, and provided that the Custodian shall have
no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodians
for the Fund's securities and other assets the foreign banking institutions and
foreign securities depositories designated in Schedule "A" hereto but only in
accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of the Fund all non-cash property, to be held by it in
the United States, including all domestic securities owned by the
Fund, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S. Department
of the Treasury, collectively referred to herein as "Securities
System" and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper
System of the Custodian pursuant to Section 2.l0.A.
-2-
<PAGE>
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper Account") only
upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into
by the Fund;
3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into
-3-
<PAGE>
the name of any nominee or nominees of the Custodian or into
the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount
or number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Fund, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer
-4-
<PAGE>
of such securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts
or temporary securities for definitive securities; provided
that, in any such case, the new securities and cash, if any,
are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held
liable or responsible for
-5-
<PAGE>
the delivery of securities owned by the Fund prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, but
only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance
with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or
other arrangements in connection with transactions by the
Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations,
-6-
<PAGE>
regarding account deposits in connection with transactions
by the Fund;
14) For any other proper corporate purpose, but only upon
receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors or of the
Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming
the person or persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of
the Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee
name of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian on
-7-
<PAGE>
behalf of the Fund under the terms of this Contract shall be in
"street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. Funds held by the Custodian for
the Fund may be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of
1940, as amended, and that each such bank or trust company and the
funds to be deposited with each such bank or trust company shall be
approved by vote of a majority of the Board of Directors of the Fund.
Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that
capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal
-8-
<PAGE>
funds available to the Fund as of specified times agreed upon from
time to time by the Fund and the Custodian in the amount of checks
received in payment for Shares of the Fund which are deposited into
the Fund's account.
2.6 Collection of Income. The Custodian shall collect on a timely basis
all income and other payments with respect to United States registered
securities held hereunder to which the Fund shall be entitled either
by law or pursuant to custom in the securities business, and shall
collect on a timely basis all income and other payments with respect
to United States bearer securities if, on the date of payment by the
issuer, such securities are held by the Custodian or its agent thereof
and shall credit such income, as collected, to the Fund's custodian
account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other
income items requiring presentation as and when they become due and
shall collect interest when due on securities held hereunder. Income
due the Fund on United states securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the
Fund. The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or
data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Fund is
properly entitled.
-9-
<PAGE>
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases
only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Fund but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian
(or any bank, banking firm or trust company doing business
in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Fund
or in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer; (b) in
the case of a purchase effected through a Securities System,
in accordance with the conditions set forth in Section 2.10
hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.lOA; (d) in the case of repurchase agreements
entered
-10-
<PAGE>
into between the Fund and the Custodian, or another bank, or
a broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Fund of
securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase
such securities from the Fund or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund as defined in
Article 4;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;
3) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments
for the account of the Fund: interest, taxes, management,
accounting, transfer agent and
-11-
<PAGE>
legal fees, and operating expenses of the Fund whether or
not such expenses are to be in whole or part capitalized or
treated as deferred expenses;
4) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
5) For payment of the amount of dividends received in respect
of securities sold short;
6) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive
Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of the Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific
-12-
<PAGE>
written instructions from the Fund to so pay in advance, the Custodian
shall be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities
or liabilities hereunder.
2.10 Deposit of Securities in Securities Systems. The Custodian may deposit
and/or maintain domestic securities owned by the Fund in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that
-13-
<PAGE>
such securities are represented in an account ("Account") of
the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic
securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities
belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased
for the account of the Fund upon (i) receipt of advice from
the Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer domestic securities sold for the account of the
Fund upon (i) receipt of advice from the Securities System
that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of
the Custodian to reflect such transfer and payment for the
account of the Fund. Copies
-14-
<PAGE>
of all advices from the Securities System of transfers of
domestic securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund confirmation
of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish to the
Fund copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account
of the Fund.
4) The Custodian shall provide the Fund with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding domestic securities deposited in
the Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 12
hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for any loss or
damage to the Fund resulting from use of the Securities
System by reason of any negligence, misfeasance or
misconduct of the Custodian or
-15-
<PAGE>
any of its agents or of any of its or their employees or
from failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian
with respect to any claim against the Securities System or
any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent
that the Fund has not been made whole for any such loss or
damage.
2.10.A Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper
Instructions;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or
otherwise for customers;
-16-
<PAGE>
3) The records of the Custodian with respect to securities of
the Fund which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to
the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the
records of the Custodian to reflect such payment and
transfer of securities to the account of the Fund. The
Custodian shall transfer securities sold for the account of
the Fund upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment
for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of
a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to
the Fund copies of daily transaction sheets reflecting each
day's transaction in the Securities System for the account
of the Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting
-17-
<PAGE>
contro1 as the Fund may reasonably request from time to
time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts
for and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered
under the Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Fund, (ii) for purposes of
segregating cash or government securities in connection with options
purchased, sold or written by the Fund or commodity futures contracts
or options thereon purchased or sold by the Fund, (iii) for the
purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by
-18-
<PAGE>
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Board of Directors or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of the Fund held by it
and in connection with transfers of such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the' Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 Communications Relating to Fund Portfolio Securities. The Custodian
shall transmit promptly to the Fund all written information
(including, without limitation,
-19-
<PAGE>
pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund and the maturity of
futures contracts purchased or sold by the Fund) received by the
Custodian from issuers of the domestic securities being held for the
Fund. With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Fund all written information received by the
Custodian from issuers of the domestic securities whose tender or
exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Fund desires to take action with
respect to any tender offer, exchange offer or any other similar
transaction, the Fund shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
2.15. Reports to Fund by Independent Public Accountants. The Custodian shall
provide the Fund, at such times as the Fund may reasonably require,
with reports by independent public accountants on the accounting
system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts,
including domestic securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian
under this Contract; such reports shall be of sufficient scope and in
sufficient detail, as may reasonably be required
-20-
<PAGE>
by the Fund, to provide reasonab1e assurance that any material
inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians.
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets maintained
outside the United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in
Section 4 of this Contract, together with a certified resolution of
the Fund's Board of Directors, the Custodian and the Fund may agree to
amend Schedule A hereto from time to time to designate additional
foreign banking institutions and foreign securities depositories to
act as sub-custodian. Upon receipt of Proper Instructions, the Fund
may instruct the Custodian to cease the employment of any one or more
such sub-custodians for maintaining custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(l) of Rule 17f-5
under the
-21-
<PAGE>
Investment Company Act of 1940, as amended, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Fund's foreign securities
transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the Fund
shall be maintained in foreign securities depositories only through
arrangements implemented by the foreign banking institutions serving
as sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 Segregation of Securities
The Custodian shall identify on its books as belonging to the Fund,
the foreign securities of the Fund held by each foreign sub-custodian.
Each agreement pursuant to which the Custodian employs a foreign
banking institution shall require that such institution establish a
custody account for the Custodian on behalf of the Fund and physically
segregate in that account, securities and other assets of the Fund,
and, in the event that such institution deposits the Fund's securities
in a foreign securities depository, that it shall identify on its
books as belonging to the Custodian, as agent for the Fund, the
securities so deposited.
-22-
<PAGE>
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit I hereto and shall provide that: (a) the Fund's
assets will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership of the Fund's
assets will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Fund;
(d) officers of or auditors employed by) or other representatives of
the Custodian, including to the extent permitted under applicable law
the independent public accountants for the Fund, will be given access
to the books and records of the foreign banking institution relating
to its actions under its agreement with the Custodian; and (e) assets
of the Fund held by the foreign sub-custodian will be subject only to
the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to
-23-
<PAGE>
the performance of such foreign banking institution under its
agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Fund's securities and other assets
and advices or notifications of any transfers of securities to or from
each custodial account maintained by a foreign banking institution for
the Custodian on behalf of the Fund indicating, as to securities
acquired for the Fund, the identity of the entity having physical
possession of such securities.
3.8 Transactions in Foreign Custody Account.
(a) Except as otherwise provided in paragraph (b) of this Section 3.8,
the provision of Sections 2.2 and 2.7 of this Contract shall apply,
mutatis mutandis to the foreign securities of the Fund held outside
the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the Fund
may be effected in accordance with the customary established
securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction
-24-
<PAGE>
occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or
dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same
extent as set forth in Section 2.3 of this Contract, and the Fund
agrees to hold any such nominee harmless from any liability as a
holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and each Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
-25-
<PAGE>
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph 3.10, in
delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses
(excluding a bankruptcy or insolvency of State Street London Ltd, not
caused by political risk) due to Acts of God, nuclear incident or
other losses under circumstances where the Custodian and State Street
London Ltd. have exercised reasonable care.
-26-
<PAGE>
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase or
sale of foreign exchange or of contracts for foreign exchange, or in
the event that the Custodian or its nominee shall incur or be assessed
any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may
arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held
for the account of the Fund shall be security therefor and should the
Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Fund assets
to the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns
of a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive
order from the Securities
-27-
<PAGE>
and Exchange Commission is notified by such foreign sub-custodian that
there appears to be a substantial likelihood that its shareholders'
equity will decline below $2OO million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $20O
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 Branches of U.S. Banks.
(a) Except as otherwise set forth in this Contract, the provisions
hereof shall not apply where the custody of the Fund assets are
maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification set forth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained
in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
4. Proper Instructions
Proper Instructions as used herein means a writing signed or initialed
by one or more person or persons as the Board of Directors shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of
-28-
<PAGE>
transaction involved, including a specific statement of the purpose for which
such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
Upon receipt of a certificate of the Secretary or an Assistant Secretary as to
the authorization by the Board of Directors of the Fund accompanied by a
detailed description of procedures approved by the Board of Directors, Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of Directors
and the Custodian are satisfied that such procedures afford adequate safeguards
for the Fund's assets. For purposes of this Section, Proper Instructions shall
include instructions received by the Custodian pursuant to any three-party
agreement which requires a segregated asset account in accordance with Section
2.11.
5. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from
the Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in definitive
form;
-29-
<PAGE>
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase1 transfer and other dealings
with the securities and property of the Fund except as otherwise directed by the
Board of Directors of the Fund.
6. Evidence of Authority
The Custodian shall be protected in acting upon any instructions)
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
7 Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Directors of the Fund to keep
the books of account of the Fund and/or compute the net asset value per share of
the outstanding shares of the Fund or, if directed in writing to do so by the
Fund, shall itself keep such books of account and/or compute such
-30-
<PAGE>
net asset value per share. If so directed, the Custodian shall also calculate
weekly the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent weekly of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the weekly income of the Fund shall be made at the time or
times described from time to time in the Fund9s currently effective prospectus.
8. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-l and 31a-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by the Fund and held by the Custodian and shall,
when requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include
-31-
<PAGE>
certificate numbers in such tabulations.
9. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-2, and Form N-SAR or other
annual reports to the Securities and Exchange Commission and with respect to any
other requirements of such Commission.
10. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
11. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith
-32-
<PAGE>
without negligence. It shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Fund) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or authorization by the Fund to
maintain custody or any securities or cash of the Fund in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or
-33-
<PAGE>
securities for any purpose or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except such as
may arise from its or its nominee's own negligent action, negligent failure to
act or willful misconduct, any property at any time held for the account of the
Fund shall be security therefor and should the Fund fail to repay the Custodian
promptly) the Custodian shall be entitled to utilize available cash and to
dispose of the Fund assets to the extent necessary to obtain reimbursement.
12. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors of the Fund has approved the initial use
of a particular Securities System and the receipt of an annual certificate of
the Secretary or an Assistant Secretary that the Board of Directors has reviewed
the use by the Fund of such Securities System, as required in each case by Rule
17f-4 under the Investment Company Act of 1940, as amended and that the
-34-
<PAGE>
Custodian shall not act under Section 2.l0.A hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors has approved the initial use of the Direct Paper System and the
receipt of an annual certificate of the Secretary or an Assistant Secretary that
the Board of Directors has reviewed the use by the Fund of the Direct Paper
System; provided further, however, that the Fund shall not amend or terminate
this Contract in contravention of any applicable federal or state regulations,
or any provision of the Articles of Incorporation, and further provided, that
the Fund may at any time by action of its Board of Directors (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
13. Successor Custodian
If a successor custodian shall be appointed by the Board of Directors
of the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all
-35-
<PAGE>
securities then held by it hereunder and shall transfer to an account of the
successor custodian all of the Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Directors of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Directors shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the
-36-
<PAGE>
certified copy of the vote referred to or of the Board of Directors to appoint a
successor custodian, the Custodian shall be entitled to fair compensation for
its services during such period as the Custodian retains possession of such
securities, funds and other properties and the provisions of this Contract
relating to the duties and obligations of the Custodian shall remain in full
force and effect.
14. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
15. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
-37-
<PAGE>
16. Prior Contracts
This Contract together with the letter agreement, dared May 19, 1988,
between the Fund and the Custodian relating to the issuance of escrow receipts,
supersedes and terminates, as of the date hereof, all prior contracts between
the Fund and the Custodian relating to the custody of the Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 26th day of May, 1988.
ATTEST THE PRUDENTIAL INTERMEDIATE INCOME
FUND, INC.
/s/ Anita L. Jennings By /s/ R. S. Gunia
- -------------------------------- -------------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ J. Farrell By /s/ Thomas E. Swedlund
- -------------------------------- -------------------------------------
Assistant Secretary Vice President
-38-
<PAGE>
EXHIBIT 1
CUSTODIAN AGREEMENT
TO:
Gentlemen:
The undersigned ("State Street") hereby requests that you (the "Bank")
establish a custody account and a cash account for each State Street client
whose account is identified to this Agreement. Each such custody or cash account
as applicable will be referred to herein as the "Account" and will be subject to
the following terms and conditions:
1. The Bank shall hold as agent for State Street and shall physically
segregate in the Account such cash, bullion, coin, stocks, shares, bonds,
debentures, notes and other securities and other property which is delivered to
the Bank for that State Street Account (the "Property").
2. (a) Without the prior approval of State Street it will not deposit
securities in any securities depository or utilize a clearing agency,
incorporated or organized under the laws of a country other than the United
States, unless such depository or clearing house operates the central system for
handling of securities or equivalent book-entries in that country or operates a
transnational system for the central handling of securities or equivalent
book-entries.
(b) When Securities held for an Account are deposited in a
securities depository or clearing agency by the Bank, the Bank shall identify on
its books as belonging to State Street as agent for such Account, the Securities
so deposited.
The Bank represents that either:
3. (a) It currently has stockholders' equity in excess of $200 million (US
dollars or the equivalent of US dollars computed in accordance with generally
accepted US accounting principles) and will promptly inform State Street in the
event that there appears to be a substantial likelihood that its stockholders'
equity will decline below $200 million, or in any event, at such time as its
stockholders' equity in fact declines below $200 million; or
(b) It is the subject of an exemptive order issued by the United
States Securities and Exchange Commission, which such order permits State Street
to employ the Bank as a subcustodian, notwithstanding the fact that the Bank's
stockholders' equity is currently below $200 million or may in the future
decline below $200 million due to currency fluctuation.
4. Upon the written instructions of State Street as permitted by Section
8, the Bank is authorized to pay out cash from the Account and to sell, assign,
transfer, deliver or exchange, or to purchase for the Account,
<PAGE>
any and all stocks, shares, bonds, debentures, notes and other securities
("Securities"), bullion, coin and other property, but only as provided in such
written instructions. The Bank shall not be held liable for any act or omission
to act on instructions given or purported to be given should there be any error
in such instructions
5. Unless the Bank receives written instructions of State Street to the
contrary, the Bank is authorized:
a. To promptly receive and collect all income and principal with
respect to the Property and to credit cash receipts to the Account;
b. To promptly exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary Securities for those in definitive form and the exchange
of warrants, or other documents of entitlement to Securities, for
the Securities themselves);
c. To promptly surrender Securities at maturity or when called for
redemption upon receiving payment therefor;
d. Whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock
split is received for the Account and such rights entitlement or
fractional interest bears an expiration date, the Bank will endeavor
to obtain State Street's instructions, but should these not be
received in time for the Bank to take timely action, the Bank is
authorized to sell such rights entitlement or fractional interest
and to credit the Account;
e. To hold registered in the name of the nominee of the Bank or its
agents such Securities as are ordinarily held in registered form;
f. To execute in State Street's name for the Account, whenever the Bank
deems it appropriate, such ownership and other certificates as may
be required to obtain the payment of income from the Property; and
g. To pay or cause to be paid from the Account any and all taxes and
levies in the nature of taxes imposed on such assets by any
governmental authority, and shall use reasonable efforts to promptly
reclaim any foreign withholding tax relating to the Account.
6. If the Bank shall receive any proxies, notices, reports, or other
communications relative to any of the Securities of the Account in connection
with tender offers; reorganizations, mergers, consolidations, or similar events
which may have an impact upon the issuer thereof, the Bank shall promptly
transmit any such communication to State Street by means as will permit State
Street to take timely action with respect thereto.
7. The Bank is authorized in its discretion to appoint brokers and agents
in connection with the Bank's handling of transactions relating to the Property
provided that any such appointment shall not relieve the Bank of any of its
responsibilities or liabilities hereunder.
<PAGE>
8. Written instructions shall include (i) instructions in writing signed
by such persons as are designated in writing by State Street (ii) telex or
tested telex instructions of State Street, (iii) other forms of instruction in
computer readable form as shall be customarily utilized for the transmission of
like information and (iv) such other forms of communication as from time to time
shall be agreed upon by State Street and the Bank.
9. The Bank shall supply periodic reports with respect to the safekeeping
of assets held by it under this Agreement. The content of such reports shall
include but not be limited to any transfer to or from any Account held by the
Bank hereunder and such other information as State Street may reasonably
request.
10. In addition to its obligations under Section 2 hereof, the Bank shall
maintain such other records as may be necessary to identify the assets hereunder
as belonging to each State Street client identified to this Agreement from time
to time.
11. The Bank agrees that its books and records relating to its actions
under this Agreement shall be opened to the physical, on-premises inspection and
audit at reasonable times by officers of, auditors employed by or other
representatives of State Street (including to the extent permitted under
___________ law the independent public accountants for any entity whose Property
is being held hereunder) and shall be retained for such period as shall be
agreed by State Street and the Bank.
12. The Bank shall be entitled to reasonable compensation for its services
and expenses as custodian under this Agreement, as agreed upon from time to time
by the Bank and State Street.
13. The Bank shall exercise reasonable care in the performance of its
duties as are set forth or contemplated herein or contained in instructions
given to the Bank which are not contrary to this Agreement, and shall maintain
adequate insurance and agrees to indemnify and hold State Street and each
Account from and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the Bank's performance of its obligations
hereunder.
14. The Bank agrees that (i) the Property is not subject to any right,
charge, security interest, lien or claim of any kind in favor of the Bank or any
of its agents or its creditors except a claim of payment for their safe custody
and administration and (ii) the beneficial ownership of the Property shall be
freely transferable without the payment of money or other value other than for
safe custody or administration.
15. This Agreement may be terminated by the Bank or State Street by at
least 60 days' written notice to the other, sent by registered mail or express
courier. The Bank, upon the date this Agreement terminates pursuant to notice
which has been given in a timely fashion, shall deliver the Property in
accordance with written instructions of State Street specifying the name(s) of
the person(s) to whom the Property shall be delivered.
<PAGE>
16. The Bank and State Street shall each use its best efforts to maintain
the confidentiality of the Property in each Account, subject, however, to the
provisions of any laws requiring the disclosure of the Property.
17. The Bank agrees to follow such Operating Requirements as State Street
may require from time to time. A copy of the current State Street Operating
Requirements is attached as an exhibit to this Agreement.
18. Unless otherwise specified in this Agreement, all notices with respect
to matters contemplated by this Agreement shall be deemed duly given when
received in writing or by tested telex by the Bank or State Street at their
respective addresses set forth below, or at such other address as specified in
each case in a notice similarly given:
To State Street: Global Custody Services Division
STATE STREET BANK AND TRUST
COMPANY
P. 0. Box 470
Boston, Massachusetts 02102
To the Bank:
19. This Agreement shall be governed by and construed in accordance with
the laws of _____________.
Please acknowledge your agreement to the foregoing by executing a copy of
this letter.
Very truly yours,
STATE STREET BANK AND TRUST
COMPANY
By ___________________________
Agreed to by:
By _________________________
Date _________________________
<PAGE>
[Logo] State Street
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN FEE SCHEDULE
PRUDENTIAL INTERMEDIATE
INCOME FUND, INC.
JUNE 1, 1988
- --------------------------------------------------------------------------------
I. Administration
A. Custody, Portfolio and Fund Accounting Service - Maintain custody of
fund assets. Settle portfolio purchases and sales. Report buy and
sell fails. Determine and collect portfolio income. Make cash
disbursements and report cash transactions, position and income
reports. Maintain general ledger and capital stock accounts. Prepare
daily trial balance. Calculate net asset value daily. Provide
selected general ledger reports. Securities yield or market value
quotations will be provided to State Street by the fund.
The administration fee shown below is an annual charge, billed and
payable monthly, calculated in the same manner as the Fund
Management Fee.
ANNUAL FEES
-----------
Fund Net Assets Annual Full Service Fees
--------------- ------------------------
First $25 million 1/10 of l%
Next $75 million 1/30 of 1%
Next $400 million 1/70 of l%
Next $500 million 1/75 of 1%
Excess 1/90 of 1%
Minimum Monthly Charges $2,500.00
II. Global Custody - Services provided include:
Cash Movements, Foreign Communication, Foreign Exchange (local
currency settlements).
Annual Fee
----------
Global Assets Market Value 18 Basis Points
Minimum Per Client $5,000.00 Annually
<PAGE>
[Logo] State Street
III. Portfolio Trades - For each line item processed
State Street Bank Repos $ 7.00
New York Physical Settlements $ 25.00
All Other Trades $ 16.00
Maturity Collections $ 8.00
IV. Options
Option charge for each option written or
closing contract, per issue, per broker $ 25.00
Option expiration charge, per issue, per broker $ 15.00
Option exercised charge, per issue, per broker $ 15.00
V. Lending of Securities
Deliver loaned securities versus cash $ 20.00
collateral
Deliver loaned securities versus securities
collateral $ 30.00
Receive/deliver additional cash collateral $ 6.00
Substitutions of securities collateral $30.00
Deliver cash collateral versus receipt of
loaned securities $ 15.00
Deliver securities collateral versus receipt
of loaned securities $ 25.00
Loan administration -- mark-to-market per
day, per loan $ 5.00
VI. Futures (Marking)
Transactions -- no security movement $ 10.00
VII. Holdings Charge
For each issue maintained -- monthly charge $ 5.00
VIII. Principal Reduction Payments
Paydown on Government Securities, per paydown $ 8.00
IX. Special Services
Fees for activities of a non-recurring nature such as fund
consolidations or reorganizations, extraordinary security shipments
and the preparation of special reports will be subject to negotiation.
X. Automated Pricing
Services and fees are based upon the attached schedule
<PAGE>
[Logo] State Street
XI. Out-of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will
be made as of the end of each month. Out-of-pocket expenses include,
but are not limited to the following:
Telephone
Wire Charges ($4.70 per wire in and $4.55 out)
Postage and Insurance
Courier Service
Duplicating
Legal Fees
Supplies Related to Fund Records
Rush Transfer -- $ 8.00 Each
Transfer Fees
Sub-custodian Charges
Price Waterhouse Audit Letter
Federal Reserve Fee for Return Check items over $2,500 - $4.25
GNMA Transfer -- $15.00 Each
PRUDENTIAL INTERMEDIATE STATE STREET BANK AND
INCOME FUND, INC. TRUST COMPANY
By: R. F. Gunia By: Thomas E. Swedlund
----------------------------- ----------------------------
Title: Vice President Title: Vice President
--------------------------- --------------------------
Date: 5/25/88 Date: 5/19/88
---------------------------- ---------------------------
<PAGE>
[Logo] State Street
STATE STREET BANK AND TRUST COMPANY
Fee Information for Automated Pricing
This services provides securities pricing on request. Services and fees are
based on the schedule below. Reports can be generated at State Street or on a
remote basis via PC. Reporting has both up load and down load capabilities.
Customized reports may require programming fees.
- --------------------------------------------------------------------------------
Monthly charges for the State Street Bank Automated Pricing System are
determined by:
1. Mix of security positions.
2. The number of positions that are priced during the month.
Monthly Base Fee $375.00
Monthly Quote Charge:
o Municipal Bonds via Mellon $ 21.00
o Municipal Bonds via Kenny Information
Systems $ 16.00
o Government, Corporate and Convertible
Bonds via Merrill Lynch $ 11.00
o Corporate and Government Bonds via
Mellon Data $ 11.00
o Options, Futures and Private Placements $ 6.00
o Foreign Equities and Bonds via Extel Ltd. $ 6.00
o Listed Equities, OTC Equities, and Bonds $ 6.00
o Corporate, Municipal, Convertible and
Government Bonds, Adjustable Rate Preferred
Stocks via IDSI $ 6.00
For billing purposes, the monthly quote charge will be based on the average
number of positions in the portfolio.
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of each of the parties
indicated on Appendix A for use as sub-custodians for the Fund's securities and
other assets:
Prudential Intermediate Global Income Fund, Inc.
Securities Depository
or
Country Bank Clearing Agency
- ------- ---- -----------------------
Argentina Citibank, N.A. Caja de Valores,
CDV
Australia Westpac Banking Austraclear
Corporation Limited
Austria Girocredit Bank Oesterreichische
Aktiengesellschaft Kontrollbank AG
der Sparkassen
Belgium Generale Bank Caisse
Interprofessionnelle
de Depots et de
Virements de Titres
S.A. (C.I.K.)
Brazil Citibank, N.A. Bolsa de Valores de
Sao Paolo (Bovespa);
Banco Central do
Brasil, Systema
Especial de Liquidacao
E Custodia (SELIC)
Canada Canada Trustco The Canadian
Mortgage Company Depository for
Securities Limited
Chile Citibank, N.A. None
China The Hong Kong and Shanghai Securities
Shanghai Banking Central Clearing and
Corporation Limited and Registration
Corporation
Shenzhen Securities
Registrars Co.,
Limited
<PAGE>
Securities Depository
or
Country Bank Clearing Agency
- ------- ---- -----------------------
Columbia Cititrust Columbia, None
S .A.
Sociedad Fiduciaria
The Czech Republic Ceckoslovenska Obchodni Stredisko Cennych
Banka A.S. Papiru (SCP)
Denmark Den Danske Bank Vaerdipapircentralen
The Danish Securities
Center (VP)
Finland Merita Bank Limited Central Share Register
of Finland
France Banque Paribas Societe
Interprofessionnelle
pour la Compensation
des Valeurs Mobilieres
(SICOVAM)
Germany BHF-Bank The Deutscher
Aktiengellschaft Kassenverein AG
Greece National Bank of The Central Securities
Greece S.A. Depository
(Apothetirio Titlon
A.E.)
Hong Kong Standard Chartered The Central Clearing
Bank and Settlement System
(CCASS) Securities
Depository
Hungary Citibank Budapest Rt. The Central Depository
and Clearing House
India The Hong Kong and None
Shanghai Banking
Corporation Limited
Indonesia Standard Chartered None
Bank
Ireland Bank of Ireland The Central Bank of
Ireland, The Gilt
Settlement Office
(GSO)
<PAGE>
Securities Depository
or
Country Bank Clearing Agency
- ------- ---- -----------------------
Israel Bank Hapoalin The Clearing House
B.M. of the Tel Aviv
Stock Exchange
Italy Morgan Guaranty Monte Titoli, S.P.A.
Trust Company Banca d' Italia
Japan The Daiwa Bank, Ltd Japan Securities
Depository Center
Sumitomo Trust & (JASDEC); Bank of
Banking Co., Ltd. Japan Net System
Korea SEOULBANK Korea Securities
Depository
Luxembourg -- Cedel
Malaysia Standard Chartered Malaysian Central
Bank Malaysia Berhad Depository Sdn. Bhd.
Mexico Citibank, N.A. S.D. INDEVAL, S.A.
De C.V. (Instituto para
el Deposito de
Valores); Banco de
Mexico
Netherlands Meespierson N.V. Nederlands Centraal
instituut voor Giraal
Effectenverkeer B.V.
(NECIGEF)
New Zealand ANZ Banking Group Nederlands Centraal
(New Zealand) Limited Instituut voor Giraal
Effectenverkeer B.V.
Norway Christiania Bank Verdipapirsentralen
og Kreditkasse The Norwegian Registry
of Securities
Pakistan Deutch Bank AG None
Peru Citibank, N.A. Caja de Valores
Philippines Standard Chartered None
Bank
Poland Citibank Poland, S.A. The National
Depository of
Securities
<PAGE>
Securities Depository
or
Country Bank Clearing Agency
- ------- ---- -----------------------
Portugal Banco Comercial Central de Valores
Portugues (Lisbon) Mobiliarios (Central)
Singapore The Development Bank The Central Depository
of Singapore Ltd. (Pte) Limited (CDP)
Slovak Republic Cekoslovenska Obchodna Stredisko cennych
Bank A.S. papierov (SCP);
National Bank of
Slovakia
South Africa Standard Bank of None
South Africa Ltd.
Spain Banco Santandar, S.A. Servicio de
Compensacion y
Liquidacion de Valores
(SCLV); Banco de
Espana, Anotaciones
en Cuenta
Sweden Skandinaviska Vardepapperseentralen,
Enskilda Banken VPC, AB, The Swedish
Securities Depository
Switzerland Union Bank of Schweizerische
Switzerland Effekten-Giro AG
(SEGA)
Taiwan Central Trust of China The Taiwan Securities
Central Depository
Company, Ltd. (TSCD)
Thailand Standard Chartered Bank Thailand Securities
Central Depository
Company, Ltd.
Turkey Citibank, N.A. Istanbul Stock
Exchange Settlement
and Custody Co., Inc.
United Kingdom State Street Bank The Bank of England,
and Trust Company The Central Gilts
London Branch, and Office (CGO); The
State Street London Central London
Limited; subsidiary Moneymarkets Office
of State Street Bank (CMO)
& Trust Company
<PAGE>
Securities Depository
or
Country Bank Clearing Agency
- ------- ---- -----------------------
Uruguay Citibank, N.A. None
Venezuela Citibank, N.A. None
Transnational The Euroclear System
Cedel
Certified:
/s/ Deborah A. Docs
- ---------------------------
Fund's Authorized Officer
Date: 8/23/95
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
and
PRUDENTIAL MUTUAL FUND SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
Article 1 Terms of Appointment; Duties of the Agent...........................1
Article 2 Fees and Expenses...................................................4
Article 3 Representations and Warranties of the Agent.........................5
Article 4 Representations and Warranties of the Fund..........................5
Article 5 Duty of Care and Indemnification....................................6
Article 6 Documents and Covenants of the Fund and the Agent...................8
Article 7 Termination of Agreement...........................................10
Article 8 Assignment.........................................................11
Article 9 Affiliations.......................................................11
Article 10 Amendment..........................................................12
Article 11 Applicable Law.....................................................12
Article 12 Miscellaneous......................................................12
Article 13 Merger of Agreement................................................13
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 26th day of June, 1991 by and between PRUDENTIAL
INTERMEDIATE GLOBAL INCOME FUND, INC., a Maryland corporation, having its
principal office and place of business at One Seaport Plaza, New York, New York
10292 (the Fund), and PRUDENTIAL MUTUAL FUND SERVICES, INC., a New Jersey
corporation, having its principal office and place of business at Raritan Plaza
One, Edison, New Jersey 08837 (the Agent or PMFS).
WHEREAS, the Fund desires to appoint PMFS as its transfer agent, dividend
disbursing agent and shareholder servicing agent in connection with certain
other activities, and PMFS desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of PMFS
1.01 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints PMFS to act as, and PMFS agrees to act as, the
transfer agent for the authorized and issued shares of the common stock of each
series of the Fund, $.001 par value (Shares), dividend disbursing agent and
shareholder servicing agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of the Fund or any series thereof
(Shareholders) and set out in the currently effective prospectus and statement
of additional information (prospectus) of the Fund, including without limitation
any periodic investment plan or periodic withdrawal program.
1.02 PMFS agrees that it will perform the following services:
1
<PAGE>
(a) In accordance with procedures established from time to time by
agreement between the Fund and PMFS, PMFS shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor to the Custodian
of the Fund authorized pursuant to the Articles of Incorporation of the Fund
(the Custodian);
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or cause to be paid
over in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on
purchases and/or redemptions of Shares of the Fund as such charges may be
reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain pursuant
to Rule 17Ad-l0(e) under the Securities Exchange Act of 1934 (1934 Act) a record
of the total number of
2
<PAGE>
Shares of the Fund which are authorized, based upon data provided to it by the
Fund, and issued and outstanding. PMFS shall also provide to the Fund on a
regular basis the total number of Shares which are authorized, issued and
outstanding and shall notify the Fund in case any proposed issue of Shares by
the Fund would result in an overissue. In case any issue of Shares would result
in an overissue, PMFS shall refuse to issue such Shares and shall not
countersign and issue any certificates requested for such Shares. When recording
the issuance of Shares, PMFS shall have no obligation to take cognizance of any
Blue Sky laws relating to the issue or sale of such Shares, which functions
shall be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), PMFS shall: (i) perform all of the customary services of a
transfer agent, dividend disbursing agent and, as relevant, shareholder
servicing agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on non-resident alien accounts, preparing and
filing appropriate forms required with respect to dividends and distributions by
federal tax authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for Shareholders and
providing Shareholder account information and (ii) provide a system which will
enable the Fund to monitor the total number of Shares sold in each State or
other jurisdiction.
3
<PAGE>
(c) In addition, the Fund shall (i) identify to PMFS in writing those
transactions and assets to be treated as exempt from Blue Sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of PMFS for the Fund's registration status under the
Blue Sky or securities laws of any State or other jurisdiction is solely limited
to the initial establishment of transactions subject to Blue Sky compliance by
the Fund and the reporting of such transactions to the Fund as provided above
and as agreed from time to time by the Fund and PMFS.
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Fund and set forth in Schedule B hereto.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and PMFS.
Article 2 Fees and Expenses
2.01 For performance by PMFS pursuant to this Agreement, the Fund agrees
to pay PMFS an annual maintenance fee for each Shareholder account and certain
transactional fees as set out in the fee schedule attached hereto as Schedule A.
Such fees and out-of-pocket expenses and advances identified under Section 2.02
below may be changed from time to time subject to mutual written agreement
between the Fund and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the Fund
agrees to reimburse PMFS for out -of-pocket expenses or advances incurred by
PMFS for the items set out in Schedule A attached hereto. In addition, any other
expenses incurred by PMFS at the request or with the consent of the Fund will be
reimbursed by the Fund.
4
<PAGE>
2.03 The Fund agrees to pay all fees and reimbursable expenses within a
reasonable period of time following the mailing of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to PMFS by the Fund upon
request prior to the mailing date of such materials.
Article 3 Representations and Warranties of PMFS
PMFS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good standing
under the laws of New Jersey and it is duly qualified to carry on its business
in New Jersey.
3.02 It is and will remain registered with the U.S. Securities and
Exchange Commission (SEC) as a Transfer Agent pursuant to the requirements of
Section 17A of the 1934 Act.
3.03 It is empowered under applicable laws and by its charter and By-Laws
to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to PMFS that:
4.01 It is a corporation duly organized and existing and in good standing
under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
5
<PAGE>
4.03 All corporate proceedings required by said Articles of Incorporation
and ByLaws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an investment company registered with the SEC under the
Investment Company Act of 1940, as amended (the 1940 Act).
4.05 A registration statement under the Securities Act of 1933 (the 1933
Act) is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Fund being offered for sale.
Article 5 Duty of Care and Indemnification
5.01 PMFS shall not be responsible for, and the Fund shall indemnify and
hold PMFS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of PMFS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by PMFS or its agents or subcontractors of
information, records and documents which (i) are received by PMFS or its agents
or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or maintained by the Fund or any other person or firm on
behalf of the Fund.
6
<PAGE>
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities or Blue Sky laws of any
State or other jurisdiction that such Shares be registered in such State or
other jurisdiction or in violation of any stop order or other determination or
ruling by any federal agency or any State or other jurisdiction with respect to
the offer or sale of such Shares in such State or other jurisdiction.
5.02 PMFS shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by PMFS as a result of PMFS' lack of good faith, negligence or willful
misconduct.
5.03 At any time PMFS may apply to any officer of the Fund for
instructions, and may consult with legal counsel, with respect to any matter
arising in connection with the services to be performed by PMFS under this
Agreement, and PMFS and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. PMFS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to PMFS or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. PMFS, its agents and subcontractors shall also be
7
<PAGE>
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signature of the officers of the
Fund, and the proper countersignature of any former transfer agent or registrar,
or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other cause
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 Documents and Covenants of the Fund and PMFS
6.01 The Fund shall promptly furnish to PMFS the following:
8
<PAGE>
(a) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of PMFS and the execution and
delivery of this Agreement;
(b) A certified copy of the Articles of Incorporation and By-Laws of
the Fund and all amendments thereto;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the
1933 Act and the 1940 Act;
(d) A specimen of the certificate for Shares of the Fund in the form
approved by the Board of Directors, with a certificate of the Secretary of
the Fund as to such approval;
(e) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan program or service
offered or to be offered by the Fund; and
(f) Such other certificates, documents or opinions as the Agent
deems to be appropriate or necessary for the proper performance of its
duties.
6.02 PMFS hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 PMFS shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, PMFS agrees that all such records prepared or maintained by PMFS
relating to the services to be performed by PMFS hereunder are the property of
the Fund and will be preserved, maintained and made available in accordance with
such
9
<PAGE>
Section 31 of the 1940 Act, and the Rules and Regulations thereunder, and will
be surrendered promptly to the Fund on and in accordance with its request.
6.04 PMFS and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential and shall not be voluntarily disclosed to any other person except
as may be required by law or with the prior consent of PMFS and the Fund.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, PMFS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. PMFS reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such person.
Article 7 Termination of Agreement
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Fund. Additionally, PMFS reserves the right to charge for any other
reasonable fees and expenses associated with such termination.
10
<PAGE>
Article 8 Assignment
8.01 Except as provided in Section 8.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
8.03 PMFS may, in its sole discretion and without further consent by the
Fund, subcontract, in whole or in part, for the performance of its obligations
and duties hereunder with any person or entity including but not limited to: (i)
Prudential Securities Incorporated (Prudential Securities), a registered
broker-dealer, (ii) The Prudential Insurance Company of America (Prudential),
(iii) Pruco Securities Corporation, a registered broker-dealer, (iv) any
Prudential Securities or Prudential subsidiary or affiliate duly registered as a
broker-dealer and/or a transfer agent pursuant to the 1934 Act or (vi) any other
Prudential Securities or Prudential affiliate or subsidiary; provided, however,
that PMFS shall be as fully responsible to the Fund for the acts and omissions
of any agent or subcontractor as it is for its own acts and omissions.
Article 9 Affiliations
9.01 PMFS may now or hereafter, without the consent of or notice to the
Fund, function as Transfer Agent and/or Shareholder Servicing Agent for any
other investment company registered with the SEC under the 1940 Act, including
without limitation any investment company whose adviser, administrator, sponsor
or principal underwriter is or may become affiliated with Prudential Securities
and/or Prudential or any of its or their direct or indirect subsidiaries or
affiliates.
9.02 It is understood and agreed that the directors, officers, employees,
agents and Shareholders of the Fund, and the directors, officers, employees,
agents and shareholders of the
11
<PAGE>
Fund's investment adviser and/or distributor, are or may be interested in the
Agent as directors, officers, employees, agents, shareholders or otherwise, and
that the directors, officers, employees, agents or shareholders of the Agent may
be interested in the Fund as directors, officers, employees, agents,
Shareholders or otherwise, or in the investment adviser a and/or distributor as
officers, directors, employees, agents, shareholders or otherwise.
Article 10 Amendment
10.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
Article 11 Applicable Law
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New Jersey.
Article 12 Miscellaneous
12.01 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to PMFS an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to PMFS and the Fund issued by a
surety company satisfactory to PMFS, except that PMFS may accept an affidavit of
loss and indemnity agreement executed by the registered holder (or legal
representative) without surety in such form as PMFS deems appropriate
indemnifying PMFS and the Fund for the issuance of a replacement certificate, in
cases where the alleged loss is in the amount of $1000 or less.
12.02 In the event that any check or other order for payment of money on
the account of any Shareholder or new investor is returned unpaid for any
reason, PMFS will (a) give
12
<PAGE>
prompt notification to the Fund's distributor (Distributor) of such non-payment;
and (b) take such other action, including imposition of a reasonable processing
or handling fee, as PMFS may, in its sole discretion, deem appropriate or as the
Fund and the Distributor may instruct PMFS.
12.03 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to PMFS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Prudential Intermediate Global Income Fund, Inc.
One Seaport Plaza
New York, NY 10292
Attention: President
To PMFS:
Prudential Mutual Fund Services, Inc.
Raritan Plaza One
Edison, NJ 08837
Attention: President
Article 13 Merger of Agreement
13.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
PRUDENTIAL INTERMEDIATE
GLOBAL INCOME FUND, INC.
BY:/s/ LAWRENCE C. MCQUADE
----------------------------------
ATTEST:
______________________________
PRUDENTIAL MUTUAL FUND
SERVICES, INC.
BY:/s/ FRED FIANDACA
----------------------------------
ATTEST:
______________________________
14
<PAGE>
Schedule A
Prudential Mutual Fund Services, Inc.
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
General - Fees are based on an annual per shareholder account charge for account
maintenance plus out-of-pocket expenses. The effective period of this fee
schedule is June 26, 1991 through December 31, 1991 and shall continue
thereafter from year to year, unless otherwise amended.
Annual Maintenance Charges - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
Basic Annual Per Account Fee $ 13.00
New Account Set-up Fee for Manually
Established Accounts $ 2.00
Inactive Account Fee $ .20
Out-of-Pocket Expenses - Out-of-pocket expenses include but are not limited to:
postage, stationery and printing, allocable communication costs, microfilm,
microfiche, and expenses incurred at the specific direction of the Fund.
Payment - An invoice will be presented to the Fund on a monthly basis assessing
the Fund the appropriate fee and out-of-pocket expenses.
PRUDENTIAL INTERMEDIATE
GLOBAL INCOME FUND, INC. PRUDENTIAL MUTUAL FUND
SERVICES, INC.
NAME:/s/ LAWRENCE C. MCQUADE NAME:/s/ FRED FIANDACA
---------------------------- --------------------------
TITLE: President TITLE: President
DATE: June 26, 1991 DATE: June 26, 1991
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 Third Avenue
New York, New York 10022
February 27, 1997
Prudential Intermediate Global Fund, Inc.
Gateway Center Three
100 Mulberry Street, 9th Floor
Newark, New Jersey 07102-4077
Gentlemen and Ladies:
Prudential Intermediate Global Income Fund, Inc. (the "Fund"), is filing
with the Securities and Exchange Commission Post-Effective Amendment No. 10 to
its Registration Statement under the Securities Act of 1933, as amended (the
"1933 Act") on Form N-1A (File Nos. 33-42093 and 811-5510), relating to the
registration under the 1933 Act of 2,504,395 additional shares of its Common
Stock, par value $.001 per share (the "Shares"), which are to be offered and
sold by the Fund in the manner and on the terms set forth in the prospectus of
the Fund current and effective under the 1933 Act at the time of sale. The
Shares are previously outstanding shares of the Fund's Common Stock, par value
$.001 per share, which were redeemed by the Fund during its fiscal year ended
December 31, 1996. According to Post-Effective Amendment No. 10 to the Fund's
Registration Statement, none of the Shares have previously been used by the Fund
for reduction pursuant to paragraph (a) of Rule 24e-2 under the Investment
Company Act of 1940, as amended (the "1940 Act") in previous filings of
post-effective amendments to the Fund's Registration Statement during the
current fiscal year, or for the reduction pursuant to paragraph (c) of Rule
24f-2 under the 1940 Act during the Fund's current fiscal year, of the
registration fee payable by the Fund for the registration of shares for sale
under the 1933 Act.
We have, as counsel, participated in various proceedings relating to the
Fund and to the proposed issuance of the Additional Shares. We have examined
copies, either certified or otherwise proven to our satisfaction to be genuine,
of the Fund's Articles of Incorporation and By-laws, as currently in effect, and
a certificate issued by the State Department of Assessments and Taxation of the
State of Maryland, certifying the existence and good standing of the Fund. We
are generally familiar with the corporate affairs of the Fund.
Based upon the foregoing, it is our opinion that:
<PAGE>
Prudential Intermediate Global Income Fund, Inc.
February 27, 1997
Page 2
1. The Fund has been duly organized and is validly existing under the laws
of the State of Maryland.
2. The Fund is authorized to issue two billion (2,000,000,000) shares of
Common Stock, par value $.001 per share. Under Maryland law, (a) the number of
authorized shares may be increased or decreased by action of the Board of
Directors and (b) shares which are issued and subsequently redeemed by the Fund
are, by virtue of such redemption, restored to the status of authorized and
unissued shares.
3. Subject to the effectiveness of the above-mentioned Post-Effective
Amendment No. 10 to the Fund's Registration Statement and compliance with
applicable state securities laws, upon the issuance of the Shares for a
consideration not less than the par value thereof as required by the laws of
Maryland, and not less than the net asset value thereof as required by the 1940
Act and in accordance with the terms of the Registration Statement, such Shares
will be legally issued and outstanding and fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as a part of the above-mentioned Post-Effective Amendment
No. 10 to the Registration Statement and with any state securities commission
where such filing is required. In giving this consent we do not admit that we
come within the category of persons whose consent is required under Section 7 of
the 1933 Act.
We are members of the Bar of the State of New York and do not hold
ourselves out as being conversant with the laws of any jurisdiction other than
those of the United States of America and the State of New York. We note that we
are not licensed to practice law in the State of Maryland, and to the extent
that any opinion herein involves the laws of the State of Maryland, such opinion
should be understood to be based solely upon our review of the documents
referred to above, the published statutes of the State of Maryland and, where
applicable, published cases, rules or regulations of regulatory bodies of that
State.
Very truly yours,
/s/ SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
---------------------------------------------
Shereff, Friedman, Hoffman & Goodman, LLP
SFH&G:MKN:JLS:GNB:
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 10 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 25, 1997, relating to the financial statements and financial highlights
of Prudential Intermediate Global Income Fund, Inc., which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading "Custodian,
Transfer and Dividend Disbursing Agent and Independent Accountants" in such
Statement of Additional Information and to the reference to us under the heading
"Financial Highlights" in such Prospectus.
PRICE WATERHOUSE LLP
New York, New York
February 25, 1997
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
EXHIBIT
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
AS OF 8/31/91
n
ERV = P * (1 + T)^
P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
- --------------------------------------------------------------------------------
1 Year Inception
P = $1,000.00 $1,000.00
n = 1.000 3.25
ERV = $1,067.32 $1,156.15
T = 6.73% 4.57%
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831015
<NAME> PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC. (CLASS A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 763,000
<INVESTMENTS-AT-VALUE> 175,482,549
<RECEIVABLES> 4,140,767
<ASSETS-OTHER> 835,213
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 180,458,529
<PAYABLE-FOR-SECURITIES> 455,218
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 656,995
<TOTAL-LIABILITIES> 1,112,213
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 250,530,338
<SHARES-COMMON-STOCK> 21,512,720
<SHARES-COMMON-PRIOR> 24,006,782
<ACCUMULATED-NII-CURRENT> 1,676,080
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (81,254,373)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,394,271
<NET-ASSETS> 179,346,316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,703,425
<OTHER-INCOME> 0
<EXPENSES-NET> 2,688,046
<NET-INVESTMENT-INCOME> 12,015,379
<REALIZED-GAINS-CURRENT> 8,525,984
<APPREC-INCREASE-CURRENT> (1,630,745)
<NET-CHANGE-FROM-OPS> 18,910,618
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,015,379)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (6,277,437)
<NUMBER-OF-SHARES-SOLD> 16,398,099
<NUMBER-OF-SHARES-REDEEMED> (42,995,654)
<SHARES-REINVESTED> 6,011,409
<NET-CHANGE-IN-ASSETS> (19,968,344)
<ACCUMULATED-NII-PRIOR> 1,651,431
<ACCUMULATED-GAINS-PRIOR> (83,880,683)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,386,451
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,688,046
<AVERAGE-NET-ASSETS> 169,219,000
<PER-SHARE-NAV-BEGIN> 8.30
<PER-SHARE-NII> 0.89
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.56)
<PER-SHARE-DISTRIBUTIONS> (0.29)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.34
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831015
<NAME> PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
<SERIES>
<NUMBER> 002
<NAME> PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC. (CLASS B)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 763,000
<INVESTMENTS-AT-VALUE> 175,482,549
<RECEIVABLES> 4,140,767
<ASSETS-OTHER> 835,213
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 180,458,529
<PAYABLE-FOR-SECURITIES> 455,218
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 656,995
<TOTAL-LIABILITIES> 1,112,213
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 250,530,338
<SHARES-COMMON-STOCK> 21,512,720
<SHARES-COMMON-PRIOR> 24,006,782
<ACCUMULATED-NII-CURRENT> 1,676,080
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (81,254,373)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,394,271
<NET-ASSETS> 179,346,316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,703,425
<OTHER-INCOME> 0
<EXPENSES-NET> 2,688,046
<NET-INVESTMENT-INCOME> 12,015,379
<REALIZED-GAINS-CURRENT> 8,525,984
<APPREC-INCREASE-CURRENT> (1,630,745)
<NET-CHANGE-FROM-OPS> 18,910,618
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,015,379)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (6,277,437)
<NUMBER-OF-SHARES-SOLD> 16,398,099
<NUMBER-OF-SHARES-REDEEMED> (42,995,654)
<SHARES-REINVESTED> 6,011,409
<NET-CHANGE-IN-ASSETS> (19,968,344)
<ACCUMULATED-NII-PRIOR> 1,651,431
<ACCUMULATED-GAINS-PRIOR> (83,880,683)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,386,451
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,688,046
<AVERAGE-NET-ASSETS> 15,491,000
<PER-SHARE-NAV-BEGIN> 8.31
<PER-SHARE-NII> 0.83
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.53)
<PER-SHARE-DISTRIBUTIONS> (0.27)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.34
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831015
<NAME> PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
<SERIES>
<NUMBER> 003
<NAME> PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC. (CLASS C)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 763,000
<INVESTMENTS-AT-VALUE> 175,482,549
<RECEIVABLES> 4,140,767
<ASSETS-OTHER> 835,213
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 180,458,529
<PAYABLE-FOR-SECURITIES> 455,218
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 656,995
<TOTAL-LIABILITIES> 1,112,213
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 250,530,338
<SHARES-COMMON-STOCK> 21,512,720
<SHARES-COMMON-PRIOR> 24,006,782
<ACCUMULATED-NII-CURRENT> 1,676,080
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (81,254,373)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,394,271
<NET-ASSETS> 179,346,316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,703,425
<OTHER-INCOME> 0
<EXPENSES-NET> 2,688,046
<NET-INVESTMENT-INCOME> 12,015,379
<REALIZED-GAINS-CURRENT> 8,525,984
<APPREC-INCREASE-CURRENT> (1,630,745)
<NET-CHANGE-FROM-OPS> 18,910,618
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,015,379)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (6,277,437)
<NUMBER-OF-SHARES-SOLD> 16,398,099
<NUMBER-OF-SHARES-REDEEMED> (42,995,654)
<SHARES-REINVESTED> 6,011,409
<NET-CHANGE-IN-ASSETS> (19,968,344)
<ACCUMULATED-NII-PRIOR> 1,651,431
<ACCUMULATED-GAINS-PRIOR> (83,880,683)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,386,451
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,688,046
<AVERAGE-NET-ASSETS> 110,000
<PER-SHARE-NAV-BEGIN> 8.31
<PER-SHARE-NII> 0.83
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.53)
<PER-SHARE-DISTRIBUTIONS> (0.27)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.34
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831015
<NAME> PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
<SERIES>
<NUMBER> 004
<NAME> PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC. (CLASS Z)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 763,000
<INVESTMENTS-AT-VALUE> 175,482,549
<RECEIVABLES> 4,140,767
<ASSETS-OTHER> 835,213
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 180,458,529
<PAYABLE-FOR-SECURITIES> 455,218
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 656,995
<TOTAL-LIABILITIES> 1,112,213
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 250,530,338
<SHARES-COMMON-STOCK> 21,512,720
<SHARES-COMMON-PRIOR> 24,006,782
<ACCUMULATED-NII-CURRENT> 1,676,080
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (81,254,373)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,394,271
<NET-ASSETS> 179,346,316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,703,425
<OTHER-INCOME> 0
<EXPENSES-NET> 2,688,046
<NET-INVESTMENT-INCOME> 12,015,379
<REALIZED-GAINS-CURRENT> 8,525,984
<APPREC-INCREASE-CURRENT> (1,630,745)
<NET-CHANGE-FROM-OPS> 18,910,618
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,015,379)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (6,277,437)
<NUMBER-OF-SHARES-SOLD> 16,398,099
<NUMBER-OF-SHARES-REDEEMED> (42,995,654)
<SHARES-REINVESTED> 6,011,409
<NET-CHANGE-IN-ASSETS> (19,968,344)
<ACCUMULATED-NII-PRIOR> 1,651,431
<ACCUMULATED-GAINS-PRIOR> (83,880,683)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,386,451
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,688,046
<AVERAGE-NET-ASSETS> 110,000
<PER-SHARE-NAV-BEGIN> 8.31
<PER-SHARE-NII> 0.83
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.53)
<PER-SHARE-DISTRIBUTIONS> (0.27)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.34
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
