<PAGE>
As filed with the Securities and Exchange Commission on February 28, 1995
Securities Act Registration No. 33-22363
Investment Company Act Registration No. 811-5594
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 12 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
[X]
AMENDMENT NO. 14
(Check appropriate box or boxes)
-----------
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
(formerly Prudential-Bache Structured Maturity Fund, Inc.)
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 214-1250
S. JANE ROSE, ESQ.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(NAME AND ADDRESS OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
[_] immediately upon filing pursuant to paragraph (b)
[X] on March 1, 1995 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) 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
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED REGISTERED PER SHARE* AGGREGATE OFFERING PRICE** REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share......... ***Indefinite N/A N/A N/A
- ---------------------------------------------------------------------------------------------------
Common Stock, par value
$.10 per share......... 864,110 $11.49 $9,928,629 $100.00
- ---------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* Computed under Rule 457(d) on the basis of the offering price per share on
the close of business on February 23, 1995.
** Registrant elects to calculate the maximum aggregate offering price
pursuant to Rule 24e-2. $82,068,466 of shares was redeemed during the fiscal
year ended December 31, 1994. $72,429,837 of shares was used for reductions
pursuant to paragraph (c) of Rule 24f-2 during the fiscal year ended
December 31, 1994. $9,638,629 of shares is the amount of redeemed shares
used for reduction for this amendment.
*** Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has previously registered an indefinite number of shares of its
Common Stock, par value $.01 per share. The Registrant will file a notice
for its fiscal year ended December 31, 1994 on or before February 28, 1995.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 Informa-
tion................................... Fund Expenses; Financial Highlights;
Item 4. General Description of Regis- How the Fund Calculates Performance
trant.................................. Cover Page; Fund Highlights; How the
Fund Invests; General Information
Item 5. Management of the Fund......... Financial Highlights; How the Fund is
Managed
Item 6. Capital Stock and Other Securi-
ties................................... Taxes, Dividends and Distributions;
Item 7. Purchase of Securities Being General Information
Offered................................ Shareholder Guide; How the Fund Values
its Shares
Item 8. Redemption or Repurchase....... Shareholder Guide; How the Fund Values
its Shares
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 Histo-
ry..................................... General Information
Item 13. Investment Objectives and Poli-
cies................................... 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
Item 18. Capital Stock and Other Securi-
ties................................... Not Applicable
Item 19. Purchase, Redemption and Pric-
ing 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 Da-
ta..................................... Performance Information
Item 23. Financial Statements........... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC. (INCOME PORTFOLIO)
- -------------------------------------------------------------------------------
PROSPECTUS DATED MARCH 1, 1995
- -------------------------------------------------------------------------------
Prudential Structured Maturity Fund, Inc. (the Fund), Income Portfolio (the
Portfolio), is one of two separate portfolios of an open-end, management
investment company, or mutual fund. The Portfolio's investment objective is
high current income consistent with the preservation of principal. The
Portfolio seeks to achieve its objective primarily through structuring its
portfolio by utilizing a "laddered" maturity strategy. The Portfolio invests
primarily in investment grade corporate debt securities and in obligations of
the U.S. Government, its agencies and instrumentalities with maturities of six
years or less. These securities are allocated by maturity among six annual
maturity categories ranging from one year or less to between five and six
years with each category representing approximately one-sixth of the
Portfolio's assets. As the securities in each annual category mature or as new
investments are made in the Portfolio, the proceeds will be invested to
maintain the balance of investments among the six annual maturity categories.
The Portfolio may also engage in various hedging and income enhancement
strategies, including derivatives. There can be no assurance that the
Portfolio's investment objective will be achieved. See "How the Fund Invests--
Investment Objective and Policies." The Fund's address is One Seaport Plaza,
New York, New York 10292, and its telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund and the
Income Portfolio that a prospective investor should know before investing.
Additional information about the Fund and the Portfolio has been filed with
the Securities and Exchange Commission in a Statement of Additional
Information, dated March 1, 1995, which information is incorporated herein by
reference (is legally considered a part of this Prospectus) and is available
without charge upon request to the Fund, at the address or telephone number
noted above.
- -------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL STRUCTURED MATURITY FUND, INC.?
Prudential Structured Maturity Fund, Inc. is a mutual fund whose shares are
offered in two portfolios, each of which operates as a separate 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
management investment company. Only the Income Portfolio is offered through
this Prospectus.
WHAT IS THE PORTFOLIO'S INVESTMENT OBJECTIVE?
The Portfolio's investment objective is high current income consistent with
the preservation of principal. It seeks to achieve this objective primarily
through structuring its portfolio by utilizing a "laddered" maturity strategy.
The Portfolio invests primarily in investment grade corporate debt securities
and in obligations of the U.S. Government, its agencies and instrumentalities
with maturities of six years or less. These securities are allocated by
maturity among six annual maturity categories ranging from one year or less to
between five and six years with each category representing approximately one-
sixth of the Fund's assets ("laddered" maturities). There can be no assurance
that the Portfolio's objective will be achieved. See "How the Fund Invests--
Investment Objective and Policies" at page 8.
RISK FACTORS AND SPECIAL CHARACTERISTICS
The Portfolio may invest in debt securities of U.S. issuers that have
securities outstanding that are rated at the time of purchase at least BBB by
Standard & Poor's Ratings Group (S&P) or Baa by Moody's Investors Service
(Moody's) or a similar nationally recognized statistical rating organization
or, if not rated, of comparable quality in the opinion of the investment
adviser. In addition, the Portfolio may invest up to 10% of its total assets in
securities rated below BBB by S&P or Baa by Moody's or a similar nationally
recognized statistical rating organization or, if not rated, of comparable
quality in the opinion of the investment adviser. Such securities are commonly
referred to as "junk bonds." The Portfolio may invest up to 25% of its net
assets in asset-backed securities and up to 30% of its net assets in
collateralized mortgage obligations and real estate mortgage investment
conduits. Such investments may be sensitive to prepayments and interest rates.
See "How the Fund Invests--Investment Objective and Policies--Corporate and
Other Debt Obligations" at page 10. The Portfolio may also engage in various
hedging and income enhancement strategies, including derivatives. See "How the
Fund Invests--Hedging and Income Enhancement Strategies--Risks of Hedging and
Income Enhancement Strategies" at page 13.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .40 of 1%
of the Portfolio's average daily net assets. As of January 31, 1995, PMF served
as manager or administrator to 69 investment companies, including 39 mutual
funds, with aggregate assets of approximately $45 billion. The Prudential
Investment Corporation (PIC or the Subadviser) furnishes investment advisory
services in connection with the management of the Fund under a Subadvisory
Agreement with PMF. See "How the Fund is Managed--Manager" at page 17.
WHO DISTRIBUTES THE PORTFOLIO'S SHARES?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
the Portfolio's Class A shares and is paid an annual distribution and service
fee which is currently being charged at the rate of .10 of 1% of the average
daily net assets of the Class A shares.
2
<PAGE>
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Portfolio's Class B and Class C shares and is paid 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 each of the Class B and Class C
shares.
See "How the Fund is Managed--Distributor" at page 17.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide--How
to Buy Shares of the Fund" at page 23 and "Shareholder Guide--Shareholder
Services" at page 32.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Portfolio through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent) at
the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities plus a sales
charge which may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). See "How the Fund
Values its Shares" at page 20 and "Shareholder Guide--How to Buy Shares of the
Fund" at page 23.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Portfolio offers three classes of shares:
.Class A Shares: Sold with an initial sales charge of up to 3.25% of the
offering price.
.Class B Shares: Sold without an initial sales charge but are subject to a
contingent deferred sales charge or CDSC (declining from 3%
to zero of the lower of the amount invested or the
redemption proceeds) which will be imposed on certain
redemptions made within four years of purchase. Although
Class B shares are subject to higher ongoing distribution-
related expenses than Class A shares, Class B shares will
automatically convert to Class A shares (which are subject
to lower ongoing distribution-related expenses)
approximately five years after purchase.
.Class C Shares: Sold without an initial sales charge and, for one year
after purchase, are subject to a 1% CDSC on redemptions.
Like Class B shares, Class C shares are subject to
higher ongoing distribution-related expenses than Class
A shares but do not convert to another class.
See "Shareholder Guide--Alternative Purchase Plan" at page 24.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 27.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Portfolio expects to declare daily and pay monthly dividends of net
investment income, if any, and make distributions of any net capital gains at
least annually. Dividends and distributions will be automatically reinvested in
additional shares of the Fund at NAV without a sales charge unless you request
that they be paid to you in cash. See "Taxes, Dividends and Distributions" at
page 21.
3
<PAGE>
FUND EXPENSES
(INCOME PORTFOLIO)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- --------------- --------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load Im-
posed on Purchases (as
a percentage of offer-
ing price)............ 3.25% None None
Maximum Sales Load or
Deferred Sales Load
Imposed on Reinvested
Dividends............. None None None
Deferred Sales Load (as
a percentage of 1% on redemptions
original purchase made within
price or redemption one year of
proceeds, whichever is purchase
lower)................ None 3% during the first year,
decreasing by 1% annually to
1% in the third year and
1% in the fourth year and
0% the fifth year*
Redemption Fees........ None None None
Exchange Fee........... None None None
<CAPTION>
ANNUAL FUND OPERATING EX-
PENSES
(as a percentage of av- CLASS A SHARES CLASS B SHARES CLASS C SHARES**
erage net assets) -------------- -------------- ----------------
<S> <C> <C> <C>
Management Fees........ .40% .40% .40%
12b-1 Fees............. .10*** .75++ .75++
Other Expenses......... .44 .44 .44
--- --- ---
Total Fund Operating
Expenses.............. .94% 1.59% 1.59%
=== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual re-
turn and (2) redemption at the end of each time
period:
Class A....................................... $42 $61 $83 $144
Class B....................................... $46 $60 $87 $147
Class C**..................................... $26 $50 $87 $189
You would pay the following expenses on the
same investment assuming no redemption:
Class A....................................... $42 $61 $83 $144
Class B....................................... $16 $50 $87 $147
Class C**..................................... $16 $50 $87 $189
</TABLE>
The above example with respect to Class B and Class C shares is based on
restated data for the Fund's fiscal year ended December 31, 1994. The above
example with respect to Class A shares is based on actual data for the fiscal
year ended December 31, 1994. 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 Portfolio will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Fund is Managed." "Other Expenses" includes operating
expenses of the Portfolio, such as directors' and professional fees,
registration fees, reports to shareholders and transfer agency and custodian
fees.
- ------------
* Class B Shares will automatically convert to Class A shares approximately
five years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
** Estimated based on expenses expected to have been incurred if Class C
shares had been in existence during the entire fiscal year ended December
31, 1994.
*** Although the Class A Distribution and Service Plan provides that the
Portfolio may pay a distribution fee of up to .30 of 1% per annum of the
average daily net assets of the Class A shares, the Distributor has agreed
to limit its distribution fees with respect to the Class A shares of the
Portfolio to no more than .10 of 1% for the fiscal year ending December 31,
1995. Total Fund Operating Expenses of Class A shares without such
limitation would be 1.14%.
+ Pursuant to the 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 Portfolio may not exceed 6.25%
of total gross sales, subject to certain exclusions. This 6.25% limitation
is imposed on each class of the Portfolio rather than on a per shareholder
basis. Therefore, long-term shareholders of the Portfolio may pay more in
total sales charges than the economic equivalent of 6.25% of such
shareholders' investments in such shares. See "How the Fund is Managed--
Distributor."
++ Although the Class B and Class C Distribution and Service Plans provide
that the Portfolio may pay a distribution fee of up to 1% per annum of the
average daily net assets of the Class B and Class C shares, the Distributor
has agreed to limit its distribution fees with respect to Class B and Class
C shares of the Portfolio to no more than .75 of 1% of the average daily
net assets of each of the Class B and Class C shares for the fiscal year
ending December 31, 1995. Total Fund Operating Expenses of the Class B and
Class C shares without such limitations would be 1.84% and 1.84%,
respectively. See "How the Fund is Managed--Distributor."
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS A SHARES)
The following financial highlights for the five years ended December 31, 1994
have been audited by Deloitte & Touche 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 following financial highlights contain selected
data for a share of Class A 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.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
SEPTEMBER 1,
1989*
YEARS ENDED DECEMBER 31, THROUGH
--------------------------------------------------- DECEMBER 31,
PER SHARE OPERATING 1994 1993 1992 1991 1990 1989
PERFORMANCE: -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $ 11.78 $ 11.79 $ 12.13 $ 11.67 $ 11.63 $ 11.61
-------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS
- ----------------------
Net investment income... .65 .71 .86+ .93+ 1.00+ .35+
Net realized and
unrealized gain (loss)
on
investment transac-
tions.................. (.80) .12 (.08) .56 .04 .03
-------- -------- -------- -------- -------- -------
Total from investment
operations............ (.15) .83 .78 1.49 1.04 .38
-------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS
- ------------------
Dividends from net in-
vestment income........ (.65) (.71) (.86) (.93) (1.00) (.35)
Distributions in excess
of net investment in-
come................... (.01) -- -- -- -- --
Distributions from net
realized gains......... -- (.13) (.26) (.10) -- (.01)
-------- -------- -------- -------- -------- -------
Total distributions.... (.66) (.84) (1.12) (1.03) (1.00) (.36)
-------- -------- -------- -------- -------- -------
Net asset value, end of
period................. $ 10.97 $ 11.78 $ 11.79 $ 12.13 $ 11.67 $ 11.63
======== ======== ======== ======== ======== =======
TOTAL RETURN#:.......... (1.16)% 7.19% 6.67% 13.35% 9.40% 3.30%
RATIOS/SUPPLEMENTAL DA-
TA:
Net assets, end of pe-
riod (000)............. $91,680 $119,449 $109,828 $109,997 $113,125 $98,414
Average net assets
(000).................. $106,737 $114,728 $107,937 $113,010 $107,276 $89,176
Ratios to average net
assets:
Expenses, including
distribution fees..... .94% .80% .70%+ .37%+ .13%+ 0%**/+
Expenses, excluding
distribution fees..... .84% .70% .60%+ .27%+ .10%+ 0%**/+
Net investment income.. 5.88% 5.92% 7.15%+ 7.89%+ 8.67%+ 8.41%**/+
Portfolio turnover rate. 123% 137% 91% 117% 46% 69%
</TABLE>
- ------------
* Commencement of offering of Class A shares.
** Annualized.
+ Net of expense subsidy and/or fee waiver.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than one year are not
annualized.
5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS B SHARES)
The following financial highlights have been audited by Deloitte & Touche
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
following financial highlights contain selected data for a share of Class B
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.
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------
DECEMBER 9,
1992*
YEARS ENDED DECEMBER 31, THROUGH
--------------------------- DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C>
Net asset value, beginning of period. $ 11.78 $ 11.79 $ 11.79
------------ ------------ -------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income................ .58 .62 .04
Net realized and unrealized gain
(loss) on
investment transactions............. (.80) .12 --
------------ ------------ -------
Total from investment operations.... (.22) .74 .04
------------ ------------ -------
LESS DISTRIBUTIONS
- ------------------
Dividends from net investment income. (.58) (.62) (.04)
Distributions in excess of net in-
vestment income..................... (.01) -- --
Distributions from net realized
gains............................... -- (.13) --
------------ ------------ -------
Total distributions................. (.59) (.75) (.04)
------------ ------------ -------
Net asset value, end of period....... $ 10.97 $ 11.78 $ 11.79
============ ============ =======
TOTAL RETURN#:....................... (1.83)% 6.38% .32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 130,258 $123,306 $11,981
Average net assets (000)............. $ 134,985 $ 69,314 $ 5,474
Ratios to average net assets:
Expenses, including distribution
fees............................... 1.66% 1.55% 1.67%**
Expenses, excluding distribution
fees............................... .84% .70% .82%**
Net investment income............... 5.17% 5.08% 6.31%**
Portfolio turnover rate.............. 123% 137% 91%
</TABLE>
- ------------
* Commencement of offering of Class B shares.
** Annualized.
# 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 one full year are not
annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
(CLASS C SHARES)
The following financial highlights have been audited by Deloitte & Touche
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
following financial highlights contain selected data for a share of Class C
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.
<TABLE>
<CAPTION>
CLASS C
---------------------------------
AUGUST 1,
1994*
THROUGH
DECEMBER 31,
1994
------------
PER SHARE OPERATING PERFORMANCE:
<S> <C>
Net asset value, beginning of period......... $ 11.30
-------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income........................ .23
Net realized and unrealized gain (loss) on
investment transactions..................... (.32)
-------
Total from investment operations............ (.09)
-------
LESS DISTRIBUTIONS
- ------------------
Dividends from net investment income......... (.23)
Distributions in excess of net investment in-
come........................................ (.01)
-------
Total distributions......................... (.24)
-------
Net asset value, end of period............... $ 10.97
=======
TOTAL RETURN+:............................... (0.68)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $ 371
Average net assets (000)..................... $ 192
Ratios to average net assets:++
Expenses, including distribution fees....... 1.90%**
Expenses, excluding distribution fees....... 1.15%**
Net investment income....................... 5.30%**
Portfolio turnover rate...................... 123%
</TABLE>
- ------------
* Commencement of offering of Class C shares.
**Annualized.
+ Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of the period reported and includes reinvestment of dividends
and distributions. Total returns for periods of less than one full year
are not annualized.
++ Since the Fund did not commence a public offering of Class C shares until
August 1, 1994, historical expenses and ratios of expenses to average net
assets of Class A or Class B shares are not necessarily indicative of
future expenses and related ratios of Class C shares.
7
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
PRUDENTIAL STRUCTURED MATURITY FUND, INC. IS AN OPEN-END MANAGEMENT
INVESTMENT COMPANY, OR MUTUAL FUND, CONSISTING OF TWO PORTFOLIOS. EACH
PORTFOLIO IS MANAGED INDEPENDENTLY. THE INCOME PORTFOLIO'S INVESTMENT
OBJECTIVE IS HIGH CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF
PRINCIPAL. THE PORTFOLIO SEEKS TO ACHIEVE THIS OBJECTIVE PRIMARILY THROUGH
STRUCTURING ITS PORTFOLIO BY UTILIZING A "LADDERED" MATURITY STRATEGY. THE
PORTFOLIO INVESTS PRIMARILY IN INVESTMENT GRADE CORPORATE DEBT SECURITIES AND
IN OBLIGATIONS OF THE U.S. GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES WITH
MATURITIES OF SIX YEARS OR LESS. THESE SECURITIES ARE ALLOCATED BY MATURITY
AMONG SIX ANNUAL MATURITY CATEGORIES RANGING FROM ONE YEAR OR LESS TO BETWEEN
FIVE AND SIX YEARS WITH EACH CATEGORY REPRESENTING APPROXIMATELY ONE-SIXTH OF
THE PORTFOLIO'S ASSETS ("LADDERED" MATURITIES). AS THE SECURITIES IN EACH
ANNUAL CATEGORY MATURE OR AS NEW INVESTMENTS ARE MADE IN THE PORTFOLIO, THE
PROCEEDS WILL BE INVESTED TO MAINTAIN THE BALANCE OF INVESTMENTS AMONG THE SIX
ANNUAL MATURITY CATEGORIES. THERE CAN BE NO ASSURANCE THAT SUCH OBJECTIVE WILL
BE ACHIEVED. See "Investment Objective and Policies" in the Statement of
Additional Information.
THE PORTFOLIO'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE,
MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE
PORTFOLIO'S OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). POLICIES OF THE
PORTFOLIO THAT ARE NOT FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF DIRECTORS.
THE PORTFOLIO SEEKS TO PROVIDE INVESTORS WITH MORE STABILITY OF PRINCIPAL
THAN LONG-TERM BONDS HAVE HISTORICALLY PROVIDED THROUGH THE STRUCTURED
PORTFOLIO MANAGEMENT STRATEGY OF INVESTING IN SHORT- TO INTERMEDIATE-TERM DEBT
SECURITIES. LADDERING INVESTMENTS AMONG DEBT INSTRUMENTS WITH A RANGE OF
MATURITIES OF FROM ONE YEAR OR LESS TO SIX YEARS PROVIDES AN ADDED DEGREE OF
PORTFOLIO VARIATION, WHICH TENDS TO REDUCE VOLATILITY TO A LEVEL LOWER THAN
THAT EXPERIENCED BY A LONG-TERM BOND FUND. In general, the longer the maturity
of a debt security, the higher the yield and the greater the potential for
price fluctuation. Conversely, shorter maturities generally provide lower
yields but greater principal stability. The prices of fixed-income securities
are likely to vary inversely with interest rates. The Portfolio has the
potential for high current yields although they may not be as high as those of
a long-term bond fund. The investment adviser has had experience structuring
portfolios with laddered maturities for institutional clients since 1977.
Under normal market circumstances, the Portfolio will invest its assets in
U.S. Government securities and investment grade corporate debt obligations
having "laddered" maturities ranging from one year or less to six years. The
Portfolio's investment adviser will allocate assets among the various
categories by maturity and not by type of investment and will continuously
monitor each annual category. The investment adviser will buy and sell
portfolio securities to take advantage of investment opportunities based on
its analysis of market conditions, interest rates and general economic
factors, thereby increasing the Portfolio's annual portfolio turnover rate.
From time to time, the Portfolio may also sell portfolio securities to meet
redemption requests.
During times of portfolio structuring as well as when the investment adviser
deems it necessary for defensive purposes or to provide liquidity, assets of
the Portfolio may be invested temporarily in high quality money market
instruments and repurchase agreements.
The Portfolio's effective dollar-weighted average maturity is expected to be
between 2 1/2 and 3 1/2 years. See "U.S. Government Securities--Mortgage-
Related Securities Issued by U.S. Government Agencies and Instrumentalities"
below.
U.S. GOVERNMENT SECURITIES
U.S. TREASURY SECURITIES. THE PORTFOLIO WILL INVEST IN U.S. TREASURY
SECURITIES, INCLUDING BILLS, NOTES AND BONDS. 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 and the lengths of their maturities.
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<PAGE>
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. THE PORTFOLIO WILL INVEST IN OBLIGATIONS ISSUED OR
GUARANTEED BY AGENCIES OF THE U.S. GOVERNMENT OR INSTRUMENTALITIES ESTABLISHED
OR SPONSORED BY 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 Export-Import Bank 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 Portfolio must look principally to
the agency issuing or guaranteeing the obligation for ultimate repayment and
may not be able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. Securities of this type in
which the Portfolio may invest that are not backed by the full faith and
credit of the United States include obligations which generally may be
satisfied only by the individual credit of the issuing agency, such as
obligations of the Federal National Mortgage Association (FNMA), the Federal
Home Loan Mortgage Corporation (FHLMC) and the Resolution Funding Corporation.
GNMA, FNMA and FHLMC investments may include collateralized mortgage
obligations. See "Corporate and Other Debt Obligations" below.
Obligations issued or guaranteed as to principal and interest by the U.S.
Government may be acquired by the Portfolio in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or
both on certain United States Treasury notes or bonds. Such notes and bonds
are held in custody by a bank on behalf of the owners. These custodial
receipts are commonly referred to as Treasury strips. See "Investment
Objective and Policies--U.S. Government Securities" in the Statement of
Additional Information.
MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. THE PORTFOLIO MAY INVEST IN MORTGAGE-BACKED SECURITIES THAT
ARE ISSUED BY FNMA OR FHLMC OR GUARANTEED BY GNMA AND 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 Portfolio'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. 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. The remaining maturity of a mortgage-backed
security will be deemed to be equal to the average maturity of the mortgages
underlying such security determined by the investment adviser on the basis of
assumed prepayment rates with respect to such mortgages. See "Investment
Objective and Policies" in the Statement of Additional Information.
THE PORTFOLIO 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 SECURITIES COLLATERALIZED BY FIXED RATE MORTGAGES. See "Investment
Objective and Policies--U.S. Government Securities" in the Statement of
Additional Information.
THE PORTFOLIO MAY ALSO INVEST IN BALLOON PAYMENT MORTGAGE-BACKED SECURITIES.
A balloon payment mortgage-backed security is an amortizing mortgage security
with installments of principal and interest, the last installment of which is
predominantly principal.
THE PORTFOLIO 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
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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 Portfolio may not fully recoup its initial investment in these
securities. Conversely, if the underlying mortgage assets experience less than
anticipated prepayments of principal, the yield on POs could be materially
adversely affected.
CORPORATE AND OTHER DEBT OBLIGATIONS
THE PORTFOLIO MAY INVEST IN DEBT SECURITIES OF U.S. ISSUERS THAT HAVE
SECURITIES OUTSTANDING THAT ARE RATED AT THE TIME OF PURCHASE AT LEAST BBB BY
STANDARD & POOR'S RATINGS GROUP (S&P) OR BAA BY MOODY'S INVESTORS SERVICE
(MOODY'S) OR A SIMILAR NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION
OR, IF NOT RATED, OF COMPARABLE QUALITY IN THE OPINION OF THE INVESTMENT
ADVISER. THE FUND MAY ALSO INVEST UP TO 10% OF TOTAL ASSETS IN SECURITIES
RATED BELOW BBB OR BAA BY S&P OR MOODY'S, RESPECTIVELY (OR A SIMILAR
NATIONALLY RECOGNIZED RATING SERVICE), OR, IF NOT RATED, OF COMPARABLE QUALITY
IN THE OPINION OF THE INVESTMENT ADVISER. Securities rated Baa by Moody's are
considered to be investment grade, although they have speculative
characteristics. Changes in economic or other circumstances are more likely to
lead to a weakened capacity of issuers whose securities are rated BBB or Baa
to pay interest or repay principal than is the case for issuers of higher
rated securities. Securities rated below Baa by Moody's and below BBB by S&P
are considered speculative. See "Description of Security Ratings" in the
Appendix to this Prospectus. Such securities are commonly referred to as "junk
bonds." Such securities generally offer a higher yield than those in the
higher rated categories but also involve greater risk of loss of principal and
income and may also be subject to greater price volatility due to the market's
perceptions of the creditworthiness of the issuer.
THE PORTFOLIO MAY INVEST IN WHOLE LOAN MORTGAGE-BACKED SECURITIES ISSUED
OTHER THAN BY U.S. GOVERNMENT AGENCIES AND RATED AT LEAST AA BY S&P OR AA BY
MOODY'S. See "Investment Objective and Policies--Mortgage-Backed Securities"
in the Statement of Additional Information.
THE CORPORATE OBLIGATIONS IN WHICH THE PORTFOLIO MAY INVEST INCLUDE ASSET-
BACKED SECURITIES, COLLATERALIZED MORTGAGE OBLIGATIONS AND REAL ESTATE
MORTGAGE INVESTMENT CONDUITS. THE PORTFOLIO MAY INVEST UP TO 25% OF ITS NET
ASSETS IN ASSET-BACKED SECURITIES AND UP TO 30% OF ITS NET ASSETS IN
COLLATERALIZED MORTGAGE OBLIGATIONS AND REAL ESTATE MORTGAGE INVESTMENT
CONDUITS.
LOWER RATED OR UNRATED DEBT OBLIGATIONS OF COMPARABLE QUALITY 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. If the Fund
experiences unexpected net redemptions, it may be forced to sell its higher
rated securities, resulting in a decline in the overall credit quality of the
Fund's portfolio and increasing the exposure of the Fund to the risks of high
yield securities.
During the year ended December 31, 1994, 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:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
RATINGS INVESTMENTS
------- -------------------
<S> <C>
AAA/Aaa 35.71%
AA/Aa 3.57
A/A 26.49
BBB/Baa 23.79
BB/Ba 7.10
B/B 0
Unrated 3.34
</TABLE>
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<PAGE>
RISKS OF INVESTING IN HIGH YIELD SECURITIES
FIXED-INCOME SECURITIES ARE SUBJECT TO THE RISK OF AN ISSUER'S INABILITY TO
MEET PRINCIPAL AND INTEREST PAYMENTS ON THE OBLIGATIONS (CREDIT RISK) AND MAY
ALSO BE SUBJECT TO PRICE VOLATILITY DUE TO SUCH FACTORS AS INTEREST RATE
SENSITIVITY AND THE MARKET PERCEPTION OF THE CREDITWORTHINESS OF THE ISSUER
(MARKET RISK). Lower rated or unrated (i.e., high yield) securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in the general
level of interest rates. The investment adviser considers both credit risk and
market risk in making investment decisions for the Fund. See "Investment
Objective and Policies--Other Investments--Risk Factors Relating to Investing
in High Yield Securities" in the Statement of Additional Information.
ASSET-BACKED SECURITIES. THROUGH THE USE OF TRUSTS AND SPECIAL PURPOSE
CORPORATIONS, VARIOUS TYPES OF ASSETS, PRIMARILY HOME EQUITY LOANS AND
AUTOMOBILE AND CREDIT CARD RECEIVABLES, ARE BEING SECURITIZED IN PASS-THROUGH
STRUCTURES SIMILAR TO THE MORTGAGE PASS-THROUGH STRUCTURES DESCRIBED ABOVE OR
IN A PAY-THROUGH STRUCTURE SIMILAR TO THE COLLATERALIZED MORTGAGE STRUCTURE.
THE PORTFOLIO MAY INVEST IN THESE AND OTHER TYPES OF ASSET-BACKED SECURITIES
WHICH MAY BE DEVELOPED IN THE FUTURE. Asset-backed securities present certain
risks that are not presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of the same security interest in the
related collateral. Credit card receivables are generally unsecured and
debtors are entitled to the protection of a number of state and federal
consumer credit laws, some of which may reduce the ability to obtain full
payment. In the case of automobile receivables, the security interests in the
underlying automobiles are often not transferred when the pool is created,
with the resulting possibility that the collateral could be resold. The
remaining maturity of an asset-backed security will be deemed to be equal to
the average maturity of the assets underlying such security determined by the
investment adviser on the basis of assumed prepayment rates and other factors
with respect to such assets. In general, these types of loans are of shorter
duration than mortgage loans and are less likely to have substantial
prepayments.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) AND REAL ESTATE MORTGAGE
INVESTMENT CONDUITS (REMICS). A CMO IS A DEBT SECURITY THAT IS BACKED BY A
PORTFOLIO OF MORTGAGES OR MORTGAGE-BACKED SECURITIES. THE ISSUER'S OBLIGATION
TO MAKE INTEREST AND PRINCIPAL PAYMENTS IS SECURED BY THE UNDERLYING PORTFOLIO
OF MORTGAGES OR MORTGAGE-BACKED SECURITIES. 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 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 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 REMIC. All future references to CMOs shall also be deemed to
include REMICs.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semi-annual basis. The principal 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.
In reliance on rules and interpretations of the Securities and Exchange
Commission (SEC), the Fund's investments in certain qualifying CMOs and REMICs
are not subject to the Investment Company Act's limitation on acquiring
interests in other investment companies. See "Investment Objective and
Policies--Mortgage-Backed Securities--Collateralized Mortgage
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<PAGE>
Obligations" in the Statement of Additional Information. 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.
RISK FACTORS RELATING TO INVESTING IN MORTGAGE-BACKED AND ASSET-BACKED
SECURITIES. THE YIELD CHARACTERISTICS OF MORTGAGE-BACKED AND ASSET-BACKED
SECURITIES DIFFER FROM TRADITIONAL DEBT SECURITIES. AMONG THE MAJOR
DIFFERENCES ARE THAT INTEREST AND PRINCIPAL PAYMENTS ARE MADE MORE FREQUENTLY,
USUALLY MONTHLY, AND PRINCIPAL MAY BE PREPAID AT ANY TIME BECAUSE THE
UNDERLYING MORTGAGE LOANS OR OTHER ASSETS GENERALLY MAY BE PREPAID AT ANY
TIME. AS A RESULT, IF THE PORTFOLIO PURCHASES SUCH A SECURITY AT A PREMIUM, A
PREPAYMENT RATE THAT IS FASTER THAN EXPECTED WILL REDUCE YIELD TO MATURITY,
WHILE A PREPAYMENT RATE THAT IS SLOWER THAN EXPECTED WILL HAVE THE OPPOSITE
EFFECT OF INCREASING YIELD TO MATURITY. ALTERNATIVELY, IF THE PORTFOLIO
PURCHASES THESE SECURITIES AT A DISCOUNT, FASTER THAN EXPECTED PREPAYMENTS
WILL INCREASE, WHILE SLOWER THAN EXPECTED PREPAYMENTS WILL REDUCE, YIELD TO
MATURITY. THE PORTFOLIO MAY INVEST A PORTION OF ITS ASSETS IN DERIVATIVE
MORTGAGE-BACKED SECURITIES SUCH AS MBS STRIPS WHICH ARE HIGHLY SENSITIVE TO
CHANGES IN PREPAYMENT AND INTEREST RATES. THE INVESTMENT ADVISER WILL SEEK TO
MANAGE THESE RISKS (AND POTENTIAL BENEFITS) BY DIVERSIFYING ITS INVESTMENTS IN
SUCH SECURITIES AND THROUGH HEDGING TECHNIQUES.
IN ADDITION, MORTGAGE-BACKED SECURITIES WHICH ARE SECURED BY MANUFACTURED
(MOBILE) HOMES AND MULTI-FAMILY RESIDENTIAL PROPERTIES, SUCH AS GNMA AND FNMA
CERTIFICATES, ARE SUBJECT TO A HIGHER RISK OF DEFAULT THAN ARE OTHER TYPES OF
MORTGAGE-BACKED SECURITIES. See "Investment Objective and Policies" in the
Statement of Additional Information. The investment adviser will seek to
minimize this risk by investing in mortgage-backed securities rated at least A
by Moody's and S&P. See "Asset-Backed Securities" above.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed
rate mortgage loans will increase during a period of falling interest rates
and decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Portfolio are likely to be greater during a
period of declining interest rates and, as a result, likely to be reinvested
at lower interest rates than during a period of rising interest rates. Asset-
backed securities, although less likely to experience the same prepayment rate
as mortgage-backed securities, may respond to certain of the same factors
influencing prepayments, while at other times different factors may
predominate. Mortgage-backed securities and asset-backed securities may
decrease in value as a result of increases in interest rates and may benefit
less than other fixed-income securities from declining interest rates because
of the risk of prepayment.
ASSET-BACKED SECURITIES INVOLVE CERTAIN RISKS THAT ARE NOT POSED BY
MORTGAGE-BACKED SECURITIES, RESULTING MAINLY FROM THE FACT THAT ASSET-BACKED
SECURITIES DO NOT USUALLY CONTAIN THE COMPLETE BENEFIT OF A SECURITY INTEREST
IN THE RELATED COLLATERAL. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to
obtain full payment. In the case of automobile receivables, due to various
legal and economic factors, proceeds from repossessed collateral may not
always be sufficient to support payments on these securities.
STRIPPED MORTGAGE-BACK SECURITIES. In addition to MBS strips issued by
agencies or instrumentalities of the U.S. Government, the Portfolio may
purchase MBS strips issued by private originators of, or investors in,
mortgage loans, including depository institutions, mortgage banks, investment
banks and special purpose subsidiaries of the foregoing.
YANKEE OBLIGATIONS. THE PORTFOLIO MAY INVEST IN U.S. DOLLAR-DENOMINATED DEBT
SECURITIES OF FOREIGN CORPORATIONS ISSUED IN THE UNITED STATES AND U.S.
DOLLAR-DENOMINATED DEBT SECURITIES ISSUED OR GUARANTEED AS TO PAYMENT OF
PRINCIPAL AND INTEREST BY GOVERNMENTS, QUASI-GOVERNMENTAL ENTITIES, GOVERNMENT
AGENCIES, SUPRANATIONAL ENTITIES AND OTHER GOVERNMENTAL ENTITIES OF FOREIGN
COUNTRIES, WHICH SECURITIES ARE ISSUED IN THE UNITED STATES (YANKEE
OBLIGATIONS). A supranational entity is an entity constituted by the national
governments of several countries to promote economic development, such as 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 either a national,
state or equivalent government or are obligations of a political unit that is
not backed by the
12
<PAGE>
national government's full faith and credit and general taxing powers. These
include, among others, the Province of Ontario and the City of Tokyo.
INVESTMENTS IN OBLIGATIONS OF FOREIGN ISSUERS 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 ISSUER THAN ABOUT A DOMESTIC ISSUER AND SUCH ENTITIES MAY NOT
BE SUBJECT TO THE SAME ACCOUNTING, AUDITING AND FINANCIAL RECORDKEEPING
STANDARDS AND REQUIREMENTS AS DOMESTIC ISSUERS.
HEDGING AND INCOME ENHANCEMENT STRATEGIES
THE PORTFOLIO MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING
DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO
ENHANCE RETURN, BUT NOT FOR SPECULATION. These strategies include the use of
interest rate swap transactions and Eurodollar futures contracts and options
thereon. The Portfolio'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.
INTEREST RATE SWAP TRANSACTIONS
THE PORTFOLIO MAY ENTER INTO INTEREST RATE SWAPS. INTEREST RATE SWAPS
INVOLVE THE EXCHANGE BY THE PORTFOLIO WITH ANOTHER PARTY OF THEIR RESPECTIVE
COMMITMENTS TO PAY OR RECEIVE INTEREST, E.G., AN EXCHANGE OF FLOATING RATE
PAYMENTS FOR FIXED RATE PAYMENTS. The Portfolio 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 Portfolio anticipates purchasing at a later date.
The Portfolio intends to use these transactions as a hedge and not as a
speculative investment. See "Investment Objective and Policies--Other
Investments" in the Statement of Additional Information.
The risk of loss with respect to interest rate swaps is limited to the net
amount of interest payments that the Portfolio is contractually obligated to
make and will not exceed 5% of the Portfolio'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 Portfolio would diminish
compared to what it would have been if the investment technique was never
used.
FUTURES CONTRACTS AND OPTIONS THEREON
THE PORTFOLIO MAY PURCHASE AND SELL EURODOLLAR FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON THE CHICAGO MERCANTILE EXCHANGE OR OTHER
COMMODITIES EXCHANGES OR BOARDS OF TRADE, FOR CERTAIN HEDGING, RETURN
ENHANCEMENT AND RISK MANAGEMENT PURPOSES IN ACCORDANCE WITH REGULATIONS OF THE
COMMODITY FUTURES TRADING COMMISSION.
A FINANCIAL FUTURES CONTRACT IS AN AGREEMENT TO PURCHASE OR SELL AN AGREED
AMOUNT OF SECURITIES AT A SET PRICE FOR DELIVERY IN THE FUTURE. Eurodollar
futures contracts and options thereon are denominated in U.S. dollars and are
linked to the London Interbank Offered Rate (LIBOR). These futures contracts
and options thereon enable purchasers to obtain a fixed rate for the lending
of funds and sellers to obtain a fixed rate for borrowings. The Portfolio
intends to use Eurodollar futures contracts and options thereon to hedge
against changes in LIBOR, to which many interest rate swaps are linked.
UNDER REGULATIONS OF THE COMMODITY EXCHANGE ACT, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT ARE EXEMPT FROM THE DEFINITION OF
"COMMODITY POOL OPERATOR", SUBJECT TO COMPLIANCE WITH CERTAIN CONDITIONS. THE
EXEMPTION IS CONDITIONED ON THE PORTFOLIO PURCHASING AND SELLING FUTURES
CONTRACTS AND OPTIONS THEREON FOR BONA FIDE HEDGING TRANSACTIONS, EXCEPT THAT
THE PORTFOLIO MAY PURCHASE AND SELL FUTURES CONTRACTS AND
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<PAGE>
OPTIONS THEREON FOR ANY OTHER PURPOSE TO THE EXTENT THAT THE AGGREGATE INITIAL
MARGIN AND OPTION PREMIUMS DO NOT EXCEED 5% OF THE LIQUIDATION VALUE OF THE
PORTFOLIO'S TOTAL ASSETS.
RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES
PARTICIPATION IN THE FUTURES MARKETS INVOLVES INVESTMENT RISKS AND
TRANSACTION COSTS TO WHICH THE PORTFOLIO WOULD NOT BE SUBJECT ABSENT THE USE
OF THIS STRATEGY. If the investment adviser's predictions of movements in the
direction of the securities and interest rate markets are inaccurate, the
adverse consequences to the Portfolio may leave the Portfolio in a worse
position than if such strategies were not used. Risks inherent in the use of
futures contracts and options on futures contracts include (1) dependence on
the investment adviser's ability to predict correctly movements in the
direction of interest rates and securities prices; (2) imperfect correlation
between the price of futures contracts and options thereon and movements in
the prices of the securities being hedged; (3) the fact that skills needed to
use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and (6) the
possible inability of the Portfolio to purchase or sell a portfolio security
at a time that otherwise would be favorable for it to do so, or the possible
need for the Portfolio to sell a portfolio security at a disadvantageous time,
due to the need for the Portfolio to maintain "cover" or to segregate
securities in connection with hedging transactions. See "Investment Objective
and Policies--Other Investments--Interest Rate Futures Contracts" and "Taxes"
in the Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
Under normal market conditions, the assets of the Portfolio, other than
monies from recent investments in the Portfolio pending investment in
securities having laddered maturities, will be invested in U.S. Government
securities or corporate and other debt obligations, as described above. When
the investment adviser deems it necessary for defensive purposes, to provide
liquidity or pending investment in securities having laddered maturities, the
assets of the Portfolio may be committed temporarily to high quality money
market instruments or repurchase agreements, as described below.
During periods when the investment adviser deems it necessary for temporary
defensive purposes, the Portfolio may invest without limit in money market
instruments. The Portfolio will apply the proceeds of new investments in the
Portfolio to purchase money market instruments and repurchase agreements until
these amounts can be used to purchase corporate and other debt obligations and
U.S. Government securities with laddered maturities of from one year or less
to six years. The yield on money market instruments and repurchase agreements
is generally lower than the yield on corporate and other debt obligations and
U.S. Government securities. Accordingly, the Portfolio's yield and total
return will generally be lower during these periods.
MONEY MARKET INSTRUMENTS
The Portfolio may invest in high quality money market instruments, including
commercial paper of a U.S. or foreign company or foreign government;
certificates of deposit, bankers' acceptances and time deposits of domestic
and foreign banks; and obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. These obligations will be U.S.
dollar-denominated. Commercial paper will be rated, at the time of purchase,
at least A-2 by S&P or Prime-2 by Moody's, or, if not rated, issued by an
entity having an outstanding unsecured debt issue rated at least A or A-2 by
S&P or A or Prime-2 by Moody's.
REPURCHASE AGREEMENTS
The Portfolio may on occasion enter into repurchase agreements whereby the
seller of a security agrees to repurchase that security from the Portfolio at
a mutually agreed-upon time and price. The period of maturity is usually quite
short,
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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 Portfolio's
money is invested in the repurchase agreement. The Portfolio's repurchase
agreements will at all times be fully collateralized in an amount at least
equal to the purchase price, including accrued interest earned on the
underlying securities. The instruments held as collateral are valued daily,
and if the value of instruments declines, the Portfolio will require
additional collateral. If the seller defaults and the value of the collateral
securing the repurchase agreement declines, the Portfolio may incur a loss.
The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. pursuant to an
order of the SEC. See "Investment Objective and Policies--Other Investments--
Repurchase Agreements" in the Statement of Additional Information.
COVERED DOLLAR ROLLS
The Portfolio may enter into covered dollar rolls. In a dollar roll, the
Portfolio sells securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type and
coupon) securities on a specified future date from the same party. During the
roll period, the Portfolio foregoes principal and interest paid on the
securities. The Portfolio is compensated by the difference between the current
sale 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 Portfolio will establish a segregated account with its Custodian in
which it will maintain cash, U.S. Government securities or other liquid high-
grade debt obligations equal in value to its obligations in respect of covered
dollar rolls. Covered dollar rolls involve the risk that the market value of
the securities retained by the Portfolio may decline below the price of the
securities the Portfolio has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities under a covered dollar roll
files for bankruptcy or becomes insolvent, the Portfolio'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 Portfolio's obligation to
repurchase the securities.
The Portfolio may invest up to 5% of its assets in covered dollar rolls.
SECURITIES LENDING
The Portfolio may lend its portfolio securities to brokers or dealers, banks
or other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures a
letter of credit in favor of the Portfolio 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 Portfolio an amount
equivalent to any dividend or interest paid on such securities and the
Portfolio may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower. As a
matter of fundamental policy, the Portfolio cannot lend more than 30% of the
value of its total assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Portfolio may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Portfolio with payment and delivery
taking place a month or more in the future in order to secure what is
considered to be an advantageous price and yield to the Portfolio at the time
of entering into the transaction. The Fund's Custodian will maintain, in a
segregated account of the Portfolio, cash, U.S. Government securities or other
liquid high-grade debt obligations having a value equal to or greater than the
Portfolio's purchase commitments; the Custodian will likewise segregate
securities sold on a delayed delivery basis. The securities so purchased are
subject to market fluctuation and no interest accrues to the purchaser during
the period between purchase
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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
Portfolio's assets committed to the purchase of securities on a when-issued or
delayed delivery basis may increase the volatility of the Portfolio's net
asset value.
BORROWING
The Portfolio may borrow an amount equal to no more than 20% of the value of
its total assets (calculated when the loan is made) from banks for temporary,
extraordinary or emergency purposes. The Portfolio may pledge up to 20% of its
total assets to secure these borrowings. However, the Portfolio will not
purchase portfolio securities if its borrowings exceed 5% of its net assets.
PORTFOLIO TURNOVER
The Portfolio does not expect to trade in securities for short-term gain. It
is anticipated that the annual portfolio turnover rate will not exceed 200%.
High portfolio turnover may involve correspondingly greater transaction costs,
which will be borne by the Fund. The portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities by the
average monthly value of the portfolio securities, excluding securities having
a maturity at the date of purchase of one year or less.
ILLIQUID SECURITIES
The Portfolio may invest up to 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 (restricted
securities) and securities that are not readily marketable. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933, as amended (the Securities Act), 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.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the applicable notice period.
The staff of the SEC has taken the position that purchased over-the-counter
options and the assets used as "cover" for written over-the-counter options
are illiquid securities unless the Portfolio and the counterparty have
provided for the Portfolio, at the Portfolio's election, to unwind the over-
the-counter option. The exercise of such an option ordinarily would involve
the payment by the Portfolio of an amount designed to reflect the
counterparty's economic loss from an early termination, but does allow the
Portfolio to treat the assets used as "cover" as "liquid."
INVESTMENT RESTRICTIONS
The Portfolio 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
Portfolio's outstanding voting securities, as defined in the Investment
Company Act. See "Investment Restrictions" in the Statement of Additional
Information.
HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
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For the fiscal year ended December 31, 1994, the total expenses of Class A,
Class B and Class C shares as a percentage of average net assets were
.94%,1.66% and 1.90% (annualized), respectively. See "Financial Highlights."
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .40 OF 1% OF THE AVERAGE DAILY NET
ASSETS OF THE PORTFOLIO. It was incorporated in May 1987 under the laws of the
State of Delaware. For the fiscal year ended December 31, 1994, the Portfolio
paid management fees to PMF of .40% of the Portfolio's average net assets. See
"Manager" in the Statement of Additional Information.
As of January 31, 1995, PMF served as the manager to 39 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 30 closed-end investment companies with aggregate assets of
approximately $45 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF EACH PORTFOLIO 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 (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY
SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY
PMF FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES.
Under the Management Agreement, PMF continues to have responsibility for all
investment advisory services and supervises PIC's performance of such
services.
The current portfolio manager of the Portfolio is Anthony Rodriguez, a Vice
President of Prudential Investment Advisors, a unit of PIC. Mr. Rodriguez has
responsibility for the day-to-day management of the Portfolio's investments.
Mr. Rodriguez has managed the Portfolio since January 1995 and has been
employed by PIC as a portfolio manager since 1988. Mr. Rodriguez also serves
as the portfolio manager of the bond portions of the Prudential Series Fund--
Conservatively Managed and Aggressively Managed Portfolios.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
DISTRIBUTOR
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (PMFD), ONE SEAPORT PLAZA, NEW
YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE
OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS A SHARES OF THE
PORTFOLIO. IT IS A WHOLLY-OWNED SUBSIDIARY OF PMF.
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS B AND
CLASS C SHARES OF THE PORTFOLIO. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF
PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND SEPARATE DISTRIBUTION
AGREEMENTS (THE DISTRIBUTION AGREEMENTS), PMFD AND PRUDENTIAL SECURITIES
(COLLECTIVELY, THE DISTRIBUTOR) INCUR THE EXPENSES OF DISTRIBUTING THE
PORTFOLIO'S CLASS A, CLASS B AND CLASS C SHARES. These expenses include
commissions and account servicing fees paid to, or on account of, financial
advisers of Prudential Securities and 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
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<PAGE>
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
Portfolio shares, including lease, utility, communications and sales promotion
expenses. The State of Texas requires that shares of the Portfolio may be sold
in that state only by dealers or other financial institutions which are
registered there as broker-dealers.
Under the Plans, the Portfolio 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
Portfolio 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 PORTFOLIO MAY PAY PMFD FOR ITS DISTRIBUTION-
RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE OF UP TO
.30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The Class A
Plan provides that (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 up to .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. PMFD has agreed to limit its
distribution-related fees payable under the Class A Plan to .10 of 1% of the
average daily net assets of the Class A shares for the fiscal year ending
December 31, 1995.
For the fiscal year ended December 31, 1994, PMFD received payments of
$106,737 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. For the fiscal year ended December 31, 1994, PMFD also
received approximately $342,000 in initial sales charges.
UNDER THE CLASS B AND CLASS C PLANS, THE PORTFOLIO MAY PAY PRUDENTIAL
SECURITIES FOR ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND
CLASS C SHARES AT AN ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH
OF THE CLASS B AND CLASS C SHARES. The Class B and Class C Plans provide for
the payment to Prudential Securities of (i) an asset-based sales charge of .75
of 1% of the average daily net assets of each of the Class B and Class C
shares and (ii) a service fee of .25 of 1% of the average daily net assets of
each of the Class B and Class C shares. The service fee is used to pay for
personal service and/or the maintenance of shareholder accounts. Prudential
Securities has agreed to limit its distribution-related fees payable under the
Class B and Class C Plans to no more than .75 of 1% of the average daily net
assets of each of the Class B and Class C shares for the fiscal year ending
December 31, 1995. 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, 1994, Prudential Securities incurred
distribution expenses of approximately $853,200 under the Class B Plan and
received $1,089,616 from the Portfolio under the Class B Plan. In addition,
Prudential Securities received approximately $427,000 in contingent deferred
sales charges from redemptions of Class B shares during the year.
For the period August 1, 1994 through December 31, 1994, Prudential
Securities incurred distribution expenses of approximately $1,300 under the
Class C Plan and received $596 from the Fund under the Class C Plan.
Prudential Securities did not receive any contingent deferred sales charges
from redemptions of Class C shares during this period.
For the fiscal year ended December 31, 1994, the Portfolio paid distribution
expenses of .10%, .82% and .75% (annualized) of the average daily net assets
of the Class A, Class B and Class C shares, respectively. The Portfolio
records all payments made under the Plans as expenses in the calculation of
net investment income. Prior to August 1, 1994, the Class A and Class B Plans
operated as "reimbursement type" plans and, in the case of Class B, provided
for the reimbursement of distribution expenses incurred in current and prior
years. See "Distributor" in the Statement of Additional Information.
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Distribution expenses attributable to the sale of shares of the Portfolio
will be allocated to each class based upon the ratio of sales of each class to
the sales of all shares of the Portfolio other than expenses allocable to a
particular class. The distribution fee and sales charge of one class will not
be used to subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the 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 Portfolio. The Portfolio will not be obligated to pay expenses incurred
under any plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Portfolio 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 and other persons who
distribute shares of the Portfolio. 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'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 1-800-225-1852.
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.
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PORTFOLIO TRANSACTIONS
Prudential Securities may also act as a broker or futures commission
merchant for the Portfolio, provided that the commissions, fees or other
remuneration it receives are fair and reasonable. See "Portfolio Transactions"
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 Portfolio's securities and
cash and, in that capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Fund. Its mailing address is
P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent, and in
those capacities, maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
THE PORTFOLIO'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY
SUBTRACTING ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE
REMAINDER BY THE NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY
FOR EACH CLASS. THE BOARD OF DIRECTORS HAS FIXED THE SPECIFIC TIME OF DAY FOR
THE COMPUTATION OF THE PORTFOLIO'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 Portfolio will compute its NAV once daily on days that the New York
Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem shares have been received by the Fund or days on
which changes in the value of the Fund's portfolio securities do not
materially affect the NAV. The New York Stock Exchange is closed on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger distribution-
related fee to which Class B and Class C shares are subject. It is expected,
however, that the NAV of the three classes will tend to converge immediately
after the recording of dividends, which will differ by approximately the
amount of the distribution-related expense accrual differential among the
classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE PORTFOLIO MAY ADVERTISE ITS "TOTAL RETURN" (INCLUDING
"AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND "YIELD" IN
ADVERTISEMENTS OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B AND CLASS C SHARES. These figures are based on
historical earnings and are not intended to indicate future performance. The
"total return" shows how much an investment in the Portfolio would have
increased (decreased) over a specified period of time (i.e., one, five or ten
years or since inception of the Portfolio) assuming that all distributions and
dividends by the Portfolio were reinvested on the reinvestment dates during the
period and less all recurring
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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 that may be payable upon redemption. The
"yield" refers to the income generated by an investment in the Portfolio over
a one-month or 30-day period. This income is then "annualized;" that is, the
amount of income generated by the investment during that 30-day period is
assumed to be generated each 30-day period for twelve periods and is shown as
a percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also
may include comparative performance information in advertising or marketing
the shares of the Portfolio. 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. The
Portfolio will include performance data for each class of shares of the
Portfolio in any advertisement or information including performance data of
the Portfolio. 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 PORTFOLIO HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE INTERNAL REVENUE CODE). ACCORDINGLY, THE PORTFOLIO WILL NOT BE
SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL
GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. To the extent not
distributed by the Portfolio, net investment income and capital gains and
losses are taxable to the Portfolio. See "Taxes" in the Statement of
Additional Information.
TAXATION OF SHAREHOLDERS
Any dividends out of net investment income, together with distributions of
net short-term gains (i.e. the excess of net short-term capital gains over net
long-term capital losses), will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net capital gains (i.e. the excess
of net long-term capital gains over net short-term capital losses) distributed
to shareholders will be taxable as long-term capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum long-term capital gains
rate for individuals is 28%. The maximum long-term capital gains rate for
corporate shareholders is currently the same as the maximum tax rate for
ordinary income.
Any gain or loss realized upon a sale or redemption of Portfolio shares by a
shareholder who is not a dealer in securities generally will be treated as
long-term capital gain or loss if the shares have been held for more than one
year and otherwise as short-term capital gain or loss. Any such loss, however,
although otherwise treated as a short-term capital loss, will be treated as
long-term capital loss to the extent of any capital gain distributions
received by the shareholder with respect to shares that are held for six
months or less.
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
Class B or Class C shares for Class A shares constitutes a taxable event for
federal income tax purposes. However, such opinions are not binding on the
Internal Revenue Service.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes.
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WITHHOLDING TAXES
Under the Internal Revenue Code, the Portfolio is required to withhold and
remit to the U.S. Treasury 31% of dividends, capital gain income and
redemption proceeds payable to individuals and certain non corporate
shareholders who fail to furnish correct tax identification numbers on IRS
Form W-9 (or IRS Form W-8 in the case of certain foreign shareholders).
Withholding at this rate is also required from dividends and capital gains
distributions (but not redemption proceeds) payable to shareholders who are
otherwise subject to backup withholding. 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 PORTFOLIO EXPECTS TO DECLARE DAILY AND PAY MONTHLY DIVIDENDS OF NET
INVESTMENT INCOME, IF ANY, AND MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY NET
CAPITAL GAINS. Dividends paid by the Portfolio with respect to each class of
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount
except that each class will bear its own distribution charges, generally
resulting in lower dividends for Class B and Class C shares. Distributions of
net capital gains, if any, will be paid in the same amount for each class of
shares. See "How the Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL PORTFOLIO SHARES, AT
THE NAV ON THE PAYMENT DATE 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. The Board of Directors reserves the right to change
the reinvestment date from the payment date to the record date for certain
capital gains distributions. Such election should be submitted to Prudential
Mutual Fund Services, Inc., Attention: Account Maintenance, P.O. Box 15015,
New Brunswick, New Jersey 08906-5015. If you hold shares through Prudential
Securities you should contact your financial adviser to elect to receive
dividends and distributions in cash. The Fund will notify each shareholder
after the close of the Fund's taxable year both of the dollar amount and the
taxable status of that year's dividends and distributions on a per share
basis.
WHEN THE PORTFOLIO 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 FOR A CAPITAL GAIN DISTRIBUTION, THE PRICE YOU PAY WILL INCLUDE THE
DISTRIBUTION AND A PORTION OF YOUR INVESTMENT WILL BE RETURNED TO YOU AS A
TAXABLE DISTRIBUTION. YOU SHOULD, THEREFORE, CONSIDER THE TIMING OF CAPITAL
GAIN DISTRIBUTIONS WHEN MAKING YOUR PURCHASES.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE FUND WAS INCORPORATED IN MARYLAND ON JUNE 8, 1988. THE FUND IS
AUTHORIZED TO ISSUE 500 MILLION SHARES OF COMMON STOCK, $.01 PAR VALUE PER
SHARE, DIVIDED INTO THREE CLASSES FOR EACH PORTFOLIO, DESIGNATED CLASS A,
CLASS B AND CLASS C COMMON STOCK, EACH OF WHICH CONSISTS OF 83,333,333 1/3
AUTHORIZED SHARES. Each class of common stock represents an interest in the
same assets of the Portfolio and is identical in all respects except that (i)
each class bears different distribution expenses, (ii) each class has
exclusive voting rights with respect to its distribution and service plan
(except that the Fund has agreed with the SEC in connection with the offering
of a conversion feature on Class B shares to submit any amendment of the Class
A Plan to both Class A and Class B shareholders), (iii) each class has a
different exchange privilege and (iv) only Class B shares have a conversion
feature. See "How the Fund is Managed--Distributor." The Fund has received an
order from the SEC permitting the issuance and sale of multiple classes of
common stock. Currently, the Portfolio is offering three classes, designated
Class A, Class B and Class C shares. In accordance with the Fund's Articles of
Incorporation, the Board of Directors may authorize the creation of additional
series of common stock and
22
<PAGE>
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 approval by the 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 of the Portfolio is equal as
to earnings, assets and voting privileges, except as noted above, and each
class bears the expenses related to the distribution of its shares. Except for
the conversion feature applicable to the Class B shares, there are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of each Portfolio is entitled to its
portion of all of the Portfolio's assets after all debt and expenses of the
Portfolio have been paid. Since Class B and Class C shares generally bear
higher distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders. The Fund's shares do not have cumulative voting rights for the
election of Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF
THE FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE
OR MORE DIRECTORS 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 PORTFOLIO THROUGH PRUDENTIAL SECURITIES,
PRUSEC OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL
MUTUAL FUND SERVICES, INC. (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT
SERVICES, P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The minimum
initial investment for Class A and Class B shares is $1,000 per class and
$5,000 for Class C shares. The minimum subsequent investment is $100 for all
classes. All minimum investment requirements are waived for certain retirement
and employee savings plans or custodial accounts for the benefit of minors.
For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. The minimum initial
investment requirement is waived for purchases of Class A shares effected
through an exchange of Class B shares of The BlackRock Government Income
Trust. See "Shareholder Services" below.
THE PURCHASE PRICE IS THE NAV NEXT DETERMINED FOLLOWING RECEIPT OF AN ORDER
BY THE TRANSFER AGENT OR PRUDENTIAL SECURITIES PLUS A SALES CHARGE WHICH, AT
YOUR OPTION, MAY BE IMPOSED EITHER (I) AT THE TIME OF PURCHASE (CLASS A
SHARES) OR (II) ON A DEFERRED BASIS (CLASS B OR CLASS C SHARES). SEE
"ALTERNATIVE PURCHASE PLAN" BELOW. SEE ALSO "HOW THE FUND VALUES ITS SHARES."
23
<PAGE>
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. 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 Portfolio) or to suspend or modify the continuous offering
of its shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Portfolio by
wire, you must first telephone PMFS at (800) 225-1852 (toll-free) to receive
an account number. The following information will be requested: your name,
address, tax identification number, class election, dividend distribution
election, amount being wired and wiring bank. Instructions should then be
given by you to your bank to transfer funds by wire to State Street Bank and
Trust Company (State Street), Boston, Massachusetts, Custody and Shareholder
Services Division, Attention: Prudential Structured Maturity Fund, Inc.
(Income Portfolio), specifying on the wire the account number assigned by PMFS
and your name and identifying the sales charge alternative (Class A, Class B
or Class C shares).
If you arrange for receipt by State Street of Federal Funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the
Portfolio as of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Structured
Maturity Fund, Inc. (Income Portfolio), Class A, Class B or Class C shares and
your name and individual account number. It is not necessary to call PMFS to
make subsequent purchase orders utilizing Federal Funds. The minimum amount
which may be invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
THE PORTFOLIO OFFERS THREE CLASSES OF SHARES (CLASS A, CLASS B AND CLASS C
SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE
FOR YOUR INDIVIDUAL CIRCUMSTANCES, GIVEN THE AMOUNT OF THE PURCHASE, THE
LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES
(ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------ ------------------------ -----------------------------
<C> <S> <C> <C>
Class A Maximum initial sales .30 of 1% Initial sales charge waived
charge of 3.25% of the (Currently being or reduced for certain
public offering price charged at a rate purchases
of .10 of 1%)
Class B Maximum contingent 1% (Currently being Shares convert to Class A
deferred sales charge or charged at a rate shares approximately five
CDSC of 3% of the lesser of .75 of 1%) years after purchase
of the amount invested
or the redemption
proceeds; declines to
zero after four years
Class C Maximum CDSC of 1% of 1% (Currently being Shares do not convert to
the lesser of the amount charged at a rate another class
invested or the of .75 of 1%)
redemption proceeds on
redemptions made within
one year of purchase
</TABLE>
24
<PAGE>
The three classes of shares represent an interest in the same portfolio of
investments of the Portfolio and have the same rights, except that (i) each
class bears the separate expenses of its Rule 12b-1 distribution and service
plan, (ii) each class has exclusive voting rights with respect to its plan
(except as noted under the heading "General Information--Description of Common
Stock"), and (iii) only Class B shares have a conversion feature. The three
classes also have separate exchange privileges. See "How to Exchange Your
Shares" below. The income attributable to each class and the dividends payable
on the shares of each class will be reduced by the amount of the distribution
fee of each class. Class B and Class C shares bear the expenses of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Portfolio
will receive different compensation for selling Class A, Class B and Class C
shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately five 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 Portfolio:
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 3.25% 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 B or Class C shares, you would have to hold your investment for
more than 4 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed
the initial sales charge plus cumulative annual distribution-related fees on
Class A shares. This does not take into account the time value of money, which
further reduces the impact of the higher Class B or Class C distribution-
related fee on the investment, fluctuations in net asset value, the effect of
the return on the investment over this period of time or redemptions during
the period in which the CDSC is applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A
SHARES. SEE "REDUCTION AND WAIVER OF INITIAL SALES CHARGES" BELOW.
25
<PAGE>
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested),
as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
------------------ --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $99,999 3.25% 3.36% 3.00%
$100,000 to $249,999 2.75 2.83 2.50
$250,000 to $499,999 2.25 2.30 2.00
$500,000 to $999,999 1.75 1.78 1.55
$1,000,000 and above None None None
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be
aggregated to determine the applicable reduction. See "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 (BENEFIT PLANS), PROVIDED THAT THE PLAN HAS EXISTING
ASSETS OF AT LEAST $1 MILLION INVESTED IN SHARES OF PRUDENTIAL MUTUAL FUNDS
(EXCLUDING MONEY MARKET FUNDS OTHER THAN THOSE acquired pursuant to the
exchange privilege) or 1,000 eligible employees or participants. In the case
of Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account recordkeeping (Direct Account Benefit
Plans) and Benefit Plans sponsored by 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.
After a Benefit 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)
Directors and officers of the Fund and other Prudential Mutual Funds, (b)
employees of Prudential Securities and PMF and their subsidiaries and members
of the families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees and special agents
of Prudential and its subsidiaries and all persons who have retired directly
from active service with Prudential or one of its subsidiaries, (d) registered
representatives and employees of dealers who have entered into a selected
dealer agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer and (e) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares
of any open-end, non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or service
fee of .25 of 1% or less) and (iii) the financial adviser served as the
client's broker on the previous purchases.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec that you are entitled to the reduction or
waiver of the sales charge. The reduction or waiver will be granted subject to
confirmation of your entitlement. No initial sales charges are imposed upon
Class A shares acquired upon the reinvestment of dividends and distributions.
See "Purchase and Redemption of Fund Shares--Reduction and Waiver of Initial
Sales Charges--Class A Shares" in the Statement of Additional Information.
26
<PAGE>
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class
B and Class C shares may be subject to a CDSC. See "How to Sell Your Shares--
Contingent Deferred Sales Charges."
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES 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 PORTFOLIO THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE
REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A
CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY
ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE
ACCEPTED. All correspondence and documents concerning redemptions should be
sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services, Inc., Attention: Redemption Services, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquires of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Preferred
Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR
WRITTEN REQUEST, EXCEPT AS INDICATED BELOW. 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 CHECK.
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 payments 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 and will be
valued in the same manner as in a regular
27
<PAGE>
redemption. See "How the Fund Values its Shares." If your shares are redeemed
in kind, you would incur transaction costs in converting the assets into cash.
The Fund, however, has elected to be governed by Rule 18f-1 under the
Investment Company Act, under which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of
the Fund during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose
account has a net asset value of less than $500 due to a redemption. The Fund
will give such shareholders 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No contingent deferred
sales charge will be imposed on any involuntary redemption.
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 Portfolio at the NAV
next determined after the order is received, which must be within 90 days
after the date of the redemption. No sales charge will apply to such
repurchases. You will receive pro rata credit for any contingent deferred
sales charge paid in connection with the redemption of Class B or Class C
shares. You must notify the Fund's Transfer Agent, either directly or through
Prudential Securities or Prusec, at the time the repurchase privilege is
exercised that you are entitled to credit for the contingent deferred sales
charge previously paid. Exercise of the repurchase privilege will generally
not affect federal income tax treatment of any gain realized upon redemption.
If the redemption resulted in a loss, some or all of the loss, depending on
the amount reinvested, will not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 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 Class B or Class C shares to an amount which is lower
than the amount of all payments by you for shares during the preceding 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 contingent deferred sales charge
will be paid to and retained by the Distributor. See "How the Fund is
Managed--Distributor" and "Waiver of the Contingent Deferred Sales Charges--
Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.The 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."
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------- -------------------------
<S> <C>
First......................................... 3.0%
Second........................................ 2.0%
Third......................................... 1.0%
Fourth........................................ 1.0%
Fifth......................................... None
</TABLE>
28
<PAGE>
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 Portfolio shares made during the preceding four
years; then of amounts representing the cost of shares held beyond the
applicable CDSC period; and finally, of amounts representing the cost of
shares held for the longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided
to redeem $500 of your investment. Assuming at the time of the redemption the
net asset value had appreciated to $12 per share, the value of your Class B
shares would be $1,260 (105 shares at $12 per share). The CDSC would not be
applied to the value of the reinvested dividend shares and the amount which
represents appreciation ($260). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be charged at a rate of 2% (the applicable
rate in the second year after purchase) for a total CDSC of $4.80.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability
of a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), 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 purchase 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.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to
waiver of the CDSC and provide the Transfer Agent with such supporting
documentation as it may deem appropriate. The waiver will be granted subject
to confirmation of your entitlement. See "Purchase and Redemption of Fund
Shares--Waiver of the Contingent Deferred Sales Charge--Class B Shares" in the
Statement of Additional Information.
A quantity discount may apply to redemptions of Class B shares purchased
prior to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994" in the Statement
of Additional Information.
29
<PAGE>
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 account (ii) multiplied by
the total number of Class B shares purchased and then held in your account.
Each time any Eligible Shares in your account convert to Class A shares, all
shares or amounts representing Class B shares then in your account that were
acquired through the automatic reinvestment of dividends and other
distributions will convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible
Shares calculated as described 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 the same, you may receive fewer
Class A shares than Class B shares converted. See "How the Fund Values its
Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment for purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such shares were held in the money market fund will be excluded.
For example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately 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 Portfolio 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 PORTFOLIO, 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
30
<PAGE>
REQUIREMENTS OF SUCH FUNDS. CLASS A, CLASS B AND CLASS C SHARES MAY BE
EXCHANGED FOR CLASS A, CLASS B AND CLASS C SHARES, RESPECTIVELY, OF ANOTHER
FUND ON THE BASIS OF THE RELATIVE NAV. No sales charge will be imposed at the
time of the exchange. Any applicable CDSC payable upon the redemption of
shares exchanged will be calculated from the first day of the month after the
date of the initial purchase, excluding the time shares were held in a money
market fund. Class B and Class C shares may not be exchanged into money market
funds other than Prudential Special Money Market Fund. For purposes of
calculating the holding period applicable to the Class B conversion feature,
the time period during which Class B shares were held in a money market fund
will be excluded. See "Conversion Feature--Class B Shares" above. An exchange
will be treated as a redemption and purchase for tax purposes. See
"Shareholder Investment Account--Exchange Privilege" in the Statement of
Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may
call the Fund at (800) 225-1852 to execute a telephone exchange of shares, on
weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS,
LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after
the request is received in good order. The Exchange Privilege 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, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. See "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above. Under this exchange privilege, amounts representing any Class B and
Class C shares (which are not subject to a CDSC) held in such a shareholder's
account will be automatically exchanged for Class A shares on a quarterly
basis, unless the shareholder elects otherwise. It is currently anticipated
that this exchange will occur quarterly in February, May, August and November.
Eligibility for this exchange privilege will be calculated on the business day
prior to the date of the exchange. Amounts representing Class B or Class C
shares which are not subject to a CDSC include the following: (1) amounts
representing Class B or Class C shares acquired pursuant to the automatic
reinvestment of dividends and distributions, (2) amounts representing the
increase in the net asset value above the total amount of payments for the
purchase of Class B or Class C shares and (3) amounts representing Class B or
Class C shares held beyond the applicable CDSC period. Class B and Class C
shareholders must notify the Transfer Agent either directly or through
Prudential Securities or Prusec that they are eligible for this special
exchange privilege.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
31
<PAGE>
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder in the Portfolio you
can take advantage of the following additional services and privileges.
. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Portfolio at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than 5 full business days prior to the record date to have subsequent
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through Prudential Securities, you should contact your financial
adviser.
. AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, you may make
regular purchases of the Portfolio's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec representative or
the Transfer Agent directly.
. TAX DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both self-
employed individuals and corporate employers. These plans permit either self-
direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.
. SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges" above.
. REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
are available upon request from the Fund.
. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
32
<PAGE>
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time 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.
Bonds rated within the Aa, A, Baa, Ba and B categories which Moody's
believes possess the strongest credit attributes within those categories are
designated by the symbols Aa1, A1, Baa1, Ba1 and B1.
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 debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year.
P-1: Issuers rated Prime-1 or P-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
P-2: Issuers rated Prime-2 or P-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
STANDARD & POOR'S RATINGS GROUP
DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
A-1
<PAGE>
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A: 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 AND C: Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is 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 the designation A-2 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 Funds at (800) 225-1852 for a free prospectus. Read the prospectus
carefully before you invest or send money.
TAXABLE BOND FUNDS EQUITY FUNDS
Prudential Allocation Fund
Prudential Adjustable Rate Securities Fund, Inc.
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Diversified Bond Fund, Inc.
Prudential GNMA Fund, Inc. Prudential Equity Fund, Inc.
Prudential Government Income Fund, Inc. Prudential Equity Income Fund
Prudential Government Securities Trust Prudential Growth Opportunity
Intermediate Term Series Fund, Inc.
Prudential High Yield Fund, Inc. Prudential IncomeVertible (R)
Prudential Structured Maturity Fund, Inc. Fund, Inc.
Income Portfolio Prudential Multi-Sector Fund, Inc.
Prudential U.S. Government Fund Prudential Strategist Fund, Inc.
The BlackRock Government Income Trust Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
TAX-EXEMPT BOND FUNDS Nicholas-Applegate Growth Equity
Fund
Prudential California Municipal Fund MONEY MARKET FUNDS
California Series . Taxable Money Market Funds
California Income Series Prudential Government Securities
Prudential Municipal Bond Fund Trust
High Yield Series Money Market Series
Insured Series U.S. Treasury Money Market
Modified Term Series Series
Prudential Municipal Series Fund Prudential Special Money Market
Arizona Series Fund
Florida Series Money Market Series
Georgia Series Prudential MoneyMart Assets
Hawaii Income Series . Tax-Free Money Market Funds
Maryland Series
Massachusetts Series Prudential Tax-Free Money Fund
Michigan Series Prudential California Municipal
Minnesota Series Fund
New Jersey Series California Money Market Series
New York Series Prudential Municipal Series Fund
North Carolina Series Connecticut Money Market Series
Ohio Series Massachusetts Money Market
Pennsylvania Series Series
Prudential National Municipals Fund, Inc. New Jersey Money Market Series
New York Money Market Series
GLOBAL FUNDS
. Command Funds
Command Money Fund
Command Government Fund
Prudential Europe Growth Fund, Inc. Command Tax-Free Fund
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
. Institutional Money Market Funds
Prudential Global Natural Resources Fund, Inc.
Prudential Institutional Liquidity
Portfolio, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Institutional Money Market
Series
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
B-1
<PAGE>
P
R
O
S
P
E
C
T
U
S
MARCH 1, 1995
- --------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................ 2
Risk Factors and Special Characteristics.................................. 2
FUND EXPENSES.............................................................. 4
FINANCIAL HIGHLIGHTS....................................................... 5
HOW THE FUND INVESTS....................................................... 8
Investment Objective and Policies......................................... 8
Hedging and Income Enhancement Strategies................................. 13
Other Investments and Policies............................................ 14
Investment Restrictions................................................... 16
HOW THE FUND IS MANAGED.................................................... 16
Manager................................................................... 17
Distributor............................................................... 17
Portfolio Transactions.................................................... 20
Custodian and Transfer and Dividend Disbursing Agent...................... 20
HOW THE FUND VALUES ITS SHARES............................................. 20
HOW THE FUND CALCULATES PERFORMANCE........................................ 20
TAXES, DIVIDENDS AND DISTRIBUTIONS......................................... 21
GENERAL INFORMATION........................................................ 22
Description of Common Stock............................................... 22
Additional Information.................................................... 23
SHAREHOLDER GUIDE.......................................................... 23
How to Buy Shares of the Fund............................................. 23
Alternative Purchase Plan................................................. 24
How to Sell Your Shares................................................... 27
Conversion Feature--Class B Shares........................................ 30
How to Exchange Your Shares............................................... 30
Shareholder Services...................................................... 32
DESCRIPTION OF SECURITY RATINGS............................................ A-1
THE PRUDENTIAL MUTUAL FUND FAMILY.......................................... B-1
</TABLE>
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MF 140A_____________________________________________________________444131D
<TABLE>
<S> <C>
Class A: 743924-10-2
CUSIP Nos.: Class B: 743924-20-1
Class C: 743924-30-0
</TABLE>
PRUDENTIAL STRUCTURED
MATURITY FUND, INC.
INCOME PORTFOLIO
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Statement of Additional Information
dated March 1, 1995
Prudential Structured Maturity Fund, Inc. (the Fund), is an open-end,
management investment company comprised of two Portfolios--the Income
Portfolio and the Municipal Income Portfolio. Only the Income Portfolio is
offered at this time. The investment objective of the Income Portfolio (the
Portfolio) is high current income consistent with the preservation of
principal. The Portfolio seeks to achieve its objective primarily through
structuring its portfolio by utilizing a "laddered" maturity strategy. The
Portfolio invests primarily in investment grade corporate debt securities and
in obligations of the U.S. Government, its agencies and instrumentalities with
maturities of six years or less. The Portfolio may also invest up to 10% of
its total assets in securities rated below BBB by Standard & Poor's Ratings
Group or Baa by Moody's Investors Service (or a similar nationally recognized
statistical rating organization), or, if not rated, of comparable quality in
the opinion of the investment adviser. These securities are allocated by
maturity among six annual maturity categories ranging from one year or less to
between five and six years with each category representing approximately one-
sixth of the Portfolio's assets. As the securities in each annual category
mature or as new investments are made in the Portfolio, the proceeds will be
invested to maintain the balance of investments among the six annual maturity
categories. There can be no assurance that the Portfolio's investment
objective will be achieved. See "Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the Income Portfolio, dated March
1, 1995, a copy of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PROSPECTUS
---------------
INCOME
PAGE PORTFOLIO
---- ---------------
<S> <C> <C>
General Information....................................... B-2 22
Investment Objective and Policies......................... B-2 8
Investment Restrictions................................... B-9 16
Directors and Officers.................................... B-11 16
Manager................................................... B-13 16
Distributor............................................... B-15 17
Portfolio Transactions.................................... B-17 20
Purchase and Redemption of Fund Shares.................... B-18 23
Shareholder Investment Account............................ B-20 23
Net Asset Value........................................... B-23 19
Dividends and Distributions............................... B-23 21
Taxes..................................................... B-24 21
Performance Information................................... B-25 20
Custodian, Transfer and Dividend Disbursing Agent and In-
dependent Accountants.................................... B-27 20
Financial Statements...................................... B-28 --
Independent Auditors' Report.............................. B-38 --
</TABLE>
- -------------------------------------------------------------------------------
MF140B
<PAGE>
GENERAL INFORMATION
At a special meeting held on July 19, 1994, shareholders approved an
amendment to the Fund's Articles of Incorporation to change the Fund's name
from Prudential-Bache Structured Maturity Fund, Inc. to Prudential Structured
Maturity Fund, Inc.
The Fund initially offered only one series known as Prudential Structured
Maturity Fund. On July 15, 1993, the Board of Directors authorized the
creation of the Municipal Income Portfolio and approved the designation of the
existing shares of the Fund as shares of the Income Portfolio.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Income Portfolio (the Portfolio) is high
current income consistent with the preservation of principal. See "How the
Fund Invests--Investment Objective and Policies" in the Prospectus. The
Portfolio seeks to achieve its objective primarily through structuring its
portfolio by utilizing a "laddered" maturity strategy. The Portfolio invests
primarily in investment grade corporate debt securities and in obligations of
the U.S. Government, its agencies and instrumentalities with maturities of six
years or less. The Portfolio may also invest up to 10% of its total assets in
securities rated below BBB by Standard & Poor's Ratings Group (S&P) or Baa by
Moody's Investors Service (Moody's) (or a similar nationally recognized
statistical rating organization), or, if not rated, of comparable quality in
the opinion of the investment adviser. Under normal market conditions these
securities are allocated by maturity among six annual maturity categories
ranging from one year or less to between five and six years with each category
representing approximately one-sixth of the Portfolio's assets. As the
securities in each annual category mature or as new investments are made in
the Portfolio, the proceeds will be invested to maintain the balance of
investments among the six annual maturity categories. There can be no
assurance that the Portfolio's investment objective will be achieved.
The Portfolio may invest in the following types of securities:
U.S. Government Securities
MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT INSTRUMENTALITIES.
Mortgages backing the securities purchased by the Portfolio include
conventional thirty-year fixed-rate mortgages, graduated payment mortgages,
fifteen-year mortgages, adjustable rate mortgages and balloon payment
mortgages. A balloon payment mortgage-backed security is an amortizing
mortgage security with installments of principal and interest, the last
installment of which is predominantly principal. 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
undivided 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. Because mortgage-backed securities are often
prepaid, a pass-through security with a stated remaining maturity of more than
its remaining expected average life will be deemed by the Portfolio, for
purposes of determining the Portfolio's effective dollar-weighted average
maturity, to have a remaining maturity equal to its remaining expected average
life. The determination of the remaining expected average life of mortgage-
backed securities will be made by the investment adviser, subject to the
supervision of the Fund's Board of Directors. In selecting investments for the
Portfolio and in determining the remaining maturity, the investment adviser
will rely on average remaining life data published by various mortgage-backed
securities dealers except to the extent such data are deemed unreasonable by
the investment adviser. The investment adviser might deem such data
unreasonable if such data appeared to present a significantly different
average remaining expected life for a security when compared to data relating
to the average remaining life of comparable securities as provided by other
independent mortgage-backed securities dealers. The Portfolio's effective
dollar-weighted average maturity is expected to be between 2 1/2 and 3 1/2
years.
During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When
mortgage obligations are prepaid, the Portfolio reinvests the prepaid amounts
in securities, the yields of which reflect interest rates prevailing at that
time. Therefore, the Portfolio's ability to maintain a portfolio of high-
yielding mortgage-backed securities will be adversely affected to the extent
that prepayments of mortgages must be reinvested in securities which have
lower yields than the prepaid mortgages. Moreover, prepayments of mortgages
which underlie securities purchased at a premium generally will result in
capital losses.
GNMA CERTIFICATES. Certificates of the Government National Mortgage
Association (GNMA Certificates) are mortgage-backed securities which evidence an
undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds in that principal is
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paid back monthly by the borrower over the term of the loan rather than
returned in a lump sum at maturity. GNMA Certificates that the Portfolio
purchases are the "modified pass-through" type. "Modified pass-through" GNMA
Certificates entitle the holder to receive a share of all interest and
principal prepayments paid and owed on the mortgage pool, net of fees paid to
the "issuer" and GNMA, regardless of whether or not the mortgagor actually
makes the payment. The GNMA Certificates will represent a pro rata interest in
one or more pools of the following types of mortgage loans: (i) fixed-rate
level payment mortgage loans; (ii) fixed-rate graduated payment mortgage
loans; (iii) fixed-rate growing equity mortgage loans; (iv) fixed-rate
mortgage loans secured by manufactured (mobile) homes; (v) mortgage loans on
multi-family residential properties under construction; (vi) mortgage loans on
completed multi-family projects; (vii) fixed-rate mortgage loans as to which
escrowed funds are used to reduce the borrower's monthly payments during the
early years of the mortgage loans ("buydown" mortgage loans); (viii) mortgage
loans that provide for adjustments in payments based on periodic changes in
interest rates or in other payment terms of the mortgage loans; and (ix)
mortgage-backed serial notes. All of these mortgage loans will be FHA Loans or
VA Loans and, except as otherwise specified above, will be fully-amortizing
loans secured by first liens on one-to-four family housing units.
GNMA GUARANTEE. GNMA is a wholly-owned corporate instrumentality of the
United States within the Department of Housing and Urban Development. The
National Housing Act, as amended (the Housing Act), authorizes GNMA to
guarantee the timely payment of principal and interest on certificates that
are based on and backed by a pool of mortgages insured by the Federal Housing
Administration under the Housing Act, or Title V of the Housing Act of 1949
(FHA loans), or guaranteed by the Veterans Administration under the
Servicemen's Retirement Act of 1944, as amended (VA loans), or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith
and credit of the U.S. Government is pledged to the payment of all amounts
that may be required to be paid under the guarantee. In order to meet its
obligations under such guarantee, GNMA is authorized to borrow from the U.S.
Treasury with no limitations as to amount.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation 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. The Portfolio does not intend to invest in guaranteed mortgage
certificates. 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.
FNMA SECURITIES. The Federal National Mortgage Association was established
in 1938 to create a secondary market in mortgages. 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 on FNMA Certificates and the
stated principal amount.
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. The Portfolio expects this characteristic to contribute to its
objective of preservation of principal.
FIXED-RATE MORTGAGE SECURITIES. The Portfolio 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 Portfolio 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 behind changes in market rate
levels and tend to be somewhat less volatile.
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The underlying mortgages which collateralize the ARMs, collateralized
mortgage obligations (CMOs) and real estate mortgage investment conduits
(REMICs), in which the Portfolio 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.
In addition, mortgage-backed securities which are secured by manufactured
(mobile) homes and multi-family residential properties, such as GNMA and FNMA
certificates, are subject to a higher risk of default than are other types of
mortgage-backed securities. The investment adviser will seek to minimize this
risk by investing in mortgage-backed securities rated at least A by Moody's or
S&P.
STRIPS. The Portfolio may invest in component parts of U.S. Government
securities, namely, either the corpus (principal) of such obligations or one
of the interest payments scheduled to be paid on such obligations. These
obligations may take the form of (i) obligations from which the interest
coupons have been stripped, (ii) the interest coupons that are stripped, (iii)
book entries at a Federal Reserve member bank representing ownership of
obligation components or (iv) receipts evidencing the component parts (corpus
or coupons) of U.S. Government obligations that have not actually been
stripped. Such receipts evidence ownership of component parts of U.S.
Government obligations (corpus or coupons) purchased by a third party
(typically an investment banking firm) and held on behalf of the third party
in physical or book-entry form by a major commercial bank or trust company
pursuant to a custody agreement with the third party. U.S. Government
obligations, including those underlying such receipts, are backed by the full
faith and credit of the U.S. Government.
Mortgage-Backed Securities
Mortgage-backed securities are securities that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage
loans secured by real property. There are currently three basic types of
mortgage-backed securities: (i) those issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, such as GNMA, FNMA and
FHLMC, described under "U.S. Government Securities" above; (ii) those issued
by private issuers that represent an interest in or are collateralized by
mortgage-backed securities issued or guaranteed by the U.S. Government or one
of its agencies or instrumentalities; and (iii) those issued by private
issuers that represent an interest in or are collateralized by whole mortgage
loans or mortgage-backed securities without a U.S. Government guarantee but
usually having some form of private credit enhancement.
The Portfolio intends to invest in non-agency whole loan mortgage-backed
securities rated at least AA by S&P or Aa by Moody's.
Private mortgage pass-through securities are structured similarly to the
GNMA, FNMA and FHLMC mortgage pass-through securities and are issued by
originators of and investors in mortgage loans, including depository
institutions, mortgage banks, investment banks and special purpose
subsidiaries of the foregoing. These securities usually are backed by a pool
of conventional fixed-rate or adjustable rate mortgage loans. Since private
mortgage pass-through securities typically are not guaranteed by an entity
having the credit status of GNMA, FNMA and FHLMC, such securities generally
are structured with one or more types of credit enhancement.
COLLATERALIZED MORTGAGE OBLIGATIONS. Certain issuers of mortgage-backed
obligations (CMOs), including certain CMOs that have elected to be treated as
Real Estate Mortgage Investment Conduits (REMICs), are not considered
investment companies pursuant to a rule adopted by the Securities and Exchange
Commission (SEC), and the Portfolio may invest in the securities of such
issuers without the limitations imposed by the Investment Company Act of 1940
(the Investment Company Act) on investments by the Portfolio in other
investment companies. In addition, in reliance on an earlier SEC
interpretation, the Portfolio's investments in certain other qualifying CMOs,
which cannot or do not rely on the rule, are also not subject to the
limitation of the Investment Company Act on acquiring interests in other
investment companies. In order to be able to rely on the SEC's interpretation,
these CMOs must be unmanaged, fixed asset issuers, that (a) invest primarily
in mortgage-backed securities, (b) do not issue redeemable securities, (c)
operate under general exemptive orders exempting them from all provisions of
the Investment Company Act, and (d) are not registered or regulated under the
Investment Company Act as investment companies. To the extent that the
Portfolio selects CMOs or REMICs that cannot rely on the rule or do not meet
the above requirements, the Portfolio may not invest more than 10% of its
assets in all such entities and may not acquire more than 3% of the voting
securities of any single such entity.
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OTHER INVESTMENTS
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreement
transactions. The Portfolio's repurchase agreements will be collateralized by
U.S. Government obligations. The Portfolio will enter into repurchase
transactions only with parties meeting creditworthiness standards approved by
the Fund's Board of Directors. The Fund's investment adviser will monitor the
creditworthiness of such parties, under the general supervision of the Board
of Directors. In the event of a default or bankruptcy by a seller, the
Portfolio will promptly seek to liquidate the collateral. To the extent that
the proceeds from any sale of such collateral upon a default in the obligation
to repurchase are less than the repurchase price, the Portfolio will suffer a
loss.
The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. (PMF) pursuant to
an order of the SEC. On a daily basis, any uninvested cash balances of the
Portfolio may be aggregated with those of such investment companies and
invested in one or more repurchase agreements. Each fund participates in the
income earned or accrued in the joint account based on the percentage of its
investment.
MONEY MARKET INSTRUMENTS. The Portfolio may invest in high quality money
market instruments, including:
1. Obligations denominated in U.S. dollars (including certificates of
deposit, bankers' acceptances and time deposits) of commercial banks, savings
banks and savings and loan associations having, at the time of acquisition by
the Portfolio of such obligations, total assets of not less than $1 billion or
its equivalent. The Portfolio may invest in obligations of domestic banks,
foreign banks, and branches and offices thereof. The term "certificates of
deposit" includes both Eurodollar certificates of deposit, for which there is
generally a market, and Eurodollar time deposits, for which there is generally
not a market. "Eurodollars" are U.S. dollars deposited in banks outside the
United States. For this purpose, the certificates of deposit may have terms in
excess of one year.
2. Commercial paper, variable amount demand master notes, bills, notes and
other obligations issued by a U.S. company, a foreign company or a foreign
government, its agencies, instrumentalities or political subdivisions,
maturing in one year or less, denominated in U.S. dollars, and, at the date of
investment, rated at least A-2 by S&P or Prime-2 by Moody's, or, if not rated,
issued by an entity having an outstanding unsecured debt issue rated at least
A or A-2 by S&P or A or Prime-2 by Moody's. If such obligations are guaranteed
or supported by a letter of credit issued by a bank, the bank (including a
foreign bank) must meet the requirements set forth in paragraph 1 above. If
such obligations are guaranteed or insured by an insurance company or other
non-bank entity, the insurance company or other non-bank entity must represent
a credit of high quality, as determined by the Fund's Board of Directors.
Under the Investment Company Act, a guaranty is not deemed to be a security of
the guarantor for purposes of satisfying the diversification requirements
provided that the securities issued or guaranteed by the guarantor and held by
the Portfolio do not exceed 10% of the Portfolio's total assets.
LENDING OF SECURITIES. Consistent with applicable regulatory requirements,
the Portfolio may lend its portfolio securities to brokers, dealers and
financial institutions, provided that outstanding loans do not exceed in the
aggregate 30% of the value of the Portfolio's total assets and that such loans
are callable at any time by the Portfolio and are at all times secured by cash
or equivalent collateral that is equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is
that the Portfolio continues to receive payments in lieu of the interest and
dividends of the loaned securities, while at the same time earning interest
either directly from the borrower or on the collateral which will be invested
in short-term obligations.
A loan may be terminated by the borrower on one business day's notice or by
the Portfolio at any time. If the borrower fails to maintain the requisite
amount of collateral, the loan automatically terminates, and the Portfolio
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will be made only to
firms determined to be creditworthy pursuant to procedures approved by the
Board of Directors of the Fund. On termination of the loan, the borrower is
required to return the securities to the Portfolio, and any gain or loss in
the market price during the loan would inure to the Portfolio.
Since voting or consent rights, if any, which accompany loaned securities
pass to the borrower, the Portfolio will follow the policy of calling the
loan, in whole or in part as may be appropriate, to permit the exercise of
such rights if the matters involved would have a material effect on the
Portfolio's investment in the securities which are the subject of the loan.
The Portfolio will pay reasonable finders', administrative and custodial fees
in connection with a loan of its securities or may share the interest earned
on collateral with the borrower.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES. Fixed-income
securities are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations (credit risk) and may also be subject
to price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity
(market risk). Lower rated or unrated (i.e., high yield) securities, commonly
referred to as "junk bonds," are more likely to react to developments
affecting market and credit risk than are more highly rated securities, which
react primarily to movements in the general level of interest
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rates. The investment adviser considers both credit risk and market risk in
making investment decisions for the Portfolio. Investors should carefully
consider the relative risks of investing in high yield securities and
understand that such securities are not generally meant for short-term
investing.
Federal laws require the divestiture by federally insured savings and loan
associations of their investments in high yield bonds and limit the
deductibility of interest by certain corporate issuers of high yield bonds.
These laws could also adversely affect the Portfolio's net asset value and
investment practices, the secondary market for high yield securities, the
financial condition of issuers of these securities and the value of
outstanding high yield securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Portfolio
may have to replace the security with a lower yielding security, resulting in
a decreased return for investors. If the Portfolio experiences unexpected net
redemptions, it may be forced to sell its higher quality securities, resulting
in a decline in the overall credit quality of the Portfolio and increasing the
exposure of the Portfolio to the risks of high yield securities.
WORLD BANK OBLIGATIONS. The Portfolio may purchase obligations of the
International Bank for Reconstruction and Development (the World Bank).
Obligations of the World Bank are supported by appropriated but unpaid
commitments of its member countries, including the U.S., and there is no
assurance these commitments will be undertaken or met in the future.
INSTRUMENTS WITH PUTS. The Portfolio may purchase money market instruments
together with the right to resell the instruments at an agreed-upon price or
yield within a specified period prior to the maturity date of the instruments.
Such a right to resell is commonly known as a "put," and the aggregate price
which the Portfolio pays for instruments with puts may be higher than the
price which otherwise would be paid for the instruments. Consistent with the
Portfolio's investment objective and applicable rules issued by the SEC and
subject to the supervision of the Board of Directors, the purpose of this
practice is to permit the Portfolio to be fully invested while preserving the
necessary liquidity to meet unusually large redemptions and to purchase at a
later date securities other than those subject to the put. Puts may be
exercised prior to the expiration date in order to fund obligations to
purchase other securities or to meet redemption requests. These obligations
may arise during periods in which proceeds from sales of portfolio shares and
from recent sales of portfolio securities are insufficient to meet such
obligations or when the funds available are otherwise allocated for
investment. In addition, puts may be exercised prior to the expiration date in
the event the investment adviser revises its evaluation of the
creditworthiness of the issuer of the underlying security. In determining
whether to exercise puts prior to their expiration date and in selecting which
puts to exercise in such circumstances, the investment adviser considers,
among other things, the amount of cash available to the Portfolio, the
expiration dates of the available puts, any future commitments for securities
purchases, the yield, quality and maturity dates of the underlying securities,
alternative investment opportunities and the desirability of retaining the
underlying securities in the Portfolio. When the put is at the option of the
Portfolio, the Portfolio considers the maturity of an instrument subject to
the put to be the earlier of the put expiration date or the stated maturity of
the instrument.
Since the value of the put is dependent on the ability of the put writer to
meet its obligation to repurchase, the Portfolio's policy is to enter into put
transactions only with such brokers, dealers or financial institutions which
present minimal credit risks. There is a credit risk associated with the
purchase of puts in that the broker, dealer or financial institution might
default on its obligation to repurchase an underlying security. In the event
such a default should occur, the Portfolio is unable to predict whether all or
any portion of any loss sustained could subsequently be recovered from the
broker, dealer or financial institution.
OPTIONS TRANSACTIONS. The Portfolio reserves the right to enter into options
transactions but has no intention of doing so in the foreseeable future and
until supplemental disclosure is provided in the Prospectus and Statement of
Additional Information.
INTEREST RATE SWAP TRANSACTIONS. The Portfolio may enter into interest rate
swap transactions, on either an asset-based or liability-based basis,
depending on whether it is hedging its assets or its liabilities. Under normal
circumstances, the Portfolio will enter into interest rate swaps on a net
basis, i.e., the two payment streams are netted out, with the Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Portfolio's obligations
over its entitlements with respect to each interest rate swap will be accrued
on a daily basis and an amount of cash or liquid, high-grade debt securities
having an aggregate net asset value at least equal to the accrued excess will
be maintained in a segregated account with the Fund's Custodian. To the extent
that the Portfolio enters into interest rate swaps on other than a net basis,
the amount maintained in a segregated account will be the full amount of the
Portfolio's obligations, if any, with respect to such interest rate swaps,
accrued on a daily basis. Inasmuch as segregated accounts are established for
these hedging transactions, the investment adviser and the Portfolio believe
such obligations do not constitute senior securities. If there is a default by
the other party to such a transaction, the Portfolio will have contractual
remedies pursuant to the agreement related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms. Since interest rate swaps are individually
negotiated, the Portfolio expects to achieve an acceptable degree of
correlation between its rights to receive interest on its portfolio securities
and its rights and obligations to receive and pay interest pursuant to
interest rate swaps. The risk of loss with respect to interest rate swaps is
limited to the net amount of interest payments that the Portfolio is
contractually obligated to make and will not exceed 5% of the Portfolio's net
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assets. The Portfolio will enter into interest rate swaps only with parties
meeting creditworthiness standards approved by the Fund's Board of Directors.
The investment adviser will monitor the creditworthiness of such parties under
the supervision of the Board of Directors.
INTEREST RATE FUTURES CONTRACTS. As a purchaser of an interest rate futures
contract (futures contract), the Portfolio incurs an obligation to take
delivery of a specified amount of the obligation underlying the futures
contract at a specified time in the future for a specified price. As a seller
of a futures contract, the Portfolio incurs an obligation to deliver the
specified amount of the underlying obligation at a specified time in return
for an agreed upon price.
The Portfolio will purchase or sell futures contracts for the purpose of
hedging its portfolio (or anticipated portfolio) securities against changes in
prevailing interest rates. If the investment adviser anticipates that interest
rates may rise and, concomitantly, the price of U.S. Government or other debt
securities falls, the Portfolio may sell a futures contract. If declining
interest rates are anticipated, the Portfolio may purchase a futures contract
to protect against a potential increase in the price of U.S. Government or
other debt securities the Portfolio intends to purchase. Subsequently,
appropriate U.S. Government or other debt securities may be purchased by the
Portfolio in an orderly fashion; as securities are purchased, corresponding
futures positions would be terminated by offsetting sales of contracts. In
addition, futures contracts will be bought or sold in order to close out a
short or long position in a corresponding futures contract.
Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. A futures contract sale is closed
out by effecting a futures contract purchase for the same aggregate amount of
the specific type of security and the same delivery date. If the sale price
exceeds the offsetting purchase price, the seller would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same aggregate amount of the specific type of security
and the same delivery date. If the offsetting sale price exceeds the purchase
price, the purchaser would realize a gain, whereas if the purchase price
exceeds the offsetting sale price, the purchaser would realize a loss. There
is no assurance that the Portfolio will be able to enter into a closing
transaction.
When the Portfolio enters into a futures contract it is initially required
to deposit with the Fund's Custodian, in a segregated account in the name of
the broker performing the transaction, an "initial margin" of cash or U.S.
Government securities equal to approximately 2-3% of the contract amount.
Initial margin requirements are established by the exchanges on which futures
contracts trade and may, from time to time, change. In addition, brokers may
establish margin deposit requirements in excess of those required by the
exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a broker's client but is, rather, a good faith deposit on the
futures contract which will be returned to the Portfolio upon the proper
termination of the futures contract. The margin deposits made are marked to
market daily and the Portfolio may be required to make subsequent deposits
into the segregated account, maintained at the Fund's Custodian for that
purpose, or cash or U.S. Government securities, called "variation margin," in
the name of the broker, which are reflective of price fluctuations in the
futures contract. Currently, interest rate futures contracts can be purchased
on debt securities such as U.S. Treasury Bills, Notes and Bonds, Eurodollar
instruments, GNMA Certificates and bank certificates of deposit.
The Portfolio may purchase Eurodollar futures and options thereon, which are
essentially U.S. dollar-denominated futures contracts or options linked to
LIBOR. Eurodollar futures contracts are currently traded on the Chicago
Mercantile Exchange. They enable purchasers to obtain a fixed-rate for the
lending of funds and sellers to obtain a fixed-rate for borrowings. The
Portfolio would use Eurodollar futures contracts and options thereon to hedge
against changes in LIBOR, to which many interest rates swaps are linked.
OPTIONS ON FUTURES CONTRACTS. The Portfolio may purchase call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid), and the writer the obligation, to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any
time during the term of the option. Upon exercise of the option, the
assumption of offsetting futures positions by the writer and the holder of the
option will be accompanied by the delivery of the accumulated balance in the
writer's futures margin account, which represents the amount by which the
market price of the futures contract at the time of 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 Portfolio will purchase options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out
a long or short position in futures contracts. If, for example, the investment
adviser wished to protect
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against an increase in interest rates and the resulting negative impact on the
value of a portion of its U.S. Government securities portfolio, it might
purchase a put option on an interest rate futures contract, the underlying
security of which correlates with the portion of the portfolio the investment
adviser seeks to hedge.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. Under regulations
of the Commodity Exchange Act, investment companies registered under the
Investment Company Act are exempt from the definition of "commodity pool
operator," subject to compliance with certain conditions. The exemption is
conditioned upon the Portfolio's purchasing and selling futures contracts and
options thereon for bona fide hedging transactions, except that the Portfolio
may purchase and sell futures contracts and options thereon for any other
purpose to the extent that the aggregate initial margin and option premiums do
not exceed 5% of the liquidation value of the Portfolio's total assets. The
Portfolio will use futures contracts and options thereon in a manner
consistent with these requirements.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS THEREON. The
Portfolio may sell a futures contract to protect against the decline in the
value of U.S. Government securities and other debt securities held by the
Portfolio. However, it is possible that the futures market may advance and the
value of securities held in the Portfolio may decline. If this were to occur,
the Portfolio would lose money on the futures contracts and also experience a
decline of value in its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the market prices
of the securities of a diversified portfolio will tend to move in the same
direction as the prices of futures contracts.
If the Portfolio purchases a futures contract to hedge against the increase
in value of U.S. Government securities it intends to buy, and the value of
such securities decreases, then the Portfolio may determine not to invest in
the securities as planned and will realize a loss on the futures contract that
is not offset by a reduction in the price of the securities.
If the Portfolio maintains a short position in a futures contract, it will
cover this position by holding, in a segregated account maintained at the
Fund's Custodian, cash, U.S. Government securities or other liquid, high-grade
debt obligations equal in value (when added to any initial or variation margin
on deposit) to the market value of the securities underlying the futures
contract. Such a position may also be covered by owning the securities
underlying the futures contract, or by holding a call option permitting the
Portfolio to purchase the same contract at a price no higher than the price at
which the short position was established.
In addition, if the Portfolio holds a long position in a futures contract,
it will hold cash, U.S. Government securities or other liquid, high-grade debt
obligations equal to the purchase price of the contract (less the amount of
initial or variation margin on deposit) in a segregated account maintained for
the Portfolio by the Fund's Custodian. Alternatively, the Portfolio could
cover its long position by purchasing a put option on the same futures
contract with an exercise price as high or higher than the price of the
contract held by the Portfolio.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then
it may prove impossible to liquidate a futures position until the daily limit
moves have ceased. In the event of adverse price movements, the Portfolio
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Portfolio has
insufficient cash, it may be disadvantageous to do so. In addition, the
Portfolio may be required to take or make delivery of the instruments
underlying interest rate futures contracts it holds at a time when it is
disadvantageous to do so. The ability to close out options and futures
positions could also have an adverse impact on the Portfolio's ability to
effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Portfolio
engages in transactions in futures or options thereon, the Portfolio could
experience delays and/or losses in liquidating open positions purchased or
sold through the broker and/or incur a loss of all or part of its margin
deposits with the broker. Transactions are entered into by the Portfolio only
with brokers or financial institutions deemed creditworthy by the investment
adviser.
While the futures contracts and options transactions to be engaged in by the
Portfolio for the purpose of hedging the Portfolio's securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk which may arise in employing futures contracts to
protect against the price volatility of the Portfolio's securities is that the
prices of securities subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash
prices of the Portfolio's securities. Another such risk is that prices of
interest rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which the Portfolio seeks a hedge. A
correlation may also be distorted by the fact that the futures market is
dominated by short-term traders seeking to profit from the difference between
a contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Portfolio and the movements in the prices
of the securities which are the subject of the hedge. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationships between the debt securities and futures market could
result. Price distortions could also result if investors in futures contracts
elect to
B-8
<PAGE>
make or take delivery of underlying securities rather than engage in closing
transactions due to the resultant reduction in the liquidity of the futures
market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions. Due
to the possibility of price distortions in the futures market and because of
the imperfect correlation between movements in the prices of U.S. Government
securities and movements in the prices of futures contracts, a correct
forecast of interest rate trends by the investment adviser may still not
result in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for the
futures contracts and options thereon in which the Portfolio may invest. In
the event a liquid market does not exist, it may not be possible to close out
a futures position, and in the event of adverse price movements, the Portfolio
would continue to be required to make daily cash payments of variation margin.
In addition, limitations imposed by an exchange or board of trade on which
futures contracts are traded may compel or prevent the Portfolio from closing
out a contract which may result in reduced gain or increased loss to the
Portfolio. The absence of a liquid market in futures contracts might cause the
Portfolio to make or take delivery of the underlying securities at a time when
it may be disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the
Portfolio because the maximum amount at risk is the premium paid for the
options (plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss
to the Portfolio notwithstanding that the purchase or sale of a futures
contract would not result in a loss, as in the instance where there is no
movement in the prices of the futures contracts or underlying U.S. Government
securities.
The Portfolio will limit its use of futures contracts and options thereon to
the purchase of Eurodollar futures contracts and options thereon linked to
LIBOR.
ILLIQUID SECURITIES. The Portfolio may invest up to 15% of its net assets
(determined at the time of investment) in illiquid securities including
securities for which there are legal or contractual restrictions on resale,
securities for which there is no readily available market and repurchase
agreements having maturities of more than seven days.
When the Portfolio enters into interest rate swaps on other than a net
basis, the entire amount of the Portfolio's obligations, if any, with respect
to such interest rate swaps will be treated as illiquid. To the extent that
the Portfolio enters into interest rate swaps on a net basis, the net amount
of the excess, if any, of the Portfolio's obligations over its entitlements
with respect to each interest rate swap will be treated as illiquid.
PORTFOLIO TURNOVER. The Income Portfolio's turnover rates in 1994, 1993 and
1992 were 123%, 137% and 91%, respectively. The investment adviser expects
that, under normal circumstances, the Portfolio's turnover rate may be as high
as 200%. See "How the Fund Invests--Investment Objective and Policies--Other
Investments and Policies" in the Prospectus.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the outstanding voting securities of the Portfolio. A "majority of
the outstanding voting securities" of the Portfolio, when used in this
Statement of Additional Information, means the lesser of (i) 67% of the voting
shares represented at a meeting at which more than 50% of the outstanding
voting shares are present in person or represented by proxy or (ii) more than
50% of the outstanding voting shares.
The Portfolio may not:
1. Purchase securities on margin (but the Portfolio may obtain such short-
term credits as may be necessary for the clearance of transactions); provided
that the deposit or payment by the Fund of initial or variation margin in
connection with options or futures contracts is not considered the purchase of
a security on margin.
2. Make short sales of securities or maintain a short position, except short
sales "against the box".
3. Issue senior securities, borrow money or pledge its assets, except that
the Portfolio may borrow up to 20% of the value of its total assets
(calculated when the loan is made) from banks for temporary, extraordinary or
emergency purposes or for the clearance of transactions and may pledge up to
20% of the value of its total assets to secure such borrowings. The purchase
or sale of securities on a "when-issued" or delayed delivery basis, and the
purchase and sale of financial futures contracts and collateral arrangements
with respect thereto and with respect to interest rate swap transactions,
covered dollar rolls and reverse repurchase agreements, are not deemed to be a
pledge of assets and such arrangements are not deemed to be the issuance of a
senior security. The Portfolio will not purchase portfolio securities if its
borrowings exceed 5% of its net assets.
B-9
<PAGE>
4. Purchase any security (other than obligations of the U.S. Government, its
agencies and instrumentalities including municipal obligations and obligations
guaranteed as to principal and interest) if as a result: (i) with respect to
75% of its net assets, more than 5% of the Portfolio's total assets
(determined at the time of investment) would then be invested in securities of
a single issuer or (ii) 25% or more of the Portfolio's total assets
(determined at the time of investment) would be invested in one or more
issuers having their principal business activities in the same industry.
5. Purchase securities, other than obligations of the U.S. Government, its
agencies or instrumentalities, of any issuer having a record, together with
predecessors, of less than three years of continuous operations if,
immediately after such purchase, more than 5% of such Portfolio's total assets
would be invested in such securities.
6. Buy or sell real estate or interests in real estate, except that the
Portfolio may purchase and sell mortgage-backed securities, securities
collateralized by mortgages, securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly
traded securities of real estate investment trusts. The Portfolio may not
purchase interests in real estate limited partnerships which are not readily
marketable.
7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
8. Make investments for the purpose of exercising control or management.
9. Invest in securities of other registered investment companies, except by
purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 10% of its total assets (determined at
the time of investment) would be invested in such securities, or except as
part of a merger, consolidation or other acquisition.
10. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Portfolio may invest in the securities
of companies which invest in or sponsor such programs.
11. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities (limited to 30% of the value of the Portfolio's total
assets).
12. Purchase common stock or other voting securities, preferred stock,
warrants or other equity securities, except as may be permitted by restriction
number 9.
13. Buy or sell commodities or commodity contracts, except that the
Portfolio may purchase and sell financial futures contracts and options
thereon.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Portfolio's assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later
change in percentage resulting from changing total or net asset values will
not be considered a violation of such policy. However, in the event that the
Portfolio's asset coverage for borrowing falls below 300%, the Portfolio will
take prompt action to reduce its borrowings, as required by applicable law.
In order to comply with certain state "blue sky" restrictions, the Portfolio
will not as a matter of operating policy:
1. Invest in oil, gas and mineral leases or programs.
2. Purchase warrants if as a result the Portfolio would then have more than
5% of its net assets (determined at the time of investment) invested in
warrants. Warrants will be valued at the lower of cost or market and
investment in warrants which are not listed on the New York Stock Exchange or
American Stock Exchange will be limited to 2% of the Portfolio's net assets
(determined at the time of investment). For the purpose of this limitation,
warrants acquired in units or attached to securities are deemed to be without
value.
3. Purchase securities of other registered investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
4. Invest in securities of any issuer if, to the knowledge of the Portfolio,
any officer or director of the Portfolio or the Portfolio's Manager or
Subadviser owns more than 1/2 of 1% of the outstanding securities of such
issuer, and such officers and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuer.
5. Except with respect to short sales against the box, make short sales
provided that short sales will only be made in those securities that are
listed on a national securities exchange and the value of the short sales of
the securities of any one issuer shall not exceed the lesser of 2% of the
value of the Portfolio's net assets, or 2% of the securities of any one
issuer; and
6. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or securities
of issuers which are restricted as to disposition, if more than 15% of its
total assets would be invested in such securities. This restriction shall not
apply to mortgage-backed securities, asset-backed securities or obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
B-10
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE THE FUND DURING PAST 5 YEARS
- --------------------- ------------- ---------------------
<S> <C> <C>
Thomas R. Anderson (56) Director Retired. Until July 1991, Chairman, President
c/o Prudential Mutual and Chief Executive Officer of Kemper Financial
Fund Management, Inc. Companies, Inc.; Executive Vice President and
One Seaport Plaza Director of Kemper Corporation; Chairman and
New York, NY Chief Executive Officer of Kemper Financial
Services, Inc.; and Kemper Investors Life
Insurance Company. Trustee/Director of Kemper
Mutual Funds and Kemper Closed-End Funds;
Director of Hinsdale Financial Corporation,
Hinsdale Federal Bank for Savings, The Real
Exchange Corporation and Specialty Equipment
Companies, Inc.
Robert R. Fortune (78) Director Financial Consultant; Previously Chairman and
c/o Prudential Mutual Chief Executive Officer of Associated Electric
Fund Management, Inc. & Gas Insurance Services Limited and Aegis
One Seaport Plaza Insurance Services, Inc.; Director of
New York, NY Independence Square Income Securities, Inc.,
Temporary Investment Fund, Inc. and Portfolios
for Diversified Investment, Inc.; Trustee of
Trust for Short-Term Federal Securities,
Municipal Fund for Temporary Investment and The
PNC Fund; Managing General Partner of Chestnut
Street Exchange Fund.
Delayne Dedrick Director Marketing and Management Consultant.
Gold (56)
c/o Prudential Mutual
Fund Management, Inc.
One Seaport Plaza
New York, NY
*Harry A. Jacobs, Director Senior Director (since January 1986) of
Jr. (73) Prudential Securities Incorporated (Prudential
One Seaport Plaza Securities); formerly Interim Chairman and
New York, NY Chief Executive Officer of Prudential Mutual
Fund Management, Inc. (PMF) (June-September
1993), formerly Chairman of the Board of
Prudential Securities (1982-1985) and Chairman
of the Board and Chief Executive Officer of
Bache Group Inc. (1977-1982); Director of the
Center for National Policy, The First Australia
Fund, Inc., The First Australia Prime Income
Fund, Inc., The Global Government Plus Fund,
Inc. and The Global Total Return Fund, Inc.;
Trustee of The Trudeau Institute.
*Lawrence C. Mc- Director and Vice Chairman of PMF (since 1988); Managing
Quade (67) President Director, Investment Banking, Prudential
One Seaport Plaza Securities (1988-1991); Director of Czech &
New York, NY Slovak American Enterprise Fund (since October
1994), Quixote Corporation (since February
1992) and BUNZL, P.L.C. (since June 1991);
formerly Director of Crazy Eddie Inc. (1987-
1990) and Kaiser Tech., Ltd. and Kaiser
Aluminum and Chemical Corp. (March 1987-
November 1988); formerly Executive Vice
President and Director of W.R. Grace & Company;
President and Director of The Global Government
Plus Fund, Inc., The Global Total Return Fund,
Inc. and The High Yield Income Fund, Inc.
Thomas A. Owens, Director Consultant; Director of EMCORE Corporation
Jr. (72) (manufacturer of electronic materials).
c/o Prudential Mutual
Fund Management, Inc.
One Seaport Plaza
New York, NY
</TABLE>
- ---------
* "Interested" director, as defined in the Investment Company Act, by reason of
his affiliation with Prudential Securities or PMF.
B-11
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE THE FUND DURING PAST 5 YEARS
- --------------------- ------------- ---------------------
<S> <C> <C>
*Richard A. Redeker (51) Director President, Chief Executive Officer and Director
One Seaport Plaza, (since October 1993), PMF; Executive Vice
New York, NY President, Director and Member of Operating
Committee (since October 1933), Prudential
Securities; Director (since October 1993) of
Prudential Securities Group, Inc. (PSG);
Executive Vice President (since January 1994),
The Prudential Investment Corporation; Director
(since January 1994), Prudential Mutual Fund
Distributors, Inc. (PMFD) and Director (since
January 1994), Prudential Mutual Fund Services
Inc. (PMFS); Formerly Senior Executive Vice
President and Director of Kemper Financial
Services, Inc. (September 1978-September 1993);
Director of The Global Government Plus Fund,
Inc., The Global Total Return Fund, Inc. and
The High Yield Income Fund, Inc.
Merle T. Welshans (76) Director Adjunct Professor of Finance, Washington
c/o Prudential Mutual University (since July 1983); prior thereto,
Fund Management, Inc. Vice President-Finance of Union Electric
One Seaport Plaza Company; Trustee of Hotchkis and Wiley Funds.
New York, NY
Robert F. Gunia (48) Vice President Chief Administrative Officer (since July 1990),
One Seaport Plaza Director (since January 1989) and Executive
New York, NY Vice President, Treasurer and Chief Financial
Officer (since June 1987) of PMF; Senior Vice
President (since March 1987) of Prudential
Securities; Director (since March 1991), PMFD ;
Director (since June 1987), PMFS; Vice
President and Director (since May 1989) of The
Asia Pacific Fund, Inc.
S. Jane Rose (49) Secretary Senior Vice President (since January 1991),
One Seaport Plaza Senior Counsel (since June 1987) and First Vice
New York, NY President (June 1987- December 1990) of PMF;
Senior Vice President and Senior Counsel (since
July 1992) of Prudential Securities; formerly
Vice President and Associate General Counsel of
Prudential Securities.
Eugene S. Stark (37) Treasurer and First Vice President (since January 1990) of
One Seaport Plaza Principal Financial PMF.
New York, NY and Accounting
Officer
Marguerite E.H. Morri- Assistant Secretary Vice President and Associate General Counsel
son (38) (since June 1991) of PMF; Vice President and
One Seaport Plaza Associate General Counsel of Prudential
New York, NY Securities.
</TABLE>
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities or Prudential Mutual Fund Distributors, Inc.
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Fund pays each of its Directors who is not an affiliated person of PMF
annual compensation of $6,000, in addition to certain out-of-pocket expenses.
Directors may receive their Director's fee pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Director's fee which accrues interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury Bills at
the beginning of each calendar quarter or, pursuant to an SEC exemptive order,
at the daily rate of return of the Fund (the Fund Rate). Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Director. The Fund's obligation to make payments of deferred Directors'
fees, together with interest thereon, is a general obligation of the Fund.
Only Mr. Fortune defers his Director's fees with interest accruing at the Fund
Rate.
Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the
fees and expenses of all Directors of the Fund who are affiliated persons of
the Manager.
B-12
<PAGE>
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, 1994 and the aggregate compensation paid to such Directors
for service on the Fund's board and that of all other investment companies
managed by Prudential Mutual Fund Management, Inc. (Fund Complex) for the
calendar year ended December 31, 1994.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
NAME AND COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS
- -------- ------------ ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Robert R. $6,000 None N/A $ 22,000(3)**
Fortune*
Director
Delayne Dedrick 6,000 None N/A 185,000(22)**
Gold
Director
Thomas A. Owens, 6,000 None N/A 100,500(12)**
Jr.
Director
Merle T. 6,000 None N/A 22,000(3)**
Welshans
Director
</TABLE>
- -------
*All compensation from the Fund for the fiscal year ended December 31, 1994
represents deferred compensation. Aggregate compensation from the Fund and
the Fund Complex for the fiscal year ended December 31, 1994, including
accrued interest, amounted to approximately $6,000 for the Fund and $21,800
for the Fund Complex for Mr. Fortune.
**Indicates number of funds in Fund Complex to which aggregate compensation
relates.
As of February 3, 1995, the Directors and officers of the Fund, as a group,
beneficially owned less than one percent of the outstanding shares of common
stock of the Portfolio.
As of February 3, 1995, Susan Priga, 1711 N New Street Bethlehem, PA, Wayne
M. Hausman, 550 Battery #2016, San Francisco, CA, Irrevocable Trust of Doris
H D U/A DTD 8-3-93, John L. Hughes Trustee, FBO Doris H. Downen, PO Box 54,
Crossville, IL, and John Davidson TTEE Network Telesystems Inc. 401 K, 3990
Freedom Circle, Santa Clara, CA, were the beneficial owners of 6%, 5%, 22% and
7%, respectively of the Fund's outstanding Class C shares of common stock.
As of February 3, 1995, Prudential Securities was record holder for other
beneficial owners of 6,576,480 Class A shares (77% of the outstanding Class A
shares), 8,166,713 Class B shares (71% of the outstanding Class B shares) and
18,097 Class C shares (or 45% of the outstanding Class C shares) of the
Portfolio. In the event of any meetings of shareholders, Prudential Securities
will forward, or cause the forwarding of, proxy material to the beneficial
owners for which it is the record owner.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as
manager to all of the other investment companies that, together with the Fund,
comprise the Prudential Mutual Funds. See "How the Fund is Managed--Manager"
in the Prospectus. As of January 31, 1995, PMF managed and/or administered
open-end and closed-end management investment companies with assets of
approximately $45 billion. According to the Investment Company Institute, as
of August 31, 1994, the Prudential Mutual Funds were the 12th largest family
of mutual funds in the United States.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities. In
connection therewith, PMF is obligated to keep certain books and records of
the Fund. PMF also administers the Fund's corporate affairs and, in connection
therewith, furnishes the Fund with office facilities, together with those
ordinary clerical and bookkeeping services which are not being furnished by
State Street Bank and Trust Company, the Fund's custodian, and Prudential
Mutual Fund Services, Inc. (PMFS or the Transfer Agent), the Fund's transfer
and dividend disbursing agent. The management services of PMF for the Fund are
not exclusive under the terms of the Management Agreement and PMF is free to,
and does, render management services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .40 of 1% of the average daily net assets of the
Portfolio. The fee is computed daily and payable monthly. The Management
Agreement also provides that, in the event the expenses of the Portfolio
(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 Portfolio's shares are qualified for offer and
sale, the compensation due to PMF will be reduced by the amount of such
excess. Reductions in excess of the total compensation payable to PMF will be
paid by PMF to the
B-13
<PAGE>
Portfolio. No such reductions were required during the fiscal year ended
December 31, 1994. Currently, the Fund believes that the most restrictive
expense limitation of state securities commissions is 2 1/2% of the
Portfolio's average daily net assets up to $30 million, 2% of the next $70
million of such assets and 1 1/2% of such assets in excess of $100 million.
In connection with its management of the corporate 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 Directors who are not affiliated persons of PMF or
the Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the
Fund as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation
(PIC) pursuant to the subadvisory agreement between PMF and PIC (the
Subadvisory Agreement).
Under the terms of the Management Agreement, the Portfolio 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 of the Fund's investment adviser, (c) the fees and certain
expenses of the Custodian and Transfer and Dividend Disbursing Agent,
including the cost of providing records to the Manager in connection with its
obligation of maintaining required records of the Portfolio and of pricing the
Portfolio'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 Portfolio in connection with its
securities transactions, (f) all taxes and corporate fees payable by the
Portfolio 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 Portfolio, (i) the cost of fidelity and liability
insurance, (j) the fees and expenses involved in registering and maintaining
registration of the Portfolio and of its shares with the SEC, registering the
Portfolio 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 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 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 June 1, 1994 and by shareholders of the
Portfolio on April 25, 1990.
For the fiscal years ended December 31, 1994 and 1993, PMF received
management fees of $967,204 and $736,171, respectively, for the Portfolio. For
the fiscal year ended December 31, 1992, PMF received a management fee of
$280,988, net of waiver of $152,065, for the Portfolio. The Portfolio is not
required to reimburse PMF for such fee waiver and subsidy.
Without the effect of the management and distribution fee waivers and/or
expense subsidies, per share expenses for the Class A shares of the Portfolio
would have been $.10 for the year ended December 31, 1992. Expenses of the
Class A shares of the Portfolio, including distribution fees, would have been
.83% of the Portfolio's average daily net assets for the year ended December
31, 1992. Expenses of the Class A shares of the Portfolio, excluding
distribution fees, would have been .73%, of the Portfolio's average daily net
assets for the year ended December 31, 1992.
PMF has entered into the Subadvisory Agreement with PIC (the Subadviser).
The Subadvisory Agreement provides that PIC will furnish investment advisory
services in connection with the management of the Fund. In connection
therewith, PIC is obligated to keep certain books and records of the
Portfolio. PMF continues to have responsibility for all investment advisory
services pursuant to the Management Agreement and supervises PIC's performance
of such services. PIC is reimbursed by PMF for the reasonable costs and
expenses incurred by PIC in furnishing those services.
The Subadvisory Agreement was last approved by the Board of Directors,
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 June 1, 1994 and by shareholders of the Portfolio on April 25, 1990.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days', nor less than
30 days', written notice. The Subadvisory Agreement provides that it will
continue in effect for a period of more than two years from its execution only
so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act.
B-14
<PAGE>
The Manager and the Subadviser are subsidiaries of The Prudential Insurance
Company of America (Prudential) which, as of December 31, 1994, is one of the
largest financial institutions in the world and the largest insurance company
in North America. Prudential has been engaged in the insurance business since
1875. In July 1994, Institutional Investor ranked Prudential the second
largest institutional money manager of the 300 largest money management
organizations in the United States as of December 31, 1993.
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the
Portfolio. Prudential Securities Incorporated (Prudential Securities or PSI),
One Seaport Plaza, New York, New York 10292 (Prudential Securities), acts as
the distributor of the Class B and Class C shares of the Portfolio.
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
Portfolio under Rule 12b-1 under the Investment Company Act and separate
distribution agreements (the Distribution Agreements), PMFD and Prudential
Securities (collectively, the Distributor) incur the expenses of distributing
the Portfolio's Class A, Class B and Class C shares. See "How the Fund is
Managed--Distributor" in the Prospectus.
On June 7, 1989 and September 13, 1989, 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 meetings called for the purpose of voting on each Plan,
approved an amended and restated plan of distribution of the Class A shares of
the Fund (the Class A Plan) and a plan of distribution for the Class B shares
of the Fund (the Class B Plan). The Class A Plan was last approved by
shareholders of the Fund on April 25, 1990. On September 9, 1992, the Board of
Directors reauthorized the categorization of the shares of the Fund as Class A
shares and the implementation of the Class B Plan. The Board of Directors
reapproved the Class B Plan as restated on September 9, 1992 and the Class B
Plan was approved by the sole holder of Class B shares on September 30, 1992.
On June 9, 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,
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 provided that (i) up to .10 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 .10 of 1%) may not
exceed .10 of 1%. As so modified, the Class B Plan provides that (i) up to .25
of 1% of the average daily net assets of the Class B shares may be paid as a
service fee and (ii) up to .75 of 1% (not including the service fee) may be
used as reimbursement for distribution-related expenses with respect to the
Class B shares (asset-based sales charge). The Distributor has agreed to limit
the distribution fee with respect to the Class B shares to no more than .75 of
1% (including the service fee of .10 of 1%) for the fiscal year ending
December 31, 1995. On July 15, 1993, the Board of Directors authorized the
creation of the Municipal Income Portfolio and reclassified the Fund's
existing shares as shares of the Income Portfolio.
On May 3, 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 Portfolio and
approved further amendments to the plans of distribution for the Portfolio's
Class A and Class B shares, changing them from reimbursement type plans to
compensation type plans. In addition, on March 4, 1994, the Board of Directors
approved, subject to shareholder approval, amendments to the Class A Plan for
the Portfolio to increase the distribution fee. As so amended, 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 as a service fee and (ii) total distribution fees
(including the service fee of .25 of 1%) may not exceed .30 of 1%. The
Distributor has agreed to limit the distribution fee with respect to Class A
shares to .10 of 1% for the fiscal year ending December 31, 1995. The Plans
were last approved by the Directors, including a majority of the Rule 12b-1
Directors, on June 1, 1994. The Class A Plan, as amended, was approved by
Class A and Class B shareholders, and the Class B Plan, as amended, was
approved by Class B shareholders, on July 19, 1994. The Class C Plan was
approved by the sole shareholder of Class C shares on August 1, 1994.
CLASS A PLAN. For the year ended December 31, 1994, PMFD received payments
of $106,737 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. For the fiscal year ended December 31, 1994, PMFD
received approximately $342,000 in initial sales charges.
CLASS B PLAN. For the fiscal year ended December 31, 1994, Prudential
Securities received $1,089,616 from the Fund under the Class B Plan and spent
approximately $853,200 in distributing the Class B shares of the Portfolio. It
is estimated that of the latter amount approximately 43.4% ($370,400) was
spent on compensation to Pruco Securities Corporation (Pru Sec), an affiliated
broker-dealer, for commissions to its representatives and other expenses,
including an allocation on account of overhead and other branch office
distribution-related expenses, incurred by it for distribution of the
Portfolio's shares; approximately 4.6% ($39,400) on prospectus and other
printing costs; approximately 6.3% ($53,400) on interest and/or carrying costs
and 45.7% ($390,000) on the aggregate of (i) payments of commissions and
account servicing fees to financial advisers 13.4% ($114,700) and (ii) an
allocation on account of overhead and other branch office distribution-related
expenses 32.3% ($275,300). The term "overhead and other branch
B-15
<PAGE>
office distribution-related expenses" represents (a) the expenses of operating
Prudential Securities' branch offices in connection with the sale of shares of
the Portfolio, 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 shares of the Portfolio, 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 investors upon certain redemptions of Class B shares.
See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus. For the fiscal year ended December 31, 1994,
Prudential Securities received approximately $427,000 in contingent deferred
sales charges.
CLASS C PLAN. For the period August 1, 1994 (inception of Class C shares)
through December 31, 1994, Prudential Securities received $596 under the Class
C Plan and spent approximately $1,300 in distributing Class C shares. It is
estimated that the latter amount was spent on (i) payments of commissions and
account servicing fees to financial advisers (53.8% or $700) and (ii) an
allocation of overhead and other branch office distribution-related expenses
for payments of related expenses (46.2% or $600). 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.
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 be terminated at any time, without penalty, by the
vote of a majority of the Rule 12b-1 Directors or by the vote of the holders
of a majority of the outstanding shares of the applicable class ofthe
Portfolio 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 assignment. The Fund will not be contractually obligated to pay
expenses incurred under any Plan if it is terminated or not continued.
Pursuant to each Plan, the 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 Portfolios 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 each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law
against certain liabilities under the Securities Act of 1933, as amended. Each
Distribution Agreement was last approved by the Board of Directors, including
a majority of the Rule 12b-1 Directors, on June 1, 1994.
NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred
sales charges and asset-based sales charges to 6.25% of total gross sales of
each class of shares of the Portfolio. 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 Portfolio may not exceed .75
of 1% per class. The 6.25% limitation applies to each class of the Portfolio
rather than on a per shareholder basis. If aggregate sales charges were to
exceed 6.25% of total gross sales of any class of the Portfolio, all sales
charges on shares of that class would be suspended.
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 settling the
above referenced matters, PSI neither admitted nor denied the allegations
asserted against it.
B-16
<PAGE>
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 3,
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. (PSG) 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.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions, if any. For purposes of this section,
the term "Manager" includes the Subadviser. The Fund does not normally incur
any brokerage commission expense on such transactions. The instruments
purchased by the Fund 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 may be purchased directly from an issuer, in which case no
commissions or discounts are paid. 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 the rules of the SEC. This limitation, in the opinion of the Fund, will
not significantly affect the Portfolio's ability to pursue its present
investment objective. However, in the future in other circumstances, the
Portfolio may be at a disadvantage because of this limitation in comparison to
other funds with similar objectives but not subject to such limitations.
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 under 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 may consider research and investment services provided by brokers or
dealers 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 furnishing
such services may be selected for the execution of transactions for such other
accounts, whose aggregate assets are far larger than the Fund's, and the
services furnished by such brokers may be used by the Manager in providing
investment management for the Fund. While such services are useful and
important in supplementing its own research and facilities, the Manager
believes that the value of such services is not determinable and does not
significantly reduce expenses. The Fund does not reduce the advisory fee it
pays to the Manager by any amount that may be attributed to the value of such
services.
Subject to the above considerations, Prudential Securities may act as a
securities broker for the Fund. In order for Prudential Securities (or any
affiliate) to effect any portfolio transactions for the Fund, the commissions,
fees or other remuneration received by Prudential Securities (or any
affiliate) must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold 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 in a commensurate arm's-
length transaction. Furthermore, the Board of Directors
B-17
<PAGE>
of the Fund, including a majority of the non-interested Directors, has 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. Brokerage transactions with Prudential
Securities are also subject to such fiduciary standards as may be imposed by
applicable law. For the fiscal years ended December 31, 1994, 1993 and 1992,
the Fund paid no brokerage commissions.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Portfolio may be purchased at a price equal to the next
determined net asset value per share plus a sales charge which, at the
election of the investor, may be imposed either (i) at the time of purchase
(Class A shares) or (ii) on a deferred basis (Class B or Class C shares) See
"Shareholder Guide--How to Buy Shares of the Fund" in the Prospectus.
Each class of shares represents an interest in the same portfolio of
investments of the Portfolio and has the same rights, except that (i) each
class bears the separate expenses of its Rule 12b-1 distribution and service
plan, (ii) each class has exclusive voting rights with respect to its plan
(except that the Fund has agreed with the SEC in connection with the offering
of a conversion feature on Class B shares to submit any amendment of the Class
A distribution and service plan to both Class A and Class B shareholders) and
(iii) only Class B shares have a conversion feature. See "Distributor." Each
class also has separate exchange privileges. See "Shareholder Investment
Account--Exchange Privilege."
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
3.25% and Class B* and Class C* shares of the Fund are sold at net asset
value. Using the Portfolio's net asset value at December 31, 1994, the maximum
offering price of the Portfolio's shares is as follows:
<TABLE>
<CAPTION>
Income
Portfolio
CLASS A ---------
<S> <C>
Net asset value and redemption price per Class A share......... $10.97
Maximum sales charge (3.25% of offering price)................. .37
------
Maximum offering price to public............................... $11.34
======
CLASS B
Net asset value, offering price and redemption price per Class
B share*...................................................... $10.97
======
CLASS C
Net asset value, offering price and redemption price per Class
C share*...................................................... $10.97
======
</TABLE>
---------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions.
See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred
Sales Charges" in the Prospectus.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Portfolio
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases. See the table of breakpoints under
"Shareholder Guide--Alternative Purchase Plan" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group
that holds 25% or more of the outstanding voting securities of a
company will be deemed to control the company, and a partnership will
be deemed to be controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related investors in the Portfolio may
include an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed related
to that employer).
B-18
<PAGE>
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 the
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 value of the reduced sales charge. All
shares must be held either directly with the Transfer Agent or through
Prudential Securities. The value of existing holdings for purposes of
determining the reduced sales charge is calculated using the maximum offering
price (net asset value plus maximum sales charge) as of the previous business
day. See "How the Fund Values Its Shares" in the Prospectus. The Distributor
must be notified at the time of purchase that the investor is entitled to a
reduced sales charge. The reduced sales charges will be granted subject to
confirmation of the investor's holdings. Rights of Accumulation are not
available to individual participants in any retirement or group plans.
LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors) including retirement and group plans, who
enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of the Fund and shares of other Prudential
Mutual Funds. 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 value of the reduced sales charge. All
shares must be held either directly with the Transfer Agent or through
Prudential Securities. The Distributor must be notified at the time of
purchase that the investor is entitled to a reduced sales charge. The reduced
sales charges will be granted subject to confirmation of the investors
holdings. Letters of Intent are not available to individual participants in
any retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter of Intent will be held by the Transfer Agent in the name of the
purchaser, 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 a Letter of Intent may be back-dated up to 90 days, in
order that any investments made during this 90-day period, valued at the
purchaser's cost, can be applied to the fulfillment of the Letter of Intent
goal, except in the case of retirement and group plans.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser (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. Investors electing to purchase Class A shares of the Fund pursuant
to a Letter of Intent should carefully read such Letter of Intent.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
The contingent deferred sales charge is waived under circumstances described
in the Prospectus. See "Shareholder Guide--How to Sell Your Shares--Waiver of
the Contingent Deferred Sales Charges--Class B Shares" in the Prospectus. In
connection with these waivers, the Transfer Agent will require you to submit
the supporting documentation set forth below.
<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
- ------------------ ----------------------
<S> <C>
Death A copy of the shareholder's death certificate or, in
the case of a trust, a copy of the grantor's death
certificate, plus a copy of the trust agreement
identifying the grantor.
Disability--An individual A copy of the Social Security Administration award
will be considered letter or a letter from a physician on the physician's
disabled if he or she is letterhead stating that the shareholder (or, in the
unable to engage in any case of a trust, the grantor) is permanently disabled.
substantial gainful The letter must also indicate the date of disability.
activity by reason of any
medically determinable
physical or mental
impairment which can be
expected to result in
death or to be of long-
continued and indefinite
duration.
</TABLE>
B-19
<PAGE>
<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
- ------------------ ----------------------
<S> <C>
Distribution from an IRA A copy of the distribution form from the custodial firm
or 403(b) Custodial indicating (i) the date of birth of the shareholder and
Account (ii) that the shareholder is over age 59 1/2 and is
taking a normal distribution--signed by the
shareholder.
Distribution from A letter signed by the plan administrator/trustee
Retirement Plan indicating the reason for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or the plan
administrator/trustee on company letterhead indicating
the amount of the excess and whether or not taxes have
been paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO AUGUST 1, 1994
While a quantity discount is not available for Class B shares of the
Portfolio, a quantity discount may apply with respect to Class B shares
exchanged from another Prudential Mutual Fund. The contingent deferred sales
charge may be reduced on redemptions of Class B shares of the Portfolio if the
investor qualified for a quantity discount upon the initial purchase of shares
exchanged into the Portfolio.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Portfolio, a Shareholder
Investment Account is established for each investor under which 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 Portfolio. An
investor may direct the Transfer Agent in writing not less than five full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payment will be made directly to the dealer. Any
shareholder who receives a cash payment representing a dividend or
distribution may reinvest such dividend or 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 Portfolio makes available to its shareholders the privilege of
exchanging their shares of the Portfolio 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 other Prudential Mutual Funds may also be exchanged for shares of
the Portfolio. All exchanges are made on the basis of relative net asset value
next determined after receipt of an order in proper form. An exchange will be
treated as a redemption and purchase for tax purposes. Shares may be exchanged
for shares of another fund only if shares of such fund may legally be sold
under applicable state laws. For retirement and group plans having a limited
menu of Prudential Mutual Funds, the Exchange Privilege is available for those
funds eligible for investment in the particular program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of the Portfolio may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Intermediate Term Series) and shares of the money
market funds specified below. No fee or sales load will be imposed upon the
exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the Exchange Privilege only to acquire
Class A shares of the Prudential Mutual Funds participating in the Exchange
Privilege.
B-20
<PAGE>
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund
CLASS B AND CLASS C. Shareholders of the Portfolio may exchange their Class
B and Class C shares for Class B and Class C shares, respectively, of certain
other Prudential Mutual Funds and shares of Prudential Special Money Market
Fund, Inc., a money market fund. No contingent deferred sales charge will 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 the initial purchase, rather than the date of the exchange.
Class B and Class C shares of the Portfolio may also be exchanged for shares
of Prudential Special 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 Portfolio from a money market
fund during the month (and are held in the Portfolio at the end of month), the
entire month will be included in the CDSC holding period. Conversely, if
shares are exchanged into a money market fund prior to the last day of the
month (and are held in the money market fund on the last day of the month),
the entire month will be excluded from the CDSC holding period. 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 Portfolio, respectively, without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares of other funds, respectively, without
being subject to any CDSC.
Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the
Fund, or the Distributor, has the right to reject any exchange application
relating to such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more
shares when the price is low and fewer shares when the price is high. The
average cost per share is lower than it would be if a constant number of
shares were bought at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $4,800 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected,
B-21
<PAGE>
for the freshman class of 2007, the cost of four years at a private college
could reach $163,000 and over $97,000 at a public university./1/
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals./2/
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS $100,000 $150,000 $200,000 $250,000
------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years............................ $ 110 $ 165 $ 220 $ 275
20 Years............................ 176 264 352 440
15 Years............................ 296 444 592 740
10 Years............................ 555 833 1,110 1,388
5 Years............................ 1,371 2,057 2,742 3,428
</TABLE>
See "Automatic Savings Accumulation Plan."
- ---------
/1/Source information concerning the costs of education at public
universities is available from The College Board Annual Survey of Colleges,
1992. Information about the costs of private colleges is from the Digest of
Education Statistics, 1992; The National Center for Educational Statistics;
and the U.S. Department of Education. Average costs for private institutions
include tuition, fees, room and board.
/2/The chart assumes an average 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
Portfolio. The investment return and principal value of an investment will
fluctuate so that an investor's shares when redeemed may be worth more or less
than their original cost.
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in the shares of the Portfolio monthly by authorizing his or her bank
account or Prudential Securities account (including a Command Account) to be
debited to invest specified dollar amounts in shares of the Fund. The
investor's bank must be a member of the Automatic Clearing House System. Stock
certificates are not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available for 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 generally 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 generally 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 if used in
connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS
Various tax-deferred retirement plans, including a 401(k) plan, self-
directed individual retirement accounts and "tax sheltered accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, the administration, custodial fees and other
details are available from Prudential Securities or the Transfer Agent.
B-22
<PAGE>
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account
until the earnings are withdrawn. The following chart represents a comparison
of the earnings in a personal savings account with those in an IRA, assuming a
$2,000 annual contribution, an 8% rate of return and a 39.6% federal income
tax bracket and shows how much more retirement income can accumulate within an
IRA as opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING/1/
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
------------- -------- --------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
- -------
/1/ The chart is for illustrative purposes only and does not represent the
performance of the Portfolio or any specific investment. It shows taxable
versus tax-deferred compounding for the periods and on the terms indicated.
Earnings in the IRA account will be subject to tax when withdrawn from the
account.
NET ASSET VALUE
The net asset value per share is the net worth of the Portfolio (assets,
including securities at value, minus liabilities) divided by the number of
shares outstanding. The net asset value is calculated separately for each
class of the Portfolio.
Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
each U.S. Government and corporate security of the Portfolio for which
quotations are available will be based on the valuation provided by an
independent pricing service. Pricing services consider such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at securities valuations. Futures
contracts are valued daily at 4:15 P.M., New York time, at market quotations
provided by the Chicago Board of Trade.
Securities for which market quotations are not readily available are valued
at fair value as determined in good faith under procedures established by the
Fund's Board of Directors. Short-term securities which mature in more than 60
days are valued at current market quotations. Short-term securities which
mature in 60 days or less are valued at amortized cost if their original term
to maturity from the date of purchase was 60 days or less, or by amortizing
their value on the 61st day prior to maturity, if their original term to
maturity from the date of purchase exceeded 60 days, unless this valuation is
determined not to represent fair value by the Board of Directors.
The Portfolio will compute its net asset value once daily on days that the
New York Stock Exchange is open for trading except on days on which no orders
to purchase, sell or redeem shares have been received by the Fund or days on
which changes in the value of the Fund's portfolio securities do not affect
the net asset value. The New York Stock Exchange is closed on the following
holidays; New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
As long as the Portfolio declares dividends daily, the net asset value of
the Class A, Class B and Class C shares of the Portfolio will generally be the
same. It is expected, however, that the dividends will differ by approximately
the amount of the distribution-related expense differential between the
classes.
DIVIDENDS AND DISTRIBUTIONS
The Portfolio declares dividends daily based on actual net investment income
determined in accordance with generally accepted accounting principles. Such
dividends will be payable monthly. The Portfolio's 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. Dividends and distributions will be paid in
additional Class A, Class B or Class C shares of the Portfolio based on net
asset value on the payment date or such other date as the Board of Directors
may determine, unless the shareholder elects in writing not less than five full
business days prior to the payment date to receive such distributions in cash.
In the event that a
B-23
<PAGE>
shareholder's shares are redeemed on a date other than the monthly dividend
payment date, the proceeds of such redemption will equal the net asset value
of the shares redeemed plus the amount of all dividends declared through the
date of redemption.
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the higher distribution
fee applicable to the Class B and Class C shares. The per share distributions
of net capital gains, if any, will be paid in the same amount for Class A,
Class B and Class C shares. See "Net Asset Value."
TAXES
GENERAL
The Portfolio has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
This relieves the Portfolio (but not its shareholders) from paying federal
income tax on income which is distributed to shareholders, provided that it
distributes at least 90% of its net investment income and short-term capital
gains, and permits net capital gains of the Portfolio (i.e., the excess of net
long-term capital gains over net short-term capital losses) to be treated as
long-term capital gains of the shareholders, regardless of how long
shareholders have held their shares in the Portfolio.
Qualification as a regulated investment company will be determined at the
level of the Portfolio and not at the level of the Fund. Accordingly, the
determination of whether the Portfolio qualifies as a regulated investment
company will be based on the activities of the Portfolio, including the
purchases and sales of securities and the income received and expenses
incurred in the Portfolio. Net capital gains of the Portfolio which are
available for distribution to shareholders will be computed by taking into
account any capital loss carryforward of such Portfolio.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Portfolio's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans
and gains from the sale or other disposition of securities, options thereon,
futures contracts, options thereon, forward contracts and foreign currencies;
(b) the Portfolio derives less than 30% of its gross income from gains
(without reduction for losses) from the sale or other disposition of
securities, options thereon, futures contracts, options thereon, forward
contracts and foreign currencies held for less than three months; and (c) the
Portfolio diversifies its holdings so that, at the end of each quarter of the
taxable year, (i) at least 50% of the market value of the Portfolio's assets
is represented by cash, U.S. Government obligations and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Portfolio's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in
the securities of any one issuer (other than U.S. Government obligations).
Gains or losses on sales of securities by the Portfolio will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year, except in certain cases where the Portfolio acquires a put
or writes a call thereon or otherwise holds an offsetting position with
respect to the securities. Other gains or losses on the sale of securities
will be short-term capital gains or losses. Debt securities acquired by the
Portfolio may be subject to original issue discount and market discount rules.
Special rules will apply to futures contracts and options thereon in which
the Portfolio invests. See "Investment Objective and Policies." These
investments will generally constitute "Section 1256 contracts" and will be
required to be "marked to market" for federal income tax purposes at the end
of the Portfolio's taxable year; that is, treated as having been sold at
market value. Sixty percent of any gain or loss recognized on such "deemed
sales" and on actual dispositions will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss.
The Portfolio's hedging activities may be affected by the requirement under
the Internal Revenue Code that no more than 30% of the Portfolio's income be
derived from securities, futures contracts and other instruments held for less
than three months. From time to time, this requirement may cause the Portfolio
to limit its acquisitions of futures contracts to those that will not expire
for at least three months. For example, at the present time, there is only a
limited market for futures contracts on the municipal bond index that will not
expire within three months.
The Portfolio is subject to a nondeductible 4% excise tax if it does not
distribute 98% of its ordinary income on a calendar year basis and 98% of its
capital gains on an October 31 year-end basis. Each Portfolio intends to
distribute its income and capital gains in the manner necessary to avoid
imposition of the 4% excise tax. Dividends and distributions generally are
taxable to shareholders in the year in which they are received or accrued;
however, dividends declared in October, November and December payable to
shareholders of record on a specified date in October, November and December
and paid in the following January may be treated as having been paid by the
Portfolio and received by shareholders in such prior year. Under this rule, a
shareholder may be taxed in one year on dividends or distributions actually
received in January of the following year.
Any loss realized on a sale, redemption or exchange of shares of the
Portfolio 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.
B-24
<PAGE>
A shareholder who acquires shares of the Portfolio 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
Portfolio.
Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share net asset value of the
investor's shares by the per share amount of the dividends or distributions.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to federal income taxes. Therefore, prior to purchasing
shares of the Portfolio, the investor should carefully consider the impact of
dividends or capital gains distributions which are expected to be or have been
announced.
Distributions may be subject to additional state and local taxes. See
"Taxes, Dividends and Distributions" in the Prospectus.
If any net long-term capital gains in excess of net short-term capital
losses are retained by the Portfolio for investment, requiring federal income
taxes to be paid thereon by the Portfolio, the Portfolio will elect to treat
these capital gains as having been distributed to shareholders. As a result,
these amounts will be taxed to shareholders as long-term capital gains, and
shareholders will be able to claim their proportionate share of the federal
income taxes paid by the Portfolio on the gains as a credit against their own
federal income tax liabilities and will be entitled to increase the adjusted
tax basis of their shares in the Portfolio by the difference between their pro
rata share of such gains and their tax credit.
Under federal income tax law, the Portfolio will be required to report to
the Internal Revenue Service all distributions of taxable income and capital
gains as well as gross proceeds from the redemption or exchange of shares of
the Portfolio, except in the case of certain exempt shareholders. Further, all
such distributions and proceeds from the redemption or exchange of shares may
be subject to withholding of federal income tax at the rate of 31% in the case
of nonexempt shareholders who fail to furnish the Fund with their taxpayer
identification numbers on IRS Form W-9 and with required certifications
regarding their status under the federal income tax law. If the withholding
provisions are applicable, any such distributions and proceeds, whether taken
in cash or reinvested in shares, will be reduced by the amounts required to be
withheld. Investors may wish to consult their tax advisers about the
applicability of the backup withholding provisions.
Distributions of net investment income and net realized capital gains will
be taxable as described below, whether made in shares or in cash. Shareholders
electing to receive distributions in the form of additional shares will have a
cost basis for federal income tax purposes in each share so received equal to
the net asset value of a share of the Portfolio on the distribution date. All
distributions of taxable net investment income and net realized capital gains,
whether received in shares or cash, must be reported by each shareholder on
his or her federal income tax return.
Distributions to shareholders of the Portfolio of net investment income and
of the excess of net short-term capital gains over net long-term capital
losses will be taxable to the shareholder at ordinary income rates regardless
of whether the shareholder receives such distributions in additional shares or
cash.
Distributions of net capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses), if any, are taxable as
long-term capital gains regardless of how long the investor has held his or
her shares. However, if a shareholder holds shares in the Portfolio 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. Shareholders will be
notified annually by the Portfolio as to the federal tax status of
distributions made by the Portfolio.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Portfolio may from time to time advertise
its average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See "How the Fund
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T)to the power of n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year periods (or
fractional portion thereof) of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods.
B-25
<PAGE>
Average annual return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal
or state income taxes that may be payable upon redemption.
The average annual total return for Class A shares of the Portfolio for the
one year and since inception (January 22, 1990) periods ended December 31,
1994 was -4.37% and 6.53%, respectively. Without expense subsidies and the
management fee waiver, the average annual total return for these periods would
have been -4.37% and 6.49%, respectively. The average annual total return with
respect to the Class B shares of the Portfolio for the one year and since
inception periods ended December 31, 1994 was -4.83% and 1.83%. The average
annual total return for Class C shares for the period since inception (August
1, 1994) through December 31, 1994 was -1.68%.
AGGREGATE TOTAL RETURN. The Portfolio may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B
and Class C shares. See "How the Fund Calculates Performance" in the
Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Portfolio and is computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value at the end of the 1, 5, or 10 year
periods (or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The aggregate total return for Class A shares of the Portfolio for the one
year and since inception periods ended December 31, 1994 was -1.16%,and
44.76%, respectively. The aggregate total return for Class B shares of the
Portfolio for the one year and since inception periods ended December 31, 1994
was -1.83% and 4.80%, respectively. The aggregate total return for Class C
shares for the period since inception (August 1, 1994) through December 31,
1994 was -0.68%.
YIELD. The Portfolio may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B and
Class C shares. This yield will be computed by dividing the Portfolio's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
a - b
YIELD = 2[(------- +1) to the power of 6 -1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Portfolio will actually yield for
any given period.
The yield for the 30-day period ended December 31, 1994 for the Portfolio's
Class A, Class B and Class C shares was 6.76%, 6.30% and 6.30%, respectively.
B-26
<PAGE>
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of
inflation./1/
(ART)
/1/Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1993
Yearbook", (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Common stock returns are based on the Standard & Poor's 500
Stock Index, a market-weighted, unmanaged index of 500 common stocks in a
variety of industry sectors. It is a commonly used indicator of broad stock
price movements. This chart is for illustrative purposes only, and is not
intended to represent the performance of any particular investment or fund.
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. See "How the Fund is
Managed--Custodian and Transfer and Dividend Disbursing Agent" in the
Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the
Fund. It 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, payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee per
shareholder account, a new account set up fee for each manually established
account and a monthly inactive zero balance account fee per shareholder
account. PMFS is also reimbursed for its out-of-pocket expenses, including but
not limited to postage, stationery, printing, allocable communications
expenses and other costs. For the year ended December 31, 1994, the Portfolio
of the Fund incurred fees of approximately $251,000 for the services of PMFS.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281,
serves as the Fund's independent accountants and in that capacity audits the
Fund's annual financial statements.
B-27
<PAGE>
Commentary on Presentation of Portfolio of Investments:
The Portfolio of Investments, following hereto, is presented in a ``laddered''
maturity structure. The Income Portfolio invests in investment grade corporate
debt securities and in obligations of the U.S. Government, its agencies and
instrumentalities with maturities of six years or less. These securities are
categorized within six annual maturity categories.
- --------------------------------------------------------------------------------
PRUDENTIAL STRUCTURED MATURITY FUND Portfolio of Investments
INCOME PORTFOLIO December 31, 1994
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
5-6 YEARS--15.8%
EQCC Home Equity Loan
Trust
(Asset Backed)
(Average Life 5.6
Years)
Aaa $ 3,000 7.85%, 6/15/07.......... $ 2,941,875
Sovereign Bancorp Inc.
(Banking)
BB+* 3,000 6.75%, 9/1/00........... 2,678,700
United States Treasury
Note
28,600 8.50%, 2/15/00.......... 29,381,924
------------
35,002,499
------------
4-5 YEARS--16.5%
Columbia Republic
(Foreign Government)
Ba1 2,000 8.75%, 10/6/99.......... 1,907,500
Crane Co.
(Industrial Services)
Baa3 3,000 7.25%, 6/15/99.......... 2,842,020
Enterprise Rent A Car
(Industrial Services)
Baa3 2,000 8.75%, 12/15/99......... 1,996,995
Federal Express Corp.
(Consumer Services)
Baa3 1,000 10.05%, 6/15/99......... 1,042,110
General Motors
Acceptance Corp.
(Financial Services)
Baa1 1,700 8.40%, 10/15/99......... 1,699,303
Great Lakes Power Inc.
(Utilities)
Baa3 1,500 8.90%, 12/1/99.......... 1,497,926
Korea Development Bank
(Banking)
A1 1,200 8.09%, 10/1/99.......... 1,156,800
Penske Truck Leasing Co.
(Industrial Services)
Baa3 2,000 7.75%, 5/15/99.......... 1,934,520
South Africa Republic
(Foreign Government)
Baa3 $ 3,000 9.625%, 12/15/99........ $ 2,910,000
United States Treasury
Note
21,900 5.00%, 1/31/99.......... 19,747,668
------------
36,734,842
------------
3-4 YEARS--16.5%
Aristar, Inc.
(Financial Services)
A3 2,000 5.75%, 7/15/98.......... 1,837,600
Associates Corp. of
North America
(Consumer Finance)
A1 200 8.375%, 1/15/98......... 199,998
Bank One Credit Card
Trust
(Asset Backed)
(Average Life 3.0
years)
A2 2,000 7.75%, 12/15/99......... 1,975,000
Carnival Cruise Lines,
Inc.
(Leisure)
A3 2,500 5.75%, 3/15/98.......... 2,305,675
Countrywide Funding
Corp.
(Financial Services)
A3 3,000 6.88%, 8/3/98........... 2,858,280
Federal Home Loan
Mortgage Corp.
(Average Life 3.3
Years)
7,842 7.50%, 6/1/01........... 7,604,546
Federal National
Mortgage
Association
(Average Life 3.6
Years)
2,737 11.00%, 11/1/20......... 2,954,741
First Union Corp.
(Banking)
A2 2,000 6.75%, 1/15/98.......... 1,906,760
Ford Motor Credit Co.
(Consumer Finance)
A2 2,000 6.25%, 2/26/98.......... 1,884,060
</TABLE>
B-28 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
3-4 YEARS (cont'd.)
Goldman Sachs Group,
L.P.
(Financial Services)
A1 $ 1,500 6.10%, 4/15/98.......... $ 1,392,735
Hospitality Franchise
Systems, Inc.
(Industrial Services)
Baa3 2,000 5.875%, 12/15/98........ 1,820,560
MBNA America Bank N A
(Financial Services)
A2 3,000 7.30%, 8/17/98.......... 2,908,380
NationsBank Corp.
(Financial Services)
A2 1,500 6.625%, 1/15/98......... 1,429,605
Southern California
Edison Co.
(Utilities)
A1 2,000 5.875%, 2/1/98.......... 1,858,500
Texas Utilities Electric
Co.
(Utilities)
Baa2 3,000 5.875%, 4/1/98.......... 2,777,190
United States Treasury
Note
1,000 5.125%, 3/31/98......... 923,440
------------
36,637,070
------------
2-3 YEARS--16.3%
Banco Ganadero S.A.
(Foreign Government)
NR 3,000 9.75%, 8/26/97.......... 2,910,000
Comdisco, Inc.
(Leasing)
Baa2 1,500 9.75%, 1/15/97.......... 1,532,295
General Motors
Acceptance Corp.
(Financial Services)
Baa1 2,000 7.50%, 11/4/97.......... 1,946,940
Green Tree Financial
Corp.
(Asset Backed)
(Average Life 2.0
Years)
NR 3,516 7.85%, 7/15/04.......... 3,449,771
Greyhound Financial
Corp.
(Industrial Finance)
Baa2 2,100 9.67%, 7/1/97........... 2,152,920
International Bank for
Reconstruction &
Development
(Financial Services)
Aaa $ 1,000 9.61%, 12/3/97.......... $ 1,038,640
ITT Financial Corp.
(Financial Services)
Baa1 4,225 8.85%, 7/10/97.......... 4,393,493
Korea Development Bank
(Banking)
A1 1,200 7.71%, 5/5/97........... 1,175,592
MBNA Master Card Trust
(Asset Backed)
(Average Life 2.5
Years)
NR 4,000 7.25%, 6/15/99.......... 3,918,720
Mellon Financial Co.
(Financial Services)
A2 1,000 6.50%, 12/1/97.......... 956,100
Mitchell Energy &
Development Corp.
(Industrial Services)
Baa3 1,300 5.10%, 2/15/97.......... 1,216,046
Olympic Automobile Receivables Trust
(Asset Backed)
(Average Life 2.2 Years)
Aaa 2,000 6.85%, 6/15/01.......... 1,941,875
Potomac Capital
Investment Corp.
(Financial Services)
A3 3,500 6.19%, 4/28/97.......... 3,323,355
Tenneco Credit Corp.
(Financial Services)
Baa2 1,850 10.125%, 12/1/97........ 1,926,313
United States Treasury
Note
4,600 5.50%, 9/30/97.......... 4,341,986
------------
36,224,046
------------
1-2 YEARS--16.4%
Ashland Oil, Inc.
(Oil)
Baa1 1,000 8.95%, 1/17/96.......... 1,010,990
</TABLE>
B-29 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
1-2 YEARS (cont'd.)
Associates Corp. of
North America
(Consumer Finance)
A1 $ 3,500 4.56%, 10/29/96......... $ 3,297,735
Centex Corp.
(Industrial Finance)
Baa2 4,000 9.05%, 5/1/96........... 4,024,720
Chrysler Financial Corp.
(Financial Services)
Baa 1,600 5.39%, 8/27/96.......... 1,535,520
CIT Group Holdings, Inc.
(Financial Services)
Aa3 1,000 8.75%, 2/15/96.......... 1,009,200
Grand Metropolitan
Investment Corp.
(Industrial Finance)
A2 2,195 8.125%, 8/15/96......... 2,199,104
Hanson Overseas
(Diversified
Industrial)
A1 2,000 5.50%, 1/15/96.......... 1,953,980
New Zealand Government
(Foreign Government)
Aa2 4,300 8.25%, 9/25/96.......... 4,299,828
Norwest Financial, Inc.
(Consumer Finance)
A1 2,000 4.85%, 11/15/96......... 1,889,600
Oryx Energy Co.,
(Oil)
Ba3 2,500 6.05%, 2/1/96........... 2,409,375
TransAmerica Finance
Corp.
(Financial Services)
A2 2,000 5.85%, 7/15/96.......... 1,937,120
Union Bank Finland, Ltd.
(Banking)
A3 1,500 5.25%, 6/15/96.......... 1,436,265
Virginia Electric &
Power Co.
(Utilities)
A2 1,350 9.70%, 5/6/96........... 1,382,400
Westinghouse Credit
Corp.
(Financial Services)
Ba1 4,000 8.75%, 6/3/96........... 4,010,720
Westinghouse Electric
Corp.
(Consumer Finance)
Ba1 $ 1,530 7.75%, 4/15/96.......... $ 1,516,199
Ba1 600 8.70%, 6/20/96.......... 601,248
World Omni 94 A
(Asset Backed)
(Average Life 1.9
Years)
Aaa 2,000 6.45%, 9/25/00.......... 1,933,740
------------
36,447,744
------------
WITHIN 1 YEAR--16.7%
Alcan Aluminum Ltd.
(Aluminum)
A2 1,000 9.40%, 6/1/95........... 1,009,380
Cemex S.A.
(Industrial Services)
NR 1,000 6.25%, 10/25/95......... 980,000
Central Fidelity Bank
(Financial Services)
A2 1,000 4.70%, 2/15/95.......... 998,710
Central Maine Power Co.
(Utilities)
Baa3 4,000 7.025%, 8/3/95.......... 4,000,000
Chrysler Financial Corp.
(Financial Services)
A3 1,300 5.26%, 7/6/95........... 1,286,038
Citicorp
(Financial Services)
A2 1,000 7.80%, 3/24/95.......... 1,002,550
Comdisco, Inc.
(Leasing)
Baa2 1,000 8.95%, 5/15/95.......... 1,005,860
General Motors
Acceptance Corp.
(Financial Services)
Baa1 2,000 7.05%, 4/13/95.......... 1,999,600
Greyhound Financial
Corp.
(Industrial Finance)
Baa2 2,000 4.625%, 4/19/95......... 1,987,240
Hydro Quebec
(Utilities)
A1 2,000 5.50%, 9/30/49,
F.R.N................. 1,700,000
</TABLE>
B-30 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
WITHIN 1 YEAR (cont'd.)
International Lease
Finance Corp.
(Equipment Leasing)
A2 $ 1,000 9.80%, 7/31/95.......... $ 1,013,730
Morgan Stanley Group,
Inc.
(Financial Services)
A1 1,000 9.875%, 5/1/95.......... 1,008,860
Norwest Financial, Inc.
(Consumer Finance)
Aa3 2,500 7.25%, 11/1/95.......... 2,493,075
Occidental Petroleum
Corp.
(Oil)
Baa3 3,750 5.37%, 9/11/95.......... 3,691,463
Pacific-Tel Capital
Resources Group
(Utilities)
A1 2,000 8.95%, 6/20/95.......... 2,016,880
PaineWebber Group, Inc.
(Financial Services)
A3 3,000 9.625%, 5/1/95.......... 3,021,060
Petroleos Mexicanos
(Foreign Government)
Ba2 2,500 5.563%, 3/8/99,
F.R.N................. 2,462,500
Philip Morris Cos., Inc.
(Tobacco)
A2 1,000 9.20%, 11/2/95.......... 1,012,120
Standard Credit Card
Trust
(Asset Backed)
(Average Life 0.3
Years)
A2 $ 2,000 9.375%, 3/10/96......... $ 2,013,125
Union Pacific Corp.
(Oil)
A2 1,750 9.33%, 10/12/95......... 1,773,765
Joint Repurchase
Agreement Account
691 5.82%, 1/3/95 (Note
5).................... 691,000
------------
37,166,956
------------
Total Investments--98.2%
(cost $226,333,199; Note
4).................... 218,213,157
Other assets in excess
of
liabilities--1.8%..... 4,095,744
------------
Net Assets--100%........ $222,308,901
------------
------------
<FN>
- ------------------
F.R.N.-Floating Rate Note. The maturity date of such
securities is considered to be the later of the next date on
which the security can be redeemed of par or the next date
on which the rate of interest is adjusted.
NR-Not Rated.
</TABLE>
B-31 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets December 31, 1994
-----------------
<S> <C>
Investments, at value (cost $226,333,199).................................................. $ 218,213,157
Cash....................................................................................... 21,310
Receivable for investments sold............................................................ 4,475,340
Interest receivable........................................................................ 4,237,319
Receivable for Fund shares sold............................................................ 335,329
Deferred expenses and other assets......................................................... 191
-----------------
Total assets........................................................................... 227,282,646
-----------------
Liabilities
Payable for investments purchased.......................................................... 2,877,813
Payable for Fund shares reacquired......................................................... 1,801,971
Accrued expenses........................................................................... 124,260
Distribution fee payable................................................................... 92,502
Management fee payable..................................................................... 77,199
-----------------
Total liabilities...................................................................... 4,973,745
-----------------
Net Assets................................................................................. $ 222,308,901
-----------------
-----------------
Net assets were comprised of:
Common stock, at par..................................................................... $ 202,684
Paid-in capital in excess of par......................................................... 239,108,590
-----------------
239,311,274
Accumulated net realized loss on investments............................................. (8,882,331)
Net unrealized depreciation on investments............................................... (8,120,042)
-----------------
Net assets at December 31, 1994.......................................................... $ 222,308,901
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($91,679,738 / 8,356,909 shares of common stock issued and outstanding)................ $10.97
Maximum sales charge (3.25% of offering price)........................................... .37
-----------------
Maximum offering price to public......................................................... $11.34
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($130,258,395 / 11,877,663 shares of common stock issued and outstanding).............. $10.97
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($370,768 / 33,809 shares of common stock issued and outstanding)...................... $10.97
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
B-32
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
December 31,
Net Investment Income 1994
------------
<S> <C>
Income
Interest............................... $ 16,503,790
------------
Expenses
Distribution fee--Class A.............. 106,737
Distribution fee--Class B.............. 1,089,616
Distribution fee--Class C.............. 596
Management fee......................... 967,204
Transfer agent's fees and expenses..... 315,000
Reports to shareholders................ 255,000
Registration fees...................... 168,000
Custodian's fees and expenses.......... 155,000
Legal fees............................. 75,000
Audit fee.............................. 34,000
Directors' fees........................ 29,000
Amoritization of deferred organization
expenses............................... 21,000
Miscellaneous.......................... 26,076
------------
Total expenses....................... 3,242,229
------------
Net investment income.................... 13,261,561
------------
Realized and Unrealized Gain (Loss) on
Investments
Net realized loss on Investments......... (8,461,299)
Net change in unrealized appreciation
(depreciation)
of Investments......................... (8,556,463)
------------
Net loss on investments.................. (17,017,762)
------------
Net Decrease in Net Assets
Resulting from Operations................ $ (3,756,201)
------------
------------
</TABLE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) ------------------------------
in Net Assets 1994 1993
------------- -------------
<S> <C> <C>
Operations
Net investment income..... $ 13,261,561 $ 10,305,665
Net realized gain (loss)
on investment
transactions............ (8,461,299) 1,676,837
Net change in unrealized
appreciation
(depreciation) on
investments............. (8,556,463) (1,001,998)
------------- -------------
Net increase (decrease) in
net assets resulting
from operations......... (3,756,201) 10,980,504
------------- -------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A................. (6,272,073) (6,786,531)
Class B................. (6,985,271) (3,519,134)
Class C................. (4,217) --
------------- -------------
(13,261,561) (10,305,665)
------------- -------------
Distributions in excess of
net investment income
Class A................. (83,531) --
Class B................. (118,895) --
Class C................. (331) --
------------- -------------
(202,757) --
------------- -------------
Distributions from net
realized gains
Class A................. -- (1,295,162)
Class B................. -- (1,027,120)
Class C................. -- --
------------- -------------
-- (2,322,282)
------------- -------------
Fund share transactions
(Note 6)
Net proceeds from shares
subscribed.............. 71,130,664 155,140,884
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions........... 8,878,646 8,391,229
Cost of shares
reacquired.............. (83,235,470) (40,937,219)
------------- -------------
Net increase (decrease) in
net assets from Fund
share transactions...... (3,226,160) 122,594,894
------------- -------------
Total increase (decrease)... (20,446,679) 120,947,451
Net Assets
Beginning of year........... 242,755,580 121,808,129
------------- -------------
End of year................. $ 222,308,901 $ 242,755,580
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
B-33
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
Notes to Financial Statements
Prudential Structured Maturity Fund (the ``Fund''), is registered under the
Investment Company Act of 1940, as a diversified, open-end management investment
company. The Fund consists of two portfolios--the Income Portfolio (the
``Portfolio'') and the Municipal Income Portfolio. The Municipal Income
Portfolio has not yet begun operations. The Fund was incorporated in Maryland on
June 8, 1988 and had no operations until July 1989 when 8,613 shares of the
Portfolio's common stock were sold for $100,000 to Prudential Mutual Fund
Management, Inc. (``PMF''). Investment operations commenced on September 1,
1989. The Portfolio's investment objective is high current income consistent
with the preservation of principal. The ability of issuers of debt securities
held by the Portfolio to meet their obligations may be affected by economic
developments in a specific industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Portfolio in the preparation
of its financial statements.
Securities Valuation: The Board of Directors has authorized the use of an
independent pricing service to determine valuations of U.S. Government and
corporate obligations. The pricing service considers such factors as security
prices, yields, maturities, call features, ratings and developments relating to
specific securities in arriving at securities valuations. When market quotations
are not readily available, a security is valued by appraisal at its fair value
as determined in good faith under procedures established under the general
supervision and responsibility of the Board of Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements, the Portfolio's
custodian or designated subcustodians, as the case may be under triparty
repurchase agreements, takes possession of the underlying collateral securities,
the value of which at least equals the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Portfolio may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: It is the Portfolio'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 net income and capital gains, if
any, to its shareholders. Therefore, no federal income tax provision is
required.
Dividends and Distributions: The Portfolio declares daily and pays monthly
dividends from net investment income. Distributions from net capital gains, if
any, are made at least annually. Dividends and distributions are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles.
Reclassification of Capital Accounts: The Portfolio accounts for and reports
distributions to shareholders in accordance with Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
effect of applying this statement was to increase undistributed net investment
income by $202,757 and decrease accumulated net realized gain on investments by
$202,757 for market discount incurred during the fiscal year. Net investment
income, net realized gains and net assets were not affected by this change.
Deferred Organization Expenses: Approximately $160,000 of expenses were incurred
in connection with the organization and initial registration of the Portfolio.
These expenses have been deferred and were amortized ratably during the period
of benefit of 60 months from the date of commencement of investment operations
through August, 1994.
B-34
<PAGE>
Note 2. Agreements The Fund has a management
agreement with PMF. Pursuant to this agreement,
PMF has responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PMF has entered into a subadvisory
agreement with The Prudential Investment Corporation (``PIC''); PIC furnishes
investment advisory services in connection with the management of the Fund. PMF
pays for the cost of the subadviser's services, the compensation of officers and
employees 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 .40 of 1% of the average daily net assets of the Portfolio.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors 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.
On July 19, 1994, shareholders of the Fund approved amendments to the Class A
and Class B distribution plans under which the distribution plans became
compensation plans, effective August 1, 1994. Prior thereto, the distribution
plans were reimbursement plans, under which PMFD and PSI were reimbursed for
expenses actually incurred by them up to the amount permitted under the Class A
and Class B Plans, respectively. The Fund is not obligated to pay prior or
future excess distribution costs (costs incurred by the Distributors in excess
of distribution fees paid by the Fund or contingent deferred sales charges
received by the Distributors). The Fund began offering Class C shares on August
1, 1994.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, 1% and
1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, of the average daily
net assets of the Class A shares for the fiscal year ended December 31, 1994 and
.75 of 1% of the average daily net assets of Class B and C shares for the period
August 1, 1994 through December 31, 1994. Prior to August 1, 1994, the rate of
distribution fee charged to Class B shares was .85 of 1% of the average daily
net assets.
PMFD has advised the Portfolio that it has received approximately $342,000 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1994. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons.
PSI advised the Portfolio that for the year ended December 31, 1994, it
received approximately $427,000 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Portfolio's transfer agent.
During the year ended December 31, 1994, the Portfolio incurred fees of
approximately $251,000 for the services of PMFS. As of December 31, 1994,
approximately $21,000 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations also include certain out-of-pocket
expenses paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities, excluding
short-term investments, for the year ended
December 31, 1994 were $291,424,254 and $289,034,060, respectively.
The federal income tax basis of the Portfolio's investments at December 31,
1994 was substantially the same as for financial reporting purposes, and
accordingly, net unrealized depreciation for federal income tax purposes was
$8,120,042 (gross unrealized appreciation--$23,066; gross unrealized
depreciation--$8,143,108).
The Portfolio elected to treat approximately $249,000 of net capital losses
incurred during the two month period ended December 31, 1993 as having occurred
in the current year. The Portfolio also elected to treat approximately $758,200
of net capital losses incurred during the two month period ended December 31,
1994 as having incurred in the following fiscal year.
For federal income tax purposes, the Portfolio has a capital loss
carryforward as of December 31, 1994 of approximately $8,148,900 which expires
in 2002. Accordingly, no
B-35
<PAGE>
capital gain distributions are expected to be paid to shareholders until net
gains have been realized in excess of such carryforward.
Note 5. Joint The Portfolio, along with
Repurchase other affiliated registered
Agreement investment companies, trans-
Account fers uninvested cash balances
into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of December 31, 1994, the
Portfolio had a 0.09% undivided interest in the repurchase agreements in the
joint account. The undivided interest for the Portfolio represented $691,000 in
principal amount. As of such date, each repurchase agreement in the joint
account and the collateral therefor was as follows:
Goldman, Sachs & Co., 5.75%, in the principal amount of $250,000,000,
repurchase price $250,159,722, due 1/3/95. The value of the collateral including
accrued interest is $255,000,108.
Lehman Government Securities Inc., 5.90%, in the principal amount of
$70,000,000, repurchase price $70,045,889, due 1/3/95. The value of the
collateral including accrued interest is $71,379,084.
Morgan Stanley & Co., 5.75%, in the principal amount of $250,000,000,
repurchase price $250,159,722, due 1/3/95. The value of the collateral including
accrued interest is $255,146,220.
Smith Barney Inc., 5.95%, in the principal amount of $200,000,000, repurchase
price $200,132,222, due 1/3/95. The value of the collateral including accrued
interest is $204,036,161.
Note 6. Capital The Portfolio currently offers
Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 3.25%. 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 sale 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 commencing in or about February 1995.
There are 250 million authorized shares of $.01 par value common stock,
divided into three classes, designated Class A, Class B and Class C common
stock, each of which consists of 83,333,333 1/3 authorized shares. Transactions
in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- -------------------------------- ---------- ------------
<S> <C> <C>
Year ended December 31, 1994:
Shares sold..................... 1,327,030 $ 15,172,253
Shares issued in reinvestment of
dividends and distributions... 352,857 3,992,113
Shares reacquired............... (3,461,380) (39,309,298)
---------- ------------
Decrease in shares
outstanding................... (1,781,493) $(20,144,932)
---------- ------------
---------- ------------
Year ended December 31, 1993:
Shares sold..................... 2,594,107 $ 31,677,141
Shares issued in reinvestment of
dividends and distributions... 434,693 5,183,611
Shares reacquired............... (2,208,544) (26,405,354)
---------- ------------
Increase in shares
outstanding................... 820,256 $ 10,455,398
---------- ------------
---------- ------------
Class B
- --------------------------------
Year ended December 31, 1994:
Shares sold..................... 4,868,067 $ 55,579,090
Shares issued in reinvestment of
dividends and distributions... 432,507 4,882,473
Shares reacquired............... (3,888,211) (43,919,636)
---------- ------------
Increase in shares
outstanding................... 1,412,363 $ 16,541,927
---------- ------------
---------- ------------
Year ended December 31, 1993:
Shares sold..................... 10,395,504 $123,463,743
Shares issued in reinvestment of
dividends and distributions... 269,387 3,207,618
Shares reacquired............... (1,216,010) (14,531,865)
---------- ------------
Increase in shares
outstanding................... 9,448,881 $112,139,496
---------- ------------
---------- ------------
Class C
- --------------------------------
August 1, 1994* through
December 31, 1994:
Shares sold..................... 34,035 $ 379,321
Shares issued in reinvestment of
dividends and distributions... 368 4,060
Shares reacquired............... (594) (6,536)
---------- ------------
Increase in shares
outstanding................... 33,809 $ 376,845
---------- ------------
---------- ------------
<FN>
- ---------------
* Commencement of offering of Class C shares.
</TABLE>
B-36
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B Class C
---------------------------------------------------------- ------------------------------------ ------------
December 9, August 1,
Year ended 1992** 1994***
PER SHARE Year ended December 31, December 31, through through
OPERATING ---------------------------------------------------------- -------------------- December 31, December 31,
PERFORMANCE: 1994 1993 1992 1991 1990 1994 1993 1992 1994
---------- -------- -------- -------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning
of
period.... $ 11.78 $ 11.79 $ 12.13 $ 11.67 $ 11.63 $ 11.78 $ 11.79 $ 11.79 $ 11.30
---------- -------- -------- -------- -------- -------- -------- ------------ ------------
Income from
investment
operations:
Net
investment
income.... .65 .71 .86D .93D 1.00D .58 .62 .04 .23
Net realized
and
unrealized
gain
(loss) on
investment
transactions (.80) .12 (.08) .56 .04 (.80) .12 -- (.32)
---------- -------- -------- -------- -------- -------- -------- ------------ ------------
Total from
investment
operations... (.15) .83 .78 1.49 1.04 (.22) .74 .04 (.09)
---------- -------- -------- -------- -------- -------- -------- ------------ ------------
Less
distributions:
Dividends
from net
investment
income.... (.65) (.71) (.86) (.93) (1.00) (.58) (.62) (.04) (.23)
Distributions
in excess
of net
investment
income.... (.01) -- -- -- -- (.01) -- -- (.01)
Distributions
from net
realized
gains..... -- (.13) (.26) (.10) -- -- (.13) -- --
---------- -------- -------- -------- -------- -------- -------- ------------ ------------
Total
distributions. (.66) (.84) (1.12) (1.03) (1.00) (.59) (.75) (.04) (.24)
---------- -------- -------- -------- -------- -------- -------- ------------ ------------
Net asset
value, end
of
period.... $ 10.97 $ 11.78 $ 11.79 $ 12.13 $ 11.67 $ 10.97 $ 11.78 $ 11.79 $ 10.97
---------- -------- -------- -------- -------- -------- -------- ------------ ------------
---------- -------- -------- -------- -------- -------- -------- ------------ ------------
TOTAL
RETURN#:... (1.16)% 7.19% 6.67% 13.35% 9.40% (1.83)% 6.38% .32% (0.68)%
RATIOS/SUPPLEMENTAL DATA:
Net assets,
end of
period
(000)..... $ 91,680 $119,449 $109,828 $109,997 $113,125 $130,258 $123,306 $ 11,981 $ 371
Average net
assets
(000)..... $ 106,737 $114,728 $107,937 $113,010 $107,276 $134,985 $ 69,314 $ 5,474 $ 192
Ratios to
average
net
assets:##
Expenses,
including
distribution
fees.... .94% .80% .70%D .37%D .13%D 1.66% 1.55% 1.67%* 1.90%*
Expenses,
excluding
distribution
fees.... .84% .70% .60%D .27%D .10%D .84% .70% .82%* 1.15%*
Net
investment
income... 5.88% 5.92% 7.15%D 7.89%D 8.67%D 5.17% 5.08% 6.31%* 5.30%*
Portfolio
turnover... 123% 137% 91% 117% 46% 123% 137% 91% 123%
</TABLE>
- ---------------
* Annualized.
** Commencement of offering of Class B shares.
*** Commencement of offering of Class C shares.
D Net of expense subsidy and/or fee waiver
# Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for
periods of less than one full year are not annualized.
## Because of the event referred to in *** and the timing of such,
the ratios for Class C shares are not necessarily comparable to
that of Class A or Class B shares and are not necessarily indicative
of future ratios.
See Notes to Financial Statements.
B-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of
Prudential Structured Maturity Fund, Income Portfolio
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Prudential Structured Maturity Fund,
Income Portfolio, as of December 31, 1994, the related statements of operations
for the year then ended and of changes in net assets for each of the years in
the two year period then ended, and the financial highlights for each of the
years in the five year period then ended. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
December 31, 1994 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential
Structured Maturity Fund, Income Portfolio, as of December 31, 1994, the results
of its operations, the changes in its net assets and the financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New York, New York
February 2, 1995
B-38
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A)FINANCIAL STATEMENTS:
(1) Financial Statements for the Income Portfolio included in the
Prospectus constituting Part A of this Registration Statement:
Financial Highlights
(2) Financial Statements for the Income Portfolio included in the
Statement of Additional Information constituting Part B of this
Registration Statement:
Portfolio of Investments at December 31, 1994
Statement of Assets and Liabilities at December 31, 1994
Statement of Operations for the Year ended December 31, 1994
Statement of Changes in Net Assets for the Years Ended December 31,
1994 and 1993
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
(B)EXHIBITS:
1. Articles of Restatement of the Registrant.*
2. By-Laws of the Registrant.*
3. Not Applicable.
4. (a) Specimen certificate for shares of common stock, $.01 par value
per share, of the Registrant, incorporated by reference to Exhibit
No. 4 to Pre-Effective Amendment No. 2 to the Registration Statement
on Form N-1A filed on July 24, 1989 (File No. 33-22363).
(b) Specimen certificate for Class B shares of common stock filed
October 5, 1992, incorporated by reference to Exhibit No. 4(b) to
Post-Effective Amendment No. 5 to the Registration Statement on Form
N-1A filed on October 5, 1992 (File No. 33-22363).
(c) Specimen certificate for Class A shares of common stock, $.01 par
value per share, of the Registrant, for the Municipal Income
Portfolio, incorporated by reference to Exhibit No. 4(c) to Post-
Effective Amendment No. 7 to Registration Statement on Form N-1A filed
on July 16, 1993 (File No. 33-22363).
(d) Specimen certificate for Class B shares of common stock, $.01 par
value per share, of the Registrant, for the Municipal Income
Portfolio, incorporated by reference to Exhibit No. 4(d) to Post-
Effective Amendment No. 7 to Registration Statement on Form N-1A filed
on July 16, 1993 (File No. 33-22363).
(e) Instruments defining rights of shareholders, incorporated by
reference to Exhibit No. 4(e) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A filed via EDGAR on February 28,
1994 (File No. 33-22363).
5. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., incorporated by reference to Exhibit No. 5(a)
to Post-Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed on January 25, 1990 (File No. 33-22363).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation, incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on January 25, 1990 (File
No. 33-22363).
6. (a) Subscription Offering Agreement between the Registrant and
Prudential-Bache Securities Inc., incorporated by reference to
Exhibit No. 6(b) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on January 25, 1990 (File
No. 33-22363).
C-1
<PAGE>
(b) Form of Distribution Agreement (Class A Shares) between the Fund
and Prudential Mutual Fund Distributors, Inc. (Municipal Income
Portfolio), incorporated by reference to Exhibit No. 6(e) to Post-
Effective Amendment No. 10 to the Registration Statement on Form N-1A
filed via EDGAR on May 12, 1994 (File No. 33-22363).
(c) Form of Distribution Agreement (Class B Shares) between the Fund
and Prudential Securities Incorporated (Municipal Income Portfolio),
incorporated by reference to Exhibit No. 6(f) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed via
EDGAR on May 12, 1994 (File No. 33-22363).
(d) Form of Subscription Offering Agreement between the Registrant and
Prudential Securities Incorporated (Municipal Income Portfolio),
incorporated by reference to Exhibit No. 6(g) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed via
EDGAR on May 12, 1994 (File No. 33-22363).
(e) Distribution and Service Agreement for Class A shares (Income
Portfolio).*
(f) Distribution and Service Agreement for Class B shares (Income
Portfolio).*
(g) Form of Distribution and Service Agreement for Class C shares
(Municipal Income Portfolio), incorporated by reference to Exhibit No.
6(j) to Post-Effective Amendment No. 10 to the Registration Statement
on Form N-1A filed via EDGAR on May 12, 1994 (File No. 33-22363).
(h) Distribution and Service Agreement for Class C shares (Income
Portfolio).*
7. Not Applicable.
8. Custodian Contract between the Registrant and State Street Bank and
Trust Company, incorporated by reference to Exhibit No. 8 to Post-
Effective Amendment No. 3 to the Registration Statement on Form N-1A
filed on April 30, 1991 (File No. 33-22363).
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit No. 9 to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on January 25, 1990 (File No. 33-
22363).
10. (a) Opinion of Counsel, incorporated by reference to Exhibit No. 10
to Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A filed on July 24, 1989 (File No. 33-22363).
(b) Opinion of Counsel.*
11. Consent of Independent Auditors.*
12. Not Applicable.
13. Purchase Agreement, incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A filed on July 24, 1989 (File No. 33-22363).
14. Not Applicable.
15. (a) Form of Distribution and Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 (Class A Shares) (Municipal
Income Portfolio), incorporated by reference to Exhibit No. 15(d) to
Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A filed via EDGAR on May 12, 1994 (File No. 33-22363).
(b) Form of Distribution and Service Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (Class B Shares) (Municipal Income
Portfolio), incorporated by reference to Exhibit No. 15(e) to Post-
Effective Amendment No. 10 to the Registration Statement on Form N-1A
filed via EDGAR on May 12, 1994 (File No. 33-22363).
(c) Distribution and Service Plan for Class A shares (Income
Portfolio).*
(d) Distribution and Service Plan for Class B shares (Income
Portfolio).*
(e) Form of Distribution and Service Plan for Class C shares
(Municipal Income Portfolio), incorporated by reference to Exhibit No.
15(h) to Post-Effective Amendment No. 10 to the Registration Statement
on Form N-1A filed via EDGAR on May 12, 1994 (File No. 33-22363).
(f) Distribution and Service Plan for Class C shares (Income
Portfolio).*
16. (a) Schedule of Computation of Performance Quotations relating to
Average Annual Total Return, incorporated by reference to Exhibit
No. 16 to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on January 25, 1990 (File No. 33-
22363).
C-2
<PAGE>
(b) Schedule of Computation of Performance Quotations relating to
Aggregate Total Return for Class A and Class B shares, incorporated by
reference to Exhibit No. 16(b) to Post-Effective No. 8 to Registration
Statement on Form N-1A filed on September 14, 1993 (File No. 33-
22363).
27. Financial Data Schedule.*
Other Exhibits
Copies of Powers of Attorney for:
Lawrence C. McQuade
Robert R. Fortune
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas A. Owens, Jr.
Merle T. Welshans
Executed copies filed under Other Exhibits to Pre-Effective Amendment No. 2
to the Registration Statement on Form N-1A filed on July 24, 1989 (File No.
33-22363).
- ------------
* Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of February 3, 1995, there were 8,194, 9,908 and 104 record holders of
Class A, Class B and Class C shares of common stock, $.01 par value per share,
of the Income Portfolio. As of February 3, 1995, the Municipal Income
Portfolio did not have any record holders of shares of common stock.
ITEM 27. INDEMNIFICATION.
As permitted by Sections 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VI of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of each Distribution Agreement (Exhibit 6 to
the Registration Statement), each Distributor of the Registrant may be
indemnified against liabilities which it may incur, except liabilities arising
from bad faith, gross negligence, willful misfeasance or reckless disregard of
duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1940 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed
by the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain
circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from
reckless disregard by them of their respective obligations and duties under
the agreements.
C-3
<PAGE>
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner
consistent with Release No. 11330 of the Securities and Exchange Commission
under the 1940 Act so long as the interpretation of Sections 17(h) and 17(i) of
such Act remain in effect and are consistently applied.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Prudential Mutual Fund Management, Inc.
See "How the Fund is Managed--Manager" in the Prospectuses constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed on March 30, 1994 ).
The business and other connections of PMF's directors and principal executive
officers are set forth below. Except as otherwise indicated, the address of
each person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ---------------- ------------------ ---------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice Executive Vice President, Director of Marketing and
President, Director, PMF; Senior Vice President, Prudential
Director of Securities Incorporated (Prudential Securities);
Marketing and Chairman and Director of Prudential Mutual Fund
Director Distributors, Inc. (PMFD)
Stephen P. Fisher Senior Vice Senior Vice President, PMF; Senior Vice President,
President Prudential Securities
Frank W. Giordano Executive Vice Executive Vice President, General Counsel, Secretary
President, General and Director, PMF; Senior Vice President, Prudential
Counsel, Secretary Securities; Director, PMFD; Director, Prudential
and Director Mutual Fund Services, Inc; (PMFS)
Robert F. Gunia Executive Vice Executive Vice President, Chief Financial and
President, Chief Administrative Officer, Treasurer and Director, PMF;
Financial and Senior Vice President, Prudential Securities;
Administrative Executive Vice President, Treasurer, Comptroller and
Officer, Treasurer Director (since March 1991), PMFD; Director (since
and Director June 1987), PMFS
Lawrence C. McQuade Vice Chairman Vice Chairman, PMF
Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating
Officer and Director, PMFD; Chief Executive Officer
and Director, PMFS; Director, PMF
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF;
Executive Officer Executive Vice President, Director and Member of the
and Director Operating Committee, Prudential Securities; Director,
PSG; Executive Vice President, PIC; Director (since
January 1994), PMFD; Director (since January 1994),
PMFS
S. Jane Rose Senior Vice Senior Vice President, Senior Counsel and Assistant
President, Senior Secretary, PMF; Senior Vice President and Senior
Counsel and Counsel, Prudential Securities
Assistant
Secretary
</TABLE>
C-4
<PAGE>
(b) 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.
The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, NJ 07101.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------- ------------------ ---------------------
<S> <C> <C>
Martin A. Berkowitz Senior Vice Senior Vice President and Chief Financial and
President and Compliance Officer, PIC; Vice President, Prudential
Chief Financial
and Compliance
Officer
William M. Bethke Senior Vice Senior Vice President, Prudential; Senior Vice
Two Gateway Center President President, PIC
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice Senior Vice President, Prudential; Senior Vice
51 JFK Parkway President and President and Director, PIC
Short Hill, NJ 07078 Director
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President PIC
Harry E. Knapp, Jr. President, Chief President, Chief Executive Officer and Director, PIC
Executive Officer
and Director
William P. Link Senior Vice Executive Vice President, Prudential; Senior Vice
Four Gateway Center President President, PIC
Newark, NJ 07102
Richard A. Redeker Executive Vice President, Chief Executive Officer and Director, PMF;
President Executive Vice President, Director and Member of
Operating Committee, Prudential Securities; Director,
PSG; Executive Vice President, PIC; Director (since
January 1994), PMFD; Director (since January 1994),
PMFS
Arthur F. Ryan Director Chairman of the Board, Chief Executive Officer and
President, Prudential; Director, PIC; Chairman of the
Board and Director, PSG
Eric A. Simonson Vice President and President and Chief Executive Officer, Prudential
Director Asset Management Group; Vice President and Director,
PIC; Executive Vice President, Prudential
Claude J. Zinngrabe, Jr. Executive Vice Vice President, Prudential; Executive Vice President,
President PIC
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a)(i) Prudential Securities Incorporated
Prudential Securities is distributor for Prudential Government Securities
Trust (Intermediate Term Series) and The Target Portfolio Trust, for Class B
shares of Prudential Adjustable Rate Securities Fund, Inc., and for Class B
and C shares of Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), The BlackRock Government Income
Trust, Prudential Allocation Fund, Prudential California Municipal Fund
(California Income Series and California Series) Prudential Diversified Bond
Fund, Inc. Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund, Inc., Prudential Global Fund, Inc., Prudential
Global Genesis Fund, Inc., Prudential Global Natural Resources Fund, Inc.,
Prudential GNMA Fund, Inc., Prudential Government Income Fund, Inc.,
Prudential Growth Opportunity Fund, Inc., Prudential High Yield Fund, Inc.,
Prudential IncomeVertible (R) Fund, Inc., Prudential Intermediate Global
Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal
Bond Fund, Prudential Municipal Series Fund (except Connecticut Money Market
Series, Massachusetts Money Market Series, New York Money Market Series and
New Jersey Money Market Series), Prudential National Municipals Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Short-Term Global Income
Fund, Inc., Prudential Strategist Fund, Inc., Prudential Structured Maturity
Fund, Inc., Prudential U.S. Government Fund and Prudential Utility Fund, Inc.
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
C-5
<PAGE>
(a)(ii) Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series), Prudential
Government Securities Trust (Money Market Series and U.S. Treasury Money
Market Series), Prudential Institutional Liquidity Portfolio, Inc.,
Prudential-Bache MoneyMart Assets Inc. (d/b/a Prudential MoneyMart Assets),
Prudential Municipal Series Fund (Connecticut Money Market Series,
Massachusetts Money Market Series, New York Money Market Series and New Jersey
Money Market Series), Prudential-Bache Special Money Market Fund, Inc. (d/b/a
Prudential Special Money Market Fund), Prudential-Bache Tax-Free Money Fund,
Inc. (d/b/a Prudential Tax-Free Money Fund), and for Class A shares of The
BlackRock Government Income Trust, Global Utility Fund, Inc., Nicholas-
Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund), Prudential
Adjustable Rate Securities Fund, Inc., Prudential Allocation Fund Prudential
California Municipal Fund (California Income Series and California Series),
Prudential Diversified Bond Fund, Prudential Equity Fund, Inc., Prudential
Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential Global
Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global Natural
Resources Fund, Inc., Prudential GNMA Fund, Inc., Prudential Government Income
Fund, Inc., Prudential Growth Opportunity Fund, Inc., Prudential High Yield
Fund, Inc., Prudential IncomeVertible(R) Fund, Inc., Prudential Intermediate
Global Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund (except Connecticut
Money Market Series, Massachusetts Money Market Series, New York Money Market
Series and New Jersey Money Market Series), Prudential National Municipals
Fund, Inc.,, Prudential Pacific Growth Fund, Inc., Prudential Short-Term
Global Income Fund, Inc., Prudential Strategist Fund, Inc., Prudential
Structured Maturity Fund, Inc., Prudential U.S. Government Fund, and
Prudential Utility Fund, Inc.
(b)(i) 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 UNDERWRITER REGISTRANT
- ---- ------------- --------------
<S> <C> <C>
Alan D. Hogan............. Executive Vice President, Chief None
Administrative Officer and Director
George A. Murray.......... Executive Vice President and Director None
John P. Murray............ Executive Vice President and Director None
of Risk Management
Leland B. Paton........... Executive Vice President and Director None
Vincent T. Pica II........ Executive Vice President and Director None
Richard A. Redeker........ Director Director
Hardwick Simmons.......... Chief Executive Officer, President None
and Director
Lee B. Spencer, Jr. ...... Executive Vice President, General None
Counsel and Director
(ii) Information concerning the officers and directors of Prudential Mutual
Fund Distributors, Inc. is set forth below:
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(/1/) UNDERWRITER REGISTRANT
- --------- ------------- --------------
<S> <C> <C>
Joanne Accurso-Soto....... Vice President None
Dennis Annarumma.......... Vice President, Assistant Treasurer None
and Assistant Comptroller
Phyllis J. Berman......... Vice President None
Brendan D. Boyle.......... Chairman and Director None
Stephen P. Fisher......... Vice President None
Frank W. Giordano......... Executive Vice President, General None
Counsel, Secretary and Director
Robert F. Gunia........... Executive Vice President, Treasurer, Vice President
Comptroller and Director
Timothy J. O'Brien........ President, Chief Executive Officer, None
Chief Operating Officer and Director
Richard A. Redeker........ Director Director
Andrew J. Varley.......... Vice President None
Anita L. Whelan........... Vice President and Assistant None
Secretary
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
- -----------
(/1/)The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
C-6
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices
of State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171; The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey 07102; the Registrant, One Seaport Plaza,
New York, New York 10292; and Prudential Mutual Fund Services, Inc., 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 Two Gateway Center,
Newark, New Jersey 07102, documents required by Rules 31a-1(b)(4) and (11) and
31a-1(d) at One Seaport Plaza and the remaining accounts, books and other
documents required by such other pertinent provisions of Section 31(a) and the
Rules promulgated thereunder will be kept by State Street Bank and Trust
Company and Prudential Mutual Fund Services, Inc.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Fund Is Managed--
Manager" and "How the Fund Is Managed--Distributor" in the Prospectuses and
the captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service
contract.
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, and State of New York, on the 27th day of February, 1995.
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
/s/ Lawrence C. McQuade
---------------------------------
Lawrence C. McQuade, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
Treasurer and Principal
Financial and Accounting
/s/ Eugene S. Stark Officer
- ----------------------------- February 27, 1995
Eugene S. Stark
/s/ Thomas R. Anderson Director February 27, 1995
- -----------------------------
Thomas R. Anderson
/s/ Robert R. Fortune Director
- ----------------------------- February 27, 1995
Robert R. Fortune
Director
/s/ Delayne Dedrick Gold February 27, 1995
- -----------------------------
Delayne Dedrick Gold
/s/ Harry A. Jacobs, Jr. Director
- ----------------------------- February 27, 1995
Harry A. Jacobs, Jr.
/s/ Lawrence C. McQuade President and Director
- ----------------------------- February 27, 1995
Lawrence C. McQuade
/s/ Thomas A. Owens, Jr. Director
- ----------------------------- February 27, 1995
Thomas A. Owens, Jr.
/s/ Merle T. Welshans Director
- ----------------------------- February 27, 1995
Merle T. Welshans
/s/ Richard A. Redeker Director
February 27, 1995
- -----------------------------
Richard A. Redeker
C-8
<PAGE>
PRUDENTIAL-BACHE STRUCTURED MATURITY FUND, INC.
EXHIBIT INDEX
EXHIBITS:
1. Articles of Restatement of the Registrant.*
2. By-Laws of the Registrant.*
3. Not Applicable.
4. (a) Specimen certificate for shares of common stock, $.01 par value
per share, of the Registrant, incorporated by reference to Exhibit
No. 4 to Pre-Effective Amendment No. 2 to the Registration Statement
on Form N-1A filed on July 24, 1989 (File No. 33-22363).
(b) Specimen certificate for Class B shares of common stock filed
October 5, 1992, incorporated by reference to Exhibit No. 4(b) to
Post-Effective Amendment No. 5 to the Registration Statement on Form
N-1A filed on October 5, 1992 (File No. 33-22363).
(c) Specimen certificate for Class A shares of common stock, $.01 par
value per share, of the Registrant, for the Municipal Income
Portfolio, incorporated by reference to Exhibit No. 4(c) to Post-
Effective Amendment No. 7 to Registration Statement on Form N-1A filed
on July 16, 1993 (File No. 33-22363).
(d) Specimen certificate for Class B shares of common stock, $.01 par
value per share, of the Registrant, for the Municipal Income
Portfolio, incorporated by reference to Exhibit No. 4(d) to Post-
Effective Amendment No. 7 to Registration Statement on Form N-1A filed
on July 16, 1993 (File No. 33-22363).
(e) Instruments defining rights of shareholders, incorporated by
reference to Exhibit No. 4(e) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A filed via EDGAR on February 28,
1994 (File No. 33-22363).
5. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., incorporated by reference to Exhibit No. 5(a)
to Post-Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed on January 25, 1990 (File No. 33-22363).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation, incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on January 25, 1990 (File
No. 33-22363).
6. (a) Subscription Offering Agreement between the Registrant and
Prudential-Bache Securities Inc., incorporated by reference to
Exhibit No. 6(b) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on January 25, 1990 (File
No. 33-22363).
(b) Form of Distribution Agreement (Class A Shares) between the Fund
and Prudential Mutual Fund Distributors, Inc. (Municipal Income
Portfolio), incorporated by reference to Exhibit No. 6(e) to Post-
Effective Amendment No. 10 to the Registration Statement on Form N-1A
filed via EDGAR on May 12, 1994 (File No. 33-22363).
(c) Form of Distribution Agreement (Class B Shares) between the Fund
and Prudential Securities Incorporated (Municipal Income Portfolio),
incorporated by reference to Exhibit No. 6(f) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed via
EDGAR on May 12, 1994 (File No. 33-22363).
(d) Form of Subscription Offering Agreement between the Registrant and
Prudential Securities Incorporated (Municipal Income Portfolio),
incorporated by reference to Exhibit No. 6(g) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed via
EDGAR on May 12, 1994 (File No. 33-22363).
(e) Distribution and Service Agreement for Class A shares (Income
Portfolio).*
(f) Distribution and Service Agreement for Class B shares (Income
Portfolio).*
(g) Form of Distribution and Service Agreement for Class C shares
(Municipal Income Portfolio), incorporated by reference to Exhibit No.
6(j) to Post-Effective Amendment No. 10 to the Registration Statement
on Form N-1A filed via EDGAR on May 12, 1994 (File No. 33-22363).
(h) Distribution and Service Agreement for Class C shares (Income
Portfolio).*
7. Not Applicable.
8. Custodian Contract between the Registrant and State Street Bank and
Trust Company, incorporated by reference to Exhibit No. 8 to Post-
Effective Amendment No. 3 to the Registration Statement on Form N-1A
filed on April 30, 1991 (File No. 33-22363).
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit No. 9 to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on January 25, 1990 (File No. 33-
22363).
<PAGE>
EXHIBITS:
10. (a) Opinion of Counsel, incorporated by reference to Exhibit No. 10
to Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A filed on July 24, 1989 (File No. 33-22363).
(b) Opinion of Counsel.*
11. Consent of Independent Auditors.*
12. Not Applicable.
13. Purchase Agreement, incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A filed on July 24, 1989 (File No. 33-22363).
14. Not Applicable.
15. (a) Form of Distribution and Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 (Class A Shares) (Municipal
Income Portfolio), incorporated by reference to Exhibit No. 15(d) to
Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A filed via EDGAR on May 12, 1994 (File No. 33-22363).
(b) Form of Distribution and Service Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (Class B Shares) (Municipal Income
Portfolio), incorporated by reference to Exhibit No. 15(e) to Post-
Effective Amendment No. 10 to the Registration Statement on Form N-1A
filed via EDGAR on May 12, 1994 (File No. 33-22363).
(c) Distribution and Service Plan for Class A shares (Income
Portfolio).*
(d) Distribution and Service Plan for Class B shares (Income
Portfolio).*
(e) Form of Distribution and Service Plan for Class C shares
(Municipal Income Portfolio), incorporated by reference to Exhibit No.
15(h) to Post-Effective Amendment No. 10 to the Registration Statement
on Form N-1A filed via EDGAR on May 12, 1994 (File No. 33-22363).
(f) Distribution and Service Plan for Class C shares (Income
Portfolio).*
16. (a) Schedule of Computation of Performance Quotations relating to
Average Annual Total Return, incorporated by reference to Exhibit
No. 16 to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on January 25, 1990 (File No. 33-
22363).
(b) Schedule of Computation of Performance Quotations relating to
Aggregate Total Return for Class A and Class B shares, incorporated by
reference to Exhibit No. 16(b) to Post-Effective No. 8 to Registration
Statement on Form N-1A filed on September 14, 1993 (File No. 33-
22363).
27. Financial Data Schedule.*
Other Exhibits
Copies of Powers of Attorney for:
Lawrence C. McQuade
Robert R. Fortune
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas A. Owens, Jr.
Merle T. Welshans
Executed copies filed under Other Exhibits to Pre-Effective Amendment No. 2
to the Registration Statement on Form N-1A filed on July 24, 1989 (File No.
33-22363).
- ------------
* Filed herewith.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> PRUDENTIAL STRUCTURED MATURITY FUND (CLASS A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 226,333,199
<INVESTMENTS-AT-VALUE> 218,213,157
<RECEIVABLES> 9,047,988
<ASSETS-OTHER> 21,501
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 227,282,646
<PAYABLE-FOR-SECURITIES> 2,877,813
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,095,932
<TOTAL-LIABILITIES> 4,973,745
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 239,311,274
<SHARES-COMMON-STOCK> 20,268,381
<SHARES-COMMON-PRIOR> 20,603,702
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,882,331)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,120,042)
<NET-ASSETS> 222,308,901
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,503,790
<OTHER-INCOME> 0
<EXPENSES-NET> 3,242,229
<NET-INVESTMENT-INCOME> 13,261,561
<REALIZED-GAINS-CURRENT> (8,461,299)
<APPREC-INCREASE-CURRENT> (8,556,463)
<NET-CHANGE-FROM-OPS> (3,756,201)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,261,561)
<DISTRIBUTIONS-OF-GAINS> (202,757)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 71,130,664
<NUMBER-OF-SHARES-REDEEMED> (83,235,470)
<SHARES-REINVESTED> 8,878,646
<NET-CHANGE-IN-ASSETS> (20,446,679)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (218,275)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 967,204
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,242,229
<AVERAGE-NET-ASSETS> 108,737,000
<PER-SHARE-NAV-BEGIN> 11.78
<PER-SHARE-NII> 0.65
<PER-SHARE-GAIN-APPREC> (0.80)
<PER-SHARE-DIVIDEND> (0.65)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.97
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> PRUDENTIAL STRUCTURED MATURITY FUND (CLASS B)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 226,333,199
<INVESTMENTS-AT-VALUE> 218,213,157
<RECEIVABLES> 9,047,988
<ASSETS-OTHER> 21,501
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 227,282,646
<PAYABLE-FOR-SECURITIES> 2,877,813
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,095,932
<TOTAL-LIABILITIES> 4,973,745
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 239,311,274
<SHARES-COMMON-STOCK> 20,268,381
<SHARES-COMMON-PRIOR> 20,603,702
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,882,331)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,120,042)
<NET-ASSETS> 222,308,901
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,503,790
<OTHER-INCOME> 0
<EXPENSES-NET> 3,242,229
<NET-INVESTMENT-INCOME> 13,261,561
<REALIZED-GAINS-CURRENT> (8,461,299)
<APPREC-INCREASE-CURRENT> (8,556,463)
<NET-CHANGE-FROM-OPS> (3,756,201)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,261,561)
<DISTRIBUTIONS-OF-GAINS> (202,757)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 71,130,664
<NUMBER-OF-SHARES-REDEEMED> (83,235,470)
<SHARES-REINVESTED> 8,878,646
<NET-CHANGE-IN-ASSETS> (20,446,679)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (218,275)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 967,204
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,242,229
<AVERAGE-NET-ASSETS> 134,985,000
<PER-SHARE-NAV-BEGIN> 11.78
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> (0.80)
<PER-SHARE-DIVIDEND> (0.58)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.97
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> PRUDENTIAL STRUCTURED MATURITY FUND (CLASS C)
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 226,333,199
<INVESTMENTS-AT-VALUE> 218,213,157
<RECEIVABLES> 9,047,988
<ASSETS-OTHER> 21,501
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 227,282,646
<PAYABLE-FOR-SECURITIES> 2,877,813
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,095,932
<TOTAL-LIABILITIES> 4,973,745
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 239,311,274
<SHARES-COMMON-STOCK> 20,268,381
<SHARES-COMMON-PRIOR> 20,603,702
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,882,331)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,120,042)
<NET-ASSETS> 222,308,901
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,503,790
<OTHER-INCOME> 0
<EXPENSES-NET> 3,242,229
<NET-INVESTMENT-INCOME> 13,261,561
<REALIZED-GAINS-CURRENT> (8,461,299)
<APPREC-INCREASE-CURRENT> (8,556,463)
<NET-CHANGE-FROM-OPS> (3,756,201)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,261,561)
<DISTRIBUTIONS-OF-GAINS> (202,757)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 71,130,664
<NUMBER-OF-SHARES-REDEEMED> (83,235,470)
<SHARES-REINVESTED> 8,878,646
<NET-CHANGE-IN-ASSETS> (20,446,679)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (218,275)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 967,204
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,242,229
<AVERAGE-NET-ASSETS> 192,000
<PER-SHARE-NAV-BEGIN> 11.30
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> (0.32)
<PER-SHARE-DIVIDEND> (0.23)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.97
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<PAGE>
EXHIBIT 99.1(A)
ARTICLES OF RESTATEMENT
OF
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
PRUDENTIAL STRUCTURED MATURITY FUND, INC., a Maryland corporation having
its principal offices in Baltimore, Maryland and New York, New York (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby restated in its entirety
to read as follows:
ARTICLE I
The name of the corporation (hereinafter called the "Corporation") is
Prudential Structured Maturity Fund, Inc.
ARTICLE II
Purposes
--------
The purpose for which the Corporation is formed is to act as an open-end
investment company of the management type registered as such with the Securities
and Exchange Commission pursuant to the Investment Company Act of 1940 and to
exercise and generally to enjoy all of the powers, rights and privileges granted
to, or conferred upon, corporations by the General Laws of the State of Maryland
now or hereinafter in force.
ARTICLE III
Address in Maryland
-------------------
The post office address of the place at which the principal office of the
Corporation in the State of Maryland is located is c/o CT Corporation System, 32
South Street, Baltimore, Maryland 21202.
<PAGE>
The name of the Corporation's resident agent is The Corporation Trust
Incorporated, and its post office address is 32 South Street, Baltimore,
Maryland 21202. Said resident agent is a corporation of the State of Maryland.
ARTICLE IV
Common Stock
------------
Section 1 (a) The total number of shares of capital stock which the
Corporation shall have authority to issue is 500,000,000 shares of the par value
of $.01 per share and of the aggregate par value of $5,000,000 to be divided
initially into two series, the Income Portfolio and the Municipal Income
Portfolio, with each such Series authorized to issue 250,000,000 of such shares
having an aggregate par value of $2,500,000, and each such Series to be further
divided into three classes, consisting as to each such Series of 83,333,333-1/3
shares of Class A Common Stock, 83,333,333-1/3 shares of Class B Common Stock
and 83,333,333-1/3 shares of Class C Common Stock. The Board of Directors of
the Corporation shall have the power and authority to classify or reclassify any
unissued shares from time to time into one or more additional Series or classes
by setting or changing the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such unissued shares. The Board of Directors shall
have the power and authority to increase or decrease the aggregate number of
shares of any Series or class that the Corporation has authority to issue.
(i) Each share of Class A, Class B and Class C Common Stock of a Series
shall represent the same interest in the Series and have identical voting,
dividend, liquidation and other rights except that (A) Expenses related to the
distribution of each class of shares shall be borne solely by such class; (B)
The bearing of such expenses solely by shares of each class shall be
appropriately reflected (in the manner determined by the Board of Directors) in
the net asset value, dividends, distribution and liquidation rights of the
shares of such class; (C) The Class A Common Stock shall be subject to a front-
end sales load and a Rule 12b-1 distribution fee as determined by the Board of
-2-
<PAGE>
Directors from time to time; (D) The Class B Common Stock shall be subject to a
contingent deferred sales charge and a Rule 12b-1 distribution fee as determined
by the Board of Directors from time to time; and (E) The Class C Common Stock
shall be subject to a contingent deferred sales charge and a Rule 12b-1
distribution fee as determined by the Board of Directors from time to time. All
shares of each particular class shall represent an equal proportionate interest
in that class, and each share of any particular class shall be equal to each
other share of that class.
(ii) Each share of the Class B Common Stock of a Series shall be converted
automatically, and without any action or choice on the part of the holder
thereof, into shares (including fractions thereof) of the Class A Common Stock
of the same Series (computed in the manner hereinafter described), at the
applicable net asset value per share of each Class, at the time of the
calculation of the net asset value of such Class B Common Stock at such times,
which may vary between shares originally issued for cash and shares acquired
through the automatic reinvestment of dividends and distributions with respect
to Class B Common Stock (each "Conversion Date") determined by the Board of
Directors in accordance with applicable laws, rules, regulations and
interpretations of the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc. and pursuant to such procedures as may
be established from time to time by the Board of Directors and disclosed in the
then current prospectus for such Class A and Class B Common Stock.
(iii) The number of shares of the Class A Common Stock of a Series into
which a share of the Class B Common Stock is converted pursuant to Section
1(a)(ii) hereof shall equal the number (including for this purpose fractions of
a share) obtained by dividing the net asset value per share of the Class B
Common Stock for purposes of sales and redemptions thereof at the time of the
calculation of the net asset value on the Conversion Date by the net asset value
per share of the Class A Common Stock for
-3-
<PAGE>
purposes of sales and redemptions thereof at the time of the calculation of the
net asset value on the Conversion Date.
(iv) On the Conversion Date, the shares of the Class B Common Stock of a
Series converted into shares of the Class A Common Stock will cease to accrue
dividends and will no longer be outstanding and the rights of the holders
thereof will cease (except the right to receive declared but unpaid dividends to
the Conversion Date).
(v) The Board of Directors shall have full power and authority to adopt
such other terms and conditions concerning the conversion of shares of the Class
B Common Stock to shares of the Class A Common Stock as they deem appropriate;
provided such terms and conditions are not inconsistent with the terms contained
in this Section 1(a) and subject to any restrictions or requirements under the
Investment Company Act of 1940 and the rules, regulations and interpretations
thereof promulgated or issued by the Securities and Exchange Commission, any
conditions or limitations contained in an order issued by the Securities and
Exchange Commission applicable to the Corporation, or any restrictions or
requirements under the Internal Revenue Code of 1986, as amended, and the rules,
regulations and interpretations promulgated or issued thereunder.
(vi) To the extent appropriate under the circumstances, taking into account
prevailing practices in the investment company industry, references to "Class"
in subsection (b) of this Section (1) shall be deemed to be references to
"Series" as used in this subsection (a).
(b) A description of the relative preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of all Classes of Shares is as follows,
unless otherwise set forth in the Articles Supplementary filed with the Maryland
State Department of Assessments and Taxation describing any further Class or
Classes from time to time created by the Board of Directors:
(i) Assets Belonging to Class. All consideration received by the
-------------------------
Corporation for the issue or sale of Shares of a particular Class, together with
all assets in which such
-4-
<PAGE>
consideration is invested or reinvested, all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Class for all purposes, subject only to the rights of
creditors, and shall be so recorded upon the books of account of the
Corporation. Such consideration, assets, income, earnings, profits and proceeds,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items (as
hereinafter defined) allocated to that Class as provided in the following
sentence, are herein referred to as "assets belonging to" that Class. In the
event that there are any assets, income, earnings, profits or proceeds thereof,
funds or payments which are not readily identifiable as belonging to any
particular Class (collectively "General Items"), the Board of Directors shall
allocate such General Items to and among any one or more of the Classes created
from time to time, in such manner and on such basis as the Board of Directors in
its sole discretion deems fair and equitable; and any General Items so allocated
to a particular Class shall belong to that Class. Each such allocation by the
Board of Directors shall be conclusive and binding upon the stockholders of all
Classes for all purposes.
(ii) Liabilities Belonging to Class. The assets belonging to each
------------------------------
particular Class shall be charged with the liabilities of the Corporation in
respect of that Class and with all expenses, costs, charges and reserves
attributable to that Class, and shall be so recorded upon the books of account
of the Corporation. Such liabilities, expenses, costs, charges and reserves,
together with any General Items (as hereinafter defined) allocated to that Class
as provided in the following sentence, so charged to that Class are herein
referred to as "liabilities belonging to" that Class. In the event there are
any general liabilities, expenses, costs, charges or reserves of the Corporation
which are not readily identifiable as belonging to any particular Class
(collectively "General Items"), the Board
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<PAGE>
of Directors shall allocate and charge such General Items to and among any one
or more of the Classes created from time to time, in such manner and on such
basis as the Board of Directors in its sole discretion deems fair and equitable;
and any General Items so allocated and charged to a particular Class shall
belong to that Class. Each such allocation by the Board of Directors shall be
conclusive and binding upon the stockholders of all Classes for all purposes.
(iii) Dividends. Dividends and distributions on Shares of a particular
---------
Class may be paid to the holders of Shares of that Class at such times, in such
manner and from such of the income and capital gains accrued or realized from
the assets belonging to that Class, after providing for actual and accrued
liabilities belonging to that Class, as the Board of Directors may determine.
(iv) Liquidation. In the event of the liquidation or dissolution of the
-----------
Corporation, the stockholders of each Class that has been created shall be
entitled to receive, as a Class, when and as declared by the Board of Directors,
the excess of the assets belonging to that Class over the liabilities belonging
to that Class. The assets so distributable to the stockholders of any
particular Class shall be distributed among such stockholders in proportion to
the number of Shares of that Class held by them and recorded on the books of the
Corporation.
(v) Voting. On each matter submitted to a vote of the stockholders, each
------
holder of a Share shall be entitled to one vote for each Share standing in such
holder's name on the books of the Corporation irrespective of the Class thereof
and all Shares of all Classes shall vote as a single Class ("Single Class
Voting"); provided, however, that (A) as to any matter with respect to which a
separate vote of any Class is required by the Investment Company Act of 1940 or
would be required under the Maryland General Corporation Law, such requirements
as to a separate vote by that Class shall apply in lieu of Single Class Voting
as described above; (B) in the event that the separate vote requirements
referred to in (A) above apply with respect to one or more Classes, then,
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subject to (C) below, the Shares of all other Classes shall vote as a single
Class; and (C) as to any matter which does not affect the interest of a
particular Class, including but not limited to any proposal to liquidate any
other Class, only the holders of Shares of the one or more affected Classes
shall be entitled to vote.
(vi) Quorum. The presence in person or by proxy of the holders of record
------
of one-third of the Shares of all Classes issued and outstanding and entitled to
vote thereat shall constitute a quorum for the transaction of any business at
all meetings of the stockholders except as otherwise provided by law or in these
Articles of Incorporation and except that where the holders of Shares of any
Class are entitled to a separate vote as a class (a "Separate Class") or where
the holders of Shares of two or more (but not all) classes are required to vote
as a single class (a "Combined Class"), the presence in person or by proxy of
the holders of record of one-third of the Shares of that Separate Class or
Combined Class, as the case may be, issued and outstanding and entitled to vote
thereat shall constitute a quorum for such vote.
(vii) Equality. Each Share of any particular Class shall represent an
--------
equal and proportionate interest in the assets belonging to that Class (subject
to the liabilities belonging to that Class); however, the provisions of this
sentence shall not restrict any distinctions permissible pursuant to subsection
(iii) of this Section 1(b) or otherwise under these Articles of Incorporation
that may exist with respect to stockholder elections to receive dividends or
distributions in cash or Shares of the same Class or that may otherwise exist
with respect to dividends and distributions on Shares of the same Class.
Section 2. Each Share shall also be subject to the following provisions:
(a) The net asset value per Share of a particular Class shall be the
quotient obtained by dividing the value of the net assets of that Class (being
the value of the total assets belonging to that Class less the liabilities
belonging to that Class) by the total number of Shares of that Class
outstanding. Subject to subsection (b) of this Section 2, the value of the
total assets belonging to each Class shall be determined by, determined pursuant
to the direction of, or
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<PAGE>
determined pursuant to procedures or methods (which procedures or methods may
differ from Class to Class) prescribed or approved by the Board of Directors in
its sole discretion, and shall be so determined at the time or times (which time
or times may differ from Class to Class) prescribed or approved by the Board of
Directors in its sole discretion.
(b) The net asset value of each Share of a particular Class, for the
purpose of the issue, redemption or repurchase of such Share, shall be
determined in accordance with any applicable provision of the Investment Company
Act of 1940, any applicable rule, regulation or order of the Securities and
Exchange Commission thereunder, and any applicable rule or regulation made or
adopted by any securities association registered under the Securities Exchange
Act of 1934.
(c) All Shares now or hereafter authorized shall be subject to redemption
and redeemable at the option of the stockholder, in the sense used in the
General Laws of the State of Maryland authorizing the formation of corporations.
Each holder of a Share of any Class, upon request to the Corporation accompanied
by surrender of the appropriate stock certificate or certificates, if any, in
proper form for transfer, shall be entitled to require the Corporation to redeem
all or any part of the Shares of that Class standing in the name of such holder
on the books of the Corporation at a redemption price per Share equal to the net
asset value per Share of that Class determined in accordance with subsection (a)
of this Section 2.
(d) Notwithstanding subsection (c) of this Section 2, the Board of
Directors of the Corporation may suspend the right of the holders of Shares of
any or all Classes to require the Corporation to redeem such Shares or may
suspend any voluntary purchase of such Shares:
(i) for any period (A) during which the New York Stock Exchange is
closed other than customary weekend and holiday closings, or (B) during
which trading on the New York Stock Exchange is restricted;
(ii) for any period during which an emergency, as defined by the rules
of the Securities and Exchange Commission or any successor thereto,
exists as a result of which (A) disposal by the Corporation of
securities owned by it and belonging to
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<PAGE>
the affected Class or Classes is not reasonably practicable, or (B) it
is not reasonably practicable for the Corporation fairly to determine
the value of the net assets of the affected Class or Classes; or
(iii) for such periods as the Securities and Exchange Commission or
any successor thereto may by order permit for the protection of security
holders of the Corporation.
(e) All Shares now or hereafter authorized shall be subject to redemption
and redeemable at the option of the Corporation. The Board of Directors may by
resolution from time to time authorize the Corporation to require the redemption
of all or any part of the outstanding Shares of any Class upon the sending of
written notice thereof to each stockholder any of whose Shares are so redeemed
and upon such terms and conditions as the Board of Directors shall deem
advisable, out of funds legally available therefor, at net asset value per Share
of that Class determined in accordance with subsection (a) of this Section 2 and
to take all other steps deemed necessary or advisable in connection therewith.
(f) The Board of Directors may by resolution from time to time authorize
the purchase by the Corporation, either directly or through an agent, of Shares
of any Class upon such terms and conditions and for such consideration as the
Board of Directors shall deem advisable out of funds legally available therefor
at prices per Share not in excess of their net asset value per Share of that
Class determined in accordance with subsection (a) of this Section 2 and to take
all other steps deemed necessary or advisable in connection therewith.
(g) Except as otherwise permitted by the Investment Company Act of 1940,
payment of the redemption price of Shares of any Class surrendered to the
Corporation for redemption pursuant to the provisions of subsection (c) or (e)
of this Section 2 or for purchase by the Corporation pursuant to the provisions
of subsection (f) of this Section 2 shall be made by the Corporation within
seven days after surrender of such Shares to the Corporation for such purpose.
Any such payment may be made in whole or in part in portfolio securities or in
cash, as the Board of Directors shall deem advisable, belonging to such Class,
and no stockholder shall
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<PAGE>
have the right, other than as determined by the Board of Directors, to have his
Shares redeemed in portfolio securities.
(h) In the absence of any specification as to the purposes for which Shares
are redeemed or repurchased by the Corporation, all Shares so redeemed or
repurchased shall be deemed to be acquired for retirement in the sense
contemplated by the laws of the State of Maryland. Shares of any Class retired
by repurchase or redemption shall thereafter have the status of authorized but
unissued Shares of that Class.
Section 3. Notwithstanding any provision of law requiring action to be
taken or authorized by the affirmative vote of the holders of a designated
proportion greater than a majority of the outstanding Shares of all Classes or
of the outstanding Shares of a particular Class or Classes, as the case may be,
such action shall be valid and effective if taken or authorized by the
affirmative vote of the holders of a majority of the total number of Shares of
all Classes or of the total number of Shares of such Class or Classes, as the
case may be, outstanding and entitled to vote thereupon pursuant to the
provisions of these Articles of Incorporation.
Section 4. No holder of Shares of any Class shall, as such holder,
have any preemptive right to purchase or subscribe for any Shares of that or any
other Class which the Corporation may issue or sell (whether out of the number
of Shares authorized by the Articles of Incorporation, or out of any Shares
acquired by the Corporation after the issue thereof, or otherwise).
Section 5. All persons who shall acquire Shares in the Corporation
shall acquire the same subject to the provisions of these Articles of
Incorporation.
ARTICLE V
Directors
---------
The By-Laws of the Corporation may fix the number of directors at no
less than three and may authorize the Board of Directors, by the vote of a
majority of the entire Board of Directors, to increase or decrease the number of
directors within a limit specified in the By-Laws (provided that, if there are
no Shares outstanding, the number of directors may be less than three but not
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<PAGE>
less than one), and to fill the vacancies created by any such increase in the
number of directors. Unless otherwise provided by the By-Laws of the
Corporation, the directors of the Corporation need not be stockholders.
The By-Laws of the Corporation may divide the directors of the
Corporation into classes and prescribe the tenure of office of the several
classes; but no class shall be elected for a period shorter than one year or for
a period longer than five years, and the term of office of at least one class
shall expire each year.
ARTICLE VI
Indemnification of Directors and Officers
-----------------------------------------
The Corporation shall indemnify to the fullest extent permitted by law
(including the Investment Company Act of 1940), as currently in effect or as the
same may hereafter be amended, any person made or threatened to be made a party
to any action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that such person or such person's testator
or intestate is or was a director or officer of the Corporation or serves or
served at the request of the Corporation any other enterprise as a director or
officer. To the fullest extent permitted by law (including the Investment
Company Act of 1940), as currently in effect or as the same may hereafter be
amended, expenses incurred by any such person in defending any such action, suit
or proceeding shall be paid or reimbursed by the Corporation promptly upon
receipt by it of an undertaking of such person to repay such expenses if it
shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation. The rights provided to any person by this
Article VI shall be enforceable against the Corporation by such person who shall
be presumed to have relied upon it in serving or continuing to serve as a
director or officer as provided above. No amendment of this Article VI shall
impair the rights of any person arising at any time with respect to events
occurring prior to such amendment. For purposes of this Article VI, the term
"Corporation" shall include any predecessor of the Corporation and any
constituent corporation (including any constituent of a constituent) absorbed
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<PAGE>
by the Corporation in a consolidation or merger; the term "other enterprise"
shall include any corporation, partnership, joint venture, trust or employee
benefit plan; service "at the request of the Corporation" shall include service
as a director or officer of the Corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants or beneficiaries; any excise taxes assessed on a person with
respect to an employee benefit plan shall be deemed to be indemnifiable
expenses; and action by a person with respect to any employee benefit plan which
such person reasonably believes to be in the interest of the participants and
beneficiaries of such plan shall be deemed to be action not opposed to the best
interests of the Corporation.
ARTICLE VII
Miscellaneous
-------------
The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for
creating, defining, limiting and regulating the powers of the Corporation, the
directors and the stockholders.
Section 1. The Board of Directors shall have the management and
control of the property, business and affairs of the Corporation and is hereby
vested with all the powers possessed by the Corporation itself so far as is not
inconsistent with law or these Articles of Incorporation. In furtherance and
without limitation of the foregoing provisions, it is expressly declared that,
subject to these Articles of Incorporation, the Board of Directors shall have
power:
(a) To make, alter, amend or repeal from time to time the By-Laws of the
Corporation except as such power may otherwise be limited in the By-Laws.
(b) To issue Shares of any Class of the Corporation.
(c) To authorize the purchase of Shares of any Class in the open market or
otherwise, at prices not in excess of their net asset value for Shares of
that Class determined in accordance with subsection (a) of Section 2 of
Article IV hereof, provided that the Corporation has assets legally available
for such purpose, and to pay for such Shares in cash, securities or other
assets then held or owned by the Corporation.
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<PAGE>
(d) To declare and pay dividends and distributions from funds legally
available therefor on Shares of such Class or Classes, in such amounts, if
any, and in such manner (including declaration by means of a formula or other
similar method of determination whether or not the amount of the dividend or
distribution so declared can be calculated at the time of such declaration)
and to the stockholders of record as of such date, as the Board of Directors
may determine.
Section 2. Any determination made in good faith and, so far as accounting
matters are involved, in accordance with generally accepted accounting
principles by or pursuant to the direction of the Board of Directors, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of Shares, past, present and future, of each Class, and Shares are issued and
sold on the condition and undertaking, evidenced by acceptance of certificates
for such Shares by, or confirmation of such Shares being held for the account
of, any stockholder, that any and all such determinations shall be binding as
aforesaid.
Subject to Article VI, nothing in this Section 2 shall be construed to
protect any director or officer of the Corporation against any liability to the
Corporation or its stockholders to which such director or officer 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.
Section 3. The directors of the Corporation may receive compensation for
their services, subject, however, to such limitations with respect thereto as
may be determined from time to time by the stockholders.
Section 4. Except as required by law, the holders of Shares shall have only
such right to inspect the records, documents, accounts and books of the
Corporation as may be granted by the Board of Directors of the Corporation.
Section 5. Any vote of stockholders authorizing liquidation of the
Corporation or proceedings for its dissolution may authorize the Board of
Directors to determine, as provided herein, or if provision is not made herein,
in accordance with generally accepted accounting principles, which assets are
the assets belonging to each Class available for distribution to
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<PAGE>
stockholders of that Class and may divide, or authorize the Board of Directors
to divide, such assets among the stockholders of that Class in such manner as to
ensure that each stockholder will receive an equal and proportionate amount of
the value of such assets (determined as aforesaid) belonging to such Class upon
such liquidation or dissolution.
ARTICLE VIII
Amendments
----------
The Corporation reserves the right from time to time to amend, alter or
repeal any of the provisions of these Articles of Incorporation (including any
amendment that changes the terms of any of the outstanding Shares by
classification, reclassification or otherwise), and to add or insert any other
provisions that may, under the statutes of the State of Maryland at the time in
force, be lawfully contained in articles of incorporation, and all rights at any
time conferred upon the stockholders of the Corporation by these Articles of
Incorporation are subject to the provisions of this Article VIII.
_______________________________
The term "Articles of Incorporation" as used herein and in the By-Laws of
the Corporation shall be deemed to mean these Articles of Incorporation as from
time to time amended and restated.
_______________________________
SECOND: The provisions set forth in these Articles of Restatement
constitute all of the provisions of the Charter of the Corporation as currently
in effect. These Articles do not amend the Charter of the Corporation.
THIRD: The restatement of the Charter of the Corporation has been approved
by the affirmative vote of a majority of the Directors of the Corporation at a
meeting duly called and held on September 20, 1994. The Corporation has eight
Directors, Thomas R. Anderson, Robert R. Fortune, Delayne Dedrick Gold, Harry A.
Jacobs, Jr., Lawrence C. McQuade, Thomas A. Owens, Jr., Richard A. Redeker and
Merle T. Welshans, currently in office.
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<PAGE>
IN WITNESS WHEREOF, the Articles of Restatement have been executed on
behalf of Prudential Structured Maturity Fund, Inc. this 21st day of November,
1994.
PRUDENTIAL STRUCTURED
MATURITY FUND, INC.
By: /s/ Lawrence C. McQuade
__________________________
Lawrence C. McQuade
President
Attest
[Seal]
/s/ Marguerite E.H. Morrison
By:_____________________________
Marguerite E.H. Morrison
Assistant Secretary
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<PAGE>
The undersigned, President of Prudential Structured Maturity Fund,
Inc., who executed on behalf of said Corporation the foregoing Articles of
Restatement, of which this certificate is made a part, hereby acknowledges that
these Articles of Restatement are the act of the Corporation and affirms that to
the best of his knowledge, information and belief all matters and facts set
forth therein relating to the authorization and approval of the Articles of
Restatement are true in all material respects and that this statement is made
under the penalties of perjury.
/s/ Lawrence C. McQuade
----------------------------
Lawrence C. McQuade
President
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<PAGE>
EXHIBIT 99.2(A)
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
By-Laws
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 in the month of April of each year, on such 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, or in such other month as the Board of
Directors shall select, 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 none of the following is required to
be acted on by stockholders under the Investment Company Act of 1940: election
of directors; approval of the investment advisory agreement; ratification of the
selection of independent public accountants; and approval of a distribution
agreement.
Section 3. 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 25% 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
<PAGE>
stating the purpose 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 holding 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 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
2
<PAGE>
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.
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 of 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
3
<PAGE>
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 is 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 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 an 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
4
<PAGE>
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 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
5
<PAGE>
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 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
participating 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
6
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proceedings of the Board or such committee, unless otherwise provided by the
Investment Company Act of 1940.
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 a meeting of
stockholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do so 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 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
7
<PAGE>
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 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 Corporation,
-------------
containing the names and addresses of the stockholders and the number of shares
held by them respectively,
8
<PAGE>
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.
ARTICLE VI.
Fiscal Year
-----------
The fiscal year of the Corporation shall begin on the first day of January
and shall end on the last day of December in each year.
ARTICLE VII.
Indemnification of Directors and Officers
-----------------------------------------
A director or officer of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director or officer, except to the extent such exemption from
liability or limitation thereof is not permitted by law (including the
Investment Company Act of 1940) as currently in effect or as the same may be
hereafter be amended.
9
<PAGE>
No amendment, modification or repeal of this Article VII shall adversely
affect any right or protection of a director or officer that exists at the time
of such amendment, modification or repeal.
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:
(i) in case of such resignation or inability to serve, use its
best efforts to obtain a successor custodian;
(ii) require that the cash and securities owned by the
Corporation be delivered directly to the successor custodian; and
(iii) 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.
10
<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.
11
<PAGE>
EXHIBIT 99.6(E)
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Distribution Agreement
(Class A Shares)
----------------
Agreement made as of August 1, 1994, between Prudential Structured Maturity
Fund, Inc., a Maryland Corporation (the Fund) and Prudential Mutual Fund
Distributors, Inc., a Delaware corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the Investment Company Act), as a diversified, open-end, management
investment company and it is in the interest of the Fund to offer its Class A
shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, and is engaged in the business of selling
shares of registered investment companies either directly or through other
broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other, with respect to the continuous offering of the Fund's Class A shares
from and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Class A shares; and
WHEREAS, upon approval by the Class A shareholders of the Fund it is
contemplated that the Fund will adopt a plan of distribution pursuant to Rule
12b-1 under the Investment Company Act (the Plan) authorizing payments by the
Fund to the Distributor with respect to the distribution of Class A shares of
the Fund and the maintenance of Class A shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
------------------------------
The Fund hereby appoints the Distributor as the principal underwriter and
distributor of the Class A shares of the Fund to sell Class A shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class A shares of the Fund to the Distributor on the terms and conditions set
forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
--------------------------
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the Fund's Class A shares, except that:
2.1 The exclusive rights granted to the Distributor to purchase Class A
shares from the Fund shall not apply to Class A shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class A shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class A shares issued by the
Fund pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class A Shares from the Fund
----------------------------------------
3.1 The Distributor shall have the right to buy from the Fund the Class A
shares needed, but not more than the Class A shares needed (except for clerical
errors in transmission) to fill unconditional orders for Class A shares placed
with the Distributor by investors or registered and qualified securities dealers
and other financial institutions (selected dealers). The price which the
Distributor shall pay for the Class A shares so purchased from the Fund shall be
the net asset value, determined as set forth in the Prospectus.
3.2 The Class A shares are to be resold by the Distributor or selected
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its Class A
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale of its Class
A shares if a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class A shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class A shares. The Fund (or its agent) will
confirm orders upon their receipt, will make appropriate book entries and upon
receipt by the Fund (or its agent) of payment therefore, will deliver deposit
receipts for such Class A shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class A Shares by the Fund
------------------------------------------------------
4.1 Any of the outstanding Class A shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class A shares so
tendered in accordance with its Articles of Incorporation as amended from time
to time, and in accordance with the applicable provisions of the Prospectus.
The price to be paid to redeem or repurchase the Class A shares shall be equal
to the net asset value determined as set forth in the Prospectus. All payments
by the Fund hereunder shall be made in the manner set forth in Section 4.2
below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh calendar day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class A shares
shall be paid by the Fund to or for the account of the redeeming shareholder, in
each case in accordance with applicable provisions of the Prospectus.
4.3 Redemption of Class A shares or payment may be suspended at times when
the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. Duties of the Fund
------------------
5.1 Subject to the possible suspension of the sale of Class A shares as
provided herein, the Fund agrees to sell its Class A shares so long as it has
Class A shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class A shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Board of Directors and the shareholders, all necessary action to
fix the number of authorized Class A shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Class A shares as the Distributor reasonably
may expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class A shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class A shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
A shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
-------------------------
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class A shares of the Fund, but shall not be obligated to sell any
specific number of Class A shares. Sales of the Class A shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class A shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Class A shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Class A shares only to such selected dealers as
are members in good standing of the NASD. Class A shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
---------------------------
The Distributor shall receive and may retain any portion of any front-end
sales charge which is imposed on sales of Class A shares and not reallocated to
selected dealers as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. Payment of the Distributor under the Plan
-----------------------------------------
8.1 The Fund shall pay to the Distributor as compensation for services
under the Distribution and Service Plan and this Agreement a fee of .30 of 1%
(including an asset-based sales charge of .05 of 1% and a service fee of .25 of
1%) per annum
5
<PAGE>
of the average daily net assets of the Class A shares of the Fund. Amounts
payable under the Plan shall be accrued daily and paid monthly or at such other
intervals as the Board of Directors may determine. Amounts payable under the
Plan shall be subject to the limitations of Article III, Section 26 of the NASD
Rules of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions and account
servicing fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions which have dealer
agreements with the Distributor. So long as the Plan (or any amendment thereto)
is in effect, at the request of the Board of Directors or any agent or
representative of the Fund, the Distributor shall provide such additional
information as may reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such activities.
8.3 Expenses of distribution with respect to the Class A shares of the
Fund include, among others:
(a)amounts paid to Prudential Securities for performing services
under a selected dealer agreement between Prudential Securities and
the Distributor for sale of Class A shares of the Fund, including
sales commissions and trailer commissions paid to, or on account of,
account executives and indirect and overhead costs associated with
distribution activities, including central office and branch expenses;
(b)amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor for sale
of Class A shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with distribution activities;
(c)sales commissions and trailer commissions paid to, or on
account of, broker-dealers and financial institutions (other than
Prudential Securities and Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class A shares
of the Fund;
(d)amounts paid to, or an account of, account executives of
Prudential Securities, Prusec,
6
<PAGE>
or of other broker-dealers or financial institutions for personal
service and/or the maintenance of shareholder accounts; and
(e)advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing Fund
Prospectuses, and periodic financial reports and sales literature to
persons other than current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (a) and (b) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
----------------------
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class A shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class A shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class A shares, so long as the
Plan is in effect.
Section 10. Indemnification
---------------
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, directors or any such controlling person may incur under the
Securities Act, or under common law or
7
<PAGE>
otherwise, arising out of or based upon any untrue statement of a material fact
contained in the Registration Statement or Prospectus or arising out of or based
upon any alleged omission to state a material fact required to be stated in
either thereof or necessary to make the statements in either thereof not
misleading, except insofar as such claims, demands, liabilities or expenses
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given by letter or telegram addressed to the Fund at its
principal business office. The Fund agrees promptly to notify the Distributor
of the commencement of any litigation or proceedings against it or any of its
officers or Directors in connection with the issue and sale of any Class A
shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be
8
<PAGE>
stated in the Registration Statement or Prospectus or necessary to make such
information not misleading. The Distributor's agreement to indemnify the Fund,
its officers and Directors and any such controlling person as aforesaid, is
expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and Directors or any such
controlling person, such notification being given to the Distributor at its
principal business office.
Section 11. Duration and Termination of this Agreement
------------------------------------------
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class A shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class A shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Directors cast in
person at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
-------------
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of
9
<PAGE>
the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: /s/ Robert F. Gunia
------------------------
Robert F. Gunia
Executive Vice President
Prudential Structured Maturity
Fund, Inc.
By: /s/ Lawrence C. McQuade
-----------------------
Lawrence C. McQuade
President
10
<PAGE>
EXHIBIT 99.6(F)
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Distribution Agreement
(Class B Shares)
----------------
Agreement made as of August 1, 1994, between Prudential Structured Maturity
Fund, Inc., a Maryland Corporation (the Fund) and Prudential Securities
Incorporated, a Delaware corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the Investment Company Act), as a diversified, open-end, management
investment company and it is in the interest of the Fund to offer its Class B
shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, and is engaged in the business of selling
shares of registered investment companies either directly or through other
broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other, with respect to the continuous offering of the Fund's Class B shares
from and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Class B shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant to
Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments by
the Fund to the Distributor with respect to the distribution of Class B shares
of the Fund and the maintenance of Class B shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
------------------------------
The Fund hereby appoints the Distributor as the principal underwriter and
distributor of the Class B shares of the Fund to sell Class B shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class B shares of the Fund to the Distributor on the terms and conditions set
forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
--------------------------
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the Fund's Class B shares, except that:
2.1 The exclusive rights granted to the Distributor to purchase Class B
shares from the Fund shall not apply to Class B shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class B shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class B shares issued by the
Fund pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class B Shares from the Fund
----------------------------------------
3.1 The Distributor shall have the right to buy from the Fund the Class B
shares needed, but not more than the Class B shares needed (except for clerical
errors in transmission) to fill unconditional orders for Class B shares placed
with the Distributor by investors or registered and qualified securities dealers
and other financial institutions (selected dealers). The price which the
Distributor shall pay for the Class B shares so purchased from the Fund shall be
the net asset value, determined as set forth in the Prospectus.
3.2 The Class B shares are to be resold by the Distributor or selected
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its Class B
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale of its Class
B shares if a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class B shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class B shares. The Fund (or its agent) will
confirm orders upon their receipt, will make appropriate book entries and upon
receipt by the Fund (or its agent) of payment therefore, will deliver deposit
receipts for such Class B shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class B Shares by the Fund
------------------------------------------------------
4.1 Any of the outstanding Class B shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class B shares so
tendered in accordance with its Articles of Incorporation as amended from time
to time, and in accordance with the applicable provisions of the Prospectus.
The price to be paid to redeem or repurchase the Class B shares shall be equal
to the net asset value determined as set forth in the Prospectus. All payments
by the Fund hereunder shall be made in the manner set forth in Section 4.2
below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be suspended at times when
the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the
3
<PAGE>
Fund fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
------------------
5.1 Subject to the possible suspension of the sale of Class B shares as
provided herein, the Fund agrees to sell its Class B shares so long as it has
Class B shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class B shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Board of Directors and the shareholders, all necessary action to
fix the number of authorized Class B shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Class B shares as the Distributor reasonably
may expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class B shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class B shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
B shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
-------------------------
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class B shares of the Fund, but shall not be obligated to sell any
specific number of Class B shares. Sales of the Class B shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class B shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Class B shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Class B shares only to such selected dealers as
are members in good standing of the NASD. Class B shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
---------------------------
The Distributor shall receive and may retain any contingent deferred sales
charge which is imposed with respect to repurchases and redemptions of Class B
shares as set forth in the Prospectus, subject to the limitations of Article
III, Section 26 of the NASD Rules of Fair Practice. Payment of these amounts to
the Distributor is not contingent upon the adoption or continuation of the Plan.
Section 8. Payment of the Distributor under the Plan
-----------------------------------------
8.1 The Fund shall pay to the Distributor as compensation for services
under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales charge of .75 of 1% and a service fee of .25 of
1%) per annum of
5
<PAGE>
the average daily net assets of the Class B shares of the Fund. Amounts payable
under the Plan shall be accrued daily and paid monthly or at such other
intervals as the Board of Directors may determine. Amounts payable under the
Plan shall be subject to the limitations of Article III, Section 26 of the NASD
Rules of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer commissions) and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor. So
long as the Plan (or any amendment thereto) is in effect, at the request of the
Board of Directors or any agent or representative of the Fund, the Distributor
shall provide such additional information as may reasonably be requested
concerning the activities of the Distributor hereunder and the costs incurred in
performing such activities.
8.3 Expenses of distribution with respect to the Class B shares of the
Fund include, among others:
(a)sales commissions (including trailer commissions) paid to, or
on account of, account executives of the Distributor;
(b)indirect and overhead costs of the Distributor associated with
performance of distribution activities, including central office and
branch expenses;
(c)amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor for sale
of Class B shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with distribution activities;
(d)sales commissions (including trailer commissions) paid to, or
on account of, broker-dealers and financial institutions (other than
Prusec) which have entered into selected dealer agreements with the
Distributor with respect to Class B shares of the Fund;
(e)amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial institutions for
6
<PAGE>
personal service and/or the maintenance of shareholder accounts; and
(f)advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing Fund
Prospectuses, and periodic financial reports and sales literature to
persons other than current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
----------------------
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class B shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class B shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class B shares, so long as the
Plan is in effect.
Section 10. Indemnification
---------------
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class B shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, its officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing at its principal business office.
Section 11. Duration and Termination of this Agreement
------------------------------------------
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class B shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class B shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Directors cast in
person at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
-------------
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the latter shall
control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities
Incorporated
By: /s/ Robert F. Gunia
------------------------
Robert F. Gunia
Senior Vice President
Prudential Structured Maturity
Fund, Inc.
By: /s/ Lawrence C. McQuade
-----------------------
Lawrence C. McQuade
President
10
<PAGE>
EXHIBIT 99.6(H)
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Distribution Agreement
(Class C Shares)
----------------
Agreement made as of August 1, 1994, between Prudential Structured Maturity
Fund, Inc., a Maryland Corporation (the Fund) and Prudential Securities
Incorporated, a Delaware corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the Investment Company Act), as a diversified, open-end, management
investment company and it is in the interest of the Fund to offer its Class C
shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, and is engaged in the business of selling
shares of registered investment companies either directly or through other
broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other, with respect to the continuous offering of the Fund's Class C shares
from and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Class C shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant to
Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments by
the Fund to the Distributor with respect to the distribution of Class C shares
of the Fund and the maintenance of Class C shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
------------------------------
The Fund hereby appoints the Distributor as the principal underwriter and
distributor of the Class C shares of the Fund to sell Class C shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class C shares of the Fund to the Distributor on the terms and conditions set
forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
--------------------------
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the Fund's Class C shares, except that:
2.1 The exclusive rights granted to the Distributor to purchase Class C
shares from the Fund shall not apply to Class C shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class C shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class C shares issued by the
Fund pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class C Shares from the Fund
----------------------------------------
3.1 The Distributor shall have the right to buy from the Fund the Class C
shares needed, but not more than the Class C shares needed (except for clerical
errors in transmission) to fill unconditional orders for Class C shares placed
with the Distributor by investors or registered and qualified securities dealers
and other financial institutions (selected dealers). The price which the
Distributor shall pay for the Class C shares so purchased from the Fund shall be
the net asset value, determined as set forth in the Prospectus.
3.2 The Class C shares are to be resold by the Distributor or selected
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of its Class C
shares at times when redemption is suspended pursuant
<PAGE>
to the conditions in Section 4.3 hereof or at such other times as may be
determined by the Board of Directors. The Fund shall also have the right to
suspend the sale of its Class C shares if a banking moratorium shall have been
declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class C shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class C shares. The Fund (or its agent) will
confirm orders upon their receipt, will make appropriate book entries and upon
receipt by the Fund (or its agent) of payment therefore, will deliver deposit
receipts for such Class C shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class C Shares by the Fund
------------------------------------------------------
4.1 Any of the outstanding Class C shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class C shares so
tendered in accordance with its Articles of Incorporation as amended from time
to time, and in accordance with the applicable provisions of the Prospectus.
The price to be paid to redeem or repurchase the Class C shares shall be equal
to the net asset value determined as set forth in the Prospectus. All payments
by the Fund hereunder shall be made in the manner set forth in Section 4.2
below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class C shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class C shares or payment may be suspended at times when
the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. Duties of the Fund
------------------
5.1 Subject to the possible suspension of the sale of Class C shares as
provided herein, the Fund agrees to sell its Class C shares so long as it has
Class C shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class C shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Board of Directors and the shareholders, all necessary action to
fix the number of authorized Class C shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Class C shares as the Distributor reasonably
may expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class C shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class C shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
C shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
-------------------------
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class C shares of the Fund, but shall not be obligated to sell any
specific number of Class C shares. Sales of the Class C shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class C shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Class C shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Class C shares only to such selected dealers as
are members in good standing of the NASD. Class C shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
---------------------------
The Distributor shall receive and may retain any contingent deferred sales
charge which is imposed with respect to repurchases and redemptions of Class C
shares as set forth in the Prospectus, subject to the limitations of Article
III, Section 26 of the NASD Rules of Fair Practice. Payment of these amounts to
the Distributor is not contingent upon the adoption or continuation of the Plan.
Section 8. Payment of the Distributor under the Plan
-----------------------------------------
8.1 The Fund shall pay to the Distributor as compensation for services
under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales charge of .75 of 1% and a service fee of .25 of
1%) per annum of
5
<PAGE>
the average daily net assets of the Class C shares of the Fund. Amounts payable
under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer commissions) and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor. So
long as the Plan (or any amendment thereto) is in effect, at the request of the
Board of Directors or any agent or representative of the Fund, the Distributor
shall provide such additional information as may reasonably be requested
concerning the activities of the Distributor hereunder and the costs incurred in
performing such activities.
8.3 Expenses of distribution with respect to the Class C shares of the
Fund include, among others:
(a)sales commissions (including trailer commissions) paid to, or
on account of, account executives of the Distributor;
(b)indirect and overhead costs of the Distributor associated with
performance of distribution activities, including central office and
branch expenses;
(c)amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor for sale
of Class C shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with distribution activities;
(d)sales commissions (including trailer commissions) paid to, or
on account of, broker-dealers and financial institutions (other than
Prusec) which have entered into selected dealer agreements with the
Distributor with respect to Class C shares of the Fund;
(e)amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial institutions for
personal service and/or the maintenance of
6
<PAGE>
shareholder accounts; and
(f)advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing Fund
Prospectuses, and periodic financial reports and sales literature to
persons other than current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
----------------------
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class C shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class C shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class C shares, so long as the
Plan is in effect.
Section 10. Indemnification
---------------
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a material fact contained in the Registration Statement
or Prospectus
7
<PAGE>
or arising out of or based upon any alleged omission to state a material fact
required to be stated in either thereof or necessary to make the statements in
either thereof not misleading, except insofar as such claims, demands,
liabilities or expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
director or controlling person unless a court of competent jurisdiction shall
determine in a final decision on the merits, that the person to be indemnified
was not liable by reason of willful misfeasance, bad faith or gross negligence
in the performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class C shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to make such information not misleading. The Distributor's agreement
8
<PAGE>
to indemnify the Fund, its officers and Directors and any such controlling
person as aforesaid, is expressly conditioned upon the Distributor's being
promptly notified of any action brought against the Fund, its officers and
Directors or any such controlling person, such notification to be given to the
Distributor in writing at its principal business office.
Section 11. Duration and Termination of this Agreement
------------------------------------------
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class C shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class C shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class C shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Directors cast in
person at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
-------------
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
9
<PAGE>
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities
Incorporated
By: /s/ Robert F. Gunia
----------------------
Robert F. Gunia
Senior Vice President
Prudential Structured Maturity
Fund, Inc.
By: /s/ Lawrence C. McQuade
-----------------------
Lawrence C. McQuade
President
10
<PAGE>
EXHIBIT 99.10(B)
GARDNER, CARTON & DOUGLAS
SUITE 3400-QUAKER TOWER
321 NORTH CLARK STREET
CHICAGO, ILLINOIS 60610-4795
(312) 644-3000
TELECOPIER: (312) 644-3381
February 27, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Prudential Structured Maturity Fund, Inc.
Shares of Common Stock, $0.01 par value per share
-------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Prudential Structured Maturity Fund, Inc.,
a Maryland corporation (the "Fund"), in connection with its filing of
Post-Effective Amendment No. 12 to its Registration Statement on Form N-1A (File
No. 33-22363) (the "Amendment"). In addition to updating the information
contained therein, this Amendment registers 864,110 shares of Common Stock,
$0.01 par value per share, of the Fund.
We have examined all instruments, documents and records which, in our
opinion, were necessary of examination for the purpose of rendering this
opinion. Based upon such examination, we are of the opinion that the
above-described shares of Common Stock will be, if and when issued by the Fund
in the manner and upon the terms set forth in said Amendment, validly authorized
and issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Amendment.
Very truly yours,
/s/ Gardner, Carton & Douglas
GARDNER, CARTON & DOUGLAS
HJM/dmh
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 12 to Registration
Statement No. 33-22363 of Prudential Structured Maturity Fund, Inc. of our
report dated February 2, 1995, appearing in the Statement of Additional
Information, which is a part of such Registration Statement, and to the
references to us under the headings "Financial Highlights" in the Prospectus of
the Income Portfolio, which is a part of such Registration Statement, and
"Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants"
in the Statement of Additional Information.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
February 21, 1995
<PAGE>
EXHIBIT 99.15(c)
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Distribution and Service Plan
(Class A Shares)
---------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Structured Maturity Fund, Inc. (the
Fund) and by Prudential Mutual Fund Distributors, Inc., the Fund's distributor
(the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor,
as compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors of the Fund, including a majority of
those Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and
<PAGE>
its shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
A shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
distribution networks of Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities Corporation (Prusec), including sales personnel
and branch office and central support systems, and also using such other
qualified broker-dealers and financial institutions as the Distributor may
select. Services provided and activities undertaken to distribute Class A
shares of the Fund are referred to herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
-----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class A
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2 hereof),
of .30 of 1% per annum of the average daily net assets of the Class A shares of
the Fund for the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
3
<PAGE>
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a)amounts paid to Prudential Securities for performing services
under a selected dealer agreement between Prudential Securities and
the Distributor for sale of Class A shares of the Fund, including
sales commissions and trailer commissions paid to, or on account of,
account executives and indirect and overhead costs associated with
Distribution Activities, including central office and branch expenses;
(b)amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor for sale
of Class A shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(c)advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing Fund
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than current
shareholders of the Fund; and
(d)sales commissions (including trailer commissions) paid to, or
on account of, broker-dealers and financial institutions (other than
Prudential Securities and Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class A shares
of the Fund.
4
<PAGE>
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as the
Board shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and financial institutions
which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of
5
<PAGE>
the Rule 12b-1 Directors by votes cast in person at a meeting called for the
purpose of voting on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class A shares of the Fund.
7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors of the Fund and a majority of the Rule 12b-1 Directors by votes cast
in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors
--------------------
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors shall be committed to the discretion of the Rule 12b-1 Directors.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at
6
<PAGE>
least the first two years in an easily accessible place.
Dated: August 1, 1994
7
<PAGE>
EXHIBIT 99.15(d)
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Distribution and Service Plan
(Class B Shares)
---------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Structured Maturity Fund, Inc. (the
Fund) and by Prudential Securities Incorporated (Prudential Securities), the
Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will continue to employ the Distributor to distribute Class B shares issued
by the Fund (Class B shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class B shares.
A majority of the Board of Directors of the Fund including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Directors), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders. Expenditures
<PAGE>
under this Plan by the Fund for Distribution Activities (defined below) are
primarily intended to result in the sale of Class B shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class B shares of the Fund are referred to herein as
"Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
-----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class B
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors may determine. Amounts payable under the Plan shall
be subject to the limitations of Article III, Section 26 of the NASD Rules of
Fair Practice.
Amounts paid to the Distributor by the Class B shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among
3
<PAGE>
classes will be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
B shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to Class B shares of the Fund.
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as
they shall from time to time reasonably request, including
4
<PAGE>
information about Distribution Activities undertaken or to be undertaken by the
Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class B shares of the Fund.
5
<PAGE>
7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors of the Fund and a majority of the Rule 12b-1 Directors by votes cast
in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors
--------------------
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors shall be committed to the discretion of the Rule 12b-1 Directors.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated: August 1, 1994
6
<PAGE>
EXHIBIT 99.15(f)
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Distribution and Service Plan
(Class C Shares)
---------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Structured Maturity Fund, Inc. (the
Fund) and by Prudential Securities Incorporated (Prudential Securities), the
Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will continue to employ the Distributor to distribute Class C shares issued
by the Fund (Class C shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class C shares.
A majority of the Board of Directors of the Fund including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Directors), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders. Expenditures
<PAGE>
under this Plan by the Fund for Distribution Activities (defined below) are
primarily intended to result in the sale of Class C shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class C shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class C shares of the Fund are referred to herein as
"Distribution Activities."
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2. Payment of Service Fee
-----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors may determine. Amounts payable under the Plan shall
be subject to the limitations of Article III, Section 26 of the NASD Rules of
Fair Practice.
Amounts paid to the Distributor by the Class C shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among
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classes will be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
C shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to Class C shares of the Fund.
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as
they shall from time to time reasonably request, including
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information about Distribution Activities undertaken or to be undertaken by the
Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class C shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class C shares of the Fund.
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7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class C shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors of the Fund and a majority of the Rule 12b-1 Directors by votes cast
in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors
--------------------
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors shall be committed to the discretion of the Rule 12b-1 Directors.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated: August 1, 1994
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