As filed with the Securities and Exchange Commission on May 6, 1994
Registration No. 33-37356
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.
Post-Effective Amendment No. 6 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 12 [X]
(Check appropriate box or boxes)
GLOBAL UTILITY FUND, INC.
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA,
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service of Process) Copy to:
Arthur J. Brown, Esq.
Kirkpatrick & Lockhart
1800 M Street, N.W.
Washington, D.C. 20036
Approximate date of proposed public offering:
As soon as practicable after the effective
date of the Registration Statement.
It is proposed that this filing will become effective
(check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (a), of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has previously registered an indefinite number of shares of
Common Stock, par value $.001 per share. The Registrant filed a notice
under such Rule for its fiscal year ended September 30, 1993 on November
22, 1993.
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<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1a Item No. Location
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Part A
<S> <C><C> <C>
Item 1. Cover Page .................................................. Cover Page
Item 2. Synopsis .................................................... Fund Expenses
Item 3. Condensed Financial Information ............................. Fund Expenses; Financial Highlights;
How The Fund Calculates
Performance
Item 4. General Description of Registrant ........................... Cover Page; 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 Securities .......................... Taxes, Dividends and Distributions;
General Information
Item 7. Purchase of Securities Being Offered ........................ Shareholder Guide; How The Fund
Values its Shares
Item 8. Redemption or Repurchase .................................... Shareholder Guide; How The Fund
Values its Shares
Item 9. Pending Legal Proceedings ................................... Not Applicable
Part B
Item 10. Cover Page .................................................. Cover Page
Item 11. Table of Contents ........................................... Table of Contents
Item 12. General Information and History ............................. General Information
Item 13. Investment Objectives and Policies .......................... Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund ...................................... Information Regarding Directors and
Officers; Manager; Subadviser;
Distributor
Item 15. Control Persons and Principal Holders of Securities ......... Not Applicable
Item 16. Investment Advisory and Other Services ...................... Manager; Distributor; Custodian,
Transfer and Dividend Disbursing
Agent and Independent Accountants
Item 17. Brokerage Allocation and Other Practices .................... Portfolio Transactions
and Brokerage
Item 18. Capital Stock and Other Securities .......................... Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Offered. Purchase and Redemption of Fund
Shares; Shareholder Investment
Account; Net Asset Value
Item 20. Tax Status .................................................. Taxes
Item 21. Underwriters ................................................ Distributor
Item 22. Calculation of Performance Data ............................. Performance Information
Item 23. Financial Statements ........................................ Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
<PAGE>
Global
Utility Fund, Inc.
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Prospectus dated , 1994
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Global Utility Fund, Inc. (the Fund) is a diversified, open-end management
investment company. The Fund's investment objective is to provide total
return, without incurring undue risk, by investing primarily in income-
producing securities of domestic and foreign companies in the utility
industries. Under normal circumstances, at least 65% of the Fund's total
assets will be invested in a diversified portfolio of equity and debt
securities of domestic and foreign utility companies, principally
electric, telecommunications, gas or water companies. There can be no
assurance that the Fund'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 1-
800-225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional
information about the Fund has been filed with the Securities and Exchange
Commission in a Statement of Additional Information, dated ,
1994, which information is incorporated herein by reference (is legally
considered a part of this Prospectus) and available without charge upon
request to the Fund, at the address or telephone number noted above.
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Investors are advised to read this Prospectus and retain it for future
reference.
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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>
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FUND HIGHLIGHTS
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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.
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What is Global Utility Fund?
Global Utility Fund is a mutual fund. A mutual fund pools the resources
of investors by selling its shares to the public and investing the proceeds
of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company.
What is the Fund's Investment Objective?
The Fund's investment objective is to provide total return, without
incurring undue risk, by investing primarily in income-producing securities
of domestic and foreign companies in the utility industries. Under normal
circumstances, at least 65% of the Fund's total assets will be invested in
a diversified portfolio of equity and debt securities of domestic and
foreign utility companies, principally electric, telecommunications, gas or
water companies. See "How the Fund Invests- Investment Objective and
Policies" at page 6.
What are the Fund's Special Characteristics and Risks?
The Fund concentrates its investments in the securities of companies in
the utility industries. Consequently, factors specifically affecting those
industries, such as substantial government regulation, interest rate
movements, and increased competition, may have a greater affect on the
value of the Fund's shares than on those of an investment company that does
not concentrate its investments in the utility industries. In addition, as
a result of the Fund's ability to invest in companies in the utility
industries around the world, the Fund is subject to risks relating to
political and economic developments abroad, as well as those relating to
the different and rapidly evolving regulatory environments for utility
companies in foreign markets. See "How the Fund Invests-Investment
Objective and Policies" at page 6.
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 based on a
percentage of the Fund's average daily net assets. As of March 31, 1994,
PMF served as manager or administrator to [66] investment companies,
including [37] mutual funds, with aggregate assets of approximately $[49]
billion. Wellington Management Company (Wellington Management or the
Subadviser) furnishes investment advisory services in connection with the
management of the Fund under a Subadvisory Agreement with PMF and is
compensated for its services by PMF based on a percentage of the Fund's
average daily net assets. As of March 31, 1994, the Subadviser held
discretionary investment authority over approximately $[80] billion of
assets. See "How the Fund is Managed-Manager" at page 12 and "How the Fund
Is Managed-Subadviser" at page 13.
Who Distributes the Fund's Shares?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the
Distributor of the Fund's Class A shares and is currently paid for its
services at an annual rate of .25 of 1% of the average daily net assets of
the Class A shares.
Prudential Securities Incorporated (Prudential Securities or PSI), a
major securities underwriter and securities and commodities broker, acts as
the Distributor of the Fund's Class B and Class C shares and is paid for
its services at an annual rate of 1% of the average daily net assets of
each of the Class B and Class C shares.
See "How the Fund is Managed-Distributor" at page 13.
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2
<PAGE>
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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 19 and
"Shareholder Guide-Shareholder Services" at page 27.
How Do I Purchase Shares?
You may purchase shares of the Fund through Prudential Securities,
Pruco Securities Corporation (Prusec) or directly from the Fund, through
its transfer agent, Prudential Mutual Fund Services, Inc. (PMFS or the
Transfer Agent) at the net asset value per share (NAV) next determined
after receipt of your purchase order by the Transfer Agent or Prudential
Securities plus a sales charge which may be imposed either (i) at the time
of purchase (Class A shares) or (ii) on a deferred basis (Class B or Class C
shares). See "How the Fund Values its Shares" at page 15 and "Shareholder
Guide-How to Buy Shares of the Fund" at page 19.
What Are My Purchase Alternatives?
The Fund offers three classes of shares:
*Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
*Class B Shares: Sold without an initial sales charge but are subject
to a contingent deferred sales charge or CDSC
(declining from 5% to zero of the lower of the amount
invested or the redemption proceeds) which will be
imposed on certain redemptions made within six years
of purchase. Although Class B shares are subject to
higher ongoing distribution-related expenses than
Class A shares, Class B shares will automatically
convert to Class A shares (which are subject to lower
ongoing expenses) approximately seven years after
purchase.
*Class C Shares: Sold without an initial sales charge and, for one year
after purchase, are subject to a 1% CDSC on redemptions.
Like Class B shares, Class C shares are subject to
higher ongoing distribution-related expenses than
Class A shares but do not convert to another class.
See "Shareholder Guide-Alternative Purchase Plan" at page 20.
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 22.
How Are Dividends and Distributions Paid?
The Fund expects to pay dividends of net investment income,
if any, quarterly and make distributions of any net capital gains at least
annually. Dividends and distributions will be automatically reinvested in
additional shares of the Fund at NAV without a sales charge unless you
request that they be paid to you in cash. See "Taxes, Dividends and
Distributions" at page 16.
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3
<PAGE>
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FUND EXPENSES
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shareholder Transaction Expenses\D Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) ................... 5% None None
Maximum Sales Load or Deferred
Sales Load Imposed on
Reinvested Dividends .............. None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) ............... None 5% during the first year, 1% on redemptions
decreasing by 1% annually to made within one year
1% in the fifth and sixth years of purchase
and 0% the seventh year*
Redemption Fees ................... None None None
Exchange Fees ..................... None None None
Annual Fund Operating Expenses
(as a percentage of average net assets) Class A Shares Class B Shares Class C Shares**
-------------- -------------- --------------
Management Fees ................... .70% .70% .70%
12b-1 Fees ........................ .25%\D\D 1.00% 1.00%
Other Expenses .................... .40% .40% .40%
--- --- ---
Total Fund Operating Expenses ..... 1.35% 2.10% 2.10%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Example 1 year 3 years 5 years 10 years
------ ------- ------- --------
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period:
Class A ................................................ $63 $91 $120 $ 204
Class B ................................................ $71 $96 $123 $ 215
Class C** .............................................. $31 $66 $113 $ 243
You would pay the following expenses on the same investment assuming
no redemption:
Class A ................................................ $63 $91 $120 $ 204
Class B ................................................ $21 $66 $113 $ 215
Class C** .............................................. $21 $66 $113 $ 243
</TABLE>
The above example with respect to Class A and Class B shares is based
on restated (Class A only) data for the fiscal year ended September 30,
1993. The above example with respect to Class C shares is based on expenses
expected to have been incurred if Class C shares had been in existence
during the fiscal year ended September 30, 1993. The example should not be
considered a representation of past or future expenses. Actual expenses may
be greater or less than those shown.
The purpose of this table is to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear,
whether directly or indirectly. For more complete descriptions of the
various costs and expenses, see "How the Fund is Managed." "Other
Expenses" includes an estimate of operating expenses of the Fund, such as
Directors' and professional fees, registration fees, reports to
shareholders and transfer agency and custodian (domestic and foreign)
fees.
*Class B shares will automatically convert to Class A shares
approximately seven years after purchase. See "Shareholder Guide-
Conversion Feature-Class B Shares."
**Estimated based on expenses expected to have been incurred if Class C
shares had been in existence during the fiscal year ended September 30,
1993.
\DPursuant to rules of the National Association of Securities
Dealers, Inc., the aggregate initial sales charges, deferred sales
charges and asset-based sales charges on shares of the Fund may not
exceed 6.25% of total gross sales, subject to certain exclusions. This
6.25% limitation is imposed on the Fund rather than on a per shareholder
basis. Therefore, long-term Class B and Class C shareholders of the Fund
may pay more in total sales charges than the economic equivalent of
6.25% of such shareholders' investment in such shares. See "How the Fund
is Managed-Distributor."
\D\DAlthough the Class A Distribution and Service Plan provides that
the Fund may pay a distribution fee of up to .30 of 1% per annum of the
average daily net asset value of the Class A shares, the Distributor has
agreed to limit its distribution fees with respect to Class A shares of
the Fund to not more than .25 of 1% of the average daily net assets of
the Class A shares for the fiscal year ending September 30, 1994. See
"How the Fund is Managed-Distributor."
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4
<PAGE>
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FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the periods indicated)
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The following financial highlights (with the exception of the six
months ended March 31, 1994) have been audited by Deloitte & Touche,
independent accountants, whose report was unqualified. This information
should be read in conjunction with the financial statements and the notes
thereto, which appear in the Statement of Additional Information.
The following financial highlights contain selected data for a share of
common stock outstanding, total return, ratios to average net assets and
other supplemental data for the periods indicated. The information is
based on data contained in the financial statements. No Class C shares
were outstanding during these periods.
<TABLE>
<CAPTION>
Class A Class B
Six months January 2 Six months March 18,
ended 1990* ended Year Ended 1991***
March 31, Year Ended September 30, Through March 31, September 30, Through
1994 ------------------------ September 30, 1994 -------------- September 30,
(Unaudited) 1993 1992 1991 1990 Unaudited) 1993 1992 1991
----------- ---- ---- ---- ---- ---------- ---- ---- ----
PER SHARE OPERATING
PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period . $ $ 12.96 $ 12.62 $ 10.50 $ 11.16 $ $ 12.97 $ 12.63 $ 11.97
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations
Net investment income ................ .44 .53 .57 .48 .34 .43 .25
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions ........................ 2.46 1.01 2.23 (.67) 2.45 1.01 .63
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations ..... 2.90 1.54 2.82 (.19) 2.79 1.44 .88
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions
Dividends from net investment
income .............................. (.47) (.53) (.62) (.41) (.37) (.43) (.22)
Distributions in excess of net
investment income ................... (.01) - - - (.01) - -
Distributions from net realized capital
and currency gains .................. (.75) (.67) (.08) - (.75) (.67) -
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions .................. (1.23) (1.20) (.70) (.41) (1.13) (1.10) (.22)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Capital charge in respect of issuance
of shares ........................... - - - (.06) - - -
Redemption fee retained by Fund ...... - - .02 - - - -
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ $ 14.63 $ 12.96 $ 12.62 $ 10.50 $ $ 14.63 $ 12.97 $ 12.63
======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN\D 23.87% 13.15% 27.63% (1.98)% 22.87% 12.23% 7.44%
RATIOS/SUPPLEMENTAL DATA:\D \D
Net assets, end of period (000) $ $138,714 $114,654 $132,804 $161,892 $ $185,259 $ 60,432 $ 30,147
Average net assets (000) $ $119,001 $120,708 $151,217 $166,915 $ $ 90,254 $ 45,661 $ 18,923
Ratios to average net assets:
Expenses, including distribution
fees %** 1.30% 1.39% 1.49% 1.05%** %** 2.10% 2.19% 2.47%**
Expenses, excluding distribution
fees %** 1.10% 1.19% 1.36% 1.05%** %** 1.10% 1.19% 1.47%**
Net investment income %** 3.37% 4.16% 5.06% 5.97%** %** 2.59% 3.43% 4.16%**
Portfolio turnover rate %** 14% 57% 135% 27% %** 14% 57% 135%
<FN>
- ------------------
*Commencement of investment operations.
**Annualized.
***Commencement of offering of Class B shares.
\DTotal 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 and includes reinvestment of dividends
and distributions. Total return for periods of less than a full year are
not annualized.
\D\DPrior to Februrary 4, 1991, the Fund operated as a closed-end
investment company. Effective February 4, 1991, the Fund commenced
operations as an open-end investment company. Accordingly, historical
expenses and ratios to average net assets are not necessarily indicative
of future expenses and related ratios.
</TABLE>
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5
<PAGE>
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HOW THE FUND INVESTS
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide total return, without
incurring undue risk, by investing primarily in income-producing securities
of domestic and foreign companies in the utility industries. The Fund's
total return will consist of current income and growth of capital. The Fund
seeks to achieve its objective by investing, under normal circumstances, at
least 65% of its total assets in a diversified portfolio of common stocks,
debt securities and preferred stocks issued by domestic and foreign
companies primarily engaged in the ownership or operation of facilities
used in the generation, transmission or distribution of electricity,
telecommunications, gas or water. There can be no assurance that such
objective will be achieved. See "Investment Objective and Policies" in the
Statement of Additional Information.
The Fund's portfolio will include issuers located in at least three
countries, one of which will be the United States, although the Subadviser
expects to invest the Fund's assets in more than three countries. Under
normal conditions, the percentage of assets invested in U.S. securities
will be higher than that invested in securities of any other single
country.
Investments are selected on the basis of fundamental analysis to
identify those securities that, in the judgment of the Subadviser, provide
current income and potential for growth of income and long-term capital
appreciation. Fundamental analysis involves assessing a company and its
business environment, management, balance sheet, income statement,
anticipated earnings and dividends and other related measures of value. The
Subadviser monitors and evaluates the economic and political climate and
the principal securities markets of the country in which each company is
located. The relative weightings among common stocks, debt securities and
preferred stocks will vary from time to time based upon the Subadviser's
judgment of the extent to which investments in each category will
contribute to meeting the Fund's investment objective.
The Fund normally may invest up to 35% of its total assets in debt
securities, which may include investments both in securities of issuers in
the utility industries and in securities of issuers outside of such
industries. Debt securities in which the Fund invests generally are limited
to those rated investment grade, that is, rated in one of the four highest
rating categories by Standard & Poor's Ratings Group (S&P) or Moody's
Investors Service, Inc. (Moody's) or deemed to be of equivalent quality in
the judgment of the Subadviser. However, the Fund may invest up to 5% of
its assets in debt securities rated below investment grade (i.e., below Baa
or BBB). If the Fund holds a security that is downgraded to a rating below
Baa or BBB and, as a result of such downgrade, more than 5% of the Fund's
assets would be invested in securities rated below Baa or BBB, the Fund
would take steps to reduce its investments in such securities to 5% or less
of its assets as promptly as practical. There is no limitation on the
percentage of the Fund's net assets that may be invested in securities
rated Baa or BBB. Securities rated Baa by Moody's are described as having
speculative characteristics; securities rated below investment grade are
generally described by the rating services as speculative. Investments in
lower rated securities involve a greater possibility that adverse changes,
or perceived changes, in the business or financial condition of the issuer
or in general economic conditions may impair the ability of the issuer to
make timely payment of interest and repayment of principal. The prices of
such securities tend to fluctuate more than those of higher rated
securities. To the extent that there is no established or a relatively
inactive secondary market in a particular lower rated security, it could be
difficult at times to sell or value such security.
A change in prevailing interest rates is likely to affect the Fund's
net asset value because prices of debt securities and equity securities of
utility companies tend to increase when interest rates decline and decrease
when interest rates rise.
During periods when the Subadviser deems it necessary for temporary
defensive purposes, the Fund may invest without limit in high quality money
market instruments. These instruments may include commercial paper,
adjustable rate preferred stock, certificates of deposit, bankers'
acceptances and other bank obligations, short-term obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
short-term obligations of foreign issuers, denominated in U.S. dollars and
traded in the United States.
6
<PAGE>
The Fund's investment objective is a fundamental policy and, therefore,
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company
Act of 1940, as amended (the Investment Company Act). Fund policies that
are not fundamental may be modified by the Board of Directors.
Utility Industries-Description and Risk Factors
Under normal circumstances, the Fund invests at least 65% of its total
assets in common stocks, debt securities and preferred stocks of companies
in utility industries. (The Fund considers purchased options and futures
contracts on securities in the utility industries to fall into this
category; however, no more than 5% of the Fund's total assets invested in
such instruments will be counted towards satisfaction of the Fund's 65%
test.) The average dividend yields (indicated annual dividend divided by
current stock price) of common stocks issued by domestic utility companies,
in the Subadviser's opinion, have historically exceeded those of industrial
companies' common stocks, while the prices of utility stocks have tended to
be less volatile than stocks of industrial companies. According to the
Subadviser, debt securities of domestic utility companies historically also
have yielded slightly more than similar debt securities of industrial
companies, and have had higher total returns. For certain periods, the
total return of domestic utility companies' securities has underperformed
that of industrial companies' securities. There can be no assurance that
positive relative yields or total returns (i.e., yield plus price change)
on domestic utility securities will occur in the future. The markets for
securities of foreign utility companies are rapidly evolving and comparable
data on such securities are currently unavailable; however, the Subadviser
believes that there are similarities in the yield characteristics of
foreign utility companies relative to foreign industrial companies. See
"Foreign Securities."
The utility companies in which the Fund invests include companies
primarily engaged in the ownership or operation of facilities used to
provide electricity, telecommunications, gas or water. For these purposes,
"primarily engaged" means that (1) more than 50% of the company's assets
are devoted to the ownership or operation of one or more facilities as
described above, or (2) more than 50% of the company's operating revenues
are derived from the business or combination of businesses described above.
See "Investment Objective and Policies" in the Statement of Additional
Information.
Utility companies in the United States and in foreign countries are
generally subject to substantial regulation. Such regulation is intended to
ensure appropriate standards of review and adequate capacity to meet public
demand. The nature of regulation of utility industries is evolving both in
the United States and in foreign countries. Although certain companies may
develop more profitable opportunities, others may be forced to defend their
core businesses and may be less profitable. Electric utility companies have
historically been subject to the risks associated with increases in fuel
and other operating costs, high interest costs on borrowings, costs
associated with compliance with environmental, nuclear facility and other
safety regulations and changes in the regulatory climate. Increased
scrutiny of electric utilities might result in higher costs and higher
capital expenditures, with the risk that regulators may disallow inclusion
of these costs in rate authorizations. Increasing competition due to past
regulatory changes in the telephone communications industry continues and,
whereas certain companies have benefitted, many companies may be adversely
affected in the future. Gas transmission companies and gas distribution
companies continue to undergo significant changes as well. Many companies
have diversified into oil and gas exploration and development, making
returns more sensitive to energy prices. Water supply utilities are in an
industry that is highly fragmented due to local ownership and generally the
companies are more mature and are experiencing little or no per capita
volume growth. There is no assurance that favorable developments will occur
in the utility industries generally, or that business opportunities will
continue to undergo significant changes or growth. See "Investment
Objective and Policies-Utility Industries-Description and Risk Factors" in
the Statement of Additional Information.
Foreign Securities
The Fund invests in common stocks, debt securities and preferred stocks
of companies in utility industries around the world. The Subadviser
attempts to take advantage of differences between economic trends and the
7
<PAGE>
performance of securities markets in various countries. The Subadviser
believes that the Fund's portfolio benefits from the availability of
opportunities for income and growth in foreign markets and that the
portfolio achieves broader diversification from foreign investment. Global
diversification reduces the effect that events in any one country will have
on overall investment returns. Of course, losses by an investment in the
United States, or any foreign market represented in the Fund's portfolio
may offset gains from investment in another market.
Investments in securities of foreign utility companies involve many of
the same risks noted above for domestic utility companies. Foreign
investment also involves additional risks relating to political and
economic developments abroad, as well as those that result from the
differences between the regulations to which U.S. and foreign issuers are
subject. These risks may include expropriation, confiscatory taxation,
limitations on the use or transfer of Fund assets, political or social
instability and foreign relations developments. In addition, individual
foreign economies may differ favorably or unfavorably from the U.S. economy
in such respects as growth of gross national product, rates of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
positions. Securities of many foreign issuers may be less liquid and their
prices more volatile than those of securities of comparable U.S. issuers.
Further, a change in the value of a foreign currency against the U.S.
dollar will result in a corresponding change in the U.S. dollar value of
the Fund's assets denominated in that currency. See "Investment Objective
and Policies-Foreign Securities" in the Statement of Additional
Information.
Investment Outside the Utility Industries
The Fund may invest up to 35% of its assets in securities of companies
that are outside the utility industries. Such investments may include
common stocks, debt securities, preferred stocks, and money market
instruments, including repurchase agreements, and are selected to meet the
Fund's investment objective of total return. This limitation also includes
investments in options and futures contracts to the extent that they relate
to securities outside the utility industries, and in forward currency
contracts. Securities outside the utility industries in which the Fund may
invest may be issued by either U.S. or non-U.S. companies and governments.
Some of these issuers may be in industries related to utility industries
and, therefore, may be subject to similar risks. Securities that are issued
by foreign companies or are denominated in foreign currencies are subject
to the risks outlined in "Foreign Securities" above, and in "Investment
Objective and Policies-Foreign Securities" in the Statement of Additional
Information.
U.S. Government Securities
The Fund is also permitted to invest in securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities (U.S. Government
Securities). Such investments may be backed by the "full faith and credit"
of the United States, including U.S. Treasury bills, notes and bonds as
well as certain agency securities and mortgage-backed securities issued by
the Government National Mortgage Association (GNMA). The guarantees on
these securities do not extend to the securities' yield or value or to the
yield or value of the Fund's shares. Other investments in agency securities
are not necessarily backed by the "full faith and credit" of the United
States.
Foreign Government Securities
The Fund may invest in securities issued or guaranteed by foreign
governments. Such securities are typically denominated in foreign
currencies and are subject to the currency fluctuation and other risks of
foreign securities investments outlined in "Foreign Securities" above, and
in "Investment Objective and Policies-Foreign Securities" in the Statement
of Additional Information. The foreign government securities in which the
Fund intends to invest generally will consist of obligations supported by
national or local governments or similar political subdivisions. Foreign
government securities also include debt obligations of supranational
entities, including international organizations designated or supported by
governmental entities to promote economic reconstruction or development and
international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development
(the World Bank), the European Investment Bank, the Asian Development Bank
and the Inter-American Development Bank.
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<PAGE>
Foreign government securities also include debt securities of "quasi-
governmental agencies" and debt securities denominated in multinational
currency units. An example of a multinational currency unit is the European
Currency Unit. A European Currency Unit represents specified amounts of the
currencies of certain of the twelve member states of the European Economic
Community. Debt securities of quasi-governmental agencies are issued by
entities owned by either a national or local government or are obligations
of a political unit that is not backed by the national government's full
faith and credit and general taxing powers. Foreign government securities
also include mortgage-related securities issued or guaranteed by national
or local governmental instrumentalities including quasi-governmental
agencies.
HEDGING AND INCOME ENHANCEMENT STRATEGIES
The Fund may also engage in various portfolio strategies to reduce
certain risks of its investments and to attempt to enhance income, but not
for speculation. These strategies currently include the use of options,
forward currency exchange contracts and futures contracts and options
thereon. The Fund's ability to use these strategies may be limited by
market conditions, regulatory limits and tax considerations and there can
be no assurance that any of these strategies will succeed. See "Investment
Objective and Policies-Additional Investment Policies" in the Statement of
Additional Information. New financial products and risk management
techniques continue to be developed and the Fund may use these new
investments and techniques to the extent consistent with its investment
objective and policies.
Options Transactions
The Fund may purchase and write (i.e., sell) put and call options on
securities and currencies that are traded on national securities exchanges
or in the over-the-counter market to enhance income or to hedge the Fund's
portfolio. These options will be on equity and debt securities, foreign
currencies, indices of prices of equity and debt securities, and other
financial indices. Options traded over-the- counter (OTC Options) are
two-party contracts involving only the purchaser and seller and have
negotiated strike prices and expiration dates. Financial indices measure
the upward or downward movements of stock and bond markets, based upon a
weighted average of the prices of the securities comprising the index. The
Fund may write covered put and call options to generate additional income
through the receipt of premiums, purchase put options in an effort to
protect the value of a security that it owns against a decline in market
value and purchase call options in an effort to protect against an increase
in price of securities (or currencies) it intends to purchase. The Fund may
also purchase or write put and call options to offset previously written or
purchased put and call options of the same series. See "Investment
Objective and Policies- Additional Investment Policies-Options on
Securities" in the Statement of Additional Information.
A call option gives the purchaser, in exchange for a premium paid, the
right for a specified period of time to purchase the securities or currency
subject to the option at a specified price (the "exercise price" or "strike
price"). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver, depending upon the
terms of the option contract, the underlying securities or a specified
amount of cash to the purchaser upon receipt of the exercise price. When
the Fund writes a call option, the Fund gives up the potential for gain on
the underlying securities or currency in excess of the exercise price of
the option during the period that the option is open.
A put option gives the purchaser, in return for a premium, the right,
for a specified period of time, to sell the securities or currency subject
to the option to the writer of the put at the specified exercise price. The
writer of the put option, in return for the premium, has the obligation,
upon exercise of the option, to acquire the securities or currency
underlying the option at the exercise price. The Fund might, therefore, be
obligated to purchase the underlying securities or currency for more than
their current market price.
The Fund will write only "covered" options. An option is covered if, so
long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security or currency or an option to purchase
the same underlying securities or currency having an expiration date not
earlier than the expiration date of the covered option and an exercise
9
<PAGE>
price equal to or less than the exercise price of the covered option, or
maintains cash, U.S. Government securities or other liquid high-grade debt
obligations with a value sufficient at all times to cover its obligations
in a segregated account. See "Investment Objective and Policies-Additional
Investment Policies" in the Statement of Additional Information. The Fund
will not write covered call options on portfolio securities representing
more than 25% of the value of its total assets. The Fund may write
covered put options only to the extent that cover for such options does not
exceed 25% of the Fund's net assets. The Fund will not purchase an option
if, as a result of such purchase, more than 20% of its total assets would
be invested in premiums for such options.
Forward Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts to
protect the value of its portfolio against future changes in the level of
currency exchange rates. The Fund may enter into such contracts on a spot,
i.e., cash, basis at the rate then prevailing in the currency exchange
market or on a forward basis, by entering into a forward contract to
purchase or sell currency. A forward contract on foreign currency is an
obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days agreed upon by the parties from the date of
the contract at a price set on the date of the contract.
The Fund's dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of a forward contract with respect to
specific receivables or payables of the Fund generally arising in
connection with the purchase or sale of its portfolio securities and
accruals of interest or dividends receivable and Fund expenses. Position
hedging is the sale of a foreign currency with respect to portfolio
security positions denominated or quoted in that currency or in a currency
bearing a high degree of positive correlation to the value of the currency
(cross hedge). Although there are no limits on the number of forward
contracts which the Fund may enter into, the Fund may not position hedge
with respect to a particular currency for an amount greater than the
aggregate market value (determined at the time of making any sale of
forward currency) of the securities held in its portfolio denominated or
quoted in, or currently convertible into, such currency. See "Investment
Objective and Policies-Additional Investment Policies-Special
Characteristics of Forward Currency Contracts and Associated Risks" in the
Statement of Additional Information.
Futures Contracts and Options Thereon
The Fund may purchase and sell financial futures contracts and options
thereon which are traded on a commodities exchange or board of trade for
certain hedging, return enhancement and risk management purposes in
accordance with regulations of the Commodity Futures Trading Commission.
These futures contracts and related options will be on equity and debt
securities, foreign currencies, indices of prices of equity and debt
securities, and other financial indices. A financial futures contract is an
agreement to purchase or sell an agreed amount of securities or currencies
at a set price for delivery in the future. The value of all futures
contracts sold will not exceed the total market value of the Fund's
portfolio.
The Fund's successful use of futures contracts and related options
depends upon the Subadviser's ability to predict the direction of the
market and is subject to various additional risks. The correlation between
movements in the price of a futures contract and the price of the
securities or currencies being hedged is imperfect and there is a risk that
the value of the securities or currencies being hedged may increase or
decrease at a greater rate than the related futures contract resulting in
losses to the Fund. Certain futures exchanges or boards of trade have
established daily limits on the amount that the price of a futures contract
or related options may vary, either up or down, from the previous day's
settlement price. These daily limits may restrict the Fund's ability to
purchase or sell certain futures contracts or related options on any
particular day.
10
<PAGE>
The Fund's ability to enter into forward contracts, futures contracts
and options thereon is limited by the requirements of the Internal Revenue
Code of 1986, as amended (the Internal Revenue Code), for qualification as
a regulated investment company. See "Taxes" in the Statement of Additional
Information.
Special Risks of Hedging and Income Enhancement Strategies
Participation in the options or futures markets and in currency
exchange transactions involves investment risks and transaction costs to
which the Fund would not be subject absent the use of these strategies. If
the Subadviser's prediction of movements in the direction of the
securities, foreign currency and interest rate and equity markets are
inaccurate, the adverse consequences to the Fund may leave the Fund in a
worse position than if such strategies were not used. Risks inherent in the
use of options, foreign currency and futures contracts and options on
futures contracts include (1) dependence on the Subadviser's ability to
predict correctly movements in the direction of interest rates, securities
prices and currency markets; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the
prices of the securities or currencies being hedged; (3) the fact that
skills needed to use these strategies are different from those needed to
select portfolio securities; (4) the possible absence of a liquid secondary
market for any particular instrument at any time; (5) the possible need to
defer closing out certain hedged positions to avoid adverse tax
consequences and (6) in the case of over-the-counter options, the risk of
default by the counter party. See "Investment Objective and Policies" and
"Taxes" in the Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
At the discretion of the Subadviser, the Fund may employ the following
strategies in pursuing its investment objective.
Securities Lending
The Fund may lend its portfolio securities to brokers or dealers, banks
or other recognized institutional borrowers of securities, provided that
the borrower at all times maintains cash or equivalent collateral or
secures a letter of credit in favor of the Fund in an amount equal to at
least 100% of the market value of the securities loaned. During the time
portfolio securities are on loan, the borrower will pay the Fund an amount
equivalent to any dividend or interest paid on such securities and earn
additional income, or the Fund may receive an agreed- upon amount of
interest income from the borrower. In accordance with applicable regulatory
requirements, the Fund may lend up to 30% of the value of its total assets.
Repurchase Agreements
The Fund may enter into repurchase agreements whereby the seller of a
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's
money is invested in the security. The Fund's repurchase agreements will at
all times be fully collateralized in an amount at least equal to the
purchase price, including accrued interest earned on the underlying
securities. The instruments held as collateral are valued daily, and if the
value of instruments declines, the Fund will require additional collateral.
If the seller defaults and the value of the collateral securing the
repurchase agreement declines, the Fund may incur a loss.
When-Issued and Delayed Delivery Securities
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery
taking place as much as a month or more in the future in order to secure
what is considered to be an advantageous price and yield to the Fund at the
time of entering into the transaction. The Fund's Custodian will maintain,
in a segregated account of the Fund, cash, U.S. Government securities or
other liquid high-grade debt obligations having a value equal to or greater
than the
11
<PAGE>
Fund's purchase commitments; the Custodian will likewise segregate
securities sold on a delayed delivery basis. The securities so purchased
are subject to market fluctuation and no interest accrues to the purchaser
during the period between purchase and settlement. At the time of delivery
of the securities the value may be more or less than the purchase price
and an increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Fund's net asset value.
Borrowing
The Fund may borrow an amount up to 33-1/3% of the value of its total
assets (calculated when the loan is made) from banks for temporary or
emergency purposes. The Fund may pledge up to 33-1/3% of its assets to
secure such borrowings. However, the Fund will not purchase portfolio
securities if borrowings exceed 5% of the Fund's total assets.
Illiquid Securities
The Fund may not invest more than 10% of its total assets in repurchase
agreements which have a maturity of longer than seven days or in other
illiquid securities, including securities that are illiquid by virtue of
the absence of a readily available market. Securities eligible for resale
in accordance with Rule 144A under the Securities Act of 1933, as amended
(the Securities Act), that have legal or contractual restrictions on resale
but have a readily available market are not considered illiquid for
purposes of this limitation. The Subadviser 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 notice period. See "Investment Objective and Policies-Illiquid
Securities" in the Statement of Additional Information.
The staff of the SEC has taken the position that purchased OTC Options
and the assets used as "cover" for written OTC Options are illiquid
securities unless the Fund and the counterparty have provided for the Fund,
at the Fund's election, to unwind the OTC Option. The exercise of such an
option ordinarily would involve the payment by the Fund of an amount
designed to reflect the counterparty's economic loss from an early
termination, but does allow the Fund to treat the assets used as "cover" as
"liquid."
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company
Act. See "Investment Restrictions" in the Statement of Additional
Information.
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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.
For the fiscal year ended September 30, 1993, the Fund's total expenses
as a percentage of average net assets for the Fund's Class A and Class B
shares were 1.30% and 2.10%, respectively. See "Financial Highlights." No
Class C shares were outstanding during the fiscal year ended September 30,
1993.
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One
Seaport Plaza, New York, New York 10292, is the Manager of the Fund. It is
compensated for its services by the Fund at an annual rate of .70% of the
Fund's average daily net assets for the portion of such assets up to and
including $250 million, .55% of the Fund's average daily
12
<PAGE>
net assets in excess of $250 million up to and including $500 million,
.50% of the Fund's average daily net assets in excess of $500 million up
to and including $1 billion and .45% of the Fund's average daily net
assets in excess of $1 billion. It was incorporated in May 1987 under the
laws of the State of Delaware. PMF is an indirect, wholly-owned subsidiary
of The Prudential Insurance Company of America (Prudential), a major
diversified insurance and financial services company. For the fiscal year
ended September 30, 1993, the Fund paid management fees to PMF of .70% of
the Fund's average net assets.
As of March 31, 1994, PMF served as the manager to [37] open-end
investment companies, constituting all of the Prudential Mutual Funds, and
as manager or administrator to [29] closed-end investment companies with
aggregate assets of approximately $[49] billion.
Under the Management Agreement with the Fund, PMF manages the
investment operations of the Fund and also administers the Fund's corporate
affairs. See "Management of the Fund-The Manager" in the Statement of
Additional Information.
SUBADVISER
Wellington Management Company, 75 State Street, Boston, Massachusetts
02109, serves as the Fund's Subadviser under a Subadvisory Agreement among
the Fund, PMF and Wellington Management Company (Wellington Management or
the Subadviser). The Subadviser furnishes investment advisory services in
connection with the management of the Fund. It is compensated for its
services by PMF, not the Fund, at an annual rate of .50% of the Fund's
average daily net assets for the portion of such assets up to and including
$250 million, .35% of the Fund's average daily net assets in excess of $250
million up to and including $500 million, .30% of the Fund's average daily
net assets in excess of $500 million up to and including $1 billion and
.25% of the Fund's average daily net assets in excess of $1 billion. PMF
continues to have responsibility for all investment advisory services in
accordance with the Management Agreement and supervises Wellington
Management's performance of such services. For the fiscal year ended
September 30, 1993, PMF paid subadvisory fees to Wellington Management of
.50% of the Fund's average net assets.
The Subadviser is a Massachusetts general partnership of which the
following persons are managing partners: Robert W. Doran, Duncan M.
McFarland, and John B. Neff. The Subadviser is a professional investment
counseling firm which provides investment services to investment companies,
employee benefit plans, endowment funds, foundations and other institutions
and individuals. As of October 31, 1993, the Subadviser held discretionary
investment authority over approximately $80 billion of assets. The
Subadviser is not affiliated with the Manager or any of its affiliates.
The current manager of the equity portion of the Fund's portfolio is
William C. S. Hicks, a Senior Vice President and Partner of Wellington
Management. Mr. Hicks has responsibility for the day-to-day management of
the Fund's portfolio. Mr. Hicks has managed the Fund's portfolio since May
1992 and has been an investment professional with Wellington Management
since 1962. Mr. Hicks also serves as portfolio manager for a variety of
corporate and public retirement plans and was previously Wellington
Management's Director of Research. Since November 1993 the fixed income
portion of the Fund's portfolio has been managed by Catherine A. Smith, a
Senior Vice President and Partner of Wellington Management. Ms. Smith has
been an investment professional with Wellington Management since 1985.
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza,
New York, New York 10292, is a corporation organized under the laws of the
State of Delaware and serves as the distributor of the Class A shares of
the Fund. It is a wholly-owned subsidiary of PMF.
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292 is a corporation organized under
the laws of the State of Delaware and serves as the distributor of the
Class B and Class C shares of the Fund. It is an indirect, wholly-owned
subsidiary of Prudential.
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<PAGE>
Under separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the
Fund under Rule 12b-1 under the Investment Company Act and separate
distribution agreements (the Distribution Agreements), PMFD and Prudential
Securities (collectively, the Distributor) incur the expenses of
distributing the Fund's Class A, Class B and Class C shares. These expenses
include commissions and account servicing fees paid to, or on account of,
financial advisers of Prudential Securities and Pruco Securities
Corporation (Prusec), an affiliated broker-dealer, commissions and account
servicing fees paid to, or on account of, other broker-dealers or financial
institutions (other than national banks) which have entered into agreements
with the Distributor (Class A only), advertising expenses, the cost of
printing and mailing prospectuses to potential investors and indirect and
overhead costs of Prudential Securities and Prusec associated with the sale
of Fund shares, including lease, utility, communications and sales
promotion expenses. The State of Texas requires that shares of the Fund may
be sold in that state only by dealers or other financial institutions which
are registered there as broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or
service fees to the Distributor as compensation for its distribution and
service activities, not as reimbursement for specific expenses incurred. If
the Distributor's expenses exceed its distribution and service fees, the
Fund will not be obligated to pay any additional expenses. If the
Distributor's expenses are less than such distribution and service fees, it
will retain its full fees and realize a profit.
Under the Class A Plan, the Fund may pay PMFD for its distribution-
related expenses with respect to Class A shares at an annual rate of up to
.30 of 1% of the average daily net assets of the Class A shares. The Class
A Plan provides that (i) up to .25 of 1% of the average daily net assets of
the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of .25 of 1%) may not exceed
.30 of 1% 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 .25% of the average daily net assets of the Class A shares for the
fiscal year ending September 30, 1994.
For the fiscal year ended September 30, 1993, PMFD received payments of
$238,001 under the Class A Plan as reimbursement of expenses related to the
distribution of Class A shares. This amount was primarily expended for
payment of account servicing fees to financial advisers and other persons
who sell Class A shares. For the fiscal year ended September 30, 1993, PMFD
also received approximately $870,800 in initial sales charges.
Under the Class B and Class C Plans, the Fund pays Prudential
Securities for its distribution-related expenses with respect to Class B
and Class C shares at an annual rate of 1% of the average daily net assets
of 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 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 September 30, 1993, Prudential Securities
incurred distribution-related expenses of approximately $4,010,300 under
the Class B Plan and received $902,535 from the Fund under the Class B
Plan. In addition, Prudential Securities received approximately $139,000 in
contingent deferred sales charges from redemption of Class B shares during
this period. No Class C shares were outstanding during the fiscal year
ended September 30, 1993.
For the fiscal year ended September 30, 1993, the Fund paid
distribution expenses of .20% and 1.00% of the average net assets of the
Class A and Class B shares, respectively. The Fund records all payments
made under the Plans as expenses in the calculation of net investment
income. No Class C shares were outstanding during the fiscal year ended
September 30, 1993.
14
<PAGE>
Distribution expenses attributable to the sale of shares of the Fund
will be allocated to each class based upon the ratio of sales of each class
to the sales of all shares of the Fund other than expenses allocable to a
particular class. The distribution fee and sales charge of one class will
not be used to subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to
the Plan (the Rule 12b-1 Directors), vote annually to continue the Plan.
Each Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or of a majority of the outstanding shares of the
applicable class of the Fund. The Fund will not be obligated to pay
expenses incurred under any plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates)
may make payments to dealers and other persons which distribute shares of
the Fund. Such payments may be calculated by reference to the net asset
value of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor"
in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission
merchant for the Fund, provided that the commissions, fees or other
remuneration it receives are fair and reasonable. See "Portfolio
Transactions and Brokerage" in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio
securities and cash and, in that capacity, maintains certain financial and
accounting books and records pursuant to an agreement with the Fund. Its
mailing address is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One,
Edison, New Jersey 08837, serves as Transfer Agent and Dividend Disbursing
Agent and in those capacities maintains certain books and records for the
Fund. PMFS is a wholly-owned subsidiary of PMF. Its mailing address is P.O.
Box 15005, New Brunswick, New Jersey 08906-5005.
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HOW THE FUND VALUES ITS SHARES
- -------------------------------------------------------------------------------
The Fund's net asset value per share or NAV is determined by
subtracting its liabilities from the value of its assets and dividing the
remainder by the number of outstanding shares. NAV is calculated separately
for each class. The Board of Directors has fixed the specific time of day
for the computation of the Fund's net asset value to be as of 4:15 p.m.,
New York time.
Portfolio securities are valued according to market quotations or, if
such quotations are not readily available, at fair value as determined in
good faith under procedures established by the Fund's Board of Directors.
The Fund will compute its NAV once daily on days that the New York
Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem shares have been received by the Fund or days on
which changes in the value of the Fund's portfolio securities do not
materially affect the NAV. The New York Stock Exchange is closed on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. See
"Net Asset Value" in the Statement of Additional Information.
15
<PAGE>
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 net asset value per share 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.
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HOW THE FUND CALCULATES PERFORMANCE
- -------------------------------------------------------------------------------
From time to time the Fund may advertise its total return (including
"average annual" total return and "aggregate" total return) and yield in
advertisements and 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 Fund would have
increased (decreased) over a specified period of time (i.e., one, five or
ten years or since inception of the Fund) assuming that all distributions
and dividends by the Fund were reinvested on the reinvestment dates during
the period and less all recurring fees. The "aggregate" total return
reflects actual performance over a stated period of time. "Average annual"
total return is a hypothetical rate of return that, if achieved annually,
would have produced the same aggregate total return if performance had been
constant over the entire period. "Average annual" total return smooths out
variations in performance and takes into account any applicable initial or
contingent deferred sales charges. Neither "average annual" total return
nor "aggregate" total return takes into account any federal or state income
taxes that may be payable upon redemption. The "yield" refers to the income
generated by an investment in the Fund over a one-month or 30-day period.
This income is then "annualized;" that is, the amount of income generated
by the investment during that 30-day period is assumed to be generated each
30- day period for twelve periods and is shown as a percentage of the
investment. The income earned on the investment is also assumed to be
reinvested at the end of the sixth 30-day period. The Fund also may include
comparative performance information in advertising or marketing the Fund's
shares. Such performance information may include data from Lipper
Analytical Services, Inc., other industry publications, business
periodicals and market indices. See "Performance Information" in the
Statement of Additional Information. The Fund will include performance data
for each class of shares of the Fund in any advertisement or information
including performance data for the Fund. Further performance information is
contained in the Fund's annual and semi-annual reports to shareholders,
which may be obtained without charge. See "Shareholder Guide- Shareholder
Services-Reports to Shareholders."
- -------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS
- -------------------------------------------------------------------------------
Taxation of the Fund
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code. Accordingly,
the Fund will not be subject to federal income tax on its net investment
income and capital gains, if any, that it distributes to its shareholders.
See "Taxes" in the Statement of Additional Information. Taxation of
Shareholders
All dividends out of net investment income, together with distributions
of net short-term capital gains, will be taxable as ordinary income to the
shareholders whether or not reinvested. Certain gains or losses from
fluctuations in
16
<PAGE>
foreign currency exchange rates ("Section 988" gains or losses) will affect
the amount of ordinary income the Fund will be able to pay as dividends.
See "Taxes" in the Statement of Additional Information. Any net capital
gain (the excess of net long-term capital gain over net short-term capital
loss) distributed to shareholders will be taxable as long-term capital gain
to the shareholders, whether or not reinvested and regardless of the length
of time a shareholder has owned his or her shares. For corporate
shareholders, the maximum rate of tax on net capital gain is currently the
same as the maximum tax rate for ordinary income. The maximum long-term
capital gains tax for individuals is 28%.
Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will be treated as a long-
term capital gain or loss if the shares have been held for more than one
year and otherwise as a short-term capital gain or loss. Any such loss,
however, on shares that are held for six months or less, will be treated as
a long-term capital loss to the extent of any capital gain distributions
received by the shareholder.
The Fund has obtained an opinion of counsel to the effect that the
conversion of Class B shares into Class A shares does not constitute a
taxable event for U.S. income tax purposes. However, such opinion is not
binding on the Internal Revenue Service.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes.
Withholding Taxes
Under the Internal Revenue Code, the Fund is required to withhold and
remit to the U.S. Treasury 31% of dividends, capital gain distributions and
redemption proceeds payable to any individuals and certain other
noncorporate 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) or who are otherwise subject to backup withholding. Dividends
from net investment income and short-term capital gains to a foreign
shareholder will generally be subject to U.S. withholding tax at the rate
of 30% (or lower treaty rate).
Dividends and Distributions
The Fund expects to pay quarterly dividends of net investment income,
if any, and make distributions at least annually of any net capital gains.
To the extent that, in a given year, distributions to shareholders exceed
taxable income and net capital gain for the year, shareholders will receive
a non-taxable return of capital. Dividends paid by the Fund with respect to
each class of shares, to the extent any dividends are paid, will be
calculated in the same manner, at the same time, on the same day and will
be in the same amount except that each class will bear its own distribution
charges, generally resulting in lower dividends for Class B and Class C
shares. Distributions of net capital gains, if any, will be paid in the
same amount for each class of shares. See "How the Fund Values its Shares."
Dividends and distributions will be paid in additional Fund shares
based on the NAV of each class on the record date, or such other date as
the Board of Directors may determine, unless the shareholder elects in
writing not less than five business days prior to the record date to
receive such dividends and distributions in cash. Such election should be
submitted to Prudential Mutual Fund Services, Inc., Attention: Account
Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015. The Fund
will notify each shareholder after the close of the Fund's taxable year of
both the dollar amount and the taxable status of that year's dividends and
distributions on a per share basis. If you hold shares through Prudential
Securities, you should contact your financial adviser to elect to receive
dividends and distributions in cash.
When the Fund goes "ex-dividend," the NAV of each class is reduced by
the amount of the dividend or distribution allocable to each class. If you
buy shares just prior to the ex-dividend date (which generally occurs four
business days prior to the record date), the price you pay will include the
dividend or distribution and a portion of your investment will be returned
to you as a taxable dividend or distribution. You should, therefore,
consider the timing of dividends and distributions when making your
purchases.
17
<PAGE>
- -------------------------------------------------------------------------------
GENERAL INFORMATION
- -------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on November 18, 1988 and
commenced operations as a closed-end diversified management investment
company on January 2, 1990. On December 20, 1990, shareholders approved
open-ending the Fund and since February 4, 1991, the Fund has operated as
an open-end fund. The Fund is authorized to issue 2 billion shares of
common stock, $.001 par value per share divided into three classes,
designated Class A, Class B and Class C common stock, each of which
consists of [333-1/3 million] authorized shares. Each class of common stock
represents an interest in the same assets of the Fund and is identical in
all respects except that (i) each class bears different distribution
expenses, (ii) has exclusive voting rights with respect to its distribution
and service plan (except that the Fund has agreed with the Securities and
Exchange Commission (SEC) in connection with the offering of a conversion
feature on Class B shares to submit any amendment of the Class A Plan to
both Class A and Class B shareholders, (iii) each class has a different
exchange privilege and (iv) only Class B shares have a conversion feature.
See "How the Fund is Managed-Distributor." The Fund has received an order
from the SEC permitting the issuance and sale of multiple classes of common
stock. Currently, the Fund is offering three classes designated Class A,
Class B and Class C shares. In accordance with the Fund's Articles of
Incorporation, the Board of Directors may authorize the creation of
additional series of common stock and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the
Board may determine.
The Board of Directors may increase or decrease the number of
authorized shares without the approval of shareholders. Shares of the Fund,
when issued, are fully paid, nonassessable, fully transferable and
redeemable at the option of the holder. Shares are also redeemable at the
option of the Fund under certain circumstances and described under
"Shareholder Guide-How to Sell Your Shares." Each share of each class of
common stock is equal as to earnings, assets and voting privileges, except
as noted above, and each class bears the expenses related to the
distribution of its shares. Except for the conversion feature applicable to
the Class B shares, there are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of common
stock of the Fund is entitled to its portion of all the Fund's assets after
all debt and expenses of the Fund have been paid. Since Class B and Class C
shares generally bear higher distribution expenses than Class A shares, the
liquidation proceeds to shareholders of those classes are likely to be
lower than to Class A shareholders. The Fund's shares do not have
cumulative voting rights for the election of directors.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings
of shareholders unless, for example, the election of directors is required
to be acted on by shareholders under the Investment Company Act.
Shareholders have certain rights, including the right to call a meeting
upon a vote of 10% of the Fund's outstanding shares for the purpose of
voting on 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.
18
<PAGE>
- -------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- -------------------------------------------------------------------------------
HOW TO BUY SHARES OF THE FUND
You may purchase shares of the Fund through Prudential Securities,
Prusec or directly from the Fund through its transfer agent, Prudential
Mutual Fund Services, Inc. (PMFS or the Transfer Agent), Attention:
Investment Services, P.O. Box 15020, New Brunswick, New Jersey 08906-5020.
In addition, Class A shares may be purchased through a dealer which has
entered into a selected dealer agreement with the Fund's Distributor. The
minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is
$100 for all classes. All minimum investment requirements are waived for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50.
See "Shareholder Services" below.
The purchase price is the NAV next determined following receipt of an
order by the Transfer Agent or Prudential Securities plus a sales charge
which, at the option of the purchaser, may be imposed either (i) at the
time of purchase (Class A shares) or (ii) on a deferred basis (Class B shares).
See "Alternative Purchase Plan" below. See also "How the Fund Values its
Shares."
Application forms can be obtained from PMFS, Prudential Securities,
Prusec or a selected dealer (Class A only). If a stock certificate is
desired, it must be requested in writing for each transaction. Certificates
are issued only for full shares. Shareholders who hold their shares through
Prudential Securities will not receive stock certificates.
The Fund reserves the right to reject any purchase order (including any
exchange) or to suspend or modify the continuous offering of its shares.
See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund.
The Distributor reserves the right to cancel any purchase order for which
payment has not been received by the fifth business day following the
investment.
Transactions in Fund shares may be subject to postage and handling
charges imposed by your dealer.
Purchase by Wire. For an initial purchase of shares of the Fund by
wire, you must first telephone PMFS to receive an account number at
1-800-225-1852 (toll-free). 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, Boston, Massachusetts, Custody and
Shareholder Services Division, Attention: Global Utility Fund, Inc.,
specifying on the wire the account number assigned by PMFS and your name
and identifying the sales charge alternative (Class A, Class B or Class C
shares).
If you arrange for receipt by State Street of Federal Funds prior to
4:15 P.M., New York time, on a business day, you may purchase shares of the
Fund as of that day.
In making a subsequent purchase order by wire, you should wire State
Street directly and should be sure that the wire specifies Global Utility
Fund, Inc., Class A, Class B or Class C 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.
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<PAGE>
ALTERNATIVE PURCHASE PLAN
The Fund offers three classes of shares (Class A, Class B and
Class C shares) which allows you to choose the most beneficial sales
charge structure for your individual circumstances given the amount of the
purchase, the length of time you expect to hold the shares and other
relevant circumstances (Alternative Purchase Plan).
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge Net assets) Other information
------------------------------------- ------------------------- --------------------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of 5% of .30 of 1% (Currently being Initial sales charge waived or reduced
the public offering price. charged at a rate of for certain purchases
.25 of 1%)
Class B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
Class C Maximum CDSC of 1% of the lesser of 1% Shares do not convert to another class
the amount invested or the redemption
proceeds on redemptions made within
one year of purchase
</TABLE>
The three classes of shares represent an interest in the same portfolio
of investments of the Fund and have the same rights, except that (i) each
class bears the separate expenses of its Rule 12b-1 distribution and
service plan, (ii) each class has exclusive voting rights with respect to
its plan (except as noted under the heading "General Information-
Description of Common Stock"), and (iii) only Class B shares have a
conversion feature. The three classes also have separate exchange
privileges. See "How to Exchange Your Shares" below. The income
attributable to each class and the dividends payable on the shares of each
class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee
which will generally cause them to have higher expense ratios and to pay
lower dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund
will receive different compensation for selling Class A, Class B and Class
C shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C shares.
In selecting a purchase alternative, you should consider, among other
things, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of
purchase or redemption) and distribution-related fees, as noted above, (3)
whether you qualify for any reduction or waiver of any applicable sales
charge, (4) the various exchange privileges among the different classes of
shares (see "How to Exchange Your Shares" below) and (5) the fact that
Class B shares automatically convert to Class A shares approximately seven
years after purchase (see "Conversion Feature-Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current
fees and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 7
years and do not qualify for a reduced sales charge on Class A shares,
since Class A shares are subject to an initial sales charge of 5% and Class
B shares are subject to a CDSC of 5% which declines to zero over a 6 year
period, you should consider purchasing Class C shares over either Class A
or Class B shares.
If you intend to hold your investment for 7 years or more and do not
qualify for a reduced sales charge on Class A shares, since Class B shares
convert to Class A shares approximately 7 years after purchase and
because all of your
20
<PAGE>
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be
more advantageous for you to purchase Class A shares over either Class B or
Class C shares regardless of how long you intend to hold your investment.
However, unlike Class B and Class C shares, you would not have all of your
money invested initially because the sales charge on Class A shares is
deducted at the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and
you purchase Class B or Class C shares, you would have to hold your
investment for more than 6 years in the case of Class B shares and Class C
shares for the higher cumulative annual distribution-related fee on those
shares to exceed the initial sales charge plus cumulative annual
distribution-related fee on Class A shares. This does not take into account
the time value of money, which further reduces the impact of the higher
Class B or Class C distribution-related fee on the investment, fluctuations
in net asset value, the effect of the return on the investment over this
period of time or redemptions during which the CDSC is applicable.
All purchases of $1 million or more, either as part of a single
investment or [, except in the case of certain retirement plans, under
Rights of Accumulation or Letters of Intent, must be for Class A shares.
See "Reduction and Waiver of Initial Sales Charges" below.
Class A Shares
The offering price of Class A shares is the NAV next
determined following receipt of an order by the Transfer Agent or
Prudential Securities plus a sales charge (expressed as a percentage of
the offering price and of the amount invested) imposed on a single
transaction as shown in the following table:
Sales Charge as Sales Charge as Dealer Concession
Amount of Percentage of Percentage of as Percentage of
Purchase Offering Price Amount Invested Offering Price
- -------------------- --------------- --------------- -----------------
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00% 4.17% 3.75%
$100,000 to $249,999 3.25% 3.36% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.40%
$500,000 to $999,999 2.00% 2.04% 1.90%
$1,000,000 and above None None None
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 avialable through Rights of Accumulation and Letters of Intent. Shares
of the Fund and shares of other Prudential Mutual Funds (excluding money
market funds other than those acquired pursuant to the exchange privilege)
may be aggregated to determine the applicable reduction. See "Reduction and
Waiver of Initial Sales Charges-Class A shares" in the Statement of
Additional Information.
Class A shares may be purchased at NAV, without payment of an initial
sales charge, by pension, profit-sharing or other employee benefit plans
qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code (Benefit Plans), provided that the plan has existing
assets of at least $1 million invested in shares of Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the
exchange privilege) or 1,000 eligible employees or members. In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent and
for which the Transfer Agent does individual account record keeping (Direct
Account Benefit Plans) and Benefit Plans sponsored by PSI or its
subsidiaries (PSI or Subsidiary Prototype Benefit Plans), Class A shares
may be purchased at NAV by participants who are repaying loans made from
such plans to the participant. Additional information concerning the
reduction and waiver of initial sales charges is set forth in the Statement
of Additional Information.
21
<PAGE>
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) on which no deferred sales load, fee
or other charge was imposed on redemption and (iii) the financial adviser
served as the client's broker on the previous purchases.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec that you are entitled to the reduction or
waiver of the sales charge. The reduction or waiver will be granted subject
to confirmation of your entitlement. No initial sales charges are imposed
upon Class A shares purchased upon the reinvestment of dividends and
distributions. See "Purchase and Redemption of Fund Shares-Reduction and
Waiver of Initial Sales Charges-Class A Shares" in the Statement of
Additional Information.
Class B and Class C Shares
The offering price of Class B and Class C shares for investors
choosing one of the deferred sales charge alternatives is the NAV next
determined following receipt of an order by the Transfer Agent or
Prudential Securities. Although there is no sales charge imposed at the
time of purchase, redemptions of Class B and Class C shares may be subject
to a CDSC. See "How to Sell Your Shares-Contingent Deferred Sales Charges.
HOW TO SELL YOUR SHARES
You can redeem your shares 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 from the Class B
shares will be reduced by the amount of any applicable contingent deferred
sales charge, as described below. See "Contingent Deferred Sales Charges.
If you hold shares of the Fund through Prudential Securities or through
a dealer which has entered into a selected dealer agreement with the Fund's
Distributor you must redeem your shares by contacting your financial
adviser. If you hold shares in non-certificate form, a written request for
redemption signed by you exactly as the account is registered is required.
If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates, must be received by the Transfer Agent in
order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written
evidence of authority acceptable to the Transfer Agent must be submitted
before such request will be accepted. All correspondence and documents
concerning redemptions should be sent to the Fund in care of its Transfer
Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be
paid to a person other than the record owner, (c) are to be sent to an
address other than the address on the Transfer Agent's records, or (d) are
to be paid to a corporation, partnership, trust or fiduciary, the
signature(s) on the redemption request and on the certificates, if any, or
stock power, must be guaranteed by an "eligible guarantor institution." An
"eligible guarantor institution" includes any bank, broker, dealer or
credit union. The Transfer Agent reserves the right to request additional
information from and make reasonable inquiries of, any eligible guarantor
institution. For clients of Prusec, a signature guarantee may be obtained
from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices.
22
<PAGE>
Payment for shares presented for redemption will be made by check
within seven days after receipt by the Transfer Agent of the certificate
and/or written request except as indicated below. Such payment may be
postponed or the right of redemption suspended at times (a) when the New
York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on such Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets,
or (d) during any other period when the SEC, by order, so permits; provided
that applicable rules and regulations of the SEC shall govern as to whether
the conditions prescribed in (b), (c) or (d) exist.
Payment for redemption of recently purchased shares will be delayed
until the Fund or its Transfer Agent has been advised that the purchase
check has been honored, up to 10 calendar days from the time of receipt of
the purchase check by the Transfer Agent. Such delay may be avoided by
purchasing shares by wire or by certified or official bank 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 payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by a distribution in kind of
securities from the investment portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the SEC. Securities will be readily
marketable and will be valued in the same manner as in a regular
redemption. See "How the Fund Values Its Shares." If your shares are
redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Fund, however, has elected to be governed by Rule
18f-1 under the Investment Company Act, under which the Fund is obligated
to redeem shares solely in cash up to the lesser of $250,000 or 1% of the
net asset value of the Fund during any 90-day period for any one
shareholder.
Involuntary Redemption. In order to reduce expenses of the Fund, the
Board of Directors may redeem all of the shares of any shareholder, other
than a shareholder which is an IRA or other tax- deferred retirement plan,
whose account has a net asset value of less than $500 due to a redemption.
The Fund will give such shareholders 60 days' prior written notice in which
to purchase sufficient additional shares to avoid such redemption.
30-day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion
or all of the proceeds of such redemption in shares of the Fund at the net
asset value next determined after the order is received, which must be
within 30 days after the date of the redemption. No sales charge will apply
to such repurchases. You will receive pro rata credit for any contingent
deferred sales charge paid in connection with the redemption. 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 5% to zero over a six-year period.
Class C shares redeemed within one year of purchase will be subject to a 1%
CDSC. The CDSC will be deducted from the redemption proceeds and reduce the
amount paid to you. The CDSC will be imposed on any redemption by you which
reduces the current value of your Class B or Class C shares to an amount
which is lower than the amount of all payments by you for shares during the
preceding six years, in the case of Class B shares, and one year, in the
case of Class C shares. A CDSC will be applied on the lesser of the
original purchase price or the current value of the shares being redeemed.
Increases in the value of your shares or shares purchased through
reinvestment of dividends or distributions are not subject to a CDSC. The
amount of any CDSC will be paid to and retained by the Distributor. See
"How the Fund is Managed- Distributor" and "Waiver of the Contingent
Deferred Sales Charges" below.
23
<PAGE>
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of shares until the time
of redemption of such shares. Solely for purposes of determining the
number of years from the time of any payment for the purchase of shares,
all payments during a month will be aggregated and deemed to have been
made on the last day of the month.
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
Contingent Deferred Sales Charge
Year Since Purchase As a Percentage of Dollars Invested
Payment Made or Redemption Proceeds
------------------- -----------------------------------
First ....................... 5.0%
Second ...................... 4.0%
Third ....................... 3.0%
Fourth ...................... 2.0%
Fifth ....................... 1.0%
Sixth ....................... 1.0%
Seventh ..................... None
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible
rate. It will be assumed that the redemption is made first of amounts
representing shares acquired pursuant to the reinvestment of dividends and
distributions; then of amounts representing the increase in net asset value
above the total amount of payments for the purchase of Fund shares made
during the preceding six 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 the investor's Class B shares would be $1,260 (105
shares at $12 per share). The CDSC would not be applied to the value of the
reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260)
would be charged at a rate of 4% (the applicable rate in the second year
after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on
the redemption of shares.
Waiver of the Contingent Deferred Sales Charges-Class B shares. The
CDSC will be waived in the case of a redemption following the death or
disability of a shareholder or, in the case of a trust account, following
the death or disability of the grantor. The waiver is available for total
or partial redemptions of shares owned by a person, either individually or
in joint tenancy (with rights of survivorship), 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)(7) custodial account. These distributions include a
lump-sum or other distribution after retirement, or for an IRA or Section
403(b) custodial account, after attaining age 59-1/2, a tax-free return of
an excess contribution or plan distributions following the death or
disability of the shareholder provided that the shares were purchased prior
to death or disability. The waiver does not apply in the case of a tax-free
rollover or transfer of assets, other than one following a separation from
service. In the case of Direct Account and PSI or Subsidiary Prototype
Benefit Plans, the CDSC will be waived on redemptions which represent
borrowings from such plans. Shares purchased with amounts used to repay a
loan from
24
<PAGE>
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 a
Director of the Fund.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to waiver of the CDSC. The waiver will be granted subject to
confirmation of your entitlement.
A quantity discount may apply to redemptions of Class B shares
purchased prior to , 1994. See "Purchase and Redemption of Fund
Shares-Quantity Discount-Class B Shares" purchased prior to , 1994 in the
Statement of Additional Information.
CONVERSION FEATURE-CLASS B SHARES
Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. Conversions will
occur during the month following each calendar quarter and will be effected
at relative net asset value without the imposition of any additional sales
charge. It is currently anticipated that conversions will occur on the
first Friday of the month following each calendar quarter or, if not a
business day, on the next Friday of the month.
Since the Fund tracks amounts paid rather than the number of shares
bought on each purchase of Class B shares, the number of Class B shares
eligible to convert to Class A shares (excluding shares acquired through
the automatic reinvestment of dividends and other distributions) (the
Eligible Shares) will be determined on each conversion date in accordance
with the following formula: (i) the ratio of (a) the amounts paid for Class
B shares purchased at least [seven] years prior to the conversion date to
(b) the total amount paid for all Class B shares purchased and then held in
your account (ii) multiplied by the total number of Class B shares then in
your account. Each time any Eligible Shares in your account convert to
Class A shares, all shares or amounts representing Class B shares then in
your account that were acquired through the automatic reinvestment of
dividends and other distributions will convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class
B shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible
Shares calculated as described above will generally be either more or less
than the number of shares actually purchased approximately [seven] years
before such conversion date. For example, if 100 shares were initially
purchased at $10 per share (for a total of $1,000) and a second purchase of
100 shares was subsequently made at $11 per share (for a total of $1,100),
95.24 shares would convert approximately [seven] years from the initial
purchase (i.e., $1,000 divided by $2,100 (47.62%) multiplied by 200 shares
equals 95.24 shares). The Manager reserves the right to modify the formula
for determining the number of Eligible Shares in the future as it deems
appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares
than Class B shares, the per share net asset value of the Class A shares
may be higher than that of the Class B shares at the time of conversion.
Thus, although the aggregate dollar value will be the same, you may receive
fewer Class A shares than Class B shares converted. See "How the Fund
Values its Shares."
For purposes of calculating the applicable holding period for
conversions, all payments for Class B shares during a month will be deemed
to have been made on the last day of the month, or for Class B shares
acquired through exchange, or a series of exchanges, on the last day of the
month in which the original payment for purchases of such Class B shares
was made. For Class B shares previously exchanged for shares of a money
market fund, the time period during which such shares were held in the
money market fund will be excluded. For example, Class B shares held in a
money market fund for one year, will not convert to Class A shares until
approximately eight years from purchase. For purposes of
25
<PAGE>
measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of
the month. Class B shares acquired through exchange will convert to Class A
shares after expiration of the conversion period applicable to the original
purchase of such shares. It is currently anticipated that the first
conversion of Class B shares will occur in or about January, 1995. At that
time all amounts representing Class B shares then outstanding beyond the
applicable conversion period will automatically convert to Class A shares,
together with all shares or amounts representing Class B shares acquired
through the automatic reinvestment of dividends and distributions then held
in your account.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distrbutions paid on Class A, Class B and Class C
shares will not constitute "preferential diviends" under the Internal
Revenue Code and (ii) that the conversion of shares does not constitute a
taxable event. The conversion of Class B shares into Class A shares may be
suspended if such opinions or rulings are no longer available. If
conversions are suspended, Class B shares of the Fund will continue to be
subject, possibly indefinitely, to their higher annual distribution and
service fee.
HOW TO EXCHANGE YOUR SHARES
As a shareholder of the Fund you have an exchange privilege with
certain other Prudential Mutual Funds, including one or more specified
money market funds, subject to the minimum investment requirement of such
funds. Class A, Class B and Class C shares may be exchanged for Class A,
Class B and Class C shares, respectively, of another fund on the basis of
the relative NAV. Any applicable CDSC payable upon the redemption of shares
exchanged will be calculated from the first day of the month after the
initial purchase, excluding the time shares were held in a money market
fund. For purposes of calculating the holding period applicable to the
Class B conversion feature, the time period during which Class B shares
were held in a money market fund will be excluded. See "Conversion
Feature-Class B Shares" above. If your investment in shares of Prudential
Mutual Funds (excluding money market funds other than those acquired
pursuant to the exchange privilege) reaches $1 million and you then hold
Class B and/or Class C shares of the Fund which are free of CDSC, you will
be so notified and offered the opportunity to exchange those shares for
Class A shares of the Fund without the imposition of any sales charge. In
the case of tax-exempt shareholders, if no response is received within 60
days of the mailing of such notice, eligible Class B and/or Class C shares
will be automatically exchanged for Class A shares. All other shareholders
must affirmatively elect to have their eligible Class B and/or Class C
shares exchanged for Class A shares. Class B and Class C shares may not be
exchanged into money market funds other than Prudential Special Money
Market Fund. 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 or through a dealer
which has entered into a selected dealer agreement with the Fund's
Distributor, you must exchange your shares by contacting your 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.
26
<PAGE>
You may also exchange shares by mail by writing to Prudential Mutual
Fund Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone
exchange of shares may be difficult to implement and shareholders should
make exchanges by mail by writing to Prudential Mutual Fund Services, Inc.
at the address above.
The Exchange Privilege may be modified or terminated at any time on
60 days' notice to shareholders.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund,
you can take advantage of the following additional services and privileges:
*Automatic Reinvestment of Dividends and/or Distributions Without a
Sales Charge. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not
less than 5 full business days prior to the record date to have subsequent
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through Prudential Securities, you should contact your
financial adviser.
*Automatic Savings Accumulation Plan (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic charge to a bank account or Prudential Securities account
(including a Command Account). For additional information about this
service, you may contact your Prudential Securities financial adviser,
Prusec registered representative or the Transfer Agent directly.
*Tax-Deferred Retirement Plans. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue
Code are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit
either self-direction of accounts by participants, or a pooled account
arrangement. Information regarding the establishment of these plans, the
administration, custodial fees and other details is available from
Prudential Securities or the Transfer Agent. If you are considering
adopting such a plan, you should consult with your own legal or tax adviser
with respect to the establishment and maintenance of such a plan.
*Systematic Withdrawal Plan. A systematic withdrawal plan is available
to shareholders which provides for monthly or quarterly checks. Withdrawals
of Class B and Class C shares may be subject to a CDSC. See "How to Sell
Your Shares-Contingent Deferred Sales Charges" and "Shareholder Investment
Account-Systematic Withdrawal Plan."
*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 report 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, NY 10292. In addition, monthly
unaudited financial data is available upon request from the Fund.
*Shareholder Inquiries. Inquiries should be addressed to the Fund at
One Seaport Plaza, New York, New York 10292, or by telephone at (800)
225-1852 (toll free) or, from outside the U.S.A., at (908) 417- 7555
(collect).
For additional information regarding the services and privileges
described above, see "Shareholder Investment Account" in the Statement of
Additional Information.
27
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the
investment options available through our family of funds. For more information
on the Prudential Mutual Funds, including charges and expenses, contact your
Prudential Securities financial adviser or Prusec registered representative or
telephone the Fund at (800) 225-1852 for a free prospectus. Read the prospectus
carefully before you invest or send money.
- --------------------------------------------------------------------------------
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund
Global Funds
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
- --------------------------------------------------------------------------------
Equity Funds
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible\'AE Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
* Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
* Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
* Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
* Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
- --------------------------------------------------------------------------------
A-1
<PAGE>
No dealer, sales representative or any other person has
been authorized to give any information or to make any
representations, other than those contained in this
Prospectus, in connection with the offer contained
herein, and, if given or made, such other information or
representations must not be relied upon as having been
authorized by the Fund or the Distributor. This
Prospectus does not constitute and offer by the Fund or
by the Distributor to sell or a solicitation of an offer to
buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
___________________________________________________________
TABLE OF CONTENTS
Page
----
FUND HIGHLIGHTS.............................. 2
FUND EXPENSES................................ 4
FINANCIAL HIGHLIGHTS......................... 5
HOW THE FUND INVESTS......................... 6
Investment Objective and Policies.......... 6
Hedging and Income Enhancement Strategies.. 9
Other Investments and Policies............. 11
Investment Restrictions.................... 12
HOW THE FUND IS MANAGED...................... 12
Manager.................................... 12
Subadviser................................. 13
Distributor................................ 13
Portfolio Transactions..................... 15
Custodian and Transfer and
Dividend Disbursing Agent................ 15
HOW THE FUND VALUES ITS SHARES............... 15
HOW THE FUND CALCULATES PERFORMANCE.......... 16
TAXES, DIVIDENDS AND DISTRIBUTIONS........... 16
GENERAL INFORMATION.......................... 18
Description of Common Stock................ 18
Additional Information..................... 18
SHAREHOLDER GUIDE............................ 19
How to Buy Shares of the Fund.............. 19
Alternative Purchase Plan.................. 20
How to Sell Your Shares.................... 22
Conversion Feature--Class B Shares......... 25
How to Exchange Your Shares................ 26
Shareholder Services....................... 27
THE PRUDENTIAL MUTUAL FUND FAMILY............A-1
________________________________________________
MF150A 4443442
________________________________________________
Class A: 37936G 30 3
CUSIP Nos.: Class B: 37936G 20 4
Class C:
________________________________________________
Global Utility
Fund, Inc.
Prudential Mutual Funds (LOGO)
Building Your Future
On Our StrengthSM
PROSPECTUS
, 1994
<PAGE>
GLOBAL UTILITY FUND, INC.
Statement of Additional Information
dated , 1994
Global Utility Fund, Inc. (the Fund) is a diversified, open-end
management investment company. The Fund's investment objective is to
provide total return, without incurring undue risk, by investing primarily
in income-producing securities of domestic and foreign companies in the
utility industries. Under normal circumstances, at least 65% of the Fund's
total assets will be invested in a diversified portfolio of equity and debt
securities of domestic and foreign utility companies, principally electric,
telecommunications, gas or water companies. There can be no assurance that
the Fund'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 1-800-225-1852.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Fund's Prospectus, dated November 30, 1994,
a copy of which may be obtained upon request from the Fund at the address
or telephone number above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference
to page in
Page Prospectus
---- ---------------
<S> <C> <C>
General Information B-2 18
Investment Objective and Policies B-2 6
Investment Restrictions B-15 12
Information Regarding Directors and Officers B-16 12
Management of the Fund B-18 12
Portfolio Transactions and Brokerage B-21 15
Purchase and Redemption of Fund Shares B-22 19
Shareholder Investment Account B-25 27
Net Asset Value B-27 15
Taxes B-28 16
Performance Information B-30 16
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants B-32 15
Financial Statements B-33 --
Independent Auditors' Report B-43 --
Appendix A-1 --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
MF150B
<PAGE>
GENERAL INFORMATION
Global Utility Fund, Inc. (the Fund), a Maryland corporation, is a
diversified, open-end management investment company registered under the
Investment Company Act of 1940, as amended (the 1940 Act). The Fund was
incorporated under the name The Utility Income Fund, Inc. On October 20,
1989 the Fund changed its name to Global Utility Fund, Inc. The Fund
operated as a closed-end fund until February 1, 1991. Since February 4,
1991, the Fund has operated as an open-end fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide total return, without
incurring undue risk, by investing primarily in income-producing securities
of domestic and foreign companies in the utility industries. The Fund's
total return will consist of current income and growth of capital.
Wellington Management Company, the Fund's subadviser (the Subadviser), will
seek to achieve the Fund's objective by investing, under normal
circumstances, at least 65% of the Fund's total assets in a diversified
portfolio of common stocks, debt securities and preferred stocks issued by
domestic and foreign companies primarily engaged in the ownership or
operation of facilities used in the generation, transmission or
distribution of electricity, telecommunications, gas or water.
Utility Industries--Description and Risk Factors
Utility companies in the United States and in foreign countries are
generally subject to regulation. In the United States, most utility
companies are regulated by state and/or federal authorities. Such
regulation is intended to ensure appropriate standards of service and
adequate capacity to meet public demand. Prices are also regulated, with
the intention of protecting the public while ensuring that the rate of
return earned by utility companies is sufficient to allow them to attract
capital in order to grow and continue to provide appropriate services.
There can be no assurance that such pricing policies or rates of return
will continue in the future.
The nature of regulation of utility industries is evolving both in the
United States and in foreign countries. Changes in regulation in the United
States increasingly allow utility companies to provide services and
products outside their traditional geographic areas and lines of business,
creating new areas of competition within the industries. Furthermore, the
Subadviser believes that the emergence of competition will result in
utility companies potentially earning more than their traditional regulated
rates of return. Although certain companies may develop more profitable
opportunities, others may be forced to defend their core businesses and may
be less profitable. The Subadviser seeks to take advantage of favorable
investment opportunities that are expected to arise from these structural
changes. Of course, there can be no assurance that favorable developments
will occur in the future.
Foreign utility companies are also subject to regulation, although such
regulation may or may not be comparable to that in the United States.
Foreign regulatory systems vary from country to country, and may evolve in
ways different from regulation in the United States. See "Foreign
Securities" in this Statement of Additional Information and in the
Prospectus.
The Fund's investment policies are designed to enable it to capitalize
on evolving investment opportunities throughout the world. For example, the
rapid growth of certain foreign economies will necessitate expansion of
capacity in the utility industries in those countries. Although many
foreign utility companies currently are government-owned, thereby limiting
current investment opportunities for the Fund, the Subadviser believes
that, in order to attract significant capital for growth, foreign
governments are likely to seek global investors through the privatization
of their utility industries. Privatization, which refers to the trend
toward investor ownership of assets rather than government ownership, is
expected to occur in newer, faster-growing economies and also in more
mature economies. In addition, the economic unification of European markets
is expected to improve economic growth, reduce costs and increase
competition in Europe, which will result in opportunities for investment by
the Fund in European utility industries. Of course, there is no assurance
that such favorable developments will occur or that investment
opportunities in foreign markets for the Fund will increase.
The revenues of domestic and foreign utility companies generally
reflect the economic growth and developments in the geographic areas in
which they do business. The Subadviser takes into account anticipated
economic growth rates and other economic developments when selecting
securities of utility companies. Further descriptions of some of the
anticipated opportunities and risks of specific segments within the global
utility industries are set forth below.
Electric. The electric utility industry consists of companies that are
engaged principally in the generation, transmission and sale of electric
energy, although many such companies also provide other energy-related
services. Domestic electric utility companies in general recently have been
favorably affected by lower fuel and financing costs and the full or near
completion of major construction programs. In addition, many of these
companies recently have generated cash flows in excess of current operating
expenses and construction expenditures, permitting some degree of
diversification into unregulated businesses. Some electric utilities have
also taken advantage of the right to sell power outside of their
traditional geographic areas. Electric utility companies have historically
been subject to the risks associated with increases in fuel and other
operating costs, high interest
B-2
<PAGE>
costs on borrowings needed for capital construction programs, costs
associated with compliance with environmental, nuclear facility and other
safety regulations and changes in the regulatory climate. For example, in
the United States, the construction and operation of nuclear power
facilities is subject to increased scrutiny by, and evolving regulations
of, the Nuclear Regulatory Commission. Increased scrutiny might result in
higher operating costs and higher capital expenditures, with the risk that
regulators may disallow inclusion of these costs in rate authorizations.
Telecommunications. The telephone communications industry is a distinct
utility industry segment that is subject to different risks and
opportunities. Companies that provide telephone services and access to the
telephone networks comprise the largest portion of this segment. The
telephone industry is large and highly concentrated. Telephone companies in
the United States are still experiencing the effects of the break-up of
American Telephone & Telegraph Company, which occurred in 1984. Since that
date the number of local and long-distance companies and the competition
among such companies has increased. In addition, since 1984, companies
engaged in telephone communication services have expanded their
nonregulated activities into other businesses, including cellular telephone
services, data processing, equipment retailing and software services. This
expansion has provided significant opportunities for certain telephone
companies to increase their earnings and dividends at faster rates than
have been allowed in traditional regulated businesses. Increasing
competition and other structural changes, however, could adversely affect
the profitability of such utilities.
Gas. Gas transmission companies and gas distribution companies are also
undergoing significant changes. In the United States, interstate
transmission companies are regulated by the Federal Energy Regulatory
Commission, which is reducing its regulation of the industry. Many
companies have diversified into oil and gas exploration and development,
making returns more sensitive to energy prices. In the recent decade, gas
utility companies have been adversely affected by disruption in the oil
industry and have also been affected by increased concentration and
competition. In the opinion of the Subadviser, however, environmental
considerations could improve the gas industry outlook in the future. For
example, natural gas is the cleanest of the hydrocarbon fuels and this may
result in incremental shifts in fuel consumption toward natural gas and
away from oil and coal.
Water. Water supply utilities are companies that collect, purify,
distribute and sell water. In the United States and around the world, the
industry is highly fragmented, because most of the supplies are owned by
local authorities. Companies in this industry are generally mature and are
experiencing little or no per capita volume growth. In the opinion of the
Subadviser, there may be opportunities for certain companies to acquire
other water utility companies and for foreign acquisition of domestic
companies. The Subadviser believes that favorable investment opportunities
may result from consolidation within this industry.
There can be no assurance that the positive developments noted above,
including those relating to business growth and changing regulation, will
occur or that risk factors other than those noted above will not develop in
the future.
Foreign Securities
Foreign securities in which the Fund invests generally will be
denominated in foreign currencies and will be traded on foreign markets,
including foreign stock exchanges. Foreign securities also may include
securities of foreign issuers that are traded in U.S. dollars in the United
States although the underlying security is usually denominated in a foreign
currency. These securities include, but are not limited to, securities
traded in the form of American Depositary Receipts (ADRs) and securities
registered in the United States by foreign (including Canadian)
governmental or private issuers, foreign banks and foreign branches of U.S.
banks. Restrictions and controls on investment in the securities markets of
some countries may have an adverse effect on the availability and costs to
the Fund of investments in those countries. Costs may be incurred in
connection with conversions between various currencies. Moreover, there may
be less publicly available information about foreign issuers than about
domestic issuers, and foreign issuers generally are not subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of domestic issuers.
The value of the assets of the Fund as measured in dollars also may be
affected favorably or unfavorably by fluctuations in currency rates and
exchange control regulations. A change in the value of any such currency
relative to the U.S. dollar will result in a corresponding change in the
U.S. dollar value of the Fund's assets denominated in that currency. These
changes will also affect the Fund's return, income and distributions to
shareholders. In addition, although the Fund will receive income in such
currencies, the Fund will be required to compute and distribute its income
in U.S. dollars. Therefore, if the value of the U.S. dollar strengthens
against a foreign currency after the Fund's income has been accrued and
translated into U.S. dollars, the Fund would experience a foreign currency
loss. Similarly, if the U.S. dollar value weakens against a foreign
currency between the time the Fund incurs expenses and the time such
expenses are paid, the amount of such currency required to be converted
into U.S. dollars in order to pay such expenses in U.S. dollars will be
greater than the equivalent amount of such currency at the time such
expenses were incurred. Under the Internal Revenue Code of 1986, as amended
(the Code), changes in an exchange rate which occur between the time the
Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities will result in
foreign exchange gains or losses that
B-3
<PAGE>
increase or decrease investment company taxable income. Similarly,
dispositions of certain debt securities (by sale, at maturity or otherwise)
at a U.S. dollar value that is higher or lower than the Fund's original
U.S. dollar cost may result in foreign exchange gains or losses, which will
increase or decrease investment company taxable income. To the extent the
Fund's currency exchange transactions do not fully protect the Fund against
adverse changes in exchange rates, decreases in the value of the currencies
of the countries in which the Fund invests relative to the U.S. dollar will
result in a corresponding decrease in the U.S. dollar value of the Fund's
assets denominated in those currencies. The exchange rates between the U.S.
dollar and other currencies can be volatile and are determined by factors
such as supply and demand in the currency exchange markets, international
balances of payments, government intervention, speculation and other
economic and political conditions.
The costs attributable to foreign investing that the Fund must bear are
higher than those attributable to domestic investing. For example, the cost
of maintaining custody of foreign securities generally exceeds custodian
costs for domestic securities, and transaction and settlement costs of
foreign investing also frequently are higher than those attributable to
domestic investing. Investment income on certain foreign securities in
which the Fund may invest may be subject to foreign withholding or other
government taxes that could reduce the return to investors on these
securities. Tax treaties between the United States and certain foreign
countries, however, may reduce or eliminate the amount of foreign tax to
which the Fund would be subject. See "Taxes."
Other Investment Strategies
At the discretion of the Subadviser, the Fund may employ the following
strategies in pursuing its investment objective.
Lending of Securities and Repurchase Agreements. As described in the
Prospectus, consistent with applicable regulatory requirements, the Fund
may lend securities valued at up to 30% of its total assets to brokers,
dealers, banks or other recognized institutional borrowers of securities,
provided that such loans are callable at any time by the Fund 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. If the
borrower fails to maintain the requisite amount of collateral, the loan
automatically terminates and the Fund could use the collateral to replace
the securities while holding the borrower liable for any excess of the
replacement cost over the value of the collateral. As with any extension of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail
financially. On termination of the loan, the borrower is required to return
the securities to the Fund, and any gain or loss in the market price during
the loan would inure to the Fund. The Fund may pay reasonable
administrative and custodial fees in connection with loans of its
securities.
The Fund may purchase U.S. Government securities and concurrently enter
into "repurchase agreements" with the seller of the securities whereby the
seller agrees to repurchase the securities at a specified price within a
specified time (generally one business day). The Fund's repurchase
agreements will at all times be fully collateralized in an amount as least
equal to the repurchase price, including accrued interest earned on the
loan. The collateral will be held by the Fund's custodian bank, either
physically or in a book-entry account. The Fund will not enter into a
repurchase agreement with a maturity of more than seven days if, as a
result, more than 10% of the value of its total assets would be invested in
such repurchase agreements and other illiquid securities, including
securities that are illiquid by virtue of the absence of a readily
available market.
The Fund will enter into securities lending and repurchase agreement
transactions only with parties that meet creditworthiness standards
approved by the Fund's Board of Directors. The Subadviser will monitor and
evaluate the creditworthiness of such parties under the general supervision
of the Board of Directors. In the event of a default or bankruptcy by a
contra-party, the Fund will promptly seek to liquidate the collateral. To
the extent that the proceeds from any sale of such collateral upon a
default in the obligation to repurchase are less than the repurchase price,
the Fund will suffer a loss. The law regarding the rights of the Fund is
unsettled, if the financial institution that is the contra-party to the
agreement becomes subject to a bankruptcy or other similar proceeding. As a
result, under these circumstances there may be a restriction on the Fund's
ability to sell the collateral and the Fund could suffer a loss.
When-Issued and Delayed Delivery Securities. From time to time in the
ordinary course of business, the Fund may purchase securities on a
when-issued or delayed delivery basis, i.e., delivery and payment can take
place as much as a month or more after the date of the transaction. The
purchase price and other terms of the securities are fixed on the
transaction date. Such investments are subject to market fluctuation, and
no interest accrues to the Fund until delivery and payment take place. At
the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction and
thereafter reflect the value of such investments in determining its net
asset value on each day that net asset value is determined. The Fund will
make commitments for such when-issued transactions only with the intention
of actually acquiring the underlying securities. To facilitate such
acquisitions, the Fund's custodian bank will maintain, in a separate
account of the Fund, cash equivalents or U.S. Government or other high
quality debt securities from its portfolio, marked to market daily and
having a value equal to or greater than such commitments. On delivery dates
for such transactions, the Fund will meet its obligations from maturities
or sales of securities held in the separate account and/or from then
available cash flow. If the Fund
B-4
<PAGE>
chooses to dispose of the right to acquire a when-issued security prior to
its acquisition, it could, as with the disposition of other assets held in
its portfolio, incur a gain or loss due to market fluctuation.
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 known 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 rates. The Subadviser considers
both credit risk and market risk in making investment decisions for the
Fund. 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.
Lower rated or unrated debt obligations also present risks based on
payment expectations. If an issuer calls the obligation for redemption, the
Fund may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. If the Fund 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
Fund's portfolio and increasing the exposure of the Fund to the risks of
high yield securities.
Additional Investment Policies
In seeking to protect against the effect of changes in interest rates
or currency exchange rates that are adverse to the present or prospective
position of the Fund and to enhance returns, the Fund may employ certain
hedging, yield enhancement and risk management techniques including the
purchase and sale of options, futures and options on futures on equity and
debt securities, indices of prices of equity and debt securities, other
financial indices, foreign currencies and forward contracts on foreign
currencies. The Fund's ability to engage in these practices may be limited
by tax considerations and certain other legal considerations. See "Taxes."
Options on Securities
The Fund may purchase put and call options and write covered put and
call options on equity and debt securities, aggregates of equity and debt
securities or indices of prices thereof, other financial indices and
foreign currencies. These may include options traded on U.S. or foreign
exchanges and options traded in U.S. or foreign over-the-counter (OTC)
markets. Currently, many options on equity securities and options on
currencies are exchange-traded, whereas options on debt securities are
primarily traded on the OTC market.
When the Fund writes an option, it receives a premium which it retains
whether or not the option is exercised. The Fund's principal objective in
writing options is to realize, through the receipt of premiums, a greater
return than would be realized on the underlying securities alone.
The purchaser of a call option has the right, for a specified period of
time, to purchase the securities subject to the option at a specified price
(the exercise price or strike price). By writing a call option, the Fund
becomes obligated during the term of the option, upon exercise of the
option, to sell, depending upon the terms of the option contract, the
underlying securities or a specified amount of cash to the purchaser
against receipt of the exercise price. When the Fund writes a call option,
the Fund loses the potential for a gain on the underlying securities in
excess of the exercise price of the option during the period that the
option is open.
Conversely, the purchaser of a put option has the right, for a
specified period of time, to sell the securities subject to the option to
the writer of the put at the specified exercise price. By writing a put
option, the Fund becomes obligated during the term of the option, upon
exercise of the option, to purchase the securities underlying the option at
the exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities for more than their current market price.
The Fund may write only "covered" options. This means that so long as
the Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option or an option to purchase the
same underlying securities, having an exercise price equal to or less than
the exercise price of the "covered" option, or will establish and maintain
with its Custodian for the term of the option a segregated account
consisting of cash, U.S. Government securities or other liquid high-grade
debt obligations having a value at least equal to the fluctuating market
value of the optioned securities. A put option written by the Fund will be
considered "covered" if, so long as the Fund is obligated as the writer of
the option, it owns an option to sell the underlying securities subject to
the option having an exercise price equal to or greater than the exercise
price of the "covered" option, or it deposits and maintains with its
Custodian in a segregated account cash, U.S. Government securities or other
liquid high-grade debt obligations having a value equal to or greater than
the exercise price of the option.
The Fund may also buy and write straddles (i.e., a combination of a
call and a put written on the same security at the same exercise price
where the same issue of the security is considered "cover" for both the put
and the call). In such cases, the Fund will also deposit in a segregated
account with its Custodian cash, U.S. Government securities or other liquid
high-grade debt
B-5
<PAGE>
obligations equivalent in value to the amount, if any, by which the put is
"in-the-money," i.e., the amount by which the exercise price of the put
exceeds the current market value of the underlying security.
The Fund may write both American style options and European style
options. An American style option is an option which may be exercised by
the holder at any time prior to its expiration. A European style option,
however, may only be exercised as of the expiration of the option. The
writer of an American style option has no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the
case of a put option, since such options may be exercised by the holder at
any time prior to the expiration of the option. Whether or not an option
expires unexercised, the writer retains the amount of the premium. This
amount may be offset or exceeded, in the case of a covered call option, by
a decline and, in the case of a covered put option, by an increase in the
market value of the underlying security during the option period. If a call
option is exercised the writer must fulfill the obligation to sell the
underlying security at the exercise price, which will usually be lower than
the then market value of the underlying security. If a put option is
exercised, the writer must fulfill the obligation to purchase the
underlying security at the exercise price, which will usually exceed the
then market value of the underlying security.
The writer of an exchange-traded option that wishes to terminate its
obligation may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option
previously written. (Options of the same series are options with respect to
the same underlying security, having the same expiration date and the same
strike price.) The effect of the purchase is that the writer's position
will be canceled by the exchange's affiliated clearing organization.
However, the writer of an option may not effect a closing purchase
transaction after being notified of the exercise of the option. Likewise,
an investor who is the holder of an option may liquidate a position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can
be effected.
An exchange-traded option position may be closed out only where there
exists a secondary market for an option of the same series. If a secondary
market does not exist, it might not be possible to effect closing
transactions in a particular option the Fund has purchased with the result
that the Fund would have to exercise the option in order to realize any
profit. If the Fund is unable to effect a closing purchase transaction in a
secondary market in an option the Fund has written, it will not be able to
sell the underlying security until the option expires or it delivers the
underlying security upon exercise or it otherwise covers its position.
Reasons for the absence of a liquid secondary market include the following:
(i) there may be insufficient trading interest in certain options; (ii)
restrictions may be imposed by a securities exchange (Exchange) on opening
transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange;
(v) the facilities of an Exchange or clearing organization may not at all
times be adequate to handle current trading volume; or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at
some future date to discontinue trading of options (or a particular class
or series of options), in which event the secondary market on that Exchange
(or in that class or series of options) would cease to exist, although
outstanding options would continue to be exercisable in accordance with
their terms.
Exchange-traded options in the U.S. are issued by clearing
organizations affiliated with the Exchange on which the option is listed
which, in effect, give their guarantee to every exchange-traded option
transaction. In contrast, OTC options are contracts between the Fund and
its contra-party with no clearing organization guarantee. Thus when the
Fund purchases an OTC option, it relies on the dealer from which it has
purchased the OTC option to make or take delivery of the securities
underlying the option. Failure by the dealer to do so would result in the
loss of the premium paid by the Fund as well as the loss of the expected
benefit of the transaction. The Board of Directors will evaluate the
creditworthiness of any dealer from which the Fund proposes to purchase
options.
Exchange-traded options generally have a continuous liquid market while
OTC options may not. Consequently, the Fund will generally be able to
realize the value of an OTC option it has purchased only by exercising it
or reselling it to the dealer who issued it. Similarly, when the Fund
writes an OTC option, it generally will be able to close out the OTC option
prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally sold the OTC
option. While the Fund will enter into OTC options only with dealers which
agree to, and which are expected to be capable of, entering into closing
transactions with the Fund, there can be no assurance that the Fund will be
able to liquidate an OTC option at a favorable price at any time prior to
expiration. Until the Fund is able to effect a closing purchase transaction
in a covered OTC call option the Fund has written, it will not be able to
liquidate securities used as cover until the option expires or is exercised
or different cover is substituted. In the event of insolvency of the
contra-party, the Fund may be unable to liquidate an OTC option. With
respect to options written by the Fund, inability to enter into a closing
purchase transaction may result in material losses to the Fund. For
example, since the Fund must maintain a covered position with respect to
any call option on a security it writes, the Fund may be limited in its
ability to sell the underlying security while the option is outstanding.
This may impair the Fund's ability to sell a portfolio security at a time
when such a sale might be advantageous.
B-6
<PAGE>
The Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security and concurrently
write a call option against that security. The exercise price of the call
the Fund determines to write will depend upon the expected price movement
of the underlying security. The exercise price of a call option may be
below (in-the-money), equal to (at-the-money) or above (out-of-the-money)
the current value of the underlying security at the time the option is
written. Buy-and-write transactions using in-the-money call options may be
used when it is expected that the price of the underlying security will
remain flat or decline moderately during the option period. Buy-and-write
transactions using at-the-money call options may be used when it is
expected that the price of the underlying security will remain fixed or
advance moderately during the option period. A buy-and-write transaction
using an out-of-the-money call option may be used when it is expected that
the premium received from writing the call option plus the appreciation in
the market price of the underlying security up to the exercise price will
be greater than the appreciation in the price of the underlying security
alone. If the call option is exercised in such a transaction, the Fund's
maximum gain will be the premium received by it for writing the option,
adjusted upwards or downwards by the difference between the Fund's purchase
price of the security and the exercise price of the option. If the option
is not exercised and the price of the underlying security declines, the
amount of such decline will be offset in part, or entirely, by the premium
received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the
premium received. If the market price of the underlying security declines
or otherwise is below the exercise price, the Fund may elect to close out
the position or take delivery of the underlying security at the exercise
price. In that case, the Fund's return will be the premium received from
writing the put option, minus the amount by which the market price of the
security is below the exercise price. Out-of-the-money, at- the-money and
in-the-money covered put options may be written by the Fund in the same
market environments in which call options are written in equivalent
buy-and-write transactions.
The Fund may purchase a call option on a security it intends to acquire
in order to hedge against (and thereby benefit from) an anticipated market
appreciation in the price of the underlying security at limited risk and
with a limited cash outlay. If the market price does rise as anticipated,
the Fund will benefit from that rise but only to the extent that the rise
exceeds the premium paid. If the anticipated rise does not occur or if it
does not exceed the premium, the Fund will bear the expense of the option
premium without gaining an offsetting benefit.
The Fund may purchase put options on securities to hedge against a
decline in the value of its portfolio. If the market price of the Fund's
portfolio should increase, however, the profit which the Fund might
otherwise have realized will be reduced by the amount of the premium paid
for the put option and by transaction costs. The Fund may purchase call
options on securities to hedge against an anticipated rise in the price it
will have to pay for securities it intends to buy in the future. If the
market price of the securities should fall instead of rise, however, the
benefit the Fund obtains from purchasing the securities at a lower price
will be reduced by both the amount of the premium paid for the call options
and transaction costs.
The Fund may purchase put options if the Fund believes that a defensive
posture is warranted for all or a portion of its portfolio. Protection is
provided during the life of the put because the put gives the Fund the
right to sell the underlying security at the put exercise price, regardless
of a decline in the underlying security's market price below the exercise
price. This right limits the Fund's losses from the security's possible
decline in value below the strike price of the option to the premium paid
for the put option and related transaction costs.
The Fund may wish to protect certain portfolio securities against a
decline in market value at a time when put options on those particular
securities are not available for purchase. The Fund may therefore purchase
a put option on other carefully selected securities, the values of which
historically have a high degree of positive correlation to the values of
such portfolio securities. If the Subadviser's judgement is correct,
changes in the value of the put options should generally offset changes in
the value of the portfolio securities being hedged. But the correlation
between the two values may not be as close in these transactions as in
transactions in which the Fund purchases a put option on an underlying
security it owns. If the Subadviser's judgement is not correct, the value
of the securities underlying the put option may decrease less than the
value of the Fund's portfolio securities and therefore the put option may
not provide complete protection against a decline in the value of the
Fund's portfolio securities below the level sought to be protected by the
put option.
The Fund may similarly wish to hedge against appreciation in the value
of securities that it intends to acquire at a time when call options on
such securities are not available. The Fund may, therefore, purchase call
options on other carefully selected securities, the values of which
historically have a high degree of positive correlation to values of
securities that the Fund intends to acquire. In such circumstances the Fund
will be subject to risks analogous to those summarized immediately above in
the event that the correlation between the value of call options so
purchased and the value of the securities intended to be acquired by the
Fund is not as close as anticipated and the value of the securities
underlying the call options increases less than the value of the securities
to be acquired by the Fund.
B-7
<PAGE>
Futures Contracts
The Fund will enter into futures contracts only for certain bona fide
hedging, yield enhancement and risk management purposes. The Fund may enter
into futures contracts for the purchase or sale of equity and debt
securities, aggregates of debt securities or indices of prices thereof,
aggregates of equity securities or indices of prices thereof, and other
financial indices. It may also enter futures contracts for the purchase or
sale of foreign currencies (such as the Japanese Yen, the British Pound and
the West German Deutsche Mark) or composite foreign currencies (such as the
European Currency Unit) in which securities held or to be acquired by the
Fund are denominated, or the value of which have a high degree of positive
correlation to the value of such currencies as to constitute an appropriate
vehicle for hedging. The Fund may enter into such futures contracts both on
U.S. and foreign exchanges.
A "sale" of a futures contract (or a "short" futures position) means
the assumption of a contractual obligation to deliver the securities or
currency underlying the contract at a specified price at a specified future
time. A "purchase" of a futures contract (or a "long" futures position)
means the assumption of a contractual obligation to acquire the securities
or currency underlying the contract at a specified price at a specified
future time. Certain futures contracts are settled on a net cash payment
basis rather than by the sale and delivery of the securities or currency
underlying the futures contracts. U.S. futures contracts have been designed
by exchanges that have been designated as "contract markets" by the
Commodity Futures Trading Commission (the CFTC), an agency of the U.S.
Government, and must be executed through a futures commission merchant
(i.e., a brokerage firm) which is a member of the relevant contract market.
Futures contracts trade on these contract markets and the exchange's
affiliated clearing organization guarantees performance of the contracts as
between the clearing members of the exchange.
At the time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment (initial margin). It is
expected that the initial margin on U.S. exchanges will vary from 3 to 15%
of the value of the securities or the commodities underlying the contract.
Under certain circumstances, however, such as periods of high volatility,
the Fund may be required by an exchange to increase the level of its
initial margin payment. Thereafter, the futures contract is valued daily
and the payment in cash of "variation margin" may be required, a process
known as "mark to market." Each day the Fund is required to provide or is
entitled to receive variation margin in an amount equal to any decline (in
the case of a long futures position) or increase (in the case of short
futures position) in the contract's value since the preceding day.
Although futures contracts by their terms may call for the actual
delivery or acquisition of underlying securities or currency, in most cases
the contractual obligation is extinguished or offset before the expiration
of the contract without having to make or take delivery of the securities
or currency. The offsetting of a contractual obligation is accomplished by
buying (to offset an earlier sale) or selling (to offset an earlier
purchase) an identical futures contract calling for delivery in the same
month. Such a transaction cancels the obligation to make or take delivery
of the underlying securities or currency. In all transactions on a U.S.
futures exchange, the Fund will incur brokerage fees and related
transaction costs when it purchases or sells futures contracts. The Fund
may also incur brokerage fees and related transaction costs when it
purchases or sells futures contracts in markets outside the United States.
The ordinary spreads between values in the cash and futures markets,
due to differences in the character of those markets, are subject to
distortions. First, all participants in the futures market are subject to
initial and variation margin requirements. Rather than meeting additional
variation margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal
relationships between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent
participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing price distortions. Third, from the
point of view of speculators, the margin deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Subadviser may
still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Fund believes
that use of such contracts will benefit the Fund, if the Subadviser's
judgment about the general direction of interest rates is incorrect, the
Fund's overall performance would be poorer than if it had not entered into
any such contracts. For example, if the Fund has hedged against the
possibility of an increase in interest rates which would adversely affect
the price of debt securities held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of the
increased value of its assets which it has hedged because it will have
offsetting losses in its futures positions. In addition, particularly in
such situations, if the Fund has insufficient cash, it may have to sell
assets from its portfolio to meet daily variation margin requirements. Any
such sale of assets may, but will not necessarily, be at increased prices
which reflect the rising market. Consequently, the Fund may have to sell
assets at a time when it may be disadvantageous to do so.
B-8
<PAGE>
If the Fund seeks to hedge against a decline in the value of its
portfolio securities and sells futures contracts for that purpose on other
securities which historically have had a high degree of positive
correlation to the value of the portfolio securities, the value of its
portfolio securities might decline more rapidly than the value of a poorly
correlated futures contract rises. In that case, the hedge will be less
effective than if the correlation had been greater. In a similar but more
extreme situation, the value of the futures position might in fact decline
while the value of portfolio securities holds steady or rises. This would
result in a loss that would not have occurred but for the attempt to hedge.
Options on Futures Contracts
The Fund will also enter into options on futures contracts for certain
bona fide hedging, yield enhancement and risk management purposes. The Fund
may purchase put and call options and write (i.e., sell) "covered" put and
call options on futures contracts that are traded on U.S. and foreign
futures exchanges. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if
the option is a put) at a specified exercise price at any time during the
option exercise period. The writer of the option is required upon exercise
to assume a short futures position (if the option is a call) or a long
futures position (if the option is a put). Upon exercise of the option, the
assumption of offsetting futures positions by the writer and holder of the
option will be accompanied by delivery of the accumulated cash balance in
the writer's futures margin account which represents the amount by which
the market price of the futures contract at exercise, exceeds, in the case
of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.
The Fund will be considered "covered" with respect to a call option it
writes on a futures contract if the Fund owns the securities or currency
which is deliverable under the futures contract or an option to purchase
that futures contract having a strike price equal to or less than the
strike price of the "covered" option and having an expiration date not
earlier than the expiration date of the "covered" option, or it segregates
and maintains with its Custodian for the term of the option cash, U.S.
Government securities or other liquid high-grade debt obligations equal to
the fluctuating value of the optioned futures. The Fund will be considered
"covered" with respect to a put option it writes on a futures contract if
it owns an option to sell that futures contract having a strike price equal
to or greater than the strike price of the "covered" option and having an
expiration date not earlier than the expiration date of the "covered"
option, or if it segregates and maintains with its Custodian for the term
of the option cash, U.S. Government securities or liquid high- grade debt
obligations at all times equal in value to the exercise price of the put
(less any initial margin deposited by the Fund with its Custodian with
respect to such put option). There is no limitation on the amount of the
Fund's assets which can be placed in the segregated account.
Writing a put option on a futures contract serves as a partial hedge
against an increase in the value of securities the Fund intends to acquire.
If the futures price at expiration of the option is above the exercise
price, the Fund will retain the full amount of the option premium which
provides a partial hedge against any increase that may have occurred in the
price of the securities the Fund intends to acquire. If the market price of
the underlying futures contract when the option is exercised is below the
exercise price, however, the Fund will incur a loss, which may be wholly or
partially offset by the decrease in the value of the securities the Fund
intends to acquire.
Writing a call option on a futures contract serves as a partial hedge
against a decrease in the value of the Fund's portfolio securities. If the
market price of the underlying futures contract at expiration of a written
call option is below the exercise price, the Fund will retain the full
amount of the option premium, thereby partially hedging against any decline
that may have occurred in the Fund's holdings of debt securities. If the
futures price when the option is exercised is above the exercise price,
however, the Fund will incur a loss, which may be wholly or partially
offset by the increase in the value of the securities in the Fund's
portfolio which were being hedged.
The Fund will purchase put options on futures contracts to hedge its
portfolio against the risk of a decline in the value of the debt securities
it owns as a result of rising interest rates or fluctuating currency
exchange rates. The Fund will also purchase call options on futures
contracts as a hedge against an increase in the value of securities the
Fund intends to acquire as a result of declining interest rates or
fluctuating currency exchange rates.
Interest Rate Futures Contracts and Options Thereon
The Fund will purchase or sell interest rate futures contracts to take
advantage of, or to protect the Fund against, fluctuations in interest
rates affecting the value of debt securities which the Fund holds or
intends to acquire. For example, if interest rates are expected to
increase, the Fund might sell futures contracts on debt securities, the
values of which historically have a high degree of positive correlation to
the values of the Fund's portfolio securities. Such a sale would have an
effect similar to selling an equivalent value of the Fund's portfolio
securities. If interest rates increase, the value of the Fund's portfolio
securities will decline, but the value of the futures contracts to the Fund
will increase at approximately an equivalent rate thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have.
The Fund could accomplish similar results by selling debt
B-9
<PAGE>
securities with longer maturities and investing in debt securities with
shorter maturities when interest rates are expected to increase. However,
since the futures market may be more liquid than the cash market, the use
of futures contracts as a risk management technique allows the Fund to
maintain a defensive position without having to sell its portfolio
securities.
Similarly, the Fund may purchase interest rate futures contracts when
it is expected that interest rates may decline. The purchase of futures
contracts for this purpose constitutes a hedge against increases in the
price of debt securities (caused by declining interest rates) which the
Fund intends to acquire. Since fluctuations in the value of appropriately
selected futures contracts should approximate that of the debt securities
that will be purchased, the Fund can take advantage of the anticipated rise
in the cost of the debt securities without actually buying them.
Subsequently, the Fund can make the intended purchase of the debt
securities in the cash market and liquidate its futures position. To the
extent the Fund enters into futures contracts for this purpose, it will
maintain in a segregated asset account with the Fund's Custodian assets
sufficient to cover the Fund's obligations with respect to such futures
contracts, which will consist of cash, U.S. Government securities or other
liquid, high-grade debt obligations from its portfolio in an amount equal
to the difference between the fluctuating market value of such futures
contracts and the aggregate value of the initial margin deposited by the
Fund with its Custodian with respect to such futures contracts.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the price of the
futures contract upon which it is based or the price of the underlying debt
securities, it may or may not be less risky than ownership of the futures
contract or underlying debt securities. As with the purchase of futures
contracts, when the Fund is not fully invested, it may purchase a call
option on a futures contract to hedge against a market advance due to
declining interest rates.
The purchase of a put option on a futures contract is similar to the
purchase of protective put options on portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates and consequent reduction in the
value of portfolio securities.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities which are
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Fund will retain
the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the securities which are
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Fund will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of debt securities which the Fund intends
to purchase. If a put or call option the Fund has written is exercised, the
Fund will incur a loss which will be reduced by the amount of the premium
it received. Depending on the degree of correlation between changes in the
value of its portfolio securities and changes in the value of its futures
positions, the Fund's losses from options on futures it has written may to
some extent be reduced or increased by changes in the value of its
portfolio securities.
Currency Futures and Options Thereon
Generally, foreign currency futures contracts and options thereon are
similar to the interest rate futures contracts and options thereon
discussed previously. By entering into currency futures and options thereon
on U.S. and foreign exchanges, the Fund will seek to establish the rate at
which it will be entitled to exchange U.S. dollars for another currency at
a future time. By selling currency futures, the Fund will seek to establish
the number of dollars it will receive at delivery for a certain amount of a
foreign currency. In this way, whenever the Fund anticipates a decline in
the value of a foreign currency against the U.S. dollar, the Fund can
attempt to "lock in" the U.S. dollar value of some or all of the securities
held in its portfolio that are denominated in that currency. By purchasing
currency futures, the Fund can establish the number of dollars it will be
required to pay for a specified amount of a foreign currency in a future
month. Thus if the Fund intends to buy securities in the future and expects
the U.S. dollar to decline against the relevant foreign currency during the
period before the purchase is effected, the Fund can attempt to "lock in"
the price in U.S. dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund, for
the price of the premium and related transaction costs it must pay for the
option, to decide whether or not to buy (in the case of a call option) or
to sell (in the case of a put option) a futures contract at a specified
price at any time during the period before the option expires. If the
Subadviser, in purchasing an option, has been correct in its judgement
concerning the direction in which the price of a foreign currency would
move as against the U.S. dollar, the Fund may exercise the option and
thereby take a futures position to hedge against the risk it had correctly
anticipated or close out the option position at a gain that will offset, to
some extent, currency exchange losses otherwise suffered by the Fund. If
exchange rates move in a way the Fund did not anticipate, however, the Fund
will have incurred the expense of the option without obtaining the expected
benefit; any such movement in exchange rates may also thereby reduce rather
than enhance the Fund's profits on its underlying securities transactions.
B-10
<PAGE>
Options on Currencies
Instead of purchasing or selling futures or forward currency exchange
contracts, the Fund may attempt to accomplish similar objectives by
purchasing put or call options on currencies either on exchanges or in OTC
markets or by writing put options or covered call options on currencies. A
put option gives the Fund the right to purchase a currency at the exercise
price until the option expires. A call option gives the Fund the right to
purchase a currency at the exercise price until the option expires. Both
options serve to insure against adverse currency price movements in the
underlying portfolio assets designated in a given currency. Currency
options traded on U.S. or other exchanges may be subject to position limits
which may limit the ability of the Fund to fully hedge its positions by
purchasing such options.
As in the case of interest rate futures contracts and options thereon,
the Fund may hedge against the risk of a decrease or increase in the U.S.
dollar value of a foreign currency denominated security which the Fund owns
or intends to acquire by purchasing or selling options contracts, futures
contracts or options thereon with respect to a foreign currency other than
the foreign currency in which such security is denominated, where the
values of such different currencies (vis-a-vis the U.S. dollar)
historically have a high degree of positive correlation.
Special Characteristics of Forward Currency Contracts and Associated Risks
The Fund may use forward currency contracts to protect against
uncertainty in the level of future exchange rates. The Fund will not
speculate with forward currency contracts or foreign currency exchange
rates. A forward currency contract involves bilateral obligations of one
party to purchase, and another party to sell, a specified currency at a
future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time the
contract is entered into.
The Fund may enter into forward currency contracts with respect to
specific transactions. For example, when the Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency,
or when the Fund anticipates the receipt in a foreign currency of dividend
or interest payments on a security that it holds, the Fund may desire to
"lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such payment, as the case may be, by entering into a forward
contract for the purchase or sale, for a fixed amount of U.S. dollars per
unit of foreign currency, of the amount of foreign currency involved in the
underlying transaction. The Fund will thereby be able to protect itself
against a possible loss resulting from an adverse change in the
relationship between the currency exchange rates during the period between
the date on which the security is purchased or sold, or on which the
payment is declared, and the date on which such payments are made or
received.
The Fund also may use forward currency contracts to "lock-in" the U.S.
dollar value of portfolio positions, to increase the Fund's exposure to
foreign currencies that the Subadviser believes may rise in value relative
to the U.S. dollar or to shift the Fund's exposure to foreign currency
fluctuations from one country to another. For example, when the Subadviser
believes that the currency of a particular foreign country may suffer a
substantial decline relative to the U.S. dollar or another currency, it may
enter into a forward contract to sell the amount of the former foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. This investment practice
generally is referred to as "cross-hedging" when another foreign currency
is used. The Fund may only cross-hedge using a currency bearing, in the
Subadviser's view, a high degree of positive correlation to the currency
being hedged.
The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future
value of such securities in foreign currencies will change as a consequence
of market movements in the value of those securities between the date the
forward contract is entered into and the date it is sold. Accordingly, it
may be necessary for the Fund to purchase additional foreign currency on
the spot (i.e., cash) market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency
the Fund is obligated to deliver and if a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received
upon the sale of the portfolio security if its market value exceeds the
amount of foreign currency the Fund is obligated to deliver. The projection
of short-term currency market movements is extremely difficult, and the
successful execution of a short- term hedging strategy is highly uncertain.
Forward contracts involve the risk that anticipated currency movements will
not be accurately predicted, causing the Fund to sustain losses on these
contracts and transaction costs. The Fund may enter into forward contracts
or maintain a net exposure on such contracts only if (1) the consummation
of the contracts would not obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities
or other assets denominated in that currency or (2) the Fund maintains
cash, U.S. government securities or liquid, high-grade debt securities in a
segregated account in an amount not less than the value of the Fund's total
assets committed to the consummation of the contract. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, the Subadviser believes that
it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Fund will be
served.
B-11
<PAGE>
At or before the maturity of a forward contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund may close out a forward contract requiring it
to purchase a specified currency by entering into a second contract
entitling it to sell the same amount of the same currency on the maturity
date of the first contract. The Fund would realize a gain or loss as a
result of entering into such an offsetting forward currency contract under
either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract
and the offsetting contract.
The cost to the Fund of engaging in forward currency contracts varies
with factors such as the currencies involved, the length of the contract
period and the market conditions then prevailing. Because forward currency
contracts are usually entered into on a principal basis, no fees or
commission are involved. The use of forward contracts does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or
intends to acquire, but it does fix a rate of exchange in advance. In
addition, although forward currency contracts limit the risk of loss due to
a decline in the value of the hedged currencies, at the same time they
limit any potential gain that might result should the value of the
currencies increase.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may convert foreign currency from time
to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they
do realize a profit based on the difference between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to
sell a foreign currency to the Fund at one rate, while offering a lesser
rate of exchange should the Fund desire to resell that currency to the
dealer.
Additional Risks of Options on Securities and Currencies, Futures
Contracts, Options on Futures Contracts and Forward Contracts
Options, futures contracts and options thereon and forward contracts on
securities and currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in
the U.S., may not involve a clearing mechanism and related guarantees, and
are subject to the risk of governmental actions affecting trading in, or
the prices of, foreign securities. The value of such positions also could
be adversely affected by (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on
which to make trading decisions, (iii) delays in the Fund's ability to act
upon economic events occurring in the foreign markets during non-business
hours in the U.S., (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the U.S., and (v)
lesser trading volume.
Exchanges on which options, futures and options on futures are traded
may impose limits on the positions that the Fund may take in certain
circumstances. If so, this would limit the ability of the Fund fully to
hedge against these risks.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions in such
options is subject to the maintenance of a liquid secondary market. To
mitigate this problem, the Fund will not purchase or write options on
foreign currency futures contracts unless and until, in the Subadviser's
opinion, the market for such options has developed sufficiently that the
risks in connection with such options are not greater than the risks in
connection with transactions in the underlying foreign currency futures
contracts. Compared to the purchase or sale of foreign currency futures
contracts, the purchase of call or put options thereon involves less
potential risk to the Fund because the maximum amount at risk is the
premium paid for the option (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a foreign
currency futures contract would result in a loss, such as when there is no
movement in the price of the underlying currency or futures contract, when
use of the underlying futures contract would not.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. options markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying
markets that cannot be reflected in the options market until they reopen.
Because foreign currency transactions occurring in the interbank market
involve substantially larger amounts than those that may be involved in the
use of foreign currency options, investors may be disadvantaged by having
to deal in an odd lot market (generally consisting of transactions of less
than $1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
B-12
<PAGE>
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a
foreign security.
A holder of a stock index option who exercises it before the closing
index value for that day is available runs the risk that the level of the
underlying index may subsequently change. For example, in the case of a
call, if such a change causes the closing index value to fall below the
exercise price of the option on that index, the exercising holder will be
required to pay the difference between the closing index value and the
exercise price of the option.
Special Risk Considerations Relating to Futures and Options Thereon
The Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the
development and maintenance of a liquid market. Although the Fund generally
will purchase or sell only those futures contracts and options thereon for
which there appears to be a liquid market, there is no assurance that a
liquid market on an exchange will exist for any particular futures contract
or option thereon at any particular time. In the event no liquid market
exists for a particular futures contract or option thereon in which the
Fund maintains a position, it will not be possible to effect a closing
transaction in that contract or to do so at a satisfactory price and the
Fund would have to either make or take delivery under the futures contract
or, in the case of a written option, wait to sell the underlying securities
until the option expires or is exercised. In the case of a futures contract
or an option on a futures contract which the Fund has written and which the
Fund is unable to close, the Fund would be required to maintain margin
deposits on the futures contract or option and to make variation margin
payments until the contract is closed.
Successful use of futures contracts and options thereon by the Fund is
subject to the ability of the Fund's Subadviser to predict correctly
movements in the direction of interest rates and currency exchange rates
and other factors affecting markets for securities. If the Subadviser's
expectations are not met, the Fund would be in a worse position than if a
hedging strategy had not been pursued. For example, if the Fund has hedged
against the possibility of an increase in interest rates which would
adversely affect the price of securities in its portfolio and the price of
such securities increases instead, the Fund will lose part or all of the
benefit of the increased value of its securities because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash to meet daily variation
margin requirements, it may have to sell securities to meet such
requirements. Such sales of securities may be, but will not necessarily be,
at increased prices which reflect the rising market. The Fund may have to
sell securities at a time when it is disadvantageous to do so.
Limitations on the Purchase and Sale of Futures Contracts and
Options on Futures Contracts
The Fund will engage in transactions in interest rate and foreign
currency futures contracts and options thereon only for bona fide hedging,
yield enhancement and risk management purposes, in each case in accordance
with the rules and regulations of the CFTC, and not for speculation. In
instances involving the purchase of futures contracts or call options
thereon or the writing of put options thereon by the Fund, an amount of
cash, U.S. Government securities or other liquid, high-grade debt
obligations, equal to the market value of the futures contracts and options
thereon (less any related margin deposits), will be deposited in a
segregated account with the Fund's Custodian to cover the position, or the
Fund will own an offsetting position in securities, currencies or other
options, forward-currency contracts or futures contracts sufficient to
ensure that the use of such techniques is unleveraged. There are no
limitations on the Fund's use of futures contracts and options on futures
contracts beyond the restrictions set forth above and the economic
limitations that are implicit in the use of futures and options on futures,
within these restrictions, only for bona fide hedging, yield enhancement
and risk management purposes, in each case in accordance with rules and
regulations of the CFTC and not for speculation.
Although the Fund intends to purchase or sell futures and options on
futures only on exchanges where there appears to be an active market, there
is no guarantee that an active market will exist for any particular
contract or at any particular time. If there is not a liquid market at a
particular time, it may not be possible to close a futures position at such
time, and, in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. However,
when futures positions are used to hedge portfolio securities, such
securities will not be sold until the futures positions can be liquidated.
In such circumstances, an increase in the price of securities, if any, may
partially or completely offset losses on the futures contracts.
Illiquid Securities
The Fund has adopted the following nonfundamental investment policy
which may be changed by the vote of the Board of Directors:
The Fund may not invest more than 10% of its total assets in repurchase
agreements which have a maturity of longer than seven days or in other
illiquid securities, including securities that are illiquid by virtue of
the absence of a
B-13
<PAGE>
readily available market or legal or contractual restrictions on resale.
Securities eligible for resale in accordance with Rule 144A under the
Securities Act of 1933 that have legal or contractual restrictions on
resale but have a readily available market are not considered illiquid for
purposes of this limitation. The Subadviser 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 notice period.
The staff of the Securities and Exchange Commission has taken the
position that purchased OTC options and the assets used as "cover" for
written OTC options are illiquid securities.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the Securities
Act), securities which are not otherwise readily marketable, and repurchase
agreements having a maturity of longer than seven days. Securities which
have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased, directly
from the issuer or in the secondary market. Mutual funds do not typically
hold a significant amount of these restricted or other illiquid securities
because of the potential for delays on resale and uncertainty in valuation.
Limitations on resale may have an adverse effect on the marketability of
portfolio securities, and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted securities
in order to dispose of them, resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal restrictions on
resale to the general public or to certain institutions may not be
indicative of the liquidity of such investments.
The SEC has adopted Rule 144A which allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to
the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. The Subadviser anticipates
that the market for certain restricted securities such as foreign
convertible securities will expand further as a result of this new
regulation and the development of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc.
The Subadviser will monitor the liquidity of restricted securities in
the Fund's portfolio under the supervision of the Board of Directors. In
reaching liquidity decisions, the Subadviser will consider, inter alia, the
following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature
of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the
transfer).
In addition to the foregoing limitation on investment in illiquid
securities, the Fund has adopted a nonfundamental limitation that would
limit its investments in certain restricted securities to 5% of the Fund's
assets. For purposes of this limitation, restricted securities are those
which are restricted from sale to the public without registration under the
Securities Act, but excludes restricted securities eligible for resale
pursuant to Rule 144A that the Board of Directors has determined to be
liquid.
Borrowing
As stated in the Prospectus, the Fund may borrow an amount up to 33
1/3% of the value of its total assets (computed at the time the loan is
made) from banks for temporary or emergency purposes. However, the Fund
will not purchase portfolio securities if borrowings exceed 5% of the
Fund's total assets. Upon the vote of the Board of Directors to change the
nonfundamental policy described above, the Fund is authorized, at the
Subadviser's discretion and under the supervision of the Board of
Directors, to borrow from banks amounts up to 33 1/3% of the Fund's total
assets (including the amount borrowed), less all liabilities and
indebtedness other than the specific bank borrowing, which is equivalent to
permitting such borrowing to equal 50% of the value of the Fund's net
assets.
Portfolio Turnover
The Fund has no fixed policy with respect to portfolio turnover;
however, as a result of the Fund's investment policies, the Subadviser
expects the annual portfolio turnover rate will be less than 100%. For the
Fund's fiscal years ended September 30, 1992 and 1993 its portfolio
turnover was 57% and 14%, respectively. The portfolio turnover rate is
calculated by dividing the lesser of sales or purchases of portfolio
securities by the average monthly value of the Fund's portfolio securities,
excluding
B-14
<PAGE>
securities having a maturity at the date of purchase of one year or less.
High portfolio turnover may involve correspondingly greater brokerage
commissions and other transaction costs which will be borne directly by
the Fund.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which constitute
fundamental policies. Fundamental policies cannot be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities, as defined in the 1940 Act.
The Fund may not:
(1) Invest 25% or more of its total assets in any nonutility industry.
(The Fund will invest 25% or more of its total assets in the utility
industries as a group. Utility industries for this purpose consist of
companies primarily engaged in the ownership or operation of facilities
used in the generation, transmission or distribution of electricity,
telecommunications, gas or water.) For this purpose "industry" does not
include the U.S. Government and agencies and instrumentalities of the U.S.
Government.
(2) Invest more than 5% of its total assets in securities of companies
having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to U.S. Government
agencies and instrumentalities.
(3) As to 75% of its total assets, invest more than 5% of the market or
other fair value of its total assets in the securities of any one issuer
(other than U.S. Government Securities) or purchase more than 10% of the
voting securities, or more than 10% of any class of securities, of any one
issuer. For purposes of this restriction, all outstanding debt securities
of an issuer are considered as one class, and all preferred stock of an
issuer is considered as one class.
(4) Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of transactions. The Fund may make
deposits of margin in connection with futures contracts and options.
(5) Invest in securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets; provided that the Fund may invest in securities issued by foreign
investment companies to the extent permitted by the 1940 Act.
(6) Make short sales of securities or maintain a short position, except
in connection with the use of options, futures contracts, options thereon
and forward currency contracts.
(7) Issue senior securities, as defined in the 1940 Act, except that
the Fund may borrow money from banks in an amount at the time of the
borrowing not in excess of 33 1/3% of the Fund's total assets (including
the amount borrowed) less all liabilities and indebtedness other than the
borrowing. Transactions involving options, futures contracts, options on
futures contracts and forward currency contracts as described in the
Prospectus and collateral arrangements with respect thereto are not
considered by the Fund to be the issuances of senior securities; and
neither such arrangements, the purchase or sale of securities on a when-
issued or delayed delivery basis nor obligations of the Fund to the
Directors pursuant to deferred compensation arrangements, are deemed to be
the issuance of a senior security.
(8) Buy or sell commodities, commodity contracts, real estate or
interests in real estate, except that the Fund may purchase and sell
futures contracts, options on futures contracts and securities secured by
real estate or interests therein or issued by companies that invest
therein. Transactions in foreign currencies, forward currency contracts and
options on foreign currencies, futures contracts and options on futures
contracts are not considered by the Fund to be transactions in commodities
or commodity contracts.
(9) Make loans, except loans of portfolio securities and repurchase
agreements, provided that for purposes of this restriction the purchase of
debt securities in accordance with the Fund's investment objective and
policies are not considered by the Fund to be "loans."
(10) Make investments for the purpose of exercising control or
management over the issuer of any security.
(11) Act as an underwriter (except to the extent the Fund may be deemed
to be an underwriter in connection with the sale of securities in the
Fund's investment portfolio).
If a percentage restriction is adhered to at the time of an investment
or transaction, later changes in percentage resulting in a change in values
of portfolio securities or amount of total assets will not be considered a
violation of any of the foregoing limitations. However, in the event that
the Fund's asset coverage for borrowings falls below 300%, the Fund will
take prompt action to reduce its borrowings, as required by applicable law.
In order to comply with certain state "blue sky" restrictions, the Fund
will not as a matter of operating policy:
B-15
<PAGE>
1. Invest in oil, gas and mineral leases.
2. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or director of the Fund or the Fund's Manager or Subadviser
owns more than 1/2 of 1% of the outstanding securities of such issuer, and
such officers and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuer.
3. Invest in the securities of foreign open-end investment companies.
4. Purchase warrants if as a result the Fund would then have more than
5% of its assets (determined at the time of investment) invested in
warrants. Warrants will be valued at the lower of cost or market and
investment in warrants which are not listed on the New York Stock Exchange
or American Stock Exchange will be limited to 2% of the Fund's net assets
(determined at the time of investment). For purposes of this limitation,
warrants acquired in units or attached to securities are deemed to be
without value.
5. Purchase more than 10% of the voting securities of any issuer.
6. Invest more than 10% of its assets in securities which the Fund
would be restricted from selling to the public without registration under
the Securities Act, but excluding restricted securities eligible for resale
pursuant to Rule 144A under the Securities Act that are determined to be
liquid by the Board of Directors, securities of unseasoned issuers
including their predecessors, which have been in operation for less than
three years and equity securities of issuers which are not readily
marketable.
INFORMATION REGARDING DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position(s) held Principal Occupations
Name and Address with the Fund During Past 5 Years
- ---------------- ---------------- ---------------------
<S> <C> <C>
*Daniel S. Ahearn, PHD Director President of Capital Markets Strategies Company; Consultant to
75 State Street Management Company (Wellington Management); formerly Senior
Boston, MA 02109 Vice President (1979-1993) and Partner (1979-1990) of Wellington
Management; Director of U.S. Smaller Companies Investment Trust
plc, First Financial Fund, Inc. and The High Yield Plus Fund, Inc.;
Trustee of Winchester Hospital; Member of Massachusetts Financial
Advisory Board; Member of PSA Treasury Borrowing Advisory
Committee; former Assistant to the Secretary of the Treasury for
Debt Management.
*Edward D. Beach President and President and Director of BMC Fund, Inc., prior thereto, Vice Chairman
800 Golfview Park Director of Broyhill Furniture Industries, Inc.; Certified Public Accountant;
Lenoir, NC 28645 Secretary and Treasurer of Broyhill Family Foundation, Inc.;
President, Treasurer and Director of First Financial Fund, Inc. and
The High Yield Plus Fund, Inc.; Director of The Global Yield Fund,
Inc. and The Global Government Plus Fund, Inc.
Thomas T. Mooney Director President of the Greater Rochester Metro Chamber of Commerce;
55 St. Paul Street formerly Rochester City Manager; Trustee of Center for
Rochester, NY 14604 Governmental Research, Inc.; Director of Blue Cross of Rochester,
Monroe County Water Authority, Rochester Jobs, Inc., Industrial
Management Council, Inc., Executive Service Corps of Rochester,
Monroe County Industrial Development Corporation, First Financial
Fund, Inc., The Global Government Plus Fund, Inc., The Global Yield
Fund, Inc. and The High Yield Plus Fund, Inc.
*John B. Neff Director Chartered Financial Analyst, Senior Vice President and Managing
1300 Morris Drive Partner of Wellington Management Company; Portfolio Manager of
Chesterbrook Complex Windsor Fund, Gemini II and Vanguard High-Yield Stock Fund;
Wayne, PA 19087 Chairman of the Investment Board and Charter Trustee, University of
Pennsylvania; Director of General Accident Insurance (subsidiary of
General Accident & Life).
</TABLE>
B-16
<PAGE>
<TABLE>
<CAPTION>
Position(s) held Principal Occupations
Name and Address with the Fund During Past 5 Years
- ---------------- ---------------- ---------------------
<S> <C> <C>
*Richard A. Redeker Director President, Chief Executive Officer and Director (since October 1993),
One Seaport Plaza Prudential Mutual Fund Management, Inc. (PMF); Executive Vice
New York, NY 10292 President, Director and Member of the Operating Committee
(since October 1993), Prudential Securities Incorporated (Prudential
Securities); Director (since October 1993) of Prudential Securities Group,
Inc.; formerly Senior Executive Vice President and Director of Kemper
Financial Services, Inc. (September 1978-September 1993); Director of The
Global Government Plus Fund, Inc. and The High Yield Income Fund, Inc.
Sir Michael Sandberg Director Director of International Totalizer Systems, Broadstreet, Inc., and The
11 St. James Square Global Yield Fund, Inc.; Chairman and Director of PRICOA
London SW1Y4LB, Worldwide Investors Portfolio; former Chairman of Hong Kong
England and Shanghai Banking Corporation and British Bank of the
Middle East (1977-1986).
Robin B. Smith Director President (since September 1981) and Chief Executive Officer (since
382 Channel Drive January 1988), Publishers Clearing House; Director of The
Port Washington, NY 11050 Omnicom Group, Inc., Texaco Inc., Spring Industries Inc., First
Financial Fund, Inc., Huffy Corporation, The Global Yield Fund, Inc.,
The High Yield Income Fund, Inc., and The High Yield Plus Fund, Inc.
Nancy H. Teeters Director Economist; formerly, Vice President and Chief Economist (March
c/o Prudential Mutual Fund 1986-June 1990) of International Business Machines Corporation;
Management, Inc. prior thereto, Member of the Board of Governors of the Horace H.
One Seaport Plaza Rackham School of Graduate Studies of the University of Michigan;
New York, NY 10292 Director of Inland Steel Industries (since July 1991), First Financial
Fund, Inc., and The Global Yield Fund, Inc.
Robert F. Gunia Vice President Chief Administrative Officer (since July 1990), Director (since January
One Seaport Plaza 1989), Executive Vice President, Treasurer and Chief Financial
New York, NY 10292 Officer of PMF (since June 1987); Senior Vice President (since
March 1987) of Prudential Securities; Vice President and Director of
The Asia Pacific Fund, Inc. (since May 1989).
Susan C. Cote Treasurer Senior Vice President (since January 1989) and First Vice President
One Seaport Plaza (June 1987-January 1989) of PMF; Senior Vice President (since
New York, NY 10292 January 1992) and Vice President (January 1986-December 1991)
of Prudential Securities.
S. Jane Rose Secretary Senior Vice President (since January 1991), Senior Counsel (since
One Seaport Plaza June 1987) and First Vice President (June 1987-January 1991) of
New York, NY 10292 PMF; Senior Vice President and Senior Counsel of Prudential
Securities (since July 1992); formerly Vice President and Associate
General Counsel of Prudential Securities.
Ronald Amblard Assistant First Vice President (since January 1994) and Associate General
One Seaport Plaza Secretary Counsel (since January 1992) of PMF; Vice President and Associate
New York, NY 10292 General Counsel of Prudential Securities (since January 1992);
formerly Assistant General Counsel (August 1988-December 1991),
Associate Vice President (January 1989-December 1990) and Vice
President (January 1991-December 1993) of PMF.
<FN>
- ------------------
* Indicates those directors that are "interested persons" of the Fund as defined in the 1940 Act.
</TABLE>
B-17
<PAGE>
The Directors of the Fund, other than Messrs. Ahearn and Neff, are also
trustees, directors and officers of some or all of the other investment
companies distributed by Prudential Securities Incorporated ("Prudential
Securities") or Prudential Mutual Fund Distributors, Inc.
Sir Michael Sandberg, one of the Fund's Directors, resides outside the
United States and substantially all of his assets are located outside the
United States. It may not be possible, therefore, for investors to effect
service of process within the United States upon such director or to
enforce against such director, in United States or foreign courts,
judgements obtained in United States courts predicated upon the civil
liability provisions of the United States federal securities laws.
The officers conduct and supervise the daily business operations of the
Fund, while the directors, in addition to their functions set forth under
"Management of the Fund" below, review such actions and decide on general
policy.
The Fund pays each of its Directors who is not an affiliated person of
the Manager or the Subadviser annual compensation of $6,000 and $500 per
Board meeting attended, in addition to certain out-of-pocket expenses.
Directors may receive their Director's fees pursuant to a deferred fee
agreement with the Fund.
Under the terms of a deferred compensation agreement, the Fund accrues
daily the amount of such Director's fee which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury Bills
at the beginning of each calendar quarter or, pursuant to an exemptive
order of the Securities and Exchange Commission (SEC), at the daily rate of
return of the Fund (the Fund rate). Payment of the interest so accrued is
also deferred and accruals become payable at the option of the Director.
The Fund's obligation to make payments of deferred Director's fees,
together with interest thereon, is a general obligation of the Fund.
As of March 31, 1994, the Directors and officers of the Fund as a group
owned less than 1% of the outstanding common stock of the Fund.
As of March 31, 1994, Prudential Securities was the record holder for
other beneficial owners of 8,242,255 Class A shares (or 81% of the
outstanding Class A shares) and 17,725,928 Class B shares (or [85]% of the
outstanding Class B shares) of the Fund. In the event of any meetings of
shareholders, Prudential Securities will forward, or cause the forwarding
of, proxy materials to the beneficial owners for which it is record
holder.
MANAGEMENT OF THE FUND
The 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 open-end management investment companies that,
together with the Fund, comprise the Prudential Mutual Funds. See "How the
Fund is Managed-Manager" in the Prospectus. As of March 31, 1994, PMF
managed and/or administered open-end and closed-end management investment
companies with assets of approximately $[49] billion. According to the
Investment Company Institute, as of December 31, 1993, the Prudential
Mutual Funds were the 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 objective and 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 from the Fund, pursuant to the
Management Agreement, a fee at an annual rate of .70% of the average daily
net assets of the Fund up to and including $250 million, .55% of the Fund's
average daily net assets in excess of $250 million up to and including $500
million, .50% of the Fund's average daily net assets in excess of $500
million up to and including $1 billion and .45% of the Fund's average daily
net assets in excess of $1 billion. The fee is computed daily and payable
monthly. The Management Agreement also provides that, in the event the
expenses of the Fund (including the fees of PMF, but excluding interest,
taxes, brokerage commissions, distribution fees and litigation and
indemnification expenses and other extraordinary
B-18
<PAGE>
expenses not incurred in the ordinary course of the Fund's business) for
any fiscal year exceed the lowest applicable annual expense limitation
established and enforced pursuant to the statutes or regulations of any
jurisdiction in which the Fund's shares are qualified for offer and sale,
the compensation due to PMF will be reduced by the amount of such excess.
Reductions in excess of the total compensation payable to PMF will be paid
by PMF to the Fund. No such reductions were required during the fiscal
year ended September 30, 1993. Currently, the Fund believes that the most
restrictive expense limitation of state securities commissions is 2 1/2%
of the Fund's average daily net assets up to $30 million, 2% of the next
$70 million of such assets and 1-1/2% of such assets in excess of $100
million.
In connection with its management of the corporate affairs of the Fund,
PMF bears the following expenses: 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 Subadviser; 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 the subadvisory fee payable to the Subadviser pursuant to the
Subadvisory Agreement among the Fund, PMF and the Subadviser (the
Subadvisory Agreement), dated February 4, 1991.
Under the terms of the Management Agreement, the Fund is responsible
for the payment of the following expenses: (a) the fees payable to the
Manager, (b) the fees and expenses of Directors who are not affiliated
persons of the Manager or the Fund's Subadviser, (c) the fees and certain
expenses of the Custodian and Transfer and Dividend Disbursing Agent,
including the cost of providing records to the Manager in connection with
its obligation of maintaining required records of the Fund and of pricing
the Fund's shares, (d) the charges and expenses of legal counsel and
independent accountants for the Fund, (e) brokerage commissions and any
issue or transfer taxes chargeable to the Fund in connection with its
securities transactions, (f) all taxes and corporate fees payable by the
Fund to governmental agencies, (g) the fees of any trade associations of
which the Fund may be a member, (h) the cost of stock certificates
representing shares of the Fund, (i) the cost of fidelity and liability
insurance, (j) certain organization expenses of the Fund and the fees and
expenses involved in registering and maintaining registration of the Fund
and of its shares with the SEC, registering the Fund and qualifying its
shares under state securities laws, including the preparation and printing
of the Fund's registration statements and prospectuses for such purposes,
(k) allocable communications expenses with respect to investor services and
all expenses of shareholders' and 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 1940 Act. The Management Agreement was last approved by the Board of
Directors of the Fund, including all of the Directors who are not parties
to the contract or "interested persons" of any such party, on May 5, 1994,
and by shareholders of the Fund, on December 20,1990.
The Subadviser
Wellington Management Company (Wellington Management), 75 State Street,
Boston, Massachusetts 02109, serves as the Fund's Subadviser. The
Subadvisory Agreement provides that Wellington Management shall furnish
investment advisory services in connection with the management of the Fund.
In connection therewith, Wellington Management is obligated to keep certain
books and records of the Fund. PMF continues to have responsibility for all
investment advisory services pursuant to the Management Agreement and
supervises Wellington Management's performance of such services. Under the
Subadvisory Agreement, PMF, not the Fund, pays Wellington Management a fee,
computed daily and payable monthly, at an annual rate of .50% of the Fund's
average daily net assets for the portion of such assets up to and including
$250 million, .35% of the Fund's average daily net assets in excess of $250
million up to and including $500 million, .30% of the Fund's average daily
net assets in excess of $500 million up to and including $1 billion and
.25% of the Fund's average daily net assets in excess of $1 billion.
The Subadvisory Agreement provides that Wellington Management 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 Subadvisory Agreement relates,
except a loss resulting from willful misfeasance, bad faith, gross
negligence or reckless disregard of duty. The Subadvisory Agreement
provides that it will terminate automatically if assigned, and that it may
be terminated without penalty by any party upon not more than 60 days' nor
less than 30 days' written notice. The Subadvisory 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 1940 Act. The Subadvisory Agreement was last
approved by the Board of Directors of the Fund, including all of the
Directors who are not parties to the contract or "interested persons" of
any such party, on May 5, 1994, and by shareholders of the Fund, on
December 30, 1991.
B-19
<PAGE>
For the period January 2, 1990 (commencement of investment operations)
through February 1, 1991, PMF served as administrator to the Fund under the
former administration agreement and Wellington Management served as
investment adviser to the Fund under the former investment advisory
agreement. Since February 4, 1991, PMF has served as Manager under the
current management agreement and Wellington Management has served as
Subadviser under the current Subadvisory Agreement. For the fiscal year
ended September 30, 1991, the Fund paid management and administration fees
of $898,813 to PMF under the management and former administration
agreements and advisory fees of $292,169 to Wellington Management under the
former investment advisory agreements. For the fiscal years ended September
30, 1992 and 1993, the Fund paid $1,164,583 and $1,464,779, respectively,
to PMF under the Management Agreement and PMF paid subadvisory fees of
$831,845 and $1,046,270, respectively, to Wellington Management under the
Subadvisory Agreement.
The Distributor
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza,
New York, New York 10292, acts as the distributor of the Class A shares of
the Fund. Prudential Securities Incorporated (Prudential Securities), One
Seaport Plaza, New York, New York 10292, acts as the distributor of the
Class B and Class C shares of the Fund.
Pursuant to separate Plans of Distribution (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 1940 Act and separate distribution agreements
(the Distribution Agreements), PMFD and Prudential Securities
(collectively, the Distributor) incur the expenses of distributing the
Fund's Class A shares, Class B shares and Class C shares. See "How the Fund
is Managed-Distributor" in the Prospectus.
Prior to February 4, 1991, the Fund operated as a closed-end fund and
offered only one class of shares (the existing Class A shares). On October
15, 1990, 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 the Plan (the Rule 12b-1 Directors),
at a meeting called for the purpose of voting on the Class A Plan, adopted
a plan of distribution for the Class A shares of the Fund. On November 13,
1990, the Board of Directors, including the Rule 12b-1 Directors, at a
meeting called for the purpose of voting on the Class B Plan, adopted a
plan of distribution for the Class B shares of the Fund. On February 10,
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 modifications to the Fund's Class A and Class B Plans and
Distribution Agreements to conform them to recent amendments to the
National Association of Securities Dealers, Inc. (NASD) maximum sales
charge rule described below. As modified, the Class A Plan provides that
(i) up to .25 of 1% of the average daily net assets of the Class A shares
may be used to pay for personal service and the maintenance of shareholder
accounts (service fee) and (ii) total distribution fees (including the
service fee of .25 of 1%) may not exceed .30 of 1%. As 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) of the average daily net assets of the
Class B shares (asset-based sales charge) may be used as reimbursement for
distribution-related expenses with respect to the Class B shares. On May
5, 1993, the Board of Directors, including a majority of the Rule 12b-1
Directors, at a meeting called for the purpose of voting on each Plan,
adopted a plan of distribution for the Class C shares of the Fund and
approved further amendments to the plans of distribution for the Fund's
Class A and Class B shares changing them from reimbursement type plans to
compensation type plans. The Plans were last approved by the Board of
Directors, including a majority of the Rule 12b-1 Directors, on May 5,
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 June 23, 1994. The Class C Plan was approved by the sole
shareholder of Class C shares on , 1994.
Class A Plan. For the fiscal year ended September 30, 1993, PMFD
received payments of $238,001, under the Class A Plan as reimbursement of
expenses related to the distribution of Class A shares. This amount was
primarily expended for payment of account servicing fees to financial
advisers and other persons who sell Class A shares. For the fiscal year
ended September 30, 1993, PMFD also received approximately $835,000 in
initial sales charges.
Class B Plan. For the fiscal year ended September 30, 1993, Prudential
Securities received $902,535 from the Fund under the Class B Plan and spent
approximately $4,010,300 in distributing the Fund's Class B shares. It is
estimated that of the latter amount, $22,500 (0.6%) was spent on printing
and mailing of prospectuses to other than current shareholders; $76,700
(1.9%) on interest and/or carrying costs; $383,300 (9.5%) on compensation
to Pruco Securities Corporation (Prusec), an affiliated broker-dealer, for
commissions to its sales representatives and other expenses, including an
allocation on account of overhead and other branch office
distribution-related expenses, incurred by it for distribution of Fund
shares; and $3,527,800 (88.0%) on the aggregate of (i) payments of
commissions and account servicing fees to financial advisers ($1,516,300 or
37.8%) and (ii) an allocation on account of overhead and other branch
office distribution-related expenses ($2,011,500 or 50.2%). The term
"overhead and other branch office distribution-related expenses" represents
(a) the expenses of operating Prudential Securities' branch offices in
connection with the sale of Fund shares, including lease costs, the
salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) expenses of mutual
fund sales coordinators to promote the sale of Fund shares, and (d) other
incidental expenses relating to branch promotion of Fund shares.
B-20
<PAGE>
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
Charge" in the Prospectus. The amount of distribution expenses reimbursable
by Class B shares of the Fund is reduced by the amount of such proceeds.
For the fiscal year ended September 30, 1993, Prudential Securities
received contingent deferred sales charges of approximately $139,000.
Class C Plan. Prudential Securities receives the proceeds of contingent
deferred sales charges paid by investors upon certain redemptions of Class
C shares. See "Shareholder Guide-How to Sell Your Shares-Contingent
Deferred Sales Charges" in the Prospectus. Prior to the date of this
Statement of Additional Information, no distribution expenses were incurred
under the Class C Plan.
The Class A, Class B and Class C Plans continue in effect from year to
year, provided that each such continuance is approved at least annually by
a vote of the Board of Directors, including a majority vote of the Rule
12b-1 Directors, cast in person at a meeting called for the purpose of
voting on such continuance. The 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 on not more than 30 days' written notice to the 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 amendment to the
Class A Plan) and all material amendments are required to be approved by
the Board of Directors in the manner described above. Each Plan will
automatically terminate in the event of its assignment. The Fund will not
be contractually obligated to pay expenses incurred under any Plan if 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 Fund by the Distributor. The report includes
an itemization of the distribution expenses and the purposes of such
expenditures. In addition, as long as the Plans remain in effect, the
selection and nomination of the 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. The
Distribution Agreement for the Class A shares was approved by the Board of
Directors, including a majority of the Rule 12b-1 Directors, on October 15,
1990. The Distribution Agreement for the Class B shares was similarly
approved on November 13, 1990. The Distribution Agreement for the Class C
shares was similarly approved on May 5, 1993 and was amended on May 5,
1994. Each Distribution Agreement was last approved on May 5, 1994.
NASD Maximum Sales Charge Rule. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred
sales charges and asset-based sales charges to 6.25% of total gross sales
of each class of shares. In the case of Class B shares, interest charges on
unreimbursed distribution expenses equal to the prime rate plus one percent
per annum may be added to the 6.25% limitation. Sales from the reinvestment
of dividends and distributions are not included in the calculation of the
6.25% limitation. The annual asset- based sales charge on shares of the
Fund may not exceed .75% of 1% per class. The 6.25% limitation applies to
the Fund rather than on a per shareholder basis. If aggregate sales charges
were to exceed 6.25% of total gross sales of any class, all sales charges
on shares of that class would be suspended.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Fund
and the oversight and review of the Manager, the Subadviser will arrange
for the execution of the Fund's portfolio transactions and the allocation
of brokerage. In executing portfolio transactions, the Subadviser seeks to
obtain the best net results for the Fund, taking into account such factors
as price (including the applicable brokerage commission or dealer spread),
size of order, difficulty of execution and operational facilities of the
firm involved. The Fund may invest in securities traded in the OTC markets
and deal directly with the dealers who make markets in the securities
involved, unless a better price or execution could be obtained by using a
broker. While the Subadviser generally will seek reasonably competitive
commission rates, payment of the lowest commission or spread is not
necessarily consistent with best net results in particular transactions.
The Fund will not deal with Prudential Securities (or any affiliate) in any
transaction in which Prudential Securities acts as principal. Purchases and
sales of securities on a securities exchange are effected through brokers
who charge a negotiated commission for their services. On a foreign
securities exchange, commissions may be fixed. Orders may be directed to
any broker including, to the extent and in the manner permitted by
applicable law, Prudential Securities.
In placing orders with brokers and dealers, the Subadviser will attempt
to obtain the best net price and the most favorable execution for orders;
however, the Subadviser may, in its discretion, purchase and sell portfolio
securities through brokers and dealers who provide the Subadviser or the
Fund with research, analysis, advice and similar services. The Subadviser
may, in return for research and analysis, pay brokers a higher commission
than may be charged by other brokers, provided that the Subadviser
determines in good faith that such commission is reasonable in terms either
of that particular transaction or of the overall responsibility of the
Subadviser to the Fund and its other clients, and that the total commission
paid by the Fund will be
B-21
<PAGE>
reasonable in relation to the benefits to the Fund over the long term.
Information and research received from such brokers and dealers will be in
addition to, and not in lieu of, the services required to be performed by
the Manager under its Management Agreement with the Fund and by the
Subadviser under the Subadvisory Agreement. Commission rates are
established pursuant to negotiations with the broker based on the quality
and quantity of execution services provided by the broker in the light of
generally prevailing rates. The Subadviser's policy is to pay higher
commissions to brokers or futures commission merchants other than
Prudential Securities (or any affiliate) for particular transactions than
might be charged if a different broker had been selected, on occasions
when, in the Subadviser's opinion, this policy furthers the objective of
obtaining best price and execution. The allocation of orders among brokers
and the commission rates paid are reviewed periodically by the Fund's
Board of Directors. Portfolio securities may not be purchased from any
underwriting or selling syndicate of which Prudential Securities (or any
affiliate), during the existence of the syndicate, is a principal
underwriter (as defined in the Investment Company Act), except in
accordance with rules of the SEC. This limitation, in the opinion of the
Fund, will not significantly affect the Fund's ability to pursue its
present investment objective. However, in the future in other
circumstances, the Fund may be at a disadvantage because of this
limitation in comparison to other funds with similar objectives but not
subject to such limitations.
Purchases and sales of securities, futures or options on futures on an
exchange (including a board of trade), and options on securities may be
effected through securities brokers or futures commission merchants that
charge a commission for their services. The Fund has no obligation to deal
with any broker or group of brokers in the execution of transactions. The
Fund contemplates that, consistent with the policy of obtaining the best
net results, the Fund may use Prudential Securities and its affiliates for
brokerage transactions. In order for Prudential Securities or its
affiliates to effect any such transaction for the Fund, the commissions,
fees or other remuneration received by Prudential Securities or its
affiliates 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, futures or options on futures
being purchased or sold on an exchange during a comparable period of time.
The Fund's Board of Directors has adopted procedures designed to ensure
that all brokerage commissions, fees or other remuneration paid to such
firm or its affiliates are reasonable and fair.
Investment decisions for the Fund and for other investment accounts
managed by the Subadviser are made independently of each other in the light
of differing considerations for the various accounts. However, the same
investment decision may occasionally be made for two or more such accounts.
In such cases, simultaneous transactions are inevitable. Purchases or sales
are then averaged as to price and allocated to accounts according to a
formula deemed equitable to each account. While in some cases this practice
could have a detrimental effect upon the price or value of the security as
far as the Fund is concerned, in other cases it is believed to be
beneficial to the Fund.
The Fund's brokerage transactions involving securities of companies
headquartered in countries other than the United States will be conducted
primarily on the markets and principal exchanges of such countries. Foreign
markets are generally not as developed as those located in the United
States, which may result in higher transaction costs, delayed settlement
and less liquidity for trades effected in foreign markets. Transactions on
foreign exchanges are usually subject to fixed commissions that generally
are higher than negotiated commissions on U.S. transactions. There is
generally less government supervision and regulation of exchanges and
brokers in foreign countries than in the United States.
In accordance with Section 11(a) under the Securities Exchange Act of
1934, Prudential Securities may not retain compensation for effecting
transactions on a national securities exchange for the Fund unless the Fund
has expressly authorized the retention of such compensation. Prudential
Securities must furnish to the Fund at least annually a statement setting
forth the total amount of all compensation retained by Prudential
Securities from transactions effected for the Fund during the applicable
period. Brokerage transactions with Prudential Securities (or any
affiliate) are also subject to such fiduciary standards as may be imposed
upon Prudential Securities (or any affiliate) by applicable law.
The table presented below shows certain information regarding the
payment of commissions by the Fund, including the amount of such
commissions paid to Prudential Securities for the three-year period ended
September 30, 1993.
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1993 1992 1991
-------- -------- ----------
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund ............................. $201,807 $218,703 $1,527,788
Total brokerage commissions paid to Prudential Securities ................ 1,500 - 1,800
Percentage of total brokerage commissions paid to Prudential Securities .. 0.7% - 0.1%
</TABLE>
The Fund effected approximately 1.0% of the total dollar amounts of its
transactions involving the payment of commissions through Prudential
Securities during the fiscal year ended September 30, 1993.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next
determined net asset value per share plus a sales charge which, at the
election of the investor, may be imposed either (i) at the time of purchase
(Class A shares), or (ii) on a deferred basis (Class B or Class C shares). See
"Shareholders Guide-How to Buy Shares of the Fund" in the Prospectus.
B-22
<PAGE>
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service
plan, (ii) each class has exclusive voting rights with respect to its plan,
(except that the Fund has agreed with the 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 are sold at a maximum sales charge of 5% and
Class B* and Class C* shares are sold at net asset value.
Using the Fund's net asset value at September 30, 1993, the maximum
offering price of the Fund's shares was as follows:
<TABLE>
<S><C>
Class A
Net asset value and redemption price per share ............................. $14.63
Maximum Sales Charge (5% of offering price) ................................ .77
------
Offering price to public ................................................... $15.40
======
Class B
Net asset value, offering price, and redemption price per Class B share* ... $14.63
======
Class C
Net asset value, offering price, and redemption price per Class C share* ... $14.63
======
<FN>
*Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide-How to Sell Your
Shares-Contingent Deferred Sales Charges" in the Prospectus.
</TABLE>
Reduction and Waiver of Initial Sales Charges-Class A Shares
Combined Purchase and Cumulative Purchase Privilege. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases. See the table of breakpoints under
"Shareholder Guide-How to Buy Shares of the Fund" in the Prospectus.
An eligible group of related Fund investors includes any combination of
the following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group
that holds 25% or more of the outstanding voting securities of a
corporation will be deemed to control the corporation, and a partnership
will be deemed to be controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are
the individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act
account created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
[In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed
related to that employer).]
The Distributor must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charges
will be granted subject to confirmation of the investor's holdings. The
Combined Purchase and Cumulative Purchase Privilege does not apply to
individual participants in retirement and group plans described above under
"Retirement and Group Plans."
Rights of Accumulation. Reduced sales charges are also available
through Rights of Accumulation, under which an investor or an eligible
group of related investors, as described above under "Combined Purchase and
Cumulative Purchase Privilege," may aggregate the value of their existing
holdings of shares of the Fund and shares of other Prudential Mutual Funds
(excluding money
B-23
<PAGE>
market funds other than those acquired pursuant to the exchange
privilege) to determine the reduced sales charge. However, the value of
shares held directly with the Transfer Agent and through Prudential
Securities will not be aggregated to determine the reduced sales charges.
All shares must be held either directly through 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 also available to
investors (or an eligible group of related investors) who enter into a
written Letter of Intent providing for the purchase, within a thirteen-
month period, of shares of the Fund and shares of other Prudential Mutual
Funds. All shares of the Fund and shares of other Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the
exchange privilege) which were previously purchased and are still owned are
also included in determining the applicable reduction. However, the value
of shares held directly with the Transfer Agent and through Prudential
Securities will not be aggregated to determine the reduced sales charges.
All shares must be held either directly through 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
investor's holdings. Letters of Intent are not available to individual
participants in any retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment
goal to be achieved by any number of investments over a thirteen-month
period. Each investment made during the period will receive the reduced
sales charge applicable to the amount represented by the goal, as if it
were a single investment. Escrowed Class A shares totaling 5% of the dollar
amount of the Letter of Intent will be held by the Transfer Agent in escrow
in the name of the purchaser. The effective date of a Letter of Intent may
be back- dated up to 90 days, in order that any investments made during
this 90-day period, valued at the purchaser's cost, can be applied to the
fulfillment of the Letter of Intent goal.
The Letter of Intent does not obligate the investor to purchase, nor
the Fund to sell, the indicated amount. In the event the Letter of Intent
goal is not achieved within the thirteen-month period, the purchaser is
required to pay the difference between the sales charge otherwise
applicable to the purchases made during this period and sales charges
actually paid. Such payment may be made directly to the Distributor or, if
not paid, the Distributor will liquidate sufficient escrowed shares to
obtain such difference. If the goal is exceeded in an amount which
qualifies for a lower sales charge, a price adjustment is made by refunding
to the purchaser the amount of excess sales charge, if any, paid during the
thirteen-month period. Investors electing to purchase Class A
shares of the Fund pursuant to a Letter of Intent should carefully read
such Letter of Intent.
Quantity Discount-Class B Shares. Purchased prior to ,
1994
The CDSC is reduced on redemptions of Class B shares of the Fund
purchased prior to , 1994 if immediately after a purchase of such
shares, the aggregate cost of all Class B shares of the Fund owned by you in
a single account exceeded $500,000. For example, if you purchased $100,000
of Class B shares of the Fund and the following year purchase an additional
$450,000 of Class B shares with the result that the aggregate cost of your
Class B shares of the Fund following the second purchase was $550,000, the
quantity discount would be available for the second purchase of $450,000
but not for the first purchase of $100,000. The quantity discount will be
imposed at the following rates depending on whether the aggregate value
exceeded $500,000 or $1 million:
Contingent Deferred Sales Charge
as a Percentage of Dollars Invested
Year Since Purchase or Redemption Proceeds
Payment Made $500,001 to $1 million Over $1 million
------------------- ---------------------- ---------------
First 3.0% 2.0%
Second 2.0% 1.0%
Third 1.0% 0%
Fourth and thereafter 0% 0%
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
SHAREHOLDER INVESTMENT ACCOUNT
A Shareholder Investment Account is established for each investor upon
the initial purchase of shares of the Fund. The Fund makes available to its
shareholders the following privileges and plans.
Automatic Reinvestment of Dividends and/or Distributions. For the
convenience of investors, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at the net asset value
on the record date. An
B-24
<PAGE>
investor 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. In the case of recently
purchased shares for which registration instructions have not been received
on the record date, cash payment will be made directly to the dealer. Any
shareholder who receives a cash payment representing a dividend or
distribution may reinvest such distribution at net asset value by returning
the check or the proceeds to the Transfer Agent within 30 days after the
payment date. Such investment will be made at the net asset value per share
next determined after receipt of the check or proceeds by the Transfer
Agent.
Exchange Privilege. The Fund makes available to its shareholders the
privilege of exchanging their shares of the Fund for shares of certain
other Prudential Mutual Funds, including one or more specified money market
funds, subject in each case to the minimum investment requirements of such
funds. Shares of such other Prudential Mutual Funds may also be exchanged
for shares of the Fund. All exchanges are made on the basis of relative net
asset value next determined after receipt of an order in proper form. An
exchange will be treated as a redemption and purchase for tax purposes.
Shares may be exchanged for shares of another fund only if shares of such
fund may legally be sold under applicable state laws. For retirement and
group plans having a limited menu of Prudential Mutual Funds, the Exchange
Privilege is available for those funds eligible for investment in the
particular program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
Class A. Shareholders of the Fund will be able to exchange their Class
A shares for Class A shares of certain 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 of the Fund or Class A
or Class C shares of certain other Prudential Mutual Funds may use the
Exchange Privilege only to acquire Class A shares of the Prudential Mutual
Funds participating in the Exchange Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund
Class B and Class C. Shareholders of the Fund may exchange their Class
B and Class C shares for shares of certain other Prudential Mutual Funds
and shares of Prudential Special Money Market Fund, a money market fund. No
CDSC will be payable upon such exchange, but a CDSC may be payable upon the
redemption of Class B and 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 Fund 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 Fund from a money market fund during the month (and are held in
the Fund at the end of the month), the entire month will be included in the
CDSC holding period. Conversely, if shares are exchanged into a money
market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be
excluded from the CDSC holding period.
At any time after acquiring shares of other funds participating in the
Class B or Class C exchange privilege, a shareholder may again exchange
those shares (and any reinvested dividends and distributions) for Class B
or Class C shares of the Fund,
B-25
<PAGE>
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 60 days' notice, and any fund,
including the Fund, or the Distributor, has the right to reject any
exchange application relating to such fund's shares.
Dollar Cost Averaging
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more
shares when the price is low and fewer shares when the price is high. The
average cost per share is lower than it would be if a constant number of
shares were bought at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement,
to save for a major expenditure, such as the purchase of a home, or to
finance a college education. The cost of a year's education at a four-year
college today averages around $14,000 at a private college and around
$4,800 at a public university. Assuming these costs increase at a rate of
7% a year, as has been projected, for the freshman class of 2007, the cost
of four years at a private college could reach $163,000 and over $97,000 at
a public university,1
- ----------------
1Some 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.
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 74
10 years 555 833 1,110 1,388
5 years 1,371 2,057 2,742 3,428
<FN>
See "Automatic Savings Accumulation Plan"
2The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of the Fund.
The investment return and principal value of an investment will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
</TABLE>
Automatic Savings Accumulation Plan (ASAP)
Under ASAP, an investor may arrange to have a fixed amount
automatically invested in shares of the Fund monthly by authorizing his or
her bank account or Prudential Securities 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 these programs and an application form can be
obtained from the Fund's Transfer Agent, Prudential Securities or Prusec.
Systematic Withdrawal Plan
A systematic withdrawal plan is available to shareholders through
Prudential Securities or the Transfer Agent. The 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 automaticially 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" above.
B-26
<PAGE>
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide
the amount of the periodic withdrawal payment. The plan may be terminated
at any time, and the Distributor reserves the right to initiate a fee of up
to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or
income. If periodic withdrawals continuously exceed reinvested dividends
and distributions, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and
any gain or loss realized must be recognized for federal income tax
purposes. In addition, withdrawals made concurrently with purchases of
additional shares are inadvisable because of the applicable sales charges
to (i) the purchase of Class A shares and (ii) the withdrawal of Class B
and Class C shares. Each shareholder should consult his or her own tax
adviser with regard to the tax consequences of the plan, particularly 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 Code are available through the Distributor.
These plans are for use by both self-employed individuals and corporate
employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, the administration, custodial fees and other
details are available from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should
consult with their own legal counsel or tax adviser with respect to the
establishment and maintenance of any such plan.
Tax-Deferred Retirement Accounts
Individual Retirement Accounts. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account
until the earnings are withdrawn. The following chart represents a
comparsion 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.
<TABLE>
<CAPTION>
Tax-Deferred Compounding1
Contributions Personal
Made Over: Savings IRA
------------- -------- -------
<S> <C> <C>
10 years 26,165 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
<FN>
- ---------------
1 The chart is for illustrative purposes only and does not represent
the performance of the Fund or any specific investment. It shows taxable
versus tax-deferred compounding for the periods and on the terms indicated.
Earnings in the IRA account will be subject to tax when withdrawn from the
account.
NET ASSET VALUE
Under the 1940 Act, the Board of Directors of the Fund is responsible
for determining in good faith the fair value of securities and other assets
of the Fund. In accordance with procedures adopted by the Board of
Directors, the value of the Fund's portfolio will be determined as
described below.
Net asset value per share will be determined daily as of 4:15 p.m. on
each day the New York Stock Exchange (NYSE) is open for trading by dividing
the value of the net assets of the Fund by the total number of common
shares outstanding. Net asset value is calculated separately for each
class. For purposes of determining the net asset value per share, the value
of the Fund's net assets shall be deemed to equal the value of the Fund's
assets less the Fund's liabilities (including the outstanding principal
amount of borrowings, if any, and the unpaid interest on borrowings, if
any).
In valuing the Fund's assets, any security for which the primary market
is an exchange is valued at the last sale price on such exchange on the day
of valuation or, if there was no sale on such day, the last bid price
quoted on such day. The value of each U.S. Government Security and
corporate debt security 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. Other portfolio securities that are
actively traded in the OTC market, including listed securities for which
the primary market is believed to be OTC, will be valued at the average of
the quoted bid and asked prices provided by an independent pricing service
or by principal market makers. Exchange-traded options are valued at their
last sale price as of the close of options trading on the applicable
exchange. If there is no sale on the applicable options exchange on a given
day, options are valued at the average of the
B-27
<PAGE>
quoted bid and asked prices as of the close of the applicable
exchange. The Fund may engage pricing services to obtain such prices.
Futures contracts are marked to market daily, and options thereon are
valued at their last sale price, as of the close of the applicable
commodities exchanges. Forward currency contracts will be valued at the
current cost of covering or offsetting the contract. Securities and assets
for which market quotations are not readily available (including OTC
options) are valued at fair value as determined in good faith by or under
the direction of the Board of Directors of the Fund, which determination
shall be based in part on the valuation of other securities for which
market quotations are available that are considered to be comparable in
quality, interest rate and maturity.
Quotations of foreign securities in a foreign currency will be
converted to U.S. dollar equivalents at the closing rates of exchange.
Foreign currency exchange rates are generally determined prior to the close
of the NYSE. Occasionally, events affecting the value of foreign securities
and such exchange rates occur between the time at which they are determined
and the close of the NYSE, which events will not be reflected in a
computation of the Fund's net asset value. If events materially affecting
the value of such securities or currency exchange rates were to occur
during such time period, the securities would be valued at their fair value
as determined in good faith by or under the direction of the Board of
Directors.
Short-term investments that mature in less than 60 days are valued at
amortized cost if their term to maturity from date of purchase was less
than 60 days or by amortizing their value on the 61st day prior to maturity
if their term to maturity from date of acquisition by the Fund was more
than 60 days, unless this is determined by the Board of Directors not to
represent fair value. Repurchase agreements will be valued at cost plus
accrued interest.
The net asset value of Class B and Class C shares will generally be
lower than the net asset value of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject.
It is expected, however, that the net asset value per share of each class
will tend to converge immediately after the recording of dividends which
will differ by approximately the amount of the distribution expense accrual
differential among the classes.
TAXES
General. The Fund is qualified and intends to remain qualified as a
regulated investment company (RIC) under the Internal Revenue Code. As a
RIC, the Fund will not be subject to federal income tax on that part of its
investment company taxable income (consisting generally of interest and
dividend income, net short-term capital gain and net realized gains from
certain foreign currency transactions) and net capital gain (the excess of
net long-term capital gain over net short-term capital loss) that it
distributes to its shareholders if at least 90% of its investment company
taxable income for the taxable year (determined without regard to the
deduction for dividends paid) is distributed (Distribution Requirement). To
qualify for treatment as a RIC, the Fund must, among other things, (1)
derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale
or other disposition of securities or foreign currencies, or other income
(including gains from options, futures or forward contracts) derived from
its business of investing in securities or such currencies (Income
Requirement); (2) derive less than 30% of its gross income each taxable
year from the sale or other disposition of any of the following that were
held for less than three months - securities, options, futures or forward
contracts (other than those on foreign currencies), or foreign currencies
(or options, futures or forward contracts thereon) that are not directly
related to the Fund's principal business of investing in securities (or
options and futures with respect to securities) (30% Limitation); and (3)
diversify its holdings so that, at the end of each quarter of its taxable
year, (A) at least 50% of the value of its total assets is represented by
cash and cash items, U.S. Government securities, securities of other RICs
and other securities, with such other securities limited, in respect of any
one issuer, to an amount not greater than 5% of the Fund's total assets and
to not more than 10% of the outstanding voting securities of such issuer,
and (B) not more than 25% of the value of its total assets is invested in
the securities (other than U.S. Government securities or the securities of
other RICs) of any one issuer.
Distribution Requirements. The Fund will be subject to a nondeductible
4% excise tax to the extent it fails to distribute during each calendar
year substantially all of its ordinary income for that year (except for
certain foreign currency gains or losses from transactions after October 31
of that year, which are treated for these purposes as arising in the
following year) and capital gain net income for the twelve- month period
ending on October 31 of that year, plus certain other amounts. The Fund
intends to make distributions in accordance with this requirement. In
general, for these purposes dividends and other distributions will be
treated as paid when actually distributed, except that distributions
declared in October, November or December of any year, payable to
shareholders of record on a specified date in such a month and paid in
January of the following year will be treated as having been paid by the
Fund (and received by the shareholders) on December 31 of the year in which
they were declared.
Original Issue Discount. The Fund may purchase debt securities issued
with original issue discount. Original issue discount that accrues in a
taxable year will be treated as income earned by the Fund and therefore
will be subject to the distribution requirements described above. Because
the original issue discount earned by the Fund in a taxable year may not be
represented by cash income, the Fund may have to dispose of other
securities and use the proceeds thereof to make distributions in amounts
necessary to satisfy the Distribution Requirement. The Fund may realize
capital gains or losses from such dispositions, which would increase or
decrease the Fund's investment company taxable income and/or net capital
gain. In addition, any such gains
B-28
<PAGE>
may be realized on the disposition of securities held for less than
three months. Because of the 30% Limitation, any such gains would reduce
the Fund's ability to sell other securities (and certain options, futures,
foreign currencies and forward contracts) held for less than three months
that it might wish to sell in the ordinary course of its portfolio
management.
Passive Foreign Investment Companies. A "passive foreign investment
company" (PFIC) is a foreign corporation that, in general, meets either of
the following tests: (a) at least 75% of its gross income is passive or (b)
an average of at least 50% of its assets produce, or are held for the
production of, passive income. If the Fund acquires and holds stock in a
PFIC beyond the end of the year of its acquisition, the Fund will be
subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain from disposition of the stock
(collectively, PFIC income), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment
company taxable income and, accordingly, will not be taxable to it to the
extent that income is distributed to its shareholders. If the Fund elects
to treat any PFIC in which it invests as a "qualified electing fund," then
in lieu of the foregoing tax and interest obligation, the Fund will be
required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain, even if they
are not distributed to the Fund; those amounts would be subject to the
distribution requirements described above. It may be very difficult, if not
impossible, to make this election because of certain requirements thereof.
Hedging Transactions. The use of hedging strategies, such as writing
and purchasing options and futures contracts and entering into forward
contracts, involves complex rules that will determine for income tax
purposes the character and timing of recognition of certain gains and
losses the Fund realizes in connection therewith. Income from foreign
currencies (except certain gains therefrom that may be excluded by future
regulations), and income from transactions in options, futures and forward
contracts derived by the Fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under
the Income Requirement. However, income from the disposition of options and
futures contracts (other than those on foreign currencies) will be subject
to the 30% Limitation if they are held for less than three months. Income
from the disposition of foreign currencies, and options, futures and
forward contracts on foreign currencies, that are not directly related to
the Fund's principal business of investing in securities (or options and
futures with respect to securities) also will be subject to the 30%
Limitation if they are held for less than three months.
The 30% Limitation and the asset diversification requirements described
above may limit the extent to which the Fund will be able to engage in
transactions in options, futures and forward contracts. If the Fund
satisfies certain requirements, then for purposes of determining whether
the Fund satisfies the 30% Limitation, any increase in value of a position
that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during
the period of the hedge; thus, only the net gain, if any, from the
designated hedge will be included in gross income for purposes of that
limitation.
Distributions. A portion of the dividends from the Fund's investment
company taxable income may qualify for the deduction for dividends received
allowable to corporations. The eligible portion may not exceed the
aggregate dividends received by the Fund from U.S. corporations. However,
dividends received by a corporate shareholder and deducted by it pursuant
to the dividends-received deduction are subject indirectly to the
alternative minimum tax. Distributions of net capital gain, if any, will
not be eligible for the dividends-received deduction.
If the net asset value of Fund shares is reduced below a shareholder's
cost as a result of a distribution by the Fund, the distribution
nevertheless will be taxable. Investors should be careful to consider the
tax implications of buying Fund shares just prior to a distribution. Those
purchasing shares at that time will receive a distribution that
nevertheless will be taxable to them.
A redemption of Fund shares may result in taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds are
more or less than the shareholder's adjusted basis for the redeemed shares
(which normally includes any sales charge paid). An exchange of Fund shares
for shares of any other Prudential Mutual Fund generally will have similar
tax consequences. See "Shareholder Investment Account-Exchange Privilege"
above. Special rules apply, however, when a shareholder (1) disposes of
Fund shares through a redemption or exchange within 90 days after purchase
thereof and (2) subsequently acquires shares of any other Prudential Mutual
Fund on which a sales charge normally is imposed (load fund) without paying
any sales charge because of the exchange privilege or the repurchase
privilege (see "Shareholder Guide" in the Prospectus). In these cases, any
gain on the disposition of the Fund shares will be increased, or loss
thereon decreased, by the amount of the sales charge paid when those shares
were acquired; and that amount will increase the adjusted basis of the load
fund shares subsequently acquired. In addition, if Fund shares are
purchased within 30 days after redeeming Fund shares (whether pursuant to
the repurchase privilege or otherwise), any loss on the redemption will not
be deductible and instead will increase the basis of the newly purchased
shares.
Foreign Currency Gains and Losses. Gains or losses attributable to
fluctuations in exchange rates that occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects
such receivables or pays such liabilities, are treated as ordinary income
or ordinary loss. Similarly, gains or losses on disposition of debt
securities denominated in a foreign currency attributable to fluctuations
in the value of the foreign currency between the date of acquisition of the
security and the date of disposition, also are treated as ordinary
B-29
<PAGE>
income or loss. This income or loss, referred to as "section 988" gain
or loss, increases or decreases the amount of the Fund's investment company
taxable income available to be distributed to its shareholders rather than
increasing or decreasing the amount of its net capital gain. If section 988
losses exceed other investment company taxable income and net capital gain
during a taxable year, the Fund would not be able to make any taxable
distributions for that year, or distributions made before the losses were
realized would be recharacterized as a return of capital to shareholders,
rather than as taxable distributions, reducing each shareholder's basis in
his or her shares.
Foreign Taxes. Dividends and interest received, and gains in respect of
foreign securities realized, by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on the Fund's securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these foreign taxes, however, and many foreign countries do not
impose taxes on capital gains in respect of investments by foreign
investors. If more than 50% of the value of the Fund's total assets at the
close of its taxable year consists of securities of foreign corporations,
it will be eligible to, and may, file an election with the Internal Revenue
Service that would enable Fund shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to certain foreign and U.S.
possessions income taxes that may be paid by the Fund. Pursuant to the
election, the Fund would treat those taxes as dividends paid to its
shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by him, his proportionate share of those taxes,
(2) treat his share of those taxes and of any dividend paid by the Fund
that represents income from foreign or U.S. possessions sources as his own
income from those sources and (3) either deduct the taxes deemed paid by
him in computing his taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against his federal
income tax. If the Fund makes this election, it will report to its
shareholders shortly after each taxable year their respective shares of the
Fund's income from sources within, and taxes paid to, foreign countries and
U.S. possessions. The Fund was not eligible to make such an election with
respect to its fiscal year ended September 30, 1993, because the percentage
of its assets invested in securities of U.S. issuers exceeded 50% at the
end of that period.
Other Taxation
The foregoing is only a summary of some, but not all, of the important
federal tax considerations generally affecting the Fund and its
shareholders. In addition to the federal tax considerations described
above, there may be other federal, state, local or foreign tax
considerations applicable to particular investors. Prospective investors
are therefore advised to consult their own taxadvisers with respect to the
tax consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Average Annual Total Return. The Fund may from time to time advertise
its average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See "How the Fund
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following
formula:
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value at the end of the 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.
Average annual total return takes into account any applicable initial
or contingent deferred sales charges but does not take into account any
federal or state income taxes that may be payable upon redemption.
The average annual total return for Class A shares for the one-year and
since inception periods ended September 30, 1993 was 17.37% and 14.47%,
respectively. The average annual total return for the Class B shares for
the one-year and since inception periods ended September 30, 1993 was
17.87% and 15.72%, respectively. During these periods, no Class C shares
were outstanding.
Aggregate Total Return. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A and
Class B shares. See "How the Fund Calculates Peformance" in the Prospectus.
Aggregate total return represents the cumulative change in the value of
an investment in the Fund and is computed by the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1000.
ERV = Ending Redeemable Value at the end of the 1, 5, or 10 year
periods (or fractional portion thereof) of a hypothetical $1000
investment 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.
B-30
<PAGE>
The aggregate total return for Class A shares for the one-year and
since inception periods ended on September 30, 1993 was 23.87% and 75.34%,
respectively. The aggregate total return for the Class B shares for the
one-year and since inception periods ended September 30, 1993 was 22.87%
and 48.15%, respectively. During these periods, no Class C shares were
outstanding.
Yield. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B
and Class C shares. This yield will be computed by dividing the Fund's net
investment income per share earned during this 30- day period by the
maximum offering price per share on the last day of this period. Yield is
calculated according to the following formula:
a - b
YIELD = 2 [ (-------- + 1) 6 - 1 ]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield fluctuates and an annualized yield quotation is not a
representation by the Fund as to what an investment in the Fund will
actually yield for any given period.
The Fund's 30-day yields for the period ended September 30, 1993, were
2.70% and 2.06% for Class A shares and Class B shares, respectively. During
this period, no Class C shares were outstanding.
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance
of different types of investments over the long term and the rate of
inflation.1
(Chart)
1Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation-1993
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Common stock returns are based on the Standard & Poor's 500
Stock Index, a market-weighted, unmanaged index of 500 common stocks in a
variety of industry sectors. It is a commonly used indicator of broad stock
price movements.This chart is for illustrative purposes only, and is not
intended to represent the performance of any particular investment or fund.
B-31
<PAGE>
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.
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 the Manager. 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 of $10, a new account
set-up fee of $2.00 for each manually-established account and a monthly
inactive zero balance account fee of $.20 per account. PMFS is also
reimbursed for its out-of-pocket expenses, including but not limited to
postage, stationery, printing, allocable communications expenses and other
costs. For the fiscal year ended September 30, 1993, the Fund incurred fees
of approximately $300,200 for the services of PMFS.
Deloitte & Touche, 1633 Broadway, New York, New York 10019 serves as
the Fund's independent accountants and in that capacity audits the Fund's
annual financial statements.
Kirkpatrick & Lockhart, 1800 M Street, N.W., Washington, D.C. 20036
serves as counsel to the Fund.
B-32
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
US$
Value
Shares Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--92.3%
Common Stocks--73.0%
Electric Utilities--25.8%
440,000 China Light & Power Co., Ltd.
(China)..................... $ 2,559,958
160,000 Commonwealth Edison Co........ 4,860,000
150,000 DPL, Inc...................... 3,150,000
125,000 DQE, Inc...................... 4,515,625
12,800 Electrabel (Belgium).......... 2,148,621
880 Elektrowatt Ltd.
(Switzerland)............... 1,764,417
129,000 Empresa Nacional de
Electricidad S.A. ADR
(Spain)..................... 5,240,625
120,000 Entergy Corp.................. 4,650,000
150,000 Montana Power Co.............. 4,106,250
240,000 Nova Scotia Power, Inc.
(Canada).................... 2,250,225
270,000 Pacific Gas & Electric Co..... 9,551,250
220,000 Philadelphia Electric Co...... 7,232,500
130,000 Puget Sound Power & Light
Co.......................... 3,412,500
26,000 RWE, A.G. (Germany)........... 7,010,359
60,000 SCEcorp....................... 1,402,500
85,000 Southern Co................... 3,825,000
500,000 Southern Electric (United
Kingdom).................... 4,246,872
30,000 Veba A.G. (Germany)........... 7,969,353
100,000 Western Resources Inc......... 3,575,000
------------
83,471,055
------------
Gas Utilities--8.4%
40,000 British Gas ADR (United
Kingdom).................... 1,990,000
70,500 Equitable Resources, Inc...... 2,908,125
27,800 KN Energy, Inc................ 1,112,000
151,000 NICOR, Inc.................... 4,605,500
120,000 Questar Corp.................. 5,100,000
310,000 Transcanada Pipelines Ltd.
(Canada).................... 4,679,530
410,000 Westcoast Energy Inc.
(Canada).................... 6,727,235
------------
27,122,390
------------
Telecommunications--25.3%
90,000 American Telephone & Telegraph
Co.......................... 5,298,750
185,000 BCE, Inc. (Canada)............ 6,174,375
80,000 Bell Atlantic Corp............ 5,100,000
25,000 BellSouth Corp................ 1,512,500
153,200 British Columbia Telephone Co.
(Canada).................... $ 2,470,597
58,400 British Telecommunications PLC
ADR (United Kingdom)........ 3,854,400
82,800 Comsat Corp................... 2,359,800
70,000 GTE Corp...................... 2,686,250
160,000 NYNEX Corp.................... 7,340,000
106,300 Pacific Telesis Group......... 5,753,488
15,000 Southern New England
Telecommunications, Inc..... 534,375
140,000 Southwestern Bell Corp........ 6,037,500
133,800 Sprint Corp................... 4,900,425
2,300,000 STET RISP Societa Funa Ciara
Telefonica P.A. (Italy)..... 4,667,293
93,500 Telecommunications of New
Zealand, Ltd. ADR (New
Zealand).................... 4,090,625
170,000 Telefonica de Espana S.A. ADR
(Spain)..................... 6,077,500
110,000 Telefonos de Mexico, S.A. ADR
(Mexico).................... 5,555,000
155,000 U.S. West, Inc................ 7,633,750
------------
82,046,628
------------
Water Utilities & Other--13.5%
47,400 Alcatel Alsthom (France)...... 6,114,245
83,900 American Water Works Co.,
Inc......................... 2,600,900
400,000 Anglian Water (United
Kingdom).................... 3,157,816
600,000 Australian Gas & Light
(Australia)................. 1,621,527
90,000 Ericsson (L.M.) Telephone Co.,
ADR (Sweden)................ 4,850,189
800,000 Iberdrola S.A. (Spain)........ 4,830,458
400,000 London Electricity (United
Kingdom).................... 3,403,490
360,000 National Power PLC (United
Kingdom).................... 2,119,392
53,200 Raychem Corp.................. 2,267,650
1,400,000 Scottish Power (United
Kingdom).................... 8,011,384
525,000 Seeboard PLC (United
Kingdom).................... 4,836,716
------------
43,813,767
------------
Total common stocks
(cost $190,194,313)......... 236,453,840
------------
Preferred Stock--0.8%
Telecommunications
Philippine Long Distance
Telephone
80,000 $5.75 Conv. Ser. II
(Philippines)
(cost $2,000,000)........... 2,460,000
------------
</TABLE>
See Notes to Financial Statements.
B-33
<PAGE>
<TABLE>
<CAPTION>
Moody's Principal US$
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<S> <C> <C> <C>
Corporate Bonds--16.0%
Electric Utilities--9.1%
Arkansas Power & Light
Co.,
Baa2 $ 1,000 8.00%, 6/1/03............. $ 1,031,100
Commonwealth Edison Co.,
Baa3 1,500 9.05%, 10/15/99........... 1,744,785
Consolidated Edison Co.
Inc.,
Aa2 1,000 7.625%, 3/1/04............ 1,123,920
Detroit Edison Co.,
A3 1,000 6.28%, 3/15/00............ 1,051,260
Duke Power Co.,
Aa2 2,000 5.875%, 6/1/01............ 2,040,780
Florida Power & Light Co.,
Aa3 500 6.00%, 7/1/03............. 508,800
Gulf States Utilities Co.,
Baa2 1,000 7.35%, 11/1/98............ 1,075,280
Houston Lighting & Power
Co.,
A2 1,000 6.50%, 4/21/03............ 1,040,590
Hydro-Quebec,
A1 1,000+ 9.00%, 3/7/01 (Canada).... 1,171,250
Jersey Central Power &
Light Co.,
A3 1,000 7.125%, 10/1/04........... 1,064,920
Long Island Lighting Co.,
Baa3 2,000 7.05%, 3/15/03............ 2,067,960
Louisiana Power & Light
Co.,
Baa2 1,000 6.00%, 3/1/00............. 1,019,620
Monongahela Power Co.,
Aa3 1,500 7.375%, 7/1/02............ 1,657,500
Niagara Mohawk Power
Corp.,
Baa2 2,000 6.875%, 4/1/03............ 2,080,480
Pacific Corp.,
A3 1,000 8.75%, 2/12/98............ 1,147,500
Philadelphia Electric Co.,
Baa1 2,000 7.50%, 1/15/99............ 2,162,120
Potomac Edison Co.,
Aa3 2,000 8.875%, 8/1/21............ 2,149,400
Southwestern Public
Service Co.,
Aa2 1,000 7.25%, 7/15/04............ 1,101,800
Texas Utilities Electric Co.,
Baa2 2,000 9.27%, 1/14/00............ 2,344,240
Union Electric Co.,
A1 1,750 6.75%, 10/15/99........... 1,856,890
------------
29,440,195
------------
Gas Utilities--1.1%
British Gas Finance,
Aa2 $ 2,000+ 9.50%, 3/15/18
(United Kingdom)........ $ 2,140,000
Northern Illinois Gas Co.,
Aa1 500 5.875%, 5/1/00............ 509,620
Virginia Electric & Power
Co.,
A2 1,000 6.625%, 4/1/03............ 1,048,040
------------
3,697,660
------------
Telecommunications--4.5%
British Telecommunications
PLC,
Aaa 2,000+ 9.375%, 11/16/98
(United Kingdom)........ 2,368,750
Ericsson (L.M.) Telephone
Co.,
A1 1,500+ 7.875%, 10/21/96
(Sweden)................ 1,620,000
Illinois Bell Telephone
Co.,
Aaa 500 7.625%, 4/1/06............ 511,150
New England Telephone &
Telegraph Co.,
Aa2 1,000 6.875%, 10/1/23........... 1,012,360
NYNEX Corp.,
A2 1,801 9.55%, 5/1/10............. 2,125,180
Pacific Bell, Inc.,
Aa3 1,550 8.70%, 6/15/01............ 1,844,996
Southwestern Bell
Telephone Co.,
A1 1,000 5.875%, 6/1/03............ 994,140
Telefonica de Argentina
S.A.,
NR 1,000 8.375%, 10/1/00
(Argentina)............. 1,000,625
U.S. West Communications,
Inc.,
Aa3 1,000 7.50%, 6/15/23............ 1,047,800
United Telephone Co.,
A2 2,000 6.25%, 5/15/03............ 2,055,000
------------
14,580,001
------------
Gas & Electric Utilities--1.3%
Baltimore Gas & Electric
Co.,
A1 1,000 7.25%, 7/1/02............. 1,083,560
Pacific Gas & Electric
Co.,
A1 2,000 5.375%, 8/1/98............ 2,014,260
</TABLE>
See Notes to Financial Statements.
B-34
<PAGE>
<TABLE>
<CAPTION>
Moody's Principal US$
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<S> <C> <C> <C>
Gas & Electric Utilities (Cont'd.)
Public Service Electric &
Gas Co.,
A2 $ 1,000 6.875%, 1/1/03............ $ 1,068,200
------------
4,166,020
------------
Total corporate bonds
(cost $48,660,425)...... 51,883,876
------------
Convertible Bonds--0.2%
Compania de Telefonos de
Chile, S. A.,
Baa3 500+ 4.50%, 1/15/03 (Chile)
(cost $500,000)......... 612,500
------------
U.S. Government Obligations--2.3%
United States Treasury
Notes,
Aaa 6,500 7.50%, 11/15/01
(cost $6,950,941)....... 7,446,530
------------
Total bonds (cost
$56,111,366)............ 59,942,906
------------
Total long-term
investments
(cost $248,305,679)..... 298,856,746
------------
SHORT-TERM INVESTMENTS--7.6%
Repurchase Agreement
24,714 Bankers Trust Co., 3.35%,
dated 9/30/93, due
10/1/93 in the amount of
$24,716,300 (cost
$24,714,000;
collateralized by
$17,285,000 U.S.
Treasury Bonds, 10.75%,
due 8/15/05 approximate
value including
accrued
interest--$25,145,114).. 24,714,000
------------
Total Investments--99.9%
(cost $273,019,679; Note
4)...................... 323,570,746
Other assets in excess of
liabilities--0.1%....... 401,952
------------
Net Assets--100%.......... $323,972,698
------------
------------
</TABLE>
- ------------------
+--US$ Denominated Bonds.
ADR--American Depository Receipts.
The Fund's current Statement of Additional Information contains a description of
Moody's ratings.
NR--Not rated by Moody's or Standard & Poor's.
See Notes to Financial Statements.
B-35
<PAGE>
GLOBAL UTILITY FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets September 30, 1993
------------------
<S> <C>
Investments, at value (cost $273,019,679)................................................... $323,570,746
Foreign currency, at value (cost $25,552)................................................... 25,552
Receivable for Fund shares sold............................................................. 8,818,315
Interest and dividends receivable........................................................... 2,772,417
Forward contracts--net amount receivable from counterparties (Note 4)....................... 83,156
Deferred expenses and other assets.......................................................... 41,412
------------------
Total assets.......................................................................... 335,311,598
------------------
Liabilities
Bank overdraft.............................................................................. 344,617
Payable for investments purchased........................................................... 9,488,038
Payable for Fund shares reacquired.......................................................... 879,754
Accrued expenses............................................................................ 187,861
Due to Manager.............................................................................. 174,828
Due to Distributors......................................................................... 159,634
Withholding taxes payable................................................................... 104,168
------------------
Total liabilities..................................................................... 11,338,900
------------------
Net Assets.................................................................................. $323,972,698
------------------
------------------
Net assets were comprised of:
Common stock, at par...................................................................... $ 22,141
Paid-in capital in excess of par.......................................................... 269,312,594
------------------
269,334,735
Undistributed net investment income......................................................... 127,601
Accumulated net realized gains on investment and foreign currency transactions.............. 3,879,476
Net unrealized appreciation on investments and foreign currencies........................... 50,630,886
------------------
Net assets, September 30, 1993.............................................................. $323,972,698
------------------
------------------
Class A:
Net asset value and redemption price per share ($138,713,688 / 9,480,833 shares of common
stock issued and outstanding)........................................................... $14.63
Maximum sales charge (5.25% of offering price)............................................ .81
------------------
Maximum offering price to public.......................................................... $15.44
------------------
------------------
Class B:
Net asset value, offering price and redemption price per share ($185,259,010 / 12,660,317
shares of common stock issued and outstanding).......................................... $14.63
------------------
------------------
</TABLE>
See Notes to Financial Statements.
B-36
<PAGE>
GLOBAL UTILITY FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
September
30,
Net Investment Income 1993
-----------
<S> <C>
Income
Dividends (net of foreign
withholding taxes of $465,469).... $ 6,719,048
Interest and discount earned........ 3,070,260
-----------
Total income........................ 9,789,308
-----------
Expenses
Management fee...................... 1,464,779
Distribution fee--Class A........... 238,001
Distribution fee--Class B........... 902,535
Transfer agent's fees and
expenses............................ 350,000
Custodian's fees and expenses....... 182,000
Registration fees................... 73,000
Reports to shareholders............. 70,000
Directors' fees..................... 48,000
Audit fee........................... 40,000
Legal fees and expenses............. 35,000
Amortization of organization
expense............................. 20,000
Miscellaneous....................... 27,676
-----------
Total expenses...................... 3,450,991
-----------
Net investment income................. 6,338,317
-----------
Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions
Net realized gain on:
Investment transactions............. 4,480,480
Foreign currency transactions....... 251,407
-----------
4,731,887
-----------
Net change in unrealized appreciation of:
Investments......................... 32,956,302
Foreign currencies.................. 1,388,826
-----------
34,345,128
-----------
Net gain on investments and foreign
currencies.......................... 39,077,015
-----------
Net Increase in Net Assets
Resulting from Operations............. $45,415,332
-----------
-----------
</TABLE>
GLOBAL UTILITY FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended September 30,
Increase (Decrease) ----------------------------
in Net Assets 1993 1992
<S> <C> <C>
------------ ------------
Net investment income... $ 6,338,317 $ 6,594,419
Net realized gain on
investment and foreign
currency
transactions.......... 4,731,887 10,215,030
Net change in unrealized
appreciation on
investments and
foreign currencies.... 34,345,128.. 3,000,634
------------ ------------
Net increase in net
assets resulting from
operations............ 45,415,332 19,810,083
------------ ------------
Net equalization
credits................. 244,177 6,046
------------ ------------
Dividends and
distributions (Note 1)
Dividends to
shareholders from net
investment income
Class A................. (4,014,073) (5,053,484)
Class B................. (2,696,747) (1,572,061)
------------ ------------
(6,710,820) (6,625,545)
------------ ------------
Distributions in excess
of net investment
income
Class A................. (250,136) --
Class B................. (168,046) --
------------ ------------
(418,182) --
------------ ------------
Distributions to
shareholders from net
realized gains on
investment and foreign
currency transactions
Class A................. (6,458,000) (6,766,456)
Class B................. (3,679,371) (1,847,469)
------------ ------------
(10,137,371) (8,613,925)
------------ ------------
Fund share transactions
(Note 5)
Net proceeds form shares
subscribed............ 146,943,974 44,730,691
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions......... 10,607,644 7,097,428
Cost of shares
reacquired.............. (37,058,428) (44,268,997)
------------ ------------
Net increase in net
assets from Fund share
transactions.......... 120,493,190 7,559,122
------------ ------------
Total increase............ 148,886,326 12,135,781
Net Assets
Beginning of year......... 175,086,372 162,950,591
------------ ------------
End of year............... $323,972,698 $175,086,372
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
B-37
<PAGE>
GLOBAL UTILITY FUND, INC.
Notes to Financial Statements
Global Utility Fund, Inc. (the ``Fund'') is an open-end diversified
management investment company. The Fund was organized in Maryland on November
18, 1988 as a closed-end, diversified management investment company and on
December 15, 1989, sold 9,000 shares of common stock for $100,440 to Wellington
Management Company (``Wellington''). Investment operations commenced on January
2, 1990. On February 1, 1991, the Fund concluded operations as a closed-end
investment company. Effective February 4, 1991, trading in the Fund's shares was
suspended on the New York and Pacific stock exchanges and the Fund commenced
operations as an open-end, diversified management investment company.
The Fund seeks to achieve its investment objective of obtaining a high total
return, without incurring undue risk, by investing primarily in common stocks,
debt securities and preferred stocks of domestic and foreign companies in the
utility industries. Debt securities in which the Fund invests are generally
within the four highest ratings categories by a nationally recognized
statistical rating organization or, if not rated, are of comparable quality. The
ability of the issuers of the debt securities held by the Fund to meet their
obligations may be affected by economic developments in a specific country or
industry.
Note 1. Accounting The following is a summary
Policies of significant accounting
policies followed by the Fund in the preparation
of its financial statements.
Securities Valuation: In valuing the Fund's assets, quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
then current exchange rate. Any security for which the primary market is on an
exchange is valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, the last bid price quoted on
such day. Portfolio securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed to
be over-the-counter, are valued at the mean between the most recently quoted bid
and asked prices provided by an independent pricing service or by principal
market makers. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the direction
of the Board of Directors of the Fund.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian takes possession of the
underlying collateral securities. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Fund may be delayed or limited.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Fund does not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of the securities held at fiscal year end. Similarly, the Fund
does not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term securities
sold during the fiscal year. Accordingly, realized foreign currency gains
(losses) are included in the reported net realized gain on investment
transactions.
The Fund recognizes foreign currency gains and losses from the holding of
foreign currencies, the sales and maturities of short-term securities and
forward currency contracts, and the difference between the amounts of dividends,
interest and foreign taxes recorded on the Fund's books and the U.S. dollar
equivalent of amounts actually received or paid.
B-38
<PAGE>
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
Forward Currency Contracts: The Fund enters into forward currency contracts in
order to hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings. A forward contract is a commitment to purchase or
sell a foreign currency at a future date (usually the security transaction
settlement date) at a negotiated forward rate. In the event that a security
fails to settle within the normal settlement period, the forward currency
contract is renegotiated at a new rate. The gain or loss arising from the
difference between the settlement value of the original and renegotiated forward
contracts is isolated and is included in net realized gains from foreign
currency transactions. Risks may arise as a result of the potential inability of
the counterparties to meet the terms of their contract.
Securities Transactions and Investment Income: Security transactions are
recorded on the trade date. Realized gains and losses from security and currency
transactions are calculated on the identified cost basis. Interest income is
recorded on the accrual basis and dividend income is recorded on the ex-dividend
date.
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.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends and interest are provided in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
Dividends and Distributions: Dividends from net investment income are declared
and paid quarterly. The Fund will distribute at least annually any net capital
gains in excess of loss carryforwards. Dividends and distributions are recorded
on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for wash sales and foreign currency transactions.
Deferred Organization Expenses: A total of $100,000 of expenses were incurred in
connection with the organization of the Fund. These costs have been deferred and
are being amortized ratably over a period of sixty months from the date the Fund
commenced investment operations.
Reclassification of Capital Accounts: Effective October 1, 1992, the Fund began
accounting and reporting for distributions to shareholders in accordance with
Statement of Position 93-2; Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. As a result of this statement, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. The effect caused by adopting this
statement was to decrease paid-in capital by $7,362, increase undistributed net
investment income by $418,182 and decrease accumulated net realized gains on
investments and foreign currency transactions by $410,820. Net investment
income, net realized gains and net assets were not affected by this change.
Note 2. Agreements The Fund has a manage
ment agreement with Prudential Mutual Fund
Management (``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 Wellington;
Wellington furnishes investment advisory services in connection with the
management of the Fund. PMF pays for the cost of the subadviser's services, the
compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an
annual rate of .70% of the
B-39
<PAGE>
Fund's average daily net assets up to and including $250 million, .55% of the
Fund's average daily net assets of the next $250 million, .50% of the Fund's
average daily net assets of the next $500 million and .45% of the Fund's average
daily net assets in excess of $1 billion. Pursuant to the subadvisory agreement,
PMF compensates Wellington for its services at an annual rate of .50% of the
Fund's average daily net assets up to and including $250 million, .40% of the
Fund's average daily net assets of the next $250 million, .35% of the Fund's
average daily net assets of the next $500 million and .30% of the Fund's average
daily net assets in excess of $1 billion.
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 shares of the Fund (collectively, the
``Distributors''). To reimburse the Distributors for their expenses incurred in
distributing and servicing the Fund's Class A and B shares, the Fund, pursuant
to plans of distribution, pays the Distributors a reimbursement, accrued daily
and payable monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its expenses with
respect to Class A shares, at an annual rate of up to .30 of 1% of the average
daily net assets of the Class A shares. Such expenses under the Class A Plan
were .20 of 1% of the average daily net assets of the Class A shares for the
fiscal year ended September 30, 1993. PMFD pays various broker-dealers,
including PSI and Pruco Securities Corporation (``Prusec''), affiliated
broker-dealers, for account servicing fees and other expenses incurred by such
broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to 1% of the average daily net assets of the Class B shares. The Class B
distribution expenses include commission credits for payment of commissions and
account servicing fees to financial advisers and an allocation for overhead and
other distribution-related expenses, interest and/or carrying charges, the cost
of printing and mailing prospectuses to potential investors and of advertising
incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and account servicing fees
incurred through the receipt of reimbursement payments from the Fund under the
plans and the receipt of initial sales charges (Class A only) and contingent
deferred sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $870,800 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended September 30, 1993. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons.
With respect to the Class B Plan, at any given time, the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total payments made by the Fund pursuant to
the Class B Plan. PSI has advised the Fund that for the fiscal year ended
September 30, 1993, it received approximately $139,000 in contingent deferred
sales charges imposed upon certain redemptions by investors. PSI, as
distributor, has also advised the Fund that at September 30, 1993, the amount of
distribution expenses incurred by PSI and not yet reimbursed by the Fund or
recovered through contingent deferred sales charges approximated $4,444,900.
This amount may be recovered through future payments under the Class B Plan or
contingent deferred sales charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI and PMF are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund
Transactions Services, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the fiscal year ended September 30, 1993, the Fund incurred fees of
approximately $300,200 for the services of PMFS. As of September 30, 1993,
approximately $33,100 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out-of-pocket expenses
paid to non-affiliates.
For the fiscal year ended September 30, 1993, PSI earned approximately $1,500
in brokerage commissions from portfolio transactions executed on behalf of the
Fund.
B-40
<PAGE>
Note 4. Portfolio Purchases and sales of
Securities investment securities, other
than short-term investments, for the fiscal year
ended September 30, 1993 were $121,796,510 and $27,126,600, respectively.
At September 30, 1993, the Fund had outstanding forward currency contracts,
both to purchase and sell foreign currencies, as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Purchase Contracts Payable Value (Depreciation)
- -------------------- --------------- ---------- --------------
<S> <C> <C> <C>
Canadian Dollars,
expiring
10/1/93........... $ 381,160 $ 377,100 $ (4,060)
Spanish Pesetas,
expiring
4/18/94........... 4,775,807 4,770,762 (5,045)
--------------- ---------- --------------
$ 5,156,967 $5,147,862 $ (9,105)
--------------- ---------- --------------
--------------- ---------- --------------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciation)
- -------------------- --------------- ---------- --------------
<S> <C> <C> <C>
French Francs,
expiring
1/12/94........... $ 5,000,000 $5,136,977 $ (136,977)
Spanish Pesetas,
expiring
4/18/94........... 5,000,000 4,770,762 229,238
--------------- ---------- --------------
$ 10,000,000 $9,907,739 $ 92,261
--------------- ---------- --------------
--------------- ---------- --------------
</TABLE>
The United States federal income tax basis of the Fund's investments at
September 30, 1993 was $273,109,661 and accordingly, net unrealized appreciation
of investments, for United States federal income tax purposes was $50,461,085
(gross unrealized appreciation--$51,356,690; gross unrealized depreciation--
$895,605).
Note 5. Capital The Fund has authorized 2
billion shares of common stock at $.001 par value
per share equally divided into two classes, designated Class A and Class B
common stock. Class A shares are sold with an initial sales charge of up to
5.25%. Class B shares are sold with a contingent deferred sales charge which
declines from 5% to zero depending upon the period of time the shares are held.
Both classes of shares have equal rights as to earnings, assets and voting
privileges except that each class bears different distribution expenses and has
exclusive voting rights with respect to its distribution plan. Of the 22,141,150
shares of common stock issued and outstanding at September 30, 1993, Wellington
owned 9,000 Class A shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
<S> <C> <C>
---------- ------------
Year ended September 30, 1993:
Shares sold................... 1,862,744 $ 25,585,453
Shares issued in reinvestment
of
dividends and
distributions............... 374,695 4,861,664
Shares reacquired............. (1,606,170) (21,380,960)
---------- ------------
Net increase in shares
outstanding................. 631,269 $ 9,066,157
---------- ------------
---------- ------------
Year ended September 30, 1992:
Shares sold................... 717,882 $ 9,323,327
Shares issued in reinvestment
of
dividends and
distributions............... 348,485 4,188,799
Shares reacquired............. (2,742,191) (34,382,358)
---------- ------------
Net decrease in shares
outstanding................. (1,675,824) $(20,870,232)
---------- ------------
---------- ------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Amount
<S> <C> <C>
---------- ------------
Year ended September 30, 1993:
Shares sold................... 8,729,213 $121,358,521
Shares issued in reinvestment
of
dividends and
distributions............... 439,311 5,745,980
Shares reacquired............. (1,169,345) (15,677,468)
---------- ------------
Net increase in shares
outstanding................. 7,999,179 $111,427,033
---------- ------------
---------- ------------
Year ended September 30, 1992:
Shares sold................... 2,811,582 $ 35,407,364
Shares issued in reinvestment
of
dividends and
distributions............... 241,003 2,908,629
Shares reacquired............. (778,620) (9,886,639)
---------- ------------
Net increase in shares
outstanding................. 2,273,965 $ 28,429,354
---------- ------------
---------- ------------
</TABLE>
B-41
<PAGE>
GLOBAL UTILITY FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------------------- ------------------------------------
January 2, March 18,
1990* Year Ended 1991+
Year Ended September 30, Through September 30, Through
PER SHARE OPERATING --------------------------------------- September 30, ------------------- September 30,
PERFORMANCE: 1993 1992 1991++ 1990++ 1993 1992 1991
-------- ----------- ------------ ------------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 12.96 $ 12.62 $ 10.50 $ 11.16 $ 12.97 $ 12.63 $ 11.97
-------- ----------- ------------ ------------- -------- ------- -------------
Income from investment
operations
Net investment income......... .44 .53 .57 .48 .34 .43 .25
Net realized and unrealized
gain (loss) on
investment and foreign
currency transactions....... 2.46 1.01 2.23 (.67) 2.45 1.01 .63
-------- ----------- ------------ ------------- -------- ------- -------------
Total from investment
operations................ 2.90 1.54 2.82 (.19) 2.79 1.44 .88
-------- ----------- ------------ ------------- -------- ------- -------------
Less distributions
Dividends from net investment
income...................... (.47) (.53) (.62) (.41) (.37) (.43) (.22)
Distributions in excess of net
investment income (.01) -- -- -- (.01) -- --
Distributions from net
realized capital and
currency gains.............. (.75) (.67) (.08) -- (.75) (.67) --
-------- ----------- ------------ ------------- -------- ------- -------------
Total distributions......... (1.23) (1.20) (.70) (.41) (1.13) (1.10) (.22)
-------- ----------- ------------ ------------- -------- ------- -------------
Capital charge in respect of
issuance of shares.......... -- -- -- (.06) -- -- --
Redemption fee retained by
Fund........................ -- -- .02 -- -- -- --
-------- ----------- ------------ ------------- -------- ------- -------------
Net asset value, end of
period...................... $ 14.63 $ 12.96 $ 12.62 $ 10.50 $ 14.63 $ 12.97 $ 12.63
-------- ----------- ------------ ------------- -------- ------- -------------
-------- ----------- ------------ ------------- -------- ------- -------------
TOTAL RETURN#................. 23.87% 13.15% 27.63% (1.98)% 22.87% 12.23% 7.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $138,714 $114,654 $132,804 $161,892 $185,259 $60,432 $30,147
Average net assets (000)...... $119,001 $120,708 $151,217 $166,915 $90,254 $45,661 $18,923
Ratios to average net assets:
Expenses, including
distribution fees......... 1.30% 1.39% 1.49% 1.05%** 2.10% 2.19% 2.47%**
Expenses, excluding
distribution fees......... 1.10% 1.19% 1.36% 1.05%** 1.10% 1.19% 1.47%**
Net investment income....... 3.37% 4.16% 5.06% 5.97%** 2.59% 3.43% 4.16%**
Portfolio turnover rate....... 14% 57% 135% 27% 14% 57% 135%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Commencement of investment operations.
** Annualized.
+ Commencement of offering of Class B shares.
++ Prior to February 4, 1991, the Fund was organized as a closed-end fund.
# 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 return for periods of less than a full year are not annualized.
</TABLE>
See Notes to Financial Statements.
B-42
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Global Utility Fund, Inc.
We have audited the statement of assets and liabilities of Global Utility
Fund, Inc., including the portfolio of investments, as of September 30, 1993,
the related statements of operations for the year then ended and of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended and for the
period January 2, 1990, (commencement of investment operations) through
September 30, 1990. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
September 30, 1993 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Global Utility Fund,
Inc. as of September 30, 1993, 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
New York, New York
November 10, 1993
B-43
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) The following financial statement is included in the Prospectus
constituting Part A of this Registration Statement:
Financial Highlights.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at September 30, 1993.
Statement of Assets and Liabilities at September 30, 1993.
Statement of Operations for the year ended September 30, 1993.
Statement of Changes in Net Assets for the period January 2, 1990
(commencement of investment operations) through September 30, 1990
and the years ended September 30, 1991, 1992 and 1993.
Notes to Financial Statements.
Financial Highlights.
(b) Exhibits:
1. Amended and Restated Articles of Incorporation of Registrant*.
2. (a) By-Laws of the Registrant. Incorporated by reference to the
Registration Statement on Form N-2, filed on November 22, 1988
(File No. 33-25553).
(b) Amended By-Laws of the Registrant. Incorporated by reference
to Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A, filed on October 30, 1991
(File No. 33-25553).
3. Not Applicable.
4. Instruments defining rights of holders of the securities being
offered. Incorporated by reference to Post-Effective Amendment
No. 5 to the Registration Statement on Form N-1A, filed via
EDGAR on November 30, 1993 (File No. 33-25553).
5. (a) Investment Advisory Agreement between the Registrant and
Wellington Management Company. Incorporated by reference to
Pre-Effective Amendment No. 3 to Registration Statement on
Form N-2, filed on December 21, 1989 (File No. 33-25553).
(b) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc. Incorporated by reference to
Post-Effective Amendment No. 2 to Registration Statement on
Form N-1A, filed on October 30, 1991 (File No. 33-25553).
(c) Subadvisory Agreement among Registrant, Prudential Mutual
Fund Management, Inc. and Wellington Management Company.
Incorporated by reference to Post-Effective Amendment No. 2
to Registration Statement on Form N-1A, filed on October 30,
1991 (File No. 33-25553).
(d) Amended Subadvisory Agreement among Registrant, Prudential
Mutual Fund Management, Inc. and Wellington Management
Company. Incorporated by reference to Post-Effective
Amendment No. 4 to Registration Statement on Form N-1A,
filed on November 30, 1992.
6. (a) Distribution and Service Agreement between the Registrant
and Prudential Mutual Fund Distributors, Inc. for Class A
Shares dated July 1, 1993. Incorporated by reference to
Post-Effective Amendment No. 5 to Registration Statement on
Form N-1A, filed via EDGAR on November 30, 1993 (File No.
33-37356).
(b) Distribution and Service Agreement between the Registrant
and Prudential Securities Incorporated for Class B Shares
dated July 1, 1993. Incorporated by reference to
Post-Effective Amendment No. 5 to Registration Statement
on Form N-1A on November 30, 1993, filed via EDGAR (File No.
33-37356).
(c) Form of Distribution and Service Agreement for Class A Shares.*
(d) Form of Distribution and Service Agreement for Class B Shares.*
C-1
<PAGE>
(e) Form of Distribution and Service Agreement for Class C Shares.*
7. Not Applicable.
8. (a) Custodian Contract between the Registrant and State Street
Bank and Trust Company. Incorporated by reference to
Pre-Effective Amendment No. 3 to Registration Statement on
Form N-2, filed on December 21, 1989 (File No. 33-25553).
9. (a) Transfer Agency and Service Agreement between the Registrant
and State Street Bank and Trust Company. Incorporated by
reference to Pre-Effective Amendment No. 3 to Registration
Statement on Form N-2, filed on December 21, 1989 (File No.
33-25553).
(b) Administration Agreement between the Registrant and Prudential
Mutual Fund Management, Inc. Incorporated by reference to
Pre-Effective Amendment No. 3 to Registration Statement on
Form N-2, filed on December 21, 1989 (File No. 33-25553).
(c) Transfer Agency and Service Agreement between the Registrant
and Prudential Mutual Fund Services, Inc. Incorporated by
reference to Post-Effective Amendment No. 2 to Registration
Statement on Form N-1A, filed on October 30, 1991 (File No.
33-37356).
10. Opinion and Consent of Counsel related to issuance of Class
B Shares. Incorporated by reference to Pre-Effective
Amendment No. 2 to Registration Statement on Form N-1A,
filed on February 1, 1991 (File No. 33-37356).
11. Consent of Independent Accountants.*
12. Not Applicable.
13. Subscription Agreement between the Registrant and Wellington
Management Company. Incorporated by reference to Pre-Effective
Amendment No. 3 to Registration Statement on Form N-2, filed on
December 21, 1989 (File No. 33-25553).
14. Not Applicable.
15. (a) Distribution and Service Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940 for Class A Shares dated
July 1, 1993. Incorporated by reference to Post-Effective
Amendment No. 5 to Registration Statement on Form N-1A,
filed via EDGAR on November 30, 1993 (File No. 33-37356).
(b) Distribution and Service Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940 for Class B Shares dated
July 1, 1993. Incorporated by reference to Post-Effective
Amendment No. 5 to Registration Statement on Form N-1A,
filed via EDGAR on November 30, 1993 (File No. 33-37356).
(c) Form of Distribution and Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 for Class A
Shares.*
(d) Form of Distribution and Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 for Class B
Shares.*
(e) Form of Distribution and Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 for Class C
Shares.*
16. (a) Schedule of Computation of Performance Quotations.
Incorporated by reference to Pre-Effective Amendment No. 1
to Registration Statement on Form N-1A, filed on January 9,
1991 (File No. 33-37356).
(b) Schedule of Computation of 30-day yield. Incorporated by
reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-1A, filed via EDGAR on November 30,
1993 (File No. 33-37356).
Other Exhibits
None.
- ----------------
*Filed herewith.
C-2
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of March 31, 1994 there were 5,214 and 7,493 record holders of Class
A and Class B shares of common stock, respectively, $.001 par value per
share, of the Registrant.
Item 27. Indemnification.
As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940 (the 1940 Act) and pursuant to Article VI of the Fund's Amended and
Restated Articles of Incorporation (Exhibit 1 to the Registration
Statement), officers, directors, employees and agents of the Registrant
will not be liable to the Registrant, any stockholder, officer, director,
employee, agent or other person for any action or failure to act, except
for bad faith, willful misfeasance, gross negligence or reckless disregard
of duties, and those individuals may be indemnified against liabilities in
connection with the Registrant, subject to the same exceptions. Section
2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct
was in the best interests of the Registrant. As permitted by Section 17(i)
of the 1940 Act, pursuant to Section 10 of each Distribution Agreement
(Exhibits 6(a) and 6(b) and 6(c) 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(b) to the Registration
Statement) and Section 5 of the Subadvisory Agreement (Exhibit 5(c) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (the Manager or PMF) and Wellington Management Company
(the Subadviser), respectively, to liabilities arising from willful
misfeasance, bad faith or gross negligence in the performance of their
respective duties or from reckless disregard by them of their respective
obligations and duties under the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner
consistent with Release No. 11330 of the Securities and Exchange Commission
under the 1940 Act so long as the interpretation of Sections 17(h) and
17(i) of such Act remain in effect and are consistently applied.
Item 28. Business and other Connections of Investment Adviser
See "How the Fund Is Managed-Manager" and "How the Fund Is
Managed-Subadviser" in both the Prospectus constituting Part A of this
Registration Statement and 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 in October 1993).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice Executive Vice President and Director of Marketing, PMF
President and
Director of
Marketing
John D. Brookmeyer, Jr. Director Senior Vice President, The Prudential Insurance
Two Gateway Center Company of America (Prudential); Senior Vice President, PIC;
Newark, NJ 07102
Susan C. Cote Senior Vice President Senior Vice President, PMF; Senior Vice President, Prudential
Securities
Fred A. Fiandaca Executive Vice Executive Vice President, Chief Operating Officer and Director, PMF;
Raritan Plaza One President, Chief Chairman, Chief Operating Officer and Director, Prudential
Edison, NJ 08847 Operating Officer and Mutual Fund Services, Inc.
Director
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President, Prudential
Securities
Frank W. Giordano Executive Vice Executive Vice President, General Counsel and Secretary, PMF; Senior
President, General Vice President, Prudential Securities
Counsel and
Secretary
Robert F. Gunia Executive Vice Executive Vice President, Chief Administrative Officer, Chief Financial
President, Chief Officer and Director, PMF; Senior Vice President, Prudential
Administrative Securities
Officer, Chief
Financial Officer and
Director
Eugene B. Heimberg Director Senior Vice President, Prudential; President, Director
Prudential Plaza and Chief Investment Officer, PIC
Newark, NJ 07101
Lawrence C. McQuade Vice Chairman Vice Chairman, PMF
Leland B. Paton Director Executive Vice President and Director, Prudential Securities; Director,
Prudential Securities Group, Inc. (PSG)
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF; Executive Vice
Executive Officer President, Director and Member of Operating Committee, Prudential
and Director Securities; Director, PSG
S. Jane Rose Senior Vice Senior Vice President, Senior Counsel and Assistant Secretary, PMF;
President, Senior Senior Vice President and Senior Counsel, Prudential Securities
Counsel and
Assistant Secretary
Donald G. Southwell Director Senior Vice President, Prudential; Director, PSG
213 Washington Street
Newark, NJ 07102
</TABLE>
Wellington Management Company, the Subadviser, is a Massachusetts
partnership and is a registered investment adviser engaged in the
investment advisory business. Information as to the general partners of the
Subadviser is included in its Form ADV filed with the Securities and
Exchange Commission (File No. 801-15908), as most recently amended in July,
1993, and is incorporated herein by reference thereto.
Item 29. Principal Underwriters
(a)(i) Prudential Securities Incorporated
Prudential Securities is distributor for Prudential Government
Securities Trust (Intermediate Term Series), The Target Portfolio Trust and
for Class B shares of Prudential Adjustable Rate Securities, Inc.,
Prudential California Municipal Fund
C-4
<PAGE>
(California Series), Prudential Equity Fund, Inc., Prudential Equity
Income Fund, Prudential FlexiFund, Prudential Global Fund, Inc.,
Prudential-Bache Global Genesis Fund, Inc. (d/b/a Prudential Global
Genesis Fund), Prudential-Bache Global Natural Resources Fund, Inc. (d/b/a
Prudential Global Natural Resources Fund),Prudential-Bache GNMA Fund, Inc.
(d/b/a Prudential GNMA Fund), Prudential-Bache Government Plus Fund, Inc.
(d/b/a Prudential Government Plus Fund), Prudential-Bache Growth
Opportunity Fund, Inc. (d/b/a Prudential Growth Opportunity Fund),
Prudential Growth Fund, Prudential-Bache High Yield Fund, Inc. (d/b/a
Prudential High Yield Fund), Prudential IncomeVertible (R) Fund, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential Multi-Sector
Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal Series
Fund (except New York Money Market Series, Connecticut Money Market
Series, Massachusetts Money Market Series, New Jersey Money Market Series
and Florida Series), Prudential-Bache National Municipals Fund, Inc.
(d/b/a Prudential National Municipals Fund), Prudential Pacific Growth
Fund, Inc., Prudential Short-Term Global Income Fund, Inc., Prudential
U.S. Government Fund, Prudential-Bache Utility Fund, Inc. (d/b/a
Prudential Utility Fund), Global Utility Fund, Inc., Nicholas-Applegate
Fund, Inc. (Nicholas-Applegate Growth Equity Fund) and The BlackRock
Government Income Trust. Prudential Securities is also a depositor for the
following unit investment trusts:
The Corporate Income Fund
Corporate Investment Trust Fund
Equity Income Fund
Government Securities Income Fund
International Bond Fund
Municipal Investment Trust
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(ii) Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Incorporated is distributor for
Command Government Fund, Command Money Fund, Command Tax-Free Fund,
Prudential California Municipal Fund (California Money Market Series,
California Income Series and Class A Shares of the California Series),
Prudential Institutional Liquidity Portfolio, Prudential Intermediate
Global Income Fund, Inc., Prudential-Bache Special Money Market Fund, Inc.
(d/b/a Prudential Special Money Market Fund), Prudential-Bache Structured
Maturity Fund, Inc. (d/b/a Prudential Structured Maturity Fund),
Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential Tax-Free Money
Fund), and for Class A shares of Prudential Adjustable Rate Securities,
Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential FlexiFund, Prudential Global Fund, Inc. Prudential-Bache Global
Genesis Fund, Inc. (d/b/a Prudential Global Genesis Fund), Prudential-Bache
Global Natural Resources Fund, Inc. (d/b/a Prudential Global Natural
Resources Fund), Prudential-Bache GNMA Fund, Inc. (d/b/a Prudential GNMA
Fund), Prudential-Bache Government Plus Fund, Inc. (d/b/a Prudential
Government Plus Fund), Prudential Government Securities Trust (Money Market
Series and U.S. Treasury Money Market Series), Prudential Growth Fund,
Prudential-Bache Growth Opportunity Fund, Inc. (d/b/a Prudential Growth
Opportunity Fund), Prudential-Bache High Yield Fund, Inc. (d/b/a Prudential
High Yield Fund), Prudential IncomeVertible(R) Fund, Inc., Prudential
Intermediate Global Income Fund, Inc., Prudential- Bache MoneyMart Assets
Inc. (d/b/a Prudential MoneyMart Assets Fund), Prudential Multi-Sector
Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal Series
Fund (Connecticut Money Market Series, Massachusetts Money Market Series,
New York Money Market Series, New Jersey Money Market Series, Florida
Series and Class A Shares of all other Series), Prudential-Bache National
Municipals Fund, Inc. (d/b/a Prudential National Municipals Fund),
Prudential Pacific Growth Fund, Inc., Prudential-Bache Short-Term Global
Income Fund, Inc. (d/b/a Prudential Short-Term Global Income Fund),
Prudential U.S. Government Fund, PrudentialBache Utility Fund, Inc. (d/b/a
Prudential Utility Fund), Global Utility Fund, Inc., Nicholas-Applegate
Fund, Inc. (Nicholas-Applegate Growth Equity Fund) and The BlackRock
Government Income Trust.
(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 the Fund
- ----- ------------- -------------
<S> <C> <C>
Alan D. Hogan ............. Executive Vice President, None
Chief Administrative
Officer and Director
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name* Underwriter the Fund
- ----- ------------- -------------
<S> <C> <C>
Howard A. Knight .......... Executive Vice President, None
Director, Corporate
Strategy and New Business
Development
George A. Murray .......... Executive Vice President and Director None
John P. Murray ............ Executive Vice President and Director of Risk None
Management
Leland B. Paton ........... Executive Vice President and None
Director
Richard A. Redeker ........ Director Director
Hardwick Simmons .......... Chief Executive Officer, None
President and Director
Lee Spencer ............... Interim General Counsel
Secretary]
<FN>
- ---------------
*The address of each person named is One Seaport Plaza, New York, NY 10292
</TABLE>
(ii) Prudential Mutual Fund Distributors, Inc.
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name* Underwriter the Fund
- ----- ------------- -------------
<S> <C> <C>
Joanne Accurso-Soto ....... Vice President None
Dennis Annarumma .......... Vice President, Assistant Treasurer and None
Assistant Comptroller
Phyllis J. Berman ......... Vice President None
Fred A. Fiandaca .......... President, Chief Executive Officer and Director None
Raritan Plaza One
Edison, NJ 08847
Stephen P. Fisher ......... Vice President None
Frank W. Giordano ......... Executive Vice President, General Counsel, None
Secretary and Director
Robert F. Gunia ........... Executive Vice President, Treasurer, Comptroller Vice President
and Director
Andrew J. Varley .......... Vice President None
Anita L. Whelan ........... Vice President and Assistant Secretary None
<FN>
- -----------------
(1)The address of each person named is One Seaport Plaza, New York, NY
10292 unless otherwise indicated.
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated
person of the Registrant.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at
the offices of State Street Bank and Trust Company, One Heritage Drive,
North Quincy, Massachusetts, 02171, Wellington Management Company, 75 State
Street, Boston Massachusetts 02109, the Registrant, One Seaport Plaza, New
York, New York, and Prudential Mutual Fund Services, Inc., Raritan Plaza
One, Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6), (7),
(9), (10) and (11) and 31a-1(f) will be kept at 75 State Street, documents
required by Rules 31a-1(b)(4) and (11) and 31a- 1(d) at One Seaport Plaza
and the remaining accounts, books and other documents required by such
other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and
Prudential Mutual Fund Services, Inc.
C-6
<PAGE>
Item 31. Management Services
Other than as set forth under the captions "How the Fund Is
Managed-Manager", "How the Fund Is Managed-Subadviser" and "How the Fund Is
Managed-Distributor" in the Prospectus and the corresponding sub- captions,
captions "The Manager", "The Subadviser" and "The 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 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 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 5th day of May, 1994.
GLOBAL UTILITY FUND, INC.
/s/ Edward D. Beach
---------------------------------------
(Edward D. Beach, President)
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Edward D. Beach Director and President May 5, 1994
- --------------------------
/s/ Edward D. Beach
/s/ Daniel S. Ahearn Director May 5, 1994
- --------------------------
/s/ Daniel S. Ahearn
/s/ Thomas T. Mooney Director May 5, 1994
- --------------------------
/s/ Thomas T. Mooney
/s/ John B. Neff Director May 5, 1994
- --------------------------
/s/ John B. Neff
/s/ Richard A. Redeker Director May 5, 1994
- --------------------------
/s/ Richard A. Redeker
/s/ Michael Sandberg Director May 5, 1994
- --------------------------
/s/ Michael Sandberg
/s/ Robin B. Smith Director May 5, 1994
- --------------------------
/s/ Robin B. Smith
/s/ Nancy H. Teeters Director May 5, 1994
- --------------------------
/s/ Nancy H. Teeters
/s/ Susan C. Cote Treasurer and Principal May 5, 1994
- -------------------------- Financial and Accounting
/s/ Susan C. Cote Officer
<PAGE>
EXHIBIT INDEX
1. Amended and Restated Articles of Incorporation of Registrant*.
2. (a) By-Laws of the Registrant. Incorporated by reference to the
Registration Statement on Form N-2, filed on November 22, 1988
(File No. 33-25553).
(b) Amended By-Laws of the Registrant. Incorporated by reference to
Post- Effective Amendment No. 2 to the Registration Statement on
Form N-1A, filed on October 30, 1991 (File No. 33-25553).
3. Not Applicable.
4. Instruments defining rights of holders of the securities being
offered. Incorporated by reference to Post-Effective Amendment No. 5 to
the Registration Statement on Form N-1A, filed via EDGAR on November 30,
1993 (File No. 33-25553).
5. (a) Investment Advisory Agreement between the Registrant and
Wellington Management Company. Incorporated by reference to
Pre-Effective Amendment No. 3 to Registration Statement on Form
N-2, filed on December 21, 1989 (File No. 33-25553).
(b) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc. Incorporated by reference to Post-Effective
Amendment No. 2 to Registration Statement on Form N-1A, filed on
October 30, 1991 (File No. 33-25553).
(c) Subadvisory Agreement among Registrant, Prudential Mutual Fund
Management, Inc. and Wellington Management Company. Incorporated by
reference to Post-Effective Amendment No. 2 to Registration
Statement on Form N-1A, filed on October 30, 1991 (File No.
33-25553).
(d) Amended Subadvisory Agreement among Registrant, Prudential Mutual Fund
Management, Inc. and Wellington Management Company. Incorporated by
reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-1A, filed on November 30, 1992.
6. (a) Distribution and Service Agreement between the Registrant and
Prudential Mutual Fund Distributors, Inc. for Class A Shares dated
July 1, 1993. Incorporated by reference to Post-Effective Amendment
No. 5 to Registration Statement on Form N-1A, filed via EDGAR on
November 30, 1993 (File No. 33-37356).
(b) Distribution and Service Agreement between the Registrant and
Prudential Securities Incorporated for Class B Shares dated July 1,
1993. Incorporated by reference to Post-Effective Amendment No. 5
to Registration Statement on Form N-1A on November 30, 1993, filed
via EDGAR (File No. 33-37356).
(c) Form of Distribution and Service Agreement for Class A Shares.*
(d) Form of Distribution and Service Agreement for Class B Shares.*
(e) Form of Distribution and Service Agreement for Class C Shares.*
7. Not Applicable.
8. (a) Custodian Contract between the Registrant and State Street Bank
and Trust Company. Incorporated by reference to Pre-Effective
Amendment No. 3 to Registration Statement on Form N-2, filed on
December 21, 1989 (File No. 33-25553).
9. (a) Transfer Agency and Service Agreement between the Registrant and
State Street Bank and Trust Company. Incorporated by reference to
Pre- Effective Amendment No. 3 to Registration Statement on Form
N-2, filed on December 21, 1989 (File No. 33-25553).
(b) Administration Agreement between the Registrant and Prudential Mutual
Fund Management, Inc. Incorporated by reference to Pre-Effective
Amendment No. 3 to Registration Statement on Form N-2, filed on
December 21, 1989 (File No. 33-25553).
(c) Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. Incorporated by reference to
Post- Effective Amendment No. 2 to Registration Statement on Form
N-1A, filed on October 30, 1991 (File No. 33-37356).
10. Opinion and Consent of Counsel related to issuance of Class B
Shares. Incorporated by reference to Pre-Effective Amendment No. 2
to Registration Statement on Form N-1A, filed on February 1, 1991
(File No. 33-37356).
11. Consent of Independent Accountants.*
<PAGE>
12. Not Applicable.
13. Subscription Agreement between the Registrant and Wellington
Management Company. Incorporated by reference to Pre-Effective Amendment
No. 3 to Registration Statement on Form N-2, filed on December 21, 1989
(File No. 33-25553).
14. Not Applicable.
15. (a) Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Class A Shares dated July 1,
1993. Incorporated by reference to Post-Effective Amendment No. 5
to Registration Statement on Form N-1A, filed via EDGAR on November
30, 1993 (File No. 33-37356).
(b) Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Class B Shares dated July 1,
1993. Incorporated by reference to Post-Effective Amendment No. 5
to Registration Statement on Form N-1A, filed via EDGAR on November
30, 1993 (File No. 33-37356).
(c) Form of Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Class A Shares.*
(d) Form of Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Class B Shares.*
(e) Form of Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Class C Shares.*
16. (a) Schedule of Computation of Performance Quotations. Incorporated by
reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-1A, filed on January 9, 1991 (File No.
33-37356).
(b) Schedule of Computation of 30-day yield. Incorporated by reference to
Post-Effective Amendment No. 5 to Registration Statement on Form
N-1A, filed via EDGAR on November 30, 1993 (File No. 33-37356).
Exhibit 1
GLOBAL UTILITY FUND, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
Global Utility Fund, Inc., a Maryland corporation, having its principal
office in the city of Baltimore, (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland, that:
FIRST: The Corporation desires to amend and restate its charter as
currently in effect, such amendment and restatement to be effective on February
4, 1991, and the charter of the Corporation is amended by deleting Articles
FIRST through ELEVENTH in their entirety and substituting new Articles I through
VIII, and, as so amended, is restated as follows:
"ARTICLE I.
The name of the corporation (hereinafter called the "Corporation") is
Global Utility 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, as amended (the "Investment Company Act"), and to exercise and generally
to enjoy all of the powers, rights and privileges granted to, or conferred upon,
<PAGE>
corporations by the General Laws of the State of Maryland now or hereinafter in
force.
Duration
The duration of the Corporation shall be perpetual.
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.
The name of the Corporation's resident agent is The Corporation Trust
Incorporated, and its post office address is 32 South Street, Baltimore,
Maryland 21202-3242. Said resident agent is a corporation of the State of
Maryland.
ARTICLE IV.
Common Stock
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is 2 billion shares of the par value
of $.001 per share and of the aggregate par value of $2,000,000 to be divided
-2-
<PAGE>
initially into three classes, consisting of 666,666,666 2/3 shares of Class A
Common Stock, 666,666,666 2/3 shares of Class B Common Stock and 666,666,666 2/3
of Class C Common Stock.
(a) Each share of Class A, Class B and Class C Common Stock of the
Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation and other rights except that (i)
Expenses related to the distribution of each class of shares shall be borne
solely by such class; (ii) The bearing of such expenses solely by shares of
each class shall be appropriately reflected (in the manner determined by
the Board of Directors) in the net asset value, dividends, distribution and
liquidation rights of the shares of such class; (iii) The Class A Common
Stock shall be subject to a front-end sales load and Rule 12b-1
distribution fee as determined by the Board of Directors from time to time;
(iv) The Class B Common Stock shall be subject to a contingent deferred
sales charge and a Rule 12b-1 distribution fee as determined by the Board
of Directors from time to time; and (v) The Class C Common Stock shall not
be subject to either an initial or a contingent deferred sales charge but
shall be subject to a Rule 12b-1 distribution fee as determined by the
Board of Directors from time to time. All shares of each particular class
shall represent an equal proportionate interest in that class, and each
share of any particular class shall be equal to each other share of that
class.
-3-
<PAGE>
(b) Each share of the Class B Common Stock of the Corporation, shall
be converted automatically, and without any action or choice on the part of
the holder thereof, into shares (including fractions thereof) of the Class
A Common Stock of the Corporation (computed in the manner hereinafter
described), at the applicable net asset value of each Class, at the time of
the calculation of the net asset value of such Class B Common Stock at such
times, which may vary between shares originally issued for cash and shares
purchased through the automatic reinvestment of dividends and distributions
with respect to Class B 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 Corporation's then current prospectus for
such Class A and Class B Common Stock.
(c) The number of shares of the Class A Common Stock of the
Corporation into which a share of the Class B Common Stock is converted
pursuant to Paragraph (1)(b) hereof shall equal the number (including for
this purpose fractions of a share) obtained by dividing the net asset value
per share of the Class B Common Stock for purposes of sales and redemptions
thereof at the time of the calculation of the net asset value on the
Conversion Date by the net asset value per share of the Class A Common
-4-
<PAGE>
Stock for purposes of sales and redemptions thereof at the time of the
calculation of the net asset value on the Conversion Date.
(d) On the Conversion Date, the shares of the Class B Common Stock of
the Corporation converted into shares of the Class A Common Stock will
cease to accrue dividends and will no longer be outstanding and the rights
of the holders thereof will cease (except the right to receive declared but
unpaid dividends to the Conversion Date).
(e) The Board of Directors shall have full power and authority to
adopt such other terms and conditions concerning the conversion of shares
of the Class B Common Stock to shares of the Class A Common Stock as they
deem appropriate; provided such terms and conditions are not inconsistent
with the terms contained in this Section 1 and subject to any restrictions
or requirements under the Investment Company Act of 1940 and the rules,
regulations and interpretations thereof promulgated or issued by the
Securities and Exchange Commission or 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.
-5-
<PAGE>
Section 2. The Board of Directors may, in its discretion, classify and
reclassify any unissued shares of the capital stock of the Corporation into one
or more additional or other classes or series by setting or changing in any one
or more respects the designations, conversion or other rights, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such shares and pursuant to such classification or reclassification to
increase or decrease the number of authorized shares of any existing class or
series. If designated by the Board of Directors, particular classes or series of
capital stock may relate to separate portfolios of investments.
Section 3. Unless otherwise expressly provided in the Articles of
Incorporation, including any Articles Supplementary creating any class or series
of capital stock, the holders of each class and series of capital stock of the
Corporation shall be entitled to dividends and distributions in such amounts and
at such times as may be determined by the Board of Directors, and the dividends
and distributions paid with respect to the various classes or series of capital
stock may vary among such classes or series. Expenses related to the
distribution of, and other identified expenses that should properly be allocated
to, the shares of a particular class or series of capital stock may be charged
to and borne solely by such class or series and the bearing of expenses solely
by a class or series may be appropriately reflected (in a manner determined by
the Board of Directors) and cause differences in the net asset value
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attributable to, and the dividend, redemption and liquidation rights of, the
shares of each such class or series of capital stock.
Section 4. Unless otherwise expressly provided in the Articles of
Incorporation, including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation 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 or series thereof, and all shares of all
classes and series shall vote together as a single class; provided, however,
that (a) as to any matter with respect to which a separate vote of any class or
series is required by the Investment Company Act, as amended and in effect from
time to time, or any rules, regulations or orders issued thereunder, or by the
Maryland General Corporation Law, such requirement as to a separate vote by that
class or series shall apply in lieu of a general vote of all classes and series
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 or series,
then subject to paragraph (c) below, the shares of all other classes and series
not entitled to a separate vote shall vote together as a single class; and (c)
as to any matter which in the judgment of the Board of Directors (which shall be
conclusive) does not affect the interest of a particular class or series, such
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class or series shall not be entitled to any vote and only the holders of shares
of the one or more affected classes and series shall be entitled to vote.
Section 5. Unless otherwise expressly provided in the Articles of
Incorporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up of
the Corporation or of any series or class thereof, whether voluntary or
involuntary, holders of shares of capital stock of the Corporation or such
series or class shall be entitled, after payment or provision for payment of the
debts and other liabilities of the Corporation or such series or class (as such
liabilities may affect one or more of the classes of shares of capital stock of
the Corporation), to share ratably in the remaining net assets of the
Corporation or series or class; provided, however, that in the event the capital
stock of the Corporation shall be classified or reclassified into series,
holders of any shares of capital stock within such series shall be entitled to
share ratably out of assets belonging to such series pursuant to the provisions
of Section 7(c) of this Article IV.
Section 6. Each share of any class of the capital stock of the Corporation,
and in the event the capital stock of the Corporation shall be classified or
reclassified into series, each share of any class of capital stock of the
Corporation within such series shall be subject to the following provisions:
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(a) The net asset value of each outstanding share of capital stock of
the Corporation (or of a class or series, in the event the capital stock of
the Corporation shall be so classified or reclassified into series),
subject to subsection (b) of this Section 6, shall be the quotient obtained
by dividing the value of the net assets of the Corporation (or the net
assets of the Corporation attributable or belonging to that class or series
as designated by the Board of Directors pursuant to Articles Supplementary)
by the total number of outstanding shares of capital stock of the
Corporation (or of such class or series, in the event the capital stock of
the Corporation shall be classified or reclassified into series). Subject
to subsection (b) of this Section 6, the value of the net assets of the
Corporation (or of such class or series, in the event the capital stock of
the Corporation shall be classified or reclassified into series) shall be
determined pursuant to the procedures or methods (which procedures or
methods, in the event the capital stock of the Corporation shall be
classified or reclassified into series, may differ from class to class or
from series to series) prescribed or approved by the Board of Directors in
its discretion, and shall be determined at the time or times (which time or
times may, in the event the capital stock of the Corporation shall be
classified into classes or series, differ from series to series) prescribed
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or approved by the Board of Directors in its discretion. In addition,
subject to subsection (b) of this Section 6, the Board of Directors, in its
discretion, may suspend the daily determination of net asset value of any
share of any series or class of capital stock of the Corporation.
(b) The net asset value of each share of the capital stock of the
Corporation or any class or series thereof shall be determined in
accordance with any applicable provision of the Investment Company Act, 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 pursuant to the
applicable provisions of the Investment Company Act and laws of the State
of Maryland, including any applicable rules and regulations thereunder.
Each holder of a share of any class or series, upon request to the
Corporation (if such holder's shares are certificated, such request being
accompanied by surrender of the appropriate stock certificate or
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certificates in proper form for transfer), shall be entitled to require the
Corporation to redeem all or any part of such shares outstanding in the
name of such holder on the books of the Corporation (or as represented by
share certificates surrendered to the Corporation by such redeeming holder)
at a redemption price based on a net asset value per share determined in
accordance with subsection (a) of this Section 6.
(d) Notwithstanding subsection (c) of this Section 6, the Board of
Directors of the Corporation may suspend the right of the holders of shares
of any or all classes or series of capital stock to require the Corporation
to redeem such shares or may suspend any purchase of such shares:
(i) for any period (A) during which the New York Stock Exchange
is closed, other than customary week-end 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
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of securities owned by it and belonging to the affected series of
capital stock (or the Corporation, if the shares of capital stock of
the Corporation have not been classified or reclassified into series)
is not reasonably practi-cable, or (B) it is not reasonably
practicable for the Corporation fairly to determine the value of the
net assets of the affected series of capital stock; or
(iii) for such other periods as the Securities and Exchange
Commission or any successor thereto may by order permit for the
protection of the holders of shares of capital stock of the
Corporation.
(e) All shares of the capital stock of the Corporation 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 or series upon the sending
of written notice thereof to each holder whose shares are to be redeemed
and upon such terms and conditions as the Board of Directors, in its
discretion, shall deem advisable, out of funds legally available therefor,
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at the net asset value per share of that class or series determined in
accordance with subsections (a) and (b) of this Section 6 and 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 or series of the capital stock of the
Corporation upon such terms and conditions and for such consideration as
the Board of Directors, in its discretion, shall deem advisable out of
funds legally available therefor at prices per share not in excess of the
net asset value per share of that class or series determined in accordance
with subsections (a) and (b) of this Section 6 and to take all other steps
deemed necessary or advisable in connection therewith.
(g) Except as otherwise permitted by the Investment Company Act,
payment of the redemption price of shares of any class or series of the
capital stock of the Corporation surrendered to the Corporation for
redemption pursuant to the provisions of subsection (c) of this Section 6
or for purchase by the Corporation pursuant to the provisions of subsection
(e) or (f) of this Section 6 shall be made by the Corporation within seven
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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, in its discretion, shall deem
advisable, and no stockholder shall have the right, other than as
determined by the Board of Directors, to have his or her 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 or series retired by repurchase or redemption shall thereafter have
the status of authorized but unissued shares of such class or series.
Section 7. In the event the Board of Directors shall authorize the
classification or reclassification of shares into classes or series, the Board
of Directors may (but shall not be obligated to) provide that each class or
series shall have the following powers, preferences and voting or other special
rights, and the qualifications, restrictions and limitations thereof shall be as
follows:
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(a) All consideration received by the Corporation for the issue or
sale of shares of capital stock of each series, together with all income,
earnings, profits, and proceeds received thereon, including any proceeds
derived from the sale, exchange or liquidation thereof, and any funds or
payments derived from any reinvestment of such proceeds in whatever form
the same may be, shall irrevocably belong to the series with respect to
which such assets, payments or funds were received by the Corporation for
all purposes, subject only to the rights of creditors, and shall be so
handled upon the books of account of the Corporation. Such assets, payments
and funds, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any reinvestment of such
proceeds in whatever form the same may be, are herein referred to as
"assets belonging to" such series.
(b) The Board of Directors may from time to time declare and pay
dividends or distributions, in additional shares of capital stock of such
series or in cash, on any or all series of capital stock, the amount of
such dividends and the means of payment being wholly in the discretion of
the Board of Directors.
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(i) Dividends or distributions on shares of any series shall be
paid only out of earned surplus or other lawfully available assets
belonging to such series.
(ii) Inasmuch as one goal of the Corporation is to qualify as a
"regulated investment company" under the Internal Revenue Code of
1986, as amended, or any successor or comparable statute thereto, and
Regulations promulgated thereunder, and inasmuch as the computation of
net income and gains for federal income tax purposes may vary from the
computation thereof on the books of the Corporation, the Board of
Directors shall have the power, in its discretion, to distribute in
any fiscal year as dividends, including dividends designated in whole
or in part as capital gains distributions, amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation to
qualify as a regulated investment company and to avoid liability for
the Corporation for federal income tax in respect of that year. In
furtherance, and not in limitation of the foregoing, in the event that
a series has a net capital loss for a fiscal year, and to the extent
that the net capital loss offsets net capital gains from such series,
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the amount to be deemed available for distribution to that series with
the net capital gain may be reduced by the amount offset.
(c) In the event of the liquidation or dissolution of the
Corporation, holders of shares of capital stock of each series shall
be entitled to receive, as a series, out of the assets of the
Corporation available for distribution to such holders, but other than
general assets not belonging to any particular series, the assets
belonging to such series; and the assets so distributable to the
holders of shares of capital stock of any series shall be distributed,
subject to the provisions of subsection (d) of this Section 7, among
such stockholders in proportion to the number of shares of such series
held by them and recorded on the books of the Corporation. In the
event that there are any general assets not belonging to any
particular series and available for distribution, such distribution
shall be made to the holders of all series in proportion to the net
asset value of the respective series determined in accordance with the
Articles of Incorporation.
(d) The assets belonging to any series shall be charged with the
liabilities in respect to such series, and shall also be charged with
its share of the general liabilities of the Corporation, in proportion
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to the asset value of the respective series determined in accordance
with the Articles of Incorporation. The determination of the Board of
Directors shall be conclusive as to the amount of liabilities,
including accrued expenses and reserves, as to the allocation of the
same as to a given series, and as to whether the same or general
assets of the Corporation are allocable to one or more classes.
Section 8. Any fractional shares shall carry proportionately all the rights
of a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends.
Section 9. No holder of shares of Common Stock of the Corporation shall, as
such holder, have any pre-emptive right to purchase or subscribe for any shares
of the Common Stock of the Corporation of any class or series which it may issue
or sell (whether out of the number of shares authorized by the Articles of
Incorporation, or out of any shares of the Common Stock of the Corporation
acquired by it after the issue thereof, or otherwise).
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Section 10. All persons who shall acquire any shares of capital stock of
the Corporation shall acquire the same subject to the provisions of the Articles
of Incorporation and By-Laws of the Corporation.
Section 11. Notwithstanding any provisions 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
series or of the outstanding shares of a particular class or classes or series,
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 series or of the total number of shares of
such class or classes or series, as the case may be, outstanding and entitled to
vote thereupon pursuant to the provisions of these Articles of Incorporation.
ARTICLE V.
Directors
The initial number of directors of the Corporation shall be not less than
three, and the names of those who shall act as such until the next meeting of
stockholders and until their successors are duly elected and qualify are as
follows:
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Edward D. Beach
Thomas T. Mooney
John B. Neff
Sir Michael Sandberg
Robin B. Smith
Richard A. Redeker
Nancy H. Teeters
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 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.
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ARTICLE VI.
Indemnification and Limitation of
Liability of Directors and Officers
Section 1. The Corporation shall indemnify to the fullest extent permitted
by law (including the Investment Company Act), 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), 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
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any predecessor of the Corporation and any constituent corporation (including
any constituent of a constituent) absorbed 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.
Section 2. 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
hereafter be amended.
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No amendment modification or repeal of this Article VI shall adversely
affect any right or protection of a director or officer that exists at the time
of such amendment, modification or repeal.
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.
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(b) To issue shares of any class or series of the capital stock of the
Corporation.
(c) To authorize the purchase of shares of any class or series in the
open market or otherwise, at prices not in excess of their net asset value
for shares of that class, series or class within such series determined in
accordance with subsections (a) and (b) of Section 6 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.
(d) To declare and pay dividends and distributions from funds legally
available therefor on shares of such class or series, 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 holders of record as of such date, as the Board of
Directors may determine.
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(e) To take any and all action necessary or appropriate to maintain a
constant net asset value per share for shares of any class, series or class
within such series.
Section 2. Any determination made in good faith and, so far as accounting
matters are involved, in accordance with generally accepted accounting
principles applied by or pursuant to the direction of the Board of Directors or
as otherwise required or permitted by the Securities and Exchange Commission,
shall be final and conclusive, and shall be binding upon the Corporation and all
holders of shares, past, present and future, of each class or series, 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.
Nothing in this Section 2 shall be construed to protect any director or
officer of the Corporation against 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.
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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 holders of shares of capital stock of
the Corporation.
Section 4. Except as required by law, the holders of shares of capital
stock of the Corporation 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 the holders of shares of capital stock of the
Corporation 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 the
Corporation or any series thereof available for distribution to the holders of
the Corporation or any series thereof (pursuant to the provisions of Section 7
of Article IV hereof) and may divide, or authorize the Board of Directors to
divide, such assets among the stockholders of the shares of capital stock of the
Corporation or any series thereof in such manner as to ensure that each such
holder receives an amount from the proceeds of such liquidation or dissolution
that such holder is entitled to, as determined pursuant to the provisions of
Sections 3 and 7 of Article IV hereof.
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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."
SECOND: The provisions set forth in these Articles of Amendment and
Restatement are all provisions of the Charter currently in effect.
THIRD: The Corporation currently has seven directors. The names of the
directors currently in office are set forth above.
FOURTH: (a) As of immediately before the Amendment, the total number of
shares of stock of all classes which the Corporation had authority to issue was
200,000,000, all of which was Common Stock (par value $.01 per share).
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(b) As amended, the total number of shares of stock of all classes
which the Corporation has authority to issue is 2,000,000,000, divided into
1,000,000,000 shares of Class A Common Stock (par value $.001 per share)
and 1,000,000,000 shares of Class B Common Stock (par value $.001 per
share).
(c) The aggregate par value of all shares having a par value which the
Corporation was authorized to issue is $2,000,000 before the Amendment and
$2,000,00 as amended.
(d) A description, as amended, of the Class A Common Stock and Class B
Common Stock is as set forth above.
FIFTH: The Corporation's principal office in the state of Maryland is c/o
CT Corporation, 32 South Street, Baltimore, Maryland 21202. The name and address
of the Corporation's resident agent is CT Corporation, 32 South Street,
Baltimore, Maryland 21202.
SIXTH: The foregoing amendments to the Articles of Incorporation have been
advised by the Board of Directors and approved by the shareholders of the
Corporation.
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IN WITNESS WHEREOF, GLOBAL UTILITY FUND, INC., has caused these presents to
be signed in its name and on its behalf by its President and attested by its
Secretary on _____________, 1991.
GLOBAL UTILITY FUND, INC.
By ______________________________
Edward D. Beach
President
Attest: ___________________
Arthur J. Brown
Secretary
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THE UNDERSIGNED, President of Global Utility Fund, Inc., who executed
on behalf of the Corporation the foregoing Articles of Amendment and Restatement
of which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles of Amendment and Restatement
to be the corporate act of said Corporation and hereby certifies that to the
best of his knowledge, information, and belief the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
______________________________
Edward D. Beach
President
Exhibit 6(c)
GLOBAL UTILITY FUND, INC.
Form of
Distribution Agreement
(Class A Shares)
Agreement made as of _____________199_, between Global Utility 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
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3.3 The Fund shall have the right to suspend the sale of its Class A shares
at times when redemption is suspended pursuant to the conditions in Section 4.3
hereof or at such other times as may be determined by the Board of Directors.
The Fund shall also have the right to suspend the sale of its Class A shares if
a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class A shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class A shares. The Fund (or its agent) will
confirm orders upon their receipt, will make appropriate book entries and upon
receipt by the Fund (or its agent) of payment therefor, will deliver deposit
receipts for such Class A shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class A Shares by the Fund
4.1 Any of the outstanding Class A shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Class A shares so
tendered in accordance with its Articles of Incorporation as amended from time
to time, and in accordance with the applicable provisions of the Prospectus. The
price to be paid to redeem or repurchase the Class A shares shall be equal to
the net asset value determined as set forth in the Prospectus. All payments by
the Fund hereunder shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh calendar day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class A shares
shall be paid by the Fund to or for the account of the redeeming shareholder, in
each case in accordance with applicable provisions of the Prospectus.
4.3 Redemption of Class A shares or payment may be suspended at times when
the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
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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.
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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 of the average daily net assets of the Class A shares of the Fund.
5
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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 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, or of other broker-dealers or financial
6
<PAGE>
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 otherwise, arising out of or based upon any untrue statement
of a material fact contained in the Registration Statement or Prospectus or
7
<PAGE>
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, 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 stated in the Registration Statement or Prospectus or necessary to make
8
<PAGE>
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 the State of New York, or any of the provisions herein,
9
<PAGE>
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: ________________________
________________________
(Title)
Global Utility Fund, Inc.
By: ________________________
(Name)
(Title)
10
Exhibit 6(d)
GLOBAL UTILITY FUND, INC.
Form of
Distribution Agreement
(Class B Shares)
Agreement made as of ______ __, 199_, between Global Utility 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.
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<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.
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<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 therefor, will deliver deposit
receipts for such Class B shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class B Shares by the Fund
4.1 Any of the outstanding Class B shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Class B shares so
tendered in accordance with its Articles of Incorporation as amended from time
to time, and in accordance with the applicable provisions of the Prospectus. The
price to be paid to redeem or repurchase the Class B shares shall be equal to
the net asset value determined as set forth in the Prospectus. All payments by
the Fund hereunder shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be suspended at times when
the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
3
<PAGE>
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.
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<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
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<PAGE>
1%) per annum of the average daily net assets of the Class B shares of the Fund.
Amounts payable under the Plan shall be accrued daily and paid monthly or at
such other intervals as Directors 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 material fact contained in the Registration Statement or Prospectus or
7
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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 make
8
<PAGE>
such information not misleading. The Distributor's agreement to indemnify the
Fund, its officers and Directors and any such controlling person as aforesaid,
is expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and Directors or any such
controlling person, such notification to be given to the Distributor in writing
at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the Rule 12b-1 Directors or by vote of a majority
of the outstanding voting securities of the Class B shares of the Fund, or by
the Distributor, on sixty (60) days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment.
11.3 The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class B shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
9
<PAGE>
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 Securities
Incorporated
By: ________________________
________________________
(Title)
Global Utility Fund, Inc.
By: ________________________
(Name)
(Title)
10
Exhibit 6(e)
GLOBAL UTILITY FUND, INC.
Form of
Distribution Agreement
(Class C Shares)
Agreement made as of ______ __, 199_, between Global Utility 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.
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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.
2
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3.3 The Fund shall have the right to suspend the sale of its Class C 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 C shares if
a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class C shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class C shares. The Fund (or its agent) will
confirm orders upon their receipt, will make appropriate book entries and upon
receipt by the Fund (or its agent) of payment therefor, will deliver deposit
receipts for such Class C shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class C Shares by the Fund
4.1 Any of the outstanding Class C shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Class C shares so
tendered in accordance with its Articles of Incorporation as amended from time
to time, and in accordance with the applicable provisions of the Prospectus. The
price to be paid to redeem or repurchase the Class C shares shall be equal to
the net asset value determined as set forth in the Prospectus. All payments by
the Fund hereunder shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class C shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class C shares or payment may be suspended at times when
the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
3
<PAGE>
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 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
5
<PAGE>
1%) per annum of 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
6
<PAGE>
personal service and/or the maintenance of shareholder accounts; and
(f) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund Prospectuses, and
periodic financial reports and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the continuous offering
of its Class C shares, including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class C shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class C shares, so long as the
Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the Distributor, its
officers and Directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its officers,
Directors or any such controlling person may incur under the Securities Act, or
under common law or otherwise, arising out of or based upon any untrue statement
of a material fact contained in the Registration Statement or Prospectus or
7
<PAGE>
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
8
<PAGE>
such information not misleading. The Distributor's agreement to indemnify the
Fund, its officers and Directors and any such controlling person as aforesaid,
is expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and Directors or any such
controlling person, such notification to be given to the Distributor in writing
at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class C shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the Rule 12b-1 Directors or by vote of a majority
of the outstanding voting securities of the Class C shares of the Fund, or by
the Distributor, on sixty (60) days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment.
11.3 The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class C shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
9
<PAGE>
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 Securities
Incorporated
By: ________________________
________________________
(Title)
Global Utility Fund, Inc.
By: ________________________
(Name)
(Title)
10
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
Global Utility Fund, Inc.
We consent to the use in Post-Effective Amendment No. 6 to
Registration Statement No. 33-37356 of Global Utility Fund, Inc. of our
report dated November 10, 1993, appearing in the Statement of Additional
Information, which is a part of such Registration Statement, and to the
references to us under the headings "Financial Highlights" in the
Prospectus, which is a part of such Registration Statement, and
"Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants" in the Statement of Additional Information.
DELOITTE & TOUCHE
New York, New York
April 29, 1994
Exhibit 15(c)
GLOBAL UTILITY FUND, INC.
Form of
Distribution and Service Plan
(Class A Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Global Utility 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 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 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 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 of Directors 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
5
<PAGE>
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 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
6
<PAGE>
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:
7
Exhibit 15(d)
GLOBAL UTILITY FUND, INC.
Form of
Distribution and Service Plan
(Class B Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Global Utility 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 under this Plan by the
<PAGE>
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
3
<PAGE>
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) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and branch
expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class B
shares of the Fund, including sales commissions and trailer commissions
paid to, or on account of, agents and indirect and overhead costs
associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports and
sales literature to persons other than current shareholders of the Fund;
and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other than
Prusec) which have entered into selected dealer agreements with the
Distributor with respect to shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of Directors
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
4
<PAGE>
they shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors 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:
6
Exhibit 15(e)
GLOBAL UTILITY FUND, INC.
Form of
Distribution and Service Plan
(Class C Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Global Utility 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 under this Plan by the
<PAGE>
Fund for Distribution Activities (defined below) are primarily intended to
result in the sale of Class C shares of the Fund within the meaning of paragraph
(a)(2) of Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class C shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class C shares of the Fund are referred to
herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors 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
3
<PAGE>
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) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and branch
expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class C
shares of the Fund, including sales commissions and trailer commissions
paid to, or on account of, agents and indirect and overhead costs
associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports and
sales literature to persons other than current shareholders of the Fund;
and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other than
Prusec) which have entered into selected dealer agreements with the
Distributor with respect to shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of Directors
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
4
<PAGE>
they shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors 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.
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 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:
6