<PAGE>
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
GLOBAL UTILITY FUND, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
GLOBAL UTILITY FUND, INC.
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
<PAGE>
Preliminary Copy
GLOBAL UTILITY FUND, INC.
ONE SEAPORT PLAZA
NEW YORK, N.Y. 10292
--------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
--------------------
To our Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of
Global Utility Fund, Inc. (the Fund), will be held at 3:00 p.m. on ,
1994, at 199 Water Street, New York, N.Y. 10292, for the following
purposes:
1. To elect Directors.
2. To approve an amendment of the Fund's Articles of Incorporation to
permit a conversion feature for Class B Shares.
3. To approve an amended and restated Class A Distribution and Service
Plan.
4. To approve an amended and restated Class B Distribution and Service
Plan.
5. To ratify the selection by the Board of Directors of Deloitte &
Touche as independent accountants for the fiscal year ending September 30,
1994.
6. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
Only shares of Common Stock of the Fund of record at the close of
business on , 1994 are entitled to notice of and to vote at this
Meeting or any adjournment thereof.
S. Jane Rose
Secretary
Dated: March , 1994
- -------------------------------------------------------------------------------
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE. IN ORDER TO AVOID THE ADDITIONAL EXPENSE TO THE FUND OF FURTHER
SOLICITATION, WE ASK YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
- -------------------------------------------------------------------------------
<PAGE>
Preliminary Copy
GLOBAL UTILITY FUND, INC.
ONE SEAPORT PLAZA
NEW YORK, N.Y. 10292
----------------
PROXY STATEMENT
----------------
This statement is furnished by the Board of Directors of
Global Utility Fund, Inc., in connection with its solicitation of proxies
for use at a Special Meeting of Shareholders to be held at 3:00 P.M. on
, 1994 at 199 Water Street, New York, New York 10292, the Fund's
principal executive office. The purpose of the Meeting and the matters to
be acted upon are set forth in the accompanying Notice of Special
Meeting.
If the accompanying form of Proxy is executed properly and returned,
shares represented by it will be voted at the Meeting in accordance with
the instructions on the Proxy. However, if no instructions are specified,
shares will be voted for the election of Directors and for each of the
other proposals. A Proxy may be revoked at any time prior to the time it
is voted by written notice to the Secretary of the Fund or by attendance
at the Meeting. If sufficient votes to approve one or more of the proposed
items are not received, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of
proxies. Any such adjournment will require the affirmative vote of a
majority of those shares present at the Meeting or represented by proxy.
When voting on a proposed adjournment, the persons named as proxies will
vote for the proposed adjournment all shares that they are entitled to
vote with respect to each item, unless directed to disapprove the item, in
which case such shares will be voted against the proposed adjournment.
If a Proxy that is properly executed and returned accompanied by
instructions to withhold authority to vote represents a broker "non-vote"
(that is, a Proxy from a broker or nominee indicating that such person has
not received instructions from the beneficial owner or other person
entitled to vote shares on a particular matter with respect to which the
broker or nominee does not have discretionary power), the shares
represented thereby will be considered not to be present at the Meeting for
purposes of determining the existence of a quorum for the transaction of
business and be deemed not cast with respect to such proposal. If no
instructions are received by the broker or nominee from the shareholder
with reference to routine matters, the shares represented thereby may be
considered for purposes of determining the existence of a quorum for the
transaction of business and will be deemed cast with respect to such
proposal. Also, a properly executed and returned proxy marked with an
abstention will be considered present at the Meeting for purposes of
determining the existence of a quorum for the transaction of business.
However, abstentions and broker "non-votes" do not constitute a vote "for"
or "against" the matter, but have the effect of a negative vote on matters
which require approval by a requisite percentage of the outstanding shares.
1
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The close of business on , 1994 has been fixed as the
record date for the determination of shareholders entitled to notice of,
and to vote at, the Meeting. On that date, the Fund had shares
of Common Stock outstanding and entitled to vote consisting of
Class A shares and Class B shares. Each share will be entitled
to one vote at the Meeting. It is expected that the Notice of Special
Meeting, Proxy Statement and form of Proxy will first be mailed to
shareholders on or about March , 1994.
Management does not know of any person or group who owned beneficially
5% or more of the outstanding shares of either class of Common Stock of
the Fund as of , 1994.
The expense of solicitation will be borne by the Fund and will include
reimbursement of brokerage firms and others for expenses in forwarding
proxy solicitation material to beneficial owners. The solicitation of
proxies will be largely by mail. The Board of Directors of the Fund has
authorized management to retain Shareholder Communications Corporation, a
proxy solicitation firm, to assist in the solicitation of proxies for this
Meeting. This cost, including specified expenses, is not expected to
exceed $31,000 and will be borne by the Fund. In addition, solicitation
may include, without cost to the Fund, telephone, telegraphic or oral
communication by regular employees of Prudential Securities Incorporated
(Prudential Securities and its affiliates).
ELECTION OF DIRECTORS
(Proposal No. 1)
At the Meeting, eight Directors will be elected to hold office for a
term of unlimited duration until their successors are elected and qualify.
It is the intention of the persons named in the accompanying form of Proxy
to vote for the election of Daniel S. Ahearn, Edward D. Beach, Thomas T.
Mooney, John B. Neff, Richard A. Redeker, Sir Michael Sandberg, Robin B.
Smith and Nancy H. Teeters, all of whom are currently members of the Board
of Directors. Each of the nominees has consented to be named in this Proxy
Statement and to serve as a Director if elected. All of the current members
of the Board of Directors, with the exception of Mr. Redeker, have
previously been elected by the shareholders. Messrs. Beach, Mooney, Neff
and Sandberg and Mmes. Smith and Teeters have served as Directors since
November 16, 1989. Mr. Ahearn has served as a Director since February 20,
1991. Mr. Redeker has served as a Director since November 10, 1993.
The Board of Directors has no reason to believe that any of the
nominees named above will become unavailable for election as a Director,
but if that should occur before the Meeting, proxies will be voted for such
persons as the Board of Directors may recommend.
The Fund's By-laws provide that the Fund will not be required to hold
annual meetings of shareholders if the election of Directors is not
required under the Investment Company Act of 1940, as amended (the
Investment Company Act). It is the present intention of the Board of
Directors of the Fund not to hold annual meetings of shareholders unless
such shareholder action is required.
2
<PAGE>
INFORMATION REGARDING DIRECTORS
Shares of
Name, age, business Common Stock
experience during the past Position owned at
five years and directorships with Fund , 1994
---------------------------- --------- ----------------
*Daniel S. Ahearn (68), Senior Vice President of Director [-0-]
Wellington Management Company; formerly
Partner (1979-1990) of Wellington Management
Company (Wellington Management); Director of
U.S. Smaller Companies Investment Trust plc,
First Financial Fund, Inc., Global Utility
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;
formerly Assistant to the Secretary of the
Treasury for Debt Management.
*Edward D. Beach (69), President and Director of President and [-0-]
BMC Fund, Inc., a closed-end investment com- Director
pany; prior thereto, Vice Chairman of Broyhill
Furniture Industries, Inc.; Certified Public
Accountant; Secretary and Treasurer of
Broyhill Family Foundation Inc.; President,
Treasurer and Director of First Financial
Fund, Inc. and The High Yield Plus Fund, Inc.;
President and Director of Global Utility Fund,
Inc.; Director of The Global Government Plus
Fund, Inc., The Global Yield Fund, Inc.,
Prudential Adjustable Rate Securities Fund,
Inc., Prudential Equity Fund, Inc., Prudential
Global Genesis Fund, Prudential Global Natural
Resources Fund, Prudential GNMA Fund,
Prudential Government Plus Fund, Prudential
Multi-Sector Fund, Inc. and Prudential Special
Money Market Fund; Trustee of The BlackRock
Government Income Trust, Command Government
Fund, Command Money Fund, Command Tax-Free
Fund, Prudential California Municipal Fund,
Prudential Equity Income Fund, Prudential
FlexiFund, Prudential Municipal Bond Fund and
Prudential Municipal Series Fund.
Thomas T. Mooney (52), President of the Greater Director [-0-]
Rochester Metro Chamber of Commerce; former
Rochester City Manager; Trustee of Center for
3
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Shares of
Name, age, business Common Stock
experience during the past Position owned at
five years and directorships with Fund , 1994
---------------------------- --------- ----------------
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, Global Utility Fund,
Inc., Prudential Adjustable Rate Securities
Fund, Inc., Prudential Equity Fund, Inc.,
Prudential Global Genesis Fund, Prudential
Global Natural Resources Fund, Prudential GNMA
Fund, Prudential Government Plus Fund,
Prudential Multi-Sector Fund, Inc., First
Financial Fund, Inc., The Global Government
Plus Fund, Inc., The Global Yield Fund, Inc.
and The High Yield Plus Fund, Inc.; Trustee of
Prudential California Municipal Fund,
Prudential Equity Income Fund, Prudential
FlexiFund, Prudential Municipal Bond Fund and
Prudential Municipal Series Fund.
*John B. Neff (62), Chartered Financial Analyst, Director [10,000(a)]
Senior Vice President and Managing Partner of
Wellington Management; Portfolio Manager of
Winsor Fund, Gemini II and Vanguard High-Yield
Stock Fund; Chairman of the Investment Board
and Charter Trustee, University of
Pennsylvania; Director of General Accident
Insurance (subsidiary of General Accident
Insurance); Director of Global Utility Fund,
Inc.
*Richard A. Redeker(50), President, Chief Execu- Director [-0-]
tive Officer and Director(since October 1993),
Prudential Mutual Fund Management, Inc. (PMF);
Executive Vice President, Director and Member
of the Operating Committee (since October
1993), Prudential Securities; Director (since
October 1993)of Prudential Securities Group,
Inc (PSG); formerly Senior Executive Vice
President and Director of Kemper Financial
Services, Inc. (September 1978-September
1993); Director of Global Utility Fund, Inc.,
Prudential Adjustable Rate Securities Fund,
Inc., Prudential Equity Fund, Inc., Prudential
Global Fund, Inc., Prudential Global
4
<PAGE>
Shares of
Name, age, business Common Stock
experience during the past Position owned at
five years and directorships with Fund , 1994
---------------------------- --------- ----------------
Genesis Fund, Prudential Global Natural
Resources Fund, Prudential GNMA Fund,
Prudential Government Plus Fund, Prudential
Growth Fund, Inc., Prudential
IncomeVertible(R) Fund, Inc., Prudential
Institutional Liquidity Portfolio, Inc.,
Prudential Intermediate Global Income Fund,
Inc., Prudential MoneyMart Assets, Prudential
Multi-Sector Fund, Inc., Prudential Pacific
Growth Fund, Inc., Prudential Short-Term
Global Income Fund, Inc., Prudential Special
Money Market Fund, Prudential Structured
Maturity Fund, Prudential Utility Fund, The
Global Yield Fund, Inc., The Global Government
Plus Fund, Inc. and The High Yield Income
Fund, Inc.; Trustee of The BlackRock
Government Income Trust, Command Government
Fund, Command Money Fund, Command Tax-Free
Fund, Prudential California Municipal Fund,
Prudential Equity Income Fund, Prudential
FlexiFund, Prudential Municipal Bond Fund,
Prudential Municipal Series Fund, Prudential
U.S. Government Fund, and The Target Portfolio
Trust.
Sir Michael Sandberg (66), Director of Interna- Director [-0-]
tional Totalizer Systems, Global Utility Fund,
Inc. and The Global Yield Fund, Inc.; Chairman
and Director of PRICOA Worldwide Investors
Portfolio; Former Chairman of Hong Kong and
Shanghai Banking Corporation and British Bank
of the Middle East (1977-1986).
Robin B. Smith (54), President (since September Director [9,308(b)]
1981) and Chief Executive Officer (since
January 1988) of Publishers Clearing House;
Director of The Omnicom Group, Inc., Huffy
Corporation, Texaco Inc., Springs Industries
Inc., First Financial Fund, Inc., The Global
Yield Fund Inc., The High Yield Income Fund,
Inc., The High Yield Plus Fund, Inc., Global
Utility Fund, Inc. and Prudential
Institutional Liquidity Portfolio, Inc.;
Trustee of The Target Portfolio Trust.
5
<PAGE>
Shares of
Name, age, business Common Stock
experience during the past Position owned at
five years and directorships with Fund , 1994
---------------------------- --------- ----------------
Nancy H. Teeters (63), Economist; formerly Vice Director [-0-]
President and Chief Economist (March 1986-June
1990) of International Business Machines
Corporation; Member of the Board of Governors
of the Horace H. Rackham School of Graduate
Studies of the University of Michigan;
Director of Inland Steel Corporation (since
July 1991), Global Utility Fund, Inc.,
Prudential Equity Fund, Inc., Prudential GNMA
Fund, Prudential MoneyMart Assets, Prudential
Special Money Market Fund, First Financial
Fund, Inc. and the Global Yield Fund, Inc.;
Trustee of The BlackRock Government Income
Trust, Command Government Fund, Command Money
Fund, Command Tax-Free Fund, Prudential
California Municipal Fund and Prudential
Municipal Series Fund.
- -------------------
*Indicates an "interested person" of the Fund as defined in the Investment
Company Act of 1940 (the "1940 Act"). Messrs. Ahearn and Neff are deemed
"interested persons" by reason of their affiliation with Wellington
Management. Mr. Beach is deemed an "interested person" due to the fact
that he serves as an officer of the Fund. Mr. Redeker is deemed an
"interested person" due to his affiliation with PMF and Prudential
Securities. *(a) Includes 9,000 shares of the Fund's common stock
beneficially owned by Wellington Management, of which Mr. Neff is a
Partner. [(b) Ms. Smith has sole voting and investment power with respect
to these shares.]
The Directors and officers of the Fund as a group owned beneficially
[19,308] shares of the Fund at February 11, 1994, representing less than 1%
of the outstanding shares of the Fund.
The Fund pays annual compensation of $6,000 and $500 per Board
Meeting, plus travel and incidental expenses, to each of the five
Directors not affiliated with Wellington Management, PMF or Prudential
Securities. The Directors have the option to receive the Director's fee
pursuant to a deferred fee agreement with the Fund. Under the terms of the
agreement, the Fund accrues daily the amount of such Director's fee which
accrues interest at a rate equivalent to the prevailing rate applicable to
90-day U.S. Treasury Bills at the beginning of each calendar quarter or,
pursuant to an exemptive order of the Securities and Exchange Commission
(SEC), at the rate of return of the Fund. Payment of the interest so
accrued is also deferred and accruals become payable at the option of the
Director. The Fund's obligation to make payments of deferred Directors'
fees, together with interest thereon, is a general obligation of the Fund.
During the fiscal year ended September 30, 1993 the Fund paid Directors'
fees of $48,000 and travel and incidental expenses of
approximately $9,700.
6
<PAGE>
There were four regular meetings of the Fund's Board of Directors held
during the fiscal year ended September 30, 1993. The Board of Directors
presently has an Audit Committee, the members of which are Messrs. Mooney
and Sandberg and Mmes. Smith and Teeters, the Fund's non-interested
Directors. The Audit Committee met twice during the fiscal year ended
September 30, 1993. The Audit Committee makes recommendations to the full
Board with respect to the engagement of independent accountants and
reviews with the independent accountants the plan and results of the audit
engagement and matters having a material effect upon the Fund's financial
operations. The Board also has a Nominating Committee, comprised of the
Fund's non-interested Directors, which selects and proposes candidates for
election to the Board of Directors. The Nominating Committee met once
during the fiscal year ended September 30, 1993. The Nominating Committee
does not consider nominees recommended by shareholders to fill vacancies
on the Board.
During the fiscal year ended September 30, 1993 no Director attended
fewer than 75% of the aggregate of the total number of meetings of the
Board of Directors and any committees thereof of which such Director was a
member.
The executive officers of the Fund, other than as shown above, are:
Robert F. Gunia, Vice President, Susan C. Cote, Treasurer, S. Jane Rose,
Secretary, Peter W. Fortner, Controller and Ronald Amblard, Assistant
Secretary, each having held such offices since February 20, 1991. Mr. Gunia
is 47 years old and is currently Chief Administrative Officer (since July
1990), Director, Executive Vice President, Treasurer and Chief Financial
Officer of PMF and Senior Vice President of Prudential Securities. He is
also Vice President and Director (since May 1989) of the Asia Pacific Fund,
Inc. Ms. Cote is 39 years old and is currently Senior Vice President of
PMF, and a Senior Vice President of Prudential Securities (since January
1992). Prior thereto, she was Vice President (January 1986-December 1991)
of Prudential Securities. Ms. Rose is 48 years old and is currently Senior
Vice President (since January 1991) and Senior Counsel of PMF and a Senior
Vice President and Senior Counsel of Prudential Securities (since July
1992). Prior thereto, she was First Vice President (June 1987-December
1990) of PMF and Vice President and Associate General Counsel of Prudential
Securities. Mr. Amblard is 35 years old and is currently First Vice
President (since January 1994) and Associate General Counsel (since January
1992) of PMF and Vice President and Associate General Counsel of Prudential
Securities (since January 1992). Prior thereto, he was Assistant General
Counsel (August 1988- December 1991), Associate Vice President (January
1989-December 1990) and Vice President (January 1991-December 1993) of PMF.
The executive officers of the Fund are elected annually by the Board of
Directors.
Required Vote
Directors must be elected by a vote of a plurality of the
shares present at the meeting in person or by proxy and entitled to vote
thereupon, provided that a quorum is present.
7
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MANAGEMENT OF THE FUND
The Manager
Prudential Mutual Fund Management, Inc. (PMF or the Manager),
One Seaport Plaza, New York, New York 10292, serves as the Fund's Manager
under a management agreement dated as of February 4, 1991 (the Management
Agreement).
The Management Agreement was last approved by the Board of Directors
of the Fund, including a majority of the Directors who are not parties to
such contract or interested persons of such parties (as defined in the
Investment Company Act) on May 5, 1993 and was approved by shareholders on
December 20, 1990.
Terms of the Management Agreement
Pursuant to the Management Agreement, PMF, subject to the
supervision of the Fund's Board of Directors and in conformity with the
stated policies of the Fund, is responsible for managing or providing for
the management of the investment of the Fund's assets. In this regard, PMF
provides supervision of the Fund's investments, furnishes a continuous
investment program for the Fund's portfolio and places purchase and sale
orders for portfolio securities of the Fund and other investments.
Wellington Management Company (Wellington Management or the Subadviser),
provides such services pursuant to a subadvisory agreement (the
Subadvisory Agreement) among Wellington Management, PMF and the Fund. PMF
also administers the Fund's corporate affairs, subject to the supervision
of the Fund's Board of Directors, and, in connection therewith, furnishes
the Fund with office facilities, together with those ordinary clerical and
bookkeeping services which are not being furnished by the Fund's Transfer
and Dividend Disbursing Agent and Custodian.
PMF has authorized any of its directors, officers and employees who
have been elected as Directors or officers of the Fund to serve in the
capacities in which they have been elected. All services furnished by PMF
under the Management Agreement may be furnished by any such directors,
officers or employees of PMF. In connection with its administration of the
corporate affairs of the Fund, PMF bears the following expenses:
(a) the salaries and expenses of all personnel of the Fund and PMF,
except the fees and expenses of Directors not affiliated with PMF or
Wellington Management;
(b) all expenses incurred by PMF or by the Fund in connection with
administering the ordinary course of the Fund's business, other than
those assumed by the Fund, as described below; and
(c) the fees and expenses payable to Wellington Management pursuant
to the Subadvisory Agreement.
The Fund pays PMF for the services performed and the facilities
furnished by it a fee 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 net assets in excess of $250
million up to and including $500 million, .50% of the Fund's average daily
net assets in exess of $500 million up to and including $1 billion, and
.45% of the Fund's average daily net assets in excess of $1 billion of the
Fund's daily net assets. This fee is
8
<PAGE>
computed daily and paid monthly. For the fiscal year ended September 30,
1993, PMF received a management fee of $1,464,779.
The Management Agreement provides that, if the expenses of the Fund
(including the fees of PMF, but excluding interest, taxes, brokerage
commissions, distribution fees and litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course of
the Fund's business) for any fiscal year exceed the lowest applicable
annual expense limitation established and enforced pursuant to the
statutes or regulations of any jurisdiction in which shares of the Fund
are then qualified for offer and sale, the compensation due PMF will be
reduced by the amount of such excess, or, if such reduction exceeds the
compensation payable to PMF, PMF will pay the Fund the amount of such
reduction which exceeds the amount of such compensation. Any such
reductions or payments are subject to readjustment during the year. No
such reductions or payments were required during the fiscal year ended
September 30, 1993. The Fund believes the most restrictive of such annual
limitations 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.
Except as indicated above, the Fund is responsible under the
Management Agreement for the payment of its expenses, including (a) the
fees and expenses incurred by the Fund in connection with the management
of the investment and reinvestment of the Fund's assets, (b) the fees and
expenses of Directors who are not affiliated persons of the Manager or
Subadviser, (c) the fees and certain expenses of the Fund's Custodian, (d)
the fees and expenses of the Fund's Transfer and Dividend Disbursing Agent
that relate to the maintenance of each shareholder account, (e) the
charges and expenses of the Fund's legal counsel and independent
accountants, (f) brokerage commissions and any issue or transfer taxes
chargeable to the Fund in connection with its securities and futures
transactions, (g) all taxes and corporate fees payable by the Fund to
governmental agencies, (h) the fees of any trade association of which the
Fund may be a member, (i) the cost of stock certificates representing,
and/or non-negotiable share deposit receipts evidencing, shares of the
Fund, (j) the cost of fidelity and liability insurance, (k) the fees and
expenses involved in registering and maintaining registration of the Fund
and of its shares with the SEC and registering the Fund as a broker or
dealer and qualifying its shares under state securities laws, including
the preparation and printing of the Fund's registration statement and
prospectus for such purposes, (l) allocable communications expenses with
respect to investor services and all expenses of stockholders' and Board
of Directors' meetings and of preparing, printing and mailing prospectuses
and reports to stockholders, (m) litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course of
the Fund's business and (n) any expenses assumed by the Fund pursuant to a
Plan of Distribution adopted in conformity with Rule 12b-1 under the 1940
Act.
The Management Agreement provides that PMF will not be liable to the
Fund for any error of judgment by PMF or for any loss suffered by the Fund
in connection with the matters to which the Management Agreement relates
except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services or willful
9
<PAGE>
misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Management Agreement also provides that it will terminate
automatically if assigned and that it may be terminated without penalty by
the Board of Directors of the Fund, by vote of a majority of the Fund's
outstanding voting securities (as defined in the Investment Company Act)
or by the Manager, upon not more than 60 days' nor less than 30 days'
written notice.
Information about PMF
PMF, a subsidiary of Prudential Securities and an indirect,
wholly-owned subsidiary of Prudential, was organized in May 1987 under the
laws of the State of Delaware. Prudential's address is Prudential Plaza,
Newark, New Jersey 07102. PMF acts as manager for the following investment
companies:
Open-End Management Investment Companies: Command Government Fund,
Command Money Fund, Command Tax-Free Fund, Prudential Adjustable Rate
Securities Fund, Inc., Prudential California Municipal Fund, 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, Prudential Growth Fund, Inc.,
Prudential-Bache Growth Opportunity Fund, Inc. (d/b/a Prudential Growth
Opportunity Fund), Prudential-Bache High Yield Fund, Inc. (d/b/a
Prudential High Yield Fund), Prudential lncomeVertible\'AE Fund, Inc.,
Prudential-Bache MoneyMart Assets Fund. Inc. (d/b/a Prudential MoneyMart
Assets), Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond
Fund, Prudential Municipal Series Fund, Prudential-Bache National
Municipals Fund, Inc. (d/b/a Prudential National Municipals Fund),
Prudential Pacific Growth Fund, Inc., Prudential Short-Term Global Income
Fund, 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), Prudential
U.S. Government Fund, Prudential-Bache Utility Fund, Inc. (d/b/a
Prudential Utility Fund), Prudential Institutional Liquidity Portfolio,
Inc., Prudential Intermediate Global Income Fund, Inc., Global Utility
Fund, Inc., Nicholas-Applegate Fund, Inc. and The BlackRock Government
Income Trust.
Closed-End Management Investment Companies: The Global Government Plus
Fund, Inc., The Global Yield Fund, Inc. and The High Yield Income Fund,
Inc.
The consolidated statement of financial condition of PMF and
subsidiaries as of December 31, 1993 is set forth as Exhibit A to this
Proxy Statement.
Certain information regarding the Directors and principal executive
officers of PMF is set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, New York 10292.
10
<PAGE>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
Maureen Behning-Doyle ... Executive Vice Executive Vice President,
President PMF; Senior Vice
President, Prudential
Securities
John D. Brookmeyer, Jr. . Director Senior Vice President, The
Two Gateway Center Prudential Insurance
Newark, NJ 07102 Company of America
(Prudential)
Susan C. Cote ........... Senior Vice President Senior Vice President,
PMF; Senior Vice
President, Prudential
Securities
Fred A. Fiandaca ........ Executive Vice Executive Vice President,
Raritan Plaza One President, Chief Chief Operating Officer
Edison, NJ 08847 Operating Officer and Director, PMF;
and Director Chairman, Chief Oper-
ating Officer and
Director, Prudential
Mutual Fund Services,
Inc.
Stephen P. Fisher ....... Senior Vice President Senior Vice President,
PMF; Senior Vice Presi-
dent, Prudential
Securities
Frank W. Giordano ....... Executive Vice Executive Vice President,
President, General General Counsel and
Counsel and Secretary, PMF; Senior
Secretary Vice President, Pruden-
tial Securities
Robert F. Gunia ......... Executive Vice Executive Vice President,
President, Chief Chief Financial and
Financial and Administrative Officer,
Administrative and Director, PMF;
Officer, Treasurer Senior Vice President,
and Director Prudential Securities
Eugene B. Heimberg ...... Director Senior Vice President,
Prudential Plaza Prudential
Newark, NJ 07102
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Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
Lawrence C. McQuade ..... Vice Chairman Vice Chairman, PMF
Leland B. Paton ......... Director Executive Vice President
and Director, Prudential
Securities; Director,
(PSG)
Richard A. Redeker ...... President, Chief President, Chief Executive
Executive Officer Officer and Director,
and Director PMF; Executive Vice
President, Director and
Member of the Operat-
ing Committee,
Prudential Securities;
Director, PSG
Jane Rose ............... Senior Vice President, Senior Vice President,
Senior Counsel and Senior Counsel and
Assistant Secretary Assistant Secretary,
PMF; Senior Vice
President and Senior
Counsel, Prudential
Securities
Donald G. Southwell ..... Director Senior Vice President,
213 Washington Street Prudential; Director,
Newark, NJ 07102 PSG
The Subadviser
Investment advisory services are provided to the Fund by
Wellington Management Company, 75 State Street, Boston Massachusetts
02109, which serves as the Fund's Subadviser pursuant to a Subadvisory
Agreement dated February 4, 1991 among the Fund, PMF and Wellington
Management. The Subadvisory Agreement was last approved by the Directors
of the Fund, including a majority of the Directors who are not parties to
such contract or interested persons of such parties (as defined in the
1940 Act), on May 5, 1993, and was approved by shareholders on December
30, 1991.
Terms of the Subadvisory Agreement
Pursuant to the Subadvisory Agreement, and subject to the
supervision of PMF and the Board of Directors and in conformity with the
stated policies of the Fund, Wellington Management manages the investment
operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof. Wellington
Management is currently paid a fee by PMF computed 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
12
<PAGE>
million up to and including $1 billion and .25% of the Fund's average
daily net assets in excess of $1 billion for furnishing such services. The
fees paid by the Fund to PMF under the Management Agreement are not
affected by this arrangement; the Manager, not the Fund, pays the
Subadviser. The Subadviser keeps certain books and records required to be
maintained pursuant to the 1940 Act. The investment advisory services of
the Subadviser to the Fund are not exclusive under the terms of the
Subadvisory Agreement and the Subadviser is free to, and does, render
investment advisory services to others. The Subadviser is not affiliated
with the Manager or any of its affiliates.
For the fiscal year ended September 30, 1993, PMF paid subadvisory
fees of $1,046,270 or .50% of the Fund's average daily net assets on an
annualized basis, to Wellington Management.
Wellington Management has authorized any of its partners, officers and
employees who may be elected as Directors or officers of the Fund to serve
in the capacities in which they have been elected. Services furnished by
Wellington Management under the Subadvisory Agreement may be furnished by
any such partners, officers or employees of Wellington Management. The
Subadvisory Agreement provides that Wellington Management shall not be
liable for any error of judgment or for any loss suffered by the Fund or
PMF in connection with the matters to which the Subadvisory Agreement
relates, except a loss resulting from breach of fiduciary duty with
respect to receipt or compensation for services or willful misfeasance,
bad faith or gross negligence on the Subadviser's part in the performance
of its duties or from its reckless disregard of its obligations and duties
under the Subadvisory Agreement. The Subadvisory Agreement provides that
it shall terminate automatically if assigned or upon termination of the
Management Agreement and that it may be terminated by the Fund at any time
without the payment of any penalty by the Board of Directors of the Fund
or by vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act) or by the Manager or the Subadviser upon not more
than sixty days' nor less than thirty days' written notice.
Information about Wellington Management. Wellington Management 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. The
Subadviser is not affiliated with the Manager or any of its affiliates.
The Subadviser's audited consolidated balance sheet as of December 31,
1993 is attached hereto as Exhibit B.
The Subadviser also acts as investment adviser for the following
investment companies:
Anchor Series Trust; The Arbor Fund; Cambridge Series Trust; The
Compass Capital Group; Vanguard Explorer Fund, Inc.; First Financial Fund,
Inc.; First Investors Global Fund, Inc.; First Investors Life Series Fund;
Frank Russell Investment Company; Gemini II Fund; Global Utility Fund,
Inc.; Hartford International Opportunities Fund, Inc.; The High Yield Plus
Fund, Inc.; Horace Mann Balanced Fund, Inc.; Horace Mann Growth Fund, Inc.;
Horace Mann Income Fund, Inc.; Horace Mann Short-Term Invest-
13
<PAGE>
ment Fund, Inc.; HVA Advisers Fund, Inc.; HVA Aggressive Growth
Fund, Inc.; HVA Stock Fund, Inc.; NASL Series Trust; The New America High
Income Fund, Inc.; North American Funds; Prudential Securities Target
Program; SEI Cash + Plus Trust; SEI Liquid Asset Trust; SunAmerica Income
Funds; Vanguard Fixed Income Securities Fund; Vanguard/Morgan Growth Fund,
Inc.; Vanguard Preferred Stock Fund; Vanguard Specialized Portfolios;
Vanguard Variable Insurance Fund; Vanguard/Wellesley Income Fund;
and Vanguard/Wellington Fund; and Vanguard/Windsor Fund.
The Distributors
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport
Plaza, New York, New York 10292, acts as the distributor of the Class A
shares of the Fund. Prudential Securities, One Seaport Plaza, New York,
New York 10292, acts as the distributor of the Class B shares of the
Fund.
Under separate Distribution and Service Plans (the Class A Plan and
the Class B 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 and Class B shares, respectively.
The Plans were last approved by the Board of Directors, including a
majority of the Directors who are not interested persons of the Fund and
who have no direct or indirect financial interest in the operation of the
Class A or Class B Plan or in any agreement related to either Plan (the
Rule 12b-1 Directors), on May 5, 1993. The Class A Plan was approved by
the Class A shareholders on December 20, 1990. The Class B Plan was
approved by the Class B shareholders on December 30, 1991.
The Plans are proposed to be amended as set forth in Proposal Nos. 3
and 4 below.
Class A Plan. Under the Class A Plan, the Fund reimburses PMFD for its
distribution-related expenses with respect to Class A shares at an annual
rate of up to .30 of 1% of the average daily net assets of the Class A
Shares. 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 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
advised the Fund that distribution-related expenses of the Fund will not
exceed .25 of 1% 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 representing .20 of 1% of the average daily
net assets of the Class A shares as reimbursement of expenses related to
the distribution of Class A shares. This amount was primarily expended on
account servicing fees to Prudential Securities and Pruco Securities
Corporation, an affiliated broker-dealer (Prusec), for payment to financial
advisers and other sales persons who sell Class A shares. For the fiscal
year ended September 30, 1993, PMFD also received $870,800 in initial sales
charges.
Class B Plan. Under the Class B Plan, the Fund reimburses Prudential
Securities for its distribution-related expenses with respect to Class B
shares at an annual rate of up to
14
<PAGE>
.75 of 1% of the average daily net assets of the Class B Shares. The
Class B Plan also provides for the payment of a service fee to Prudential
Securities at a rate not to exceed .25 of 1% of the average daily net
assets of Class B Shares. The aggregate distribution fee for Class B Shares
(asset-based sales charge plus service fee) will not exceed 1% of the
average daily net assets under the 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 this amount approximately 0.6% ($22,500) was spent on
printing and mailing of prospectuses to other than current shareholders,
9.5% ($383,300) on compensation to Prusec, for commissions to its financial
advisers and other expenses, including an allocation of overhead and other
branch office distribution-related expenses, incurred by it for
distribution of Fund shares; 1.9% ($76,700) in interest and/or carrying
charges and 88.0% ($3,527,800) on the aggregate of (i) payments of
commissions to financial advisers (37.8% or ($1,516,300) and (ii) an
allocation of overhead and other branch office distribution-related
expenses (50.2% or ($2,011,500). 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) travel expenses of mutual fund sales coordinators to promote
the sale of Fund shares and (d) other incidental expenses relating to
branch promotion of Fund sales.
Prudential Securities also receives the proceeds of contingent
deferred sales charges paid by holders of Class B shares upon certain
redemptions of Class B shares. Under the current Class B plan, the amount
of distribution expenses reimbursable by Class B shares of the Fund is
reduced by the amount of such contingent deferred sales charges. For the
fiscal year ended September 30, 1993, Prudential Securities received
approximately $139,000 in contingent deferred sales charges. As of
September 30, 1993, the aggregate amounts of unreimbursed distribution
expenses for the Fund's Class B shares were approximately $4,444,900.
The Class A and Class B Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote
of the Board of Directors, including a majority vote of the Rule 12b- 1
Directors, cast in person at a meeting called for the purpose of voting on
such continuance. The Class A and Class B Plans may each be terminated at
any time, without penalty, by the vote of a majority of the Rule 12b-1
Directors or by the vote of the holders of a majority of the outstanding
shares of the applicable class on not more than 30 days' written notice to
any other party to the Plans. Neither Plan may be amended to increase
materially the amounts to be spent for the services described therein
without approval by the shareholders of the applicable class, 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 either the Class A Plan or the Class B Plan
if it is terminated or not continued. In the event of termination or
noncontinuation of the Class B Plan, the Board of Directors may
15
<PAGE>
consider the appropriateness of having the Fund reimburse Prudential
Securities for the outstanding carry forward amounts plus interest thereon.
Pursuant to each Plan, the Board of Directors reviews at least
quarterly a written report of the distribution expenses incurred on behalf
of the Class A and Class B shares of the Fund by PMFD and Prudential
Securities, respectively. The report includes an itemization of the
distribution expenses and the purposes of such expenditures. In addition,
as long as the Plans remain in effect, the selection and nomination of
Rule 12b-1 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. Each
Distribution Agreement was last approved by the Board of Directors,
including a majority of the Rule 12b-1 Directors, on May 5, 1993.
Portfolio Transactions
Subject to policies established by the Board of Directors of
the Fund and the oversight and review of the Manager, the Subadviser
arranges 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 over-the-counter 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 seeks 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 and its other clients and that the total commission paid by the
Fund is reasonable in relation to the benefits to the Fund over the long
term. Information and research received from such brokers and dealers is in
addition to, and not in lieu of, the services required to be performed 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
16
<PAGE>
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, 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. Consistent with the policy of obtaining the best net
results, the Fund may use Prudential Securities for brokerage transactions
(in conformity with federal securities laws). 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 renumeration 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 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 are conducted
primarily on the markets and principal exchanges of such countries.
Foreign markets are generally not as developed as those 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.
17
<PAGE>
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 an affiliate)
are also subject to such fiduciary standards as may be imposed upon
Prudential Securities (or any affiliate) by applicable law.
For the fiscal year ended September 30, 1993, the Fund paid total
brokerage commissions of $201,807 of which $1,500, or approximately 0.7%,
were paid to Prudential Securities. Prudential Securities performed
approximately 1% of the total dollar amount of transactions involving
commissions for the same period.
For the fiscal year ended September 30, 1993, the Fund's portfolio
turnover rate was 14%. The turnover rate may vary greatly from year to
year, and will not be a limiting factor if the Subadviser deems portfolio
changes appropriate.
APPROVAL OF A PROPOSAL TO AMEND
THE FUND'S ARTICLES OF INCORPORATION
TO PERMIT THE IMPLEMENTATION OF A CONVERSION FEATURE
(For consideration by Class A and Class B Shareholders voting jointly)
(Proposal No. 2)
The Board of Directors is recommending and advising that shareholders
approve an amendment to the Fund's Articles of Incorporation to permit the
implementation of a conversion feature for Class B shares. The conversion
feature is authorized pursuant to an exemptive order of the SEC
(the SEC Order) and would provide for the automatic
conversion of Class B shares to Class A shares at relative net asset value
approximately seven years after purchase. Class A shares are subject to a
lower annual distribution and service fee than Class B shares and
conversions would occur without the imposition of any additional sales
charge. A description of the conversion feature is set forth in greater
detail below. Amendment of the Articles of Incorporation requires approval
by a majority of the Fund's outstanding shares.
The Classes of Shares
The Fund currently offers two classes of shares, designated as Class A
and Class B shares pursuant to the Alternative Purchase Plan, in reliance
upon the SEC Order. Class A shares are currently offered with an initial
sales charge of up to 5.25% of the offering price and are subject to an
annual distribution and service fee of up to .30 of 1% of the average daily
net assets of the Class A shares pursuant to a Rule 12b- 1 plan. This fee
is currently charged at a rate of .25 of 1% of the average daily net assets
of the Class A shares and PMFD has agreed to so limit its fee under the
Class A Plan for the fiscal year ending September 30, 1994. Class B shares
are currently offered without an initial sales charge but are subject to a
contingent deferred sales charge or CDSC (declining from 5% to zero
18
<PAGE>
of the lesser of the amount invested or the redemption proceeds) on certain
redemptions generally made within six years of purchase and to an annual
distribution and service fee pursuant to a Rule 12b-1 plan of up to 1% of
the average daily net asset value of the Class B shares.
In accordance with the SEC Order, the Board of Directors may, among
other things, authorize the creation of additional classes of shares from
time to time. The Board of Directors has approved the offering of a new
class of shares, to be designated Class C shares, which will be offered
simultaneously with the offering of Class B shares with the proposed
conversion feature. Class C shares will be offered without either an
initial or deferred sales charge but will be subject to an annual
distribution and service fee not to exceed 1% of the average daily net
assets of the Class C shares.
The Proposed Conversion Feature
On May 5, l993, the Fund's Board of Directors, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act), approved an amendment to the
Fund's Articles of Incorporation to permit the implementation of a
conversion feature for the Fund's Class B shares. A copy of the proposed
amendment to the Fund's Articles of Incorporation is attached hereto as
ExhibitC.
If this proposal is approved, it is currently contemplated that
conversions of Class B shares to Class A shares will occur on a quarterly
basis approximately seven years from purchase. The first conversion is
currently anticipated to occur in or about January 1995. Conversions will be
effected automatically at relative net asset value without the imposition
of any additional sales charge. Class B shareholders will benefit from the
conversion feature because they will thereafter be subject to the lower
annual distribution and service fee applicable to Class A shares.
Since the Fund tracks amounts paid rather than the number of shares
bought on each purchase of Class B shares, it is currently anticipated that
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 a shareholder's account (ii) multiplied by
the total number of Class B shares then held in a shareholder's account.
Each time any Eligible Shares in a shareholder's Fund account convert to
Class A shares, all shares or amounts representing Class B shares then in
such 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 a shareholder's 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
19
<PAGE>
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 or 47.62% multiplied by 200 shares or 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.
If the net asset value per share of Class A is higher than that of
Class B at the time of conversion (which may be the case because of the
higher distribution and service fee applicable to Class B shares),
shareholders will receive fewer Class A shares than Class B shares
converted, although the aggregate dollar value will be the same.
For purposes of calculating the applicable holding period for
conversions, all payments for purchases of 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 purchase 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 a period of one year will not
convert to Class A until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a
money market fund, exchanges will be deemed to have been made on the last
day of the month. Class B shares acquired through exchange will convert to
Class A shares after expiration of the conversion period applicable to the
original purchase of such shares.
Under current law, no gain or loss will be recognized by a shareholder
for U.S. income tax purposes as a result of a conversion of Class B shares
into Class A shares.
If approved by shareholders, the conversion feature will be subject to
the continuing availability of opinions of counsel (i) that the dividends
and other distributions paid on Class A and Class B shares will not
constitute "preferential dividends" under the Internal Revenue Code of
1986, as amended, and (ii) that the conversion of shares does not
constitute a taxable event.
Required Vote
The proposed amendment to the Fund's Articles of Incorporation to
implement the conversion feature requires the affirmative vote of a
majority of the Fund's outstanding shares. In the event shareholders of the
Fund do not approve the proposed amendment, the conversion feature will not
be implemented for the Fund and Class B shares of the Fund will continue to
be subject, possibly indefinitely, to their higher annual distribution and
service fee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 2
APPROVAL OF AMENDED AND RESTATED CLASS A DISTRIBUTION AND SERVICE PLAN
(For consideration by Class A and Class B shareholders voting separately)
(Proposal No. 3)
On May 5, 1993, the Fund's Board of Directors approved an amended and
restated Class A Distribution and Service Plan pursuant to Rule 12b-1 under
the Investment
20
<PAGE>
Company Act and an amended and restated Distribution Agreement with
PMFD for Class A shares of the Fund (the Proposed Class A Plan and the
Proposed Class A Distribution Agreement, respectively) and recommends
submission of the Proposed Class A Plan to the Fund's Class A shareholders
for approval or disapproval at this Special Meeting of Shareholders. As
contemplated by the SEC Order (previously defined under Proposal 2 above),
the Proposed Class A Plan is also being submitted for approval by Class B
shareholders because, subject to approval of Proposal No. 2, Class B shares
will automatically convert to Class A shares approximately seven years
after purchase. The Proposed Class A Distribution Agreement does not
require and is not being submitted for shareholder approval.
The purpose of the Proposed Class A Plan is to compensate PMFD, the
distributor of the Fund's Class A shares, for providing distribution
assistance to broker/dealers, including Prudential Securities and Prusec,
affiliated broker/dealers, and other qualified broker-dealers, if any,
whose customers invest in Class A shares of the Fund and to defray the
costs and expenses, including the payment of account servicing fees, of the
services provided and activities undertaken to distribute Class A shares
(Distribution Activities).
The Board of Directors previously adopted a plan of distribution for
the Fund's Class A shares pursuant to Rule 12b-1 under the Investment
Company Act which was approved by shareholders on December 20, 1990 and
last approved by the Board of Directors on May 5, 1993 (the Existing Class
A Plan). Shareholders of the Fund's Class A and Class B shares are being
asked to approve amendments to the Existing Class A Plan that change it
from a reimbursement type plan to a compensation type plan. The amendments
do not change the maximum annual fee that may be paid to PMFD under the
Existing Class A Plan, although the possibility exists that expenses
incurred by PMFD and for which it is entitled to be reimbursed under the
Existing Class A Plan may be less than the fee PMFD will receive under the
Proposed Class A Plan. The amendments are being proposed to facilitate
administration and accounting. The Board of Directors believes that the
proposed Class A Plan is in the best interest of the Fund and is reasonably
likely to benefit the Fund's Class A shareholders. A copy of the Proposed
Class A Plan is attached hereto as Exhibit D.
The Existing Class A Plan
Under the Existing Class A Plan, the Fund reimburses PMFD for
expenses incurred for Distribution Activities at an annual rate of up to
.30 of 1% of the average daily net assets of the Class A shares (up to .25
of 1% of which may constitute a service fee for the servicing and
maintenance of shareholder accounts). Article III, Section 26 of the NASD
Rules of Fair Practice (the NASD Rules) places an annual limit of .25 of
1% on fees that may be imposed for the provision of personal service
and/or the maintenance of shareholder accounts (service fees) and an
annual limit of .75 of 1% on asset-based sales charges (as defined in the
NASD Rules). Subject to these limits, the Fund may impose any combination
of service fees and asset-based sales charges under both the Existing
Class A Plan and the Proposed Class A Plan; provided that the total fees
do not exceed .30 of 1% per annum of the average daily net assets of the
Class A shares.
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<PAGE>
The Existing Class A Plan may not be amended to increase materially the
amount to be spent for the services described therein without approval by a
majority of the holders of the Class A shares of the Fund. In addition, all
material amendments thereof must be approved by vote of a majority of the
Directors, including a majority of the Rule 12b-1 Directors, cast in person
at a meeting called for the purpose of voting on the Plan. So long as the
Existing Class A Plan is in effect, the selection and nomination of the
Rule 12b-1 Directors will be committed to the discretion of the Rule 12b-1
Directors.
The Existing Class A Plan may be terminated at any time without
payment of any penalty by the vote of a majority of the Rule 12b-1
Directors or by the vote of a majority of the outstanding Class A shares
of the Fund (as defined in the Investment Company Act) on written notice
to any other party to such plan and will automatically terminate in the
event of its assignment (as defined in the Investment Company Act). For a
more detailed description of the Existing Class A Plan, see "Management of
the Fund-The Distributors-Class A Plan."
The Proposed Class A Plan
The Proposed Class A Plan amends the Existing Class A Plan in one
material respect. Under the Existing Class A Plan, the Fund reimburses PMFD
for expenses actually incurred for Distribution Activities up to a maximum
of .30 of 1% per annum of the average daily net assets of the Class A
shares. The Proposed Class A Plan authorizes the Fund to pay PMFD the same
maximum annual fee as compensation for its Distribution Activities
regardless of the expenses incurred by PMFD for Distribution Activities.
The Distributor may, however, as it currently does, voluntarily agree to
limit its fee to an amount less than the maximum annual fee. In contrast to
the Existing Class A Plan, the amounts payable by the Fund under the
Proposed Class A Plan would not be directly related to the expenses
actually incurred by PMFD for its Distribution Activities. Consequently, if
PMFD's expenses for Distribution Activities are less than the distribution
and service fees it receives under the Proposed Class A Plan, it will
retain its full fees and realize a profit.
Since inception of the Existing Class A Plan, the reimbursable expenses
incurred thereunder by PMFD have generally equalled or exceeded the amount
reimbursed by the Fund. For the period February 4 through September 30, 1991 and
the fiscal years ended September 30, 1992 and 1993, PMFD received payments of
$201,121, $241,417 and $238,001, respectively, under the Existing Class A Plan
representing .13%, .20% and .20%, respectively, of the average daily net assets
of the Class A shares, as reimbursement of expenses incurred for Distribution
Activities. Although PMFD agreed to limits its fees under the Existing Class A
Plan to .25 of 1% for the fiscal years ended September 30, 1991, 1992 and 1993,
it in fact further limited its fee to .20 of 1% even though its direct and
indirect reimbursable distribution expenses exceeded such amount. PMFD believes
that it would have similarly limited its fee had the Proposed Class A Plan been
in effect during the past three fiscal years, although it could have assessed
the maximum annual fee of .30 of 1%. Regardless of which plan will be in effect,
the Distributor has voluntarily agreed to limit its fees for Distribution
Activities to no more than .25 of 1% of the average daily net assets of the
Class A shares for the fiscal year ending September 30, 1994. Other expenses
22
<PAGE>
incurred by PMFD for Distribution Activities have been and will continue
to be, paid from the proceeds of initial sales charges.
Among the major perceived benefits of a compensation type plan, such as
the Proposed Class A Plan, over a reimbursement type plan, such as the
Existing Class A Plan, is the facilitation of administration and
accounting. Under reimbursement plans, all expenses must be specifically
accounted for by the Distributor and attributed to the specific class of
shares of a fund in order to qualify for reimbursement. Although the
Proposed Class A Plan will continue to require quarterly reporting to the
Board of Directors of the amounts accrued and paid under the Plan and of
the expenses actually borne by the Distributor, there will be no need to
match specific expenses to reimbursements as under the Existing Class A
Plan. Thus, the accounting for the Proposed Class A Plan would be
simplified and the timing of when expenditures are to be made by the
Distributor would not be an issue. These considerations combined with the
reasonable likelihood, although there is no assurance, that the per annum
payment rate under the Proposed Class A Plan will not exceed the expenses
incurred by PMFD for Distribution Activities, suggest that the costs and
efforts associated with a reimbursement plan are unwarranted.
In considering whether to approve the Proposed Class A Plan, the
Directors reviewed, among other things, the nature and scope of the
services to be provided by PMFD, the purchase options available to
investors under the Alternative Purchase Plan, the amount of expenditures
under the Existing Class A Plan, the relationship of such expenditures to
the overall cost structure of the Fund and comparative data with respect to
distribution arrangements adopted by other investment companies. Based upon
such review, the Directors, including a majority of the Rule 12b-1
Directors, determined that there is a reasonable likelihood that the
Proposed Class A Plan will benefit the Fund and its Class A
shareholders.
If approved by shareholders, the Proposed Class A Plan will continue
in effect from year to year, provided such continuance is approved at
least annually by vote of a majority of the Board of Directors, including
a majority of the Rule 12b-1 Directors.
Required Vote
If Proposal No. 2 is approved by shareholders the Proposed
Class A Plan will require the approval of a majority of the Fund's
outstanding Class A shares and Class B shares (as defined in the
Investment Company Act) voting separately. If Proposal No. 2 is not
approved by shareholders, the Proposed Class A Plan will only require the
approval of a majority of the Fund's outstanding Class A shares. Under the
Investment Company Act, a majority of a class' outstanding shares is
defined as the lesser of (i) 67% of a class' outstanding shares
represented at a meeting at which more than 50% of the outstanding shares
of the class are present in person or represented by proxy, or (ii) more
than 50% of a class' outstanding shares. If the Proposed Class A Plan is
not approved as described above, the Existing Class A Plan will continue
in its present form.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 3.
23
<PAGE>
APPROVAL OF AMENDED AND RESTATED CLASS B DISTRIBUTION AND SERVICE PLAN
(For consideration by Class B shareholders only)
(Proposal No. 4)
On May 5, 1993, the Fund's Board of Directors approved an
amended and restated Class B Distribution and Service Plan pursuant to
Rule 12b-1 under the Investment Company Act and an amended and restated
Class B Distribution Agreement with Prudential Securities for Class B
shares of the Fund (the Proposed Class B Plan and the Proposed Class B
Distribution Agreement, respectively) and recommends submission of the
Proposed Class B Plan to the Fund's Class B shareholders for approval or
disapproval at this Special Meeting of Shareholders. The Proposed Class B
Distribution Agreement does not require and is not being submitted for
shareholder approval.
The purpose of the Proposed Class B Plan is to compensate Prudential
Securities, the distributor of the Fund's Class B shares, for providing
distribution assistance to broker/dealers, including Prusec, an affiliated
broker/dealer, and other qualified broker/dealers, if any, whose customers
invest in Class B shares of the Fund and to defray the costs and expenses,
including the payment of account servicing fees, of the services provided
and activities undertaken to distribute Class B shares (Distribution
Activities).
The Board of Directors previously adopted a plan of distribution for
the Fund's Class B shares pursuant to Rule 12b-1 under the Investment
Company Act which was approved by shareholders on December 30, 1991 and
last approved by the Board of Directors on May 5, 1993 (the Existing Class
B Plan). Shareholders of the Fund's Class B shares are being asked to
approve amendments to the Existing Class B Plan that change it from a
reimbursement type plan to a compensation type plan. The amendments do not
change the maximum annual fee that may be paid to Prudential Securities
under the Existing Class B Plan, although the possibility exists that
expenses incurred by Prudential Securities and for which it is entitled to
be reimbursed under the Existing Class B Plan may be less than the fee
Prudential Securities will receive under the Proposed Class B Plan. The
amendments are being proposed to facilitate administration and accounting.
The Board of Directors believes that the Proposed Class B Plan is in the
best interest of the Fund and is reasonably likely to benefit the Fund's
Class B shareholders. A copy of the Proposed Class B Plan is attached
hereto as Exhibit E.
The Existing Class B Plan
Under the Existing Class B Plan, the Fund reimburses Prudential
Securities for expenses incurred for Distribution Activities at an annual
rate of up to 1% of the average daily net assets of the Class B shares (up
to .25 of 1% of which may constitute a service fee for the servicing and
maintenance of shareholder accounts). Amounts reimbursable under the plan
that are not paid because they exceed the maximum fee payable thereunder
are carried forward and recovered in future years by Prudential Securities
from asset-based sales charges imposed on Class B shares, to the extent
such charges do not exceed .75% per annum of the average daily net assets
of the Class B shares, and from contingent deferred sales charges received
from certain redeeming shareholders, subject to the limitations of Article
III, Section 26 of the NASD Rules. The NASD Rules place an
24
<PAGE>
annual limit of .25 of 1% on fees that may be imposed for the provision
of personal service and/or the maintenance of shareholder accounts (service
fees) and an annual limit of .75 of 1% on asset-based sales charges (as
defined in the NASD Rules). Pursuant to the NASD Rules, the aggregate
deferred sales charges and asset-based sales charges on Class B shares of
the Fund may not, subject to certain exclusions, exceed 6.25% of total
gross sales of Class B shares.
The Existing Class B Plan may not be amended to increase materially the
amount to be spent for the services described therein without approval by a
majority of the holders of the Class B shares of the Fund. In addition, all
material amendments thereof must be approved by vote of a majority of the
Directors, including a majority of the Rule 12b-1 Directors, cast in person
at a meeting called for the purpose of voting on the plan. So long as the
Existing Class B Plan is in effect, the selection and nomination of the
Rule 12b-1 Directors will be committed to the discretion of the Rule 12b-1
Directors.
The Existing Class B Plan may be terminated at any time without payment
of any penalty by the vote of a majority of the Rule 12b-1 Directors or by
the vote of a majority of the outstanding Class B shares of the Fund (as
defined in the Investment Company Act) on written notice to any other party
to such plan and will automatically terminate in the event of its
assignment (as defined in the Investment Company Act). For a more detailed
description of the Existing Class B Plan, see "Management of the Fund-The
Distributors-Class B Plan."
The Proposed Class B Plan
The Proposed Class B Plan amends the Existing Class B Plan in one
material respect. Under the Existing Class B Plan, the Fund reimburses
Prudential Securities for expenses actually incurred for Distribution
Activities up to a maximum of 1% per annum of the average daily net assets
of the Class B shares. The Proposed Class B Plan authorizes the Fund to pay
Prudential Securities the same maximum annual fee as compensation for its
Distribution Activities regardless of the expenses incurred by Prudential
Securities for Distribution Activities. In contrast to the Existing Class B
Plan, the amounts payable by the Fund under the Proposed Class B Plan would
not be directly related to the expenses actually incurred by Prudential
Securities for its Distribution Activities. Consequently, if Prudential
Securities' expenses are less than its distribution and service fees, it
will retain its full fees and realize a profit. However, if Prudential
Securities' expenses exceed the distribution and service fees received
under the Proposed Class B Plan, it will no longer carry forward such
amounts for reimbursement in future years.
Since inception of the Existing Class B Plan, the cumulative
reimbursable expenses incurred thereunder by Prudential Securities have
exceeded the amounts reimbursed by the Fund. As of December 31, 1993, the
aggregate amount of distribution expenses incurred and not yet reimbursed
by the Fund or recovered through contingent deferred sales charges was
approximately $6,550,400.
For the period March 18 through September 30, 1991 and the fiscal years
ended September 30, 1992 and 1993, Prudential Securities received $101,616,
$456,606 and $902,535, respectively, from the Fund under the Existing Class
B Plan, representing .13%, 1% and 1%, respectively, of the average daily
net assets of the Class B shares, and
25
<PAGE>
spent approximately $1,019,100, $1,225,000 and $4,010,300, respectively,
for Distribution Activities. Since the maximum annual fee under the
Existing Class B Plan is the same as under the Proposed Class B Plan,
Prudential Securities would have received the same annual fee under the
Proposed Class B Plan as it did under the Existing Class B Plan for the
fiscal period ended September 30, 1991 and the fiscal years ended September
30, 1992 and 1993.
Among the major perceived benefits of a compensation type plan, such as
the Proposed Class B Plan, over a reimbursement type plan, such as the
Existing Class B Plan, is the facilitation of administration and
accounting. Under reimbursement plans, all expenses must be specifically
accounted for by the Distributor and attributed to the specific class of
shares of a fund in order to qualify for reimbursement. Although the
Proposed Class B Plan will continue to require quarterly reporting to the
Board of Directors of the amounts accrued and paid under the Plan and of
the expenses actually borne by the Distributor, there will be no need to
match specific expenses to reimbursements and no carrying forward of such
amounts, as under the Existing Class B Plan. Thus, the accounting for the
Proposed Class B Plan would be simplified and the timing of when
expenditures are to be made by the Distributor would not be an issue.
Currently, because the Existing Class B Plan is a reimbursement plan, the
Distributor retains an independent expert to perform a study of its
methodology for determining and substantiating which of its expenses should
properly be allocated to the Fund's Class B shares for reimbursement, the
cost of which is borne by the Fund and other funds for which Prudential
Securities serves as Distributor. These considerations, combined with the
fact that the cumulative expenses incurred by Prudential Securities for
Distribution Activities have exceeded the amounts reimbursed by the Fund
under the Existing Class B Plan, suggest that the costs and efforts
associated with a reimbursement plan are unwarranted.
In considering whether to approve the Proposed Class B Plan, the
Directors reviewed, among other things, the nature and scope of the
services to be provided by Prudential Securities, the purchase options
available to investors under the Alternative Purchase Plan, the amount of
expenditures under the Existing Class B Plan, the relationship of such
expenditures to the overall cost structure of the Fund and comparative data
with respect to distribution arrangements adopted by other investment
companies. Based upon such review, the Directors, including a majority of
the Rule 12b-1 Directors, determined that there is a reasonable likelihood
that the Proposed Class B Plan will benefit the Fund and its Class B
shareholders.
If approved by Class B shareholders, the Proposed Class B Plan will
continue in effect from year to year, provided such continuance is
approved at least annually by vote of a majority of the Board of
Directors, including a majority of the Rule 12b-1 Directors.
Required Vote
The Proposed Class B Plan requires the approval of a majority of the
Fund's outstanding Class B shares as defined in the Investment Company Act
and as described
26
<PAGE>
under Proposal No. 3. If the Proposed Class B Plan is not approved, the
Existing Class B Plan will continue in its present form.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 4.
RATIFICATION OF INDEPENDENT ACCOUNTANTS
(Proposal No. 5)
The Board of Directors of the Fund, including the Directors
who are not interested persons of the Fund, has selected Deloitte & Touche
as independent accountants for the Fund for the fiscal year ending
September 30, 1994. The ratification of the selection of independent
public accountants is to be voted upon at the Meeting and it is intended
that the persons named in the accompanying Proxy will vote for Deloitte &
Touche. No representative of Deloitte & Touche is expected to be present
at the Meeting of Shareholders.
The policy of the Board of Directors' regarding engaging independent
accountants' services is that management may engage the Fund's principal
independent public accountants to perform any service(s) normally provided
by independent accounting firms, provided that such service(s) meet(s) any
and all of the independence requirements of the American Institute of
Certified Public Accountants and the SEC. In accordance
with this policy, the Audit Committee reviews and approves all services
provided by the independent public accountants prior to their being
rendered. The Board of Directors of the Fund receives a report from its
Audit Committee relating to all services after they have been performed by
the Fund's independent accountants.
Required Vote
The affirmative vote of a majority of the shares present, in person or
by proxy, at the Meeting is required for ratification.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT YOU VOTE
"FOR" THIS PROPOSAL NO. 5.
OTHER MATTERS
No business other than as set forth herein is expected to
come before the Meeting, but should any other matter requiring a vote of
shareholders arise, including any question as to an adjournment of the
Meeting, the persons named in the enclosed proxy will vote thereon
according to their best judgment in the interests of the Fund.
SHAREHOLDER PROPOSALS
The Fund is not required to hold annual meetings of shareholders and
the Board of Directors currently does not intend to hold such meetings
unless shareholder action is required in accordance with the Investment
Company Act or the Fund's By-laws. A
27
<PAGE>
shareholder proposal intended to be presented at any meeting of
shareholders of the Fund hereinafter called must be received by the Fund a
reasonable time before the Board of Directors' solicitation relating
thereto is made in order to be included in the Fund's proxy statement and
form of proxy relating to that meeting. The mere submission of a proposal
by a shareholder does not guarantee that such proposal will be included in
the proxy statement because certain rules under the Federal securities laws
must be complied with before inclusion of the proposal is required.
S. Jane Rose
Secretary
Dated: March , 1994
Shareholders who do not expect to be present at the Meeting and who
wish to have their shares voted are requested to date and sign the
enclosed proxy and return it in the enclosed envelope. No postage is
required if mailed in the United States.
28
<PAGE>
Exhibit A
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1993
ASSETS
Cash and short-term investments ................................ 42,667,507
Loan to affiliate .............................................. 85,000,000
Management, administration and other fees receivable ........... 17,897,292
Transfer agency and fiduciary fees receivable .................. 3,744,874
Furniture, equipment and leasehold improvements, net ........... 10,495,702
Other assets ................................................... 4,676,430
------------
$164,481,805
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to affiliates .......................................... 48,794,366
Accounts payable and accrued expenses ...................... 11,208,209
Income taxes payable to affiliate - net .................... 2,937,828
------------
62,940,403
------------
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Class A common stock, $1 par value (1,000
shares authorized, 850 shares outstanding) .................. 850
. 850
Class B common stock, $1 par value (1,000
shares authorized, 150 shares outstanding) .................. 150
Additional paid-in capital .................................. 24,999,000
Retained earnings ........................................... 76,541,402
------------
101,541,402
------------
$164,481,805
============
See notes to consolidated statement of financial condition.
A-1
<PAGE>
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
December 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Prudential Mutual Fund Management, Inc. ("PMF") and subsidiaries (the
"Company"), an indirect wholly-owned subsidiary of The Prudential
Insurance Company of America (the "Prudential"), were created to operate
as the manager, distributor and/ Principles of Consolidation
The consolidated financial statement includes the accounts of PMF and
its wholly-owned subsidiaries, Prudential Mutual Fund Services, Inc.
("PMFS") and Prudential Mutual Fund Distributors, Inc. ("PMFD"). All
intercompany profits, transactions and balances have been eliminated.
Income Taxes
The Company is a member of a group of affiliated companies which join in
filing a consolidated Federal income tax return. Pursuant to a tax
allocation agreement, tax expense is determined for individual
profitable companies on a separate return basis. Profit members pay this
amount to an affiliated company which in turn apportions the payment
among the loss members in proportion to their losses. In January 1993,
the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). The adoption of SFAS 109 did
not have a material effect on the Company's financial position.
2. SHORT-TERM INVESTMENTS
At December 31, 1993, the Company had invested $35,411,571 in several
money market funds which PMF manages.
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
Furniture .................................... $6,481,799
Equipment .................................... 9,181,984
Leasehold improvements ....................... 3,407,213
----------
19,070,996
Less accumulated depreciation and amortization 8,575,294
----------
$10,495,702
===========
A-2
<PAGE>
4. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company participates in a
variety of financial and administrative transactions with affiliates.
The loan to affiliate bears interest at 3.45 percent at December 31,
1993 and is due on demand.
The caption "Due to affiliates" includes $18,241,795 at December 31,
1993 for reimbursement of employee compensation and benefits, and other
administrative and operating expenses. This amount is
noninterest-bearing and payable on demand.
The Company has entered into subadvisory agreements with The Prudential
Investment Corporation ("PIC"), a wholly-owned subsidiary of Prudential.
Under these agreements, PIC furnishes investment advisory services to
substantially all the funds for which the Company acts as Manager. At
December 31, 1993 there were unpaid fees due to PIC of $23,926,277,
included in the caption "Due to affiliates."
Distribution expenses include commissions and account servicing fees
paid to, or on account of, financial advisors of Prudential Securities
Incorporated ("Prudential Securities") and Pruco Securities Corporation
("PruSec"), affiliated broker-dealers and indirect wholly-owned
subsidiaries of Prudential, advertising expenses, the cost of printing
and mailing prospectuses to potential investors, and indirect and
overhead costs of Prudential Securities and PruSec, including lease,
utility, communications and sales promotion expenses. At December 31,
1993 there were unpaid distribution expenses of approximately
$6,626,000, included in the caption "Due to affiliates."
5. CAPITAL
PMFD is subject to the SEC Uniform Net Capital Rule (Rule 15c3- 1),
which requires the maintenance of minimum net capital and requires that
the ratio of aggregate indebtedness to net capital, both as defined,
shall not exceed 15 to 1. At December 31, 1993, PMFD had net capital of
$2,308,981, which was $1,859,405 in excess of its required net capital
of $449,576. PMFD had a ratio of aggregate indebtedness to net capital
of 2.9 to 1.
6. COMMITMENTS
The Company leases office space under operating leases expiring in 2003.
The leases are subject to escalation based upon certain costs incurred
by the lessor. Future minimum rentals, as of December 31, 1993, under
the leases, are as follows:
Year Minimum Rental
1994 $ 2,738,000
1995 2,865,000
1996 3,375,000
1997 3,385,000
1998 3,230,000
Thereafter 13,800,000
-----------
$29,393,000
===========
A-3
<PAGE>
7. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company has two defined benefit pension plans (the "Plans")
sponsored by the Prudential and Prudential Securities. The Plans cover
substantially all of the Company's employees. The funding policy is to
contribute annually the amount necessary to satisfy the Internal Revenue
Service funding standards. In addition, the Company has two defined
benefit plans for key executives, the Supplemental Retirement Plan (SRP)
for which estimated pension costs are currently accrued but not funded.
The Company provides certain health care and life insurance benefits for
eligible retired employees. Effective January 1, 1993, the Company
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("SFAS
106"). SFAS 106 changed the practice of accounting for postretirement
benefits on a cash basis to an accrual basis, whereby employers record
the projected future cost of providing such postretirement benefits as
employees render services instead of when benefits are paid. This new
accounting method has no effect on the Company's cash outlays for these
retirement benefits. The adoption of SFAS 106 did not materially impact
the Company's financial position.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," ("SFAS 112") which is effective for fiscal
years beginning after December 15, 1993. Although several benefits are
fully insured which result in no SFAS 112 obligation, the Company
currently has an obligation and resulting expense under SFAS 112 for
medical benefits provided under long-term disability. The Company will
adopt SFAS 112 on January 1, 1994. Management believes that
implementation will have no material effect on the Company's financial
position.
8. CONTINGENCY
On October 12, 1993, a purported class action lawsuit was instituted
against PMF, et al and certain current and former directors of a fund
managed by PMF. The plaintiffs seek damages in an unspecified amount for
excessive management and distribution fees they allege were incurred by
them. Although the outcome of this litigation cannot be predicted at
this time, the defendants believe they have meritorious defenses to the
claimes asserted in the complaint and intend to defend this action
vigorously. In any case, management does not believe that the outcome
of this action is likely to have a material adverse effect on the
Company's financial position.
A-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Prudential Mutual Fund Management, Inc.:
We have audited the accompanying consolidated statement of financial
condition of Prudential Mutual Fund Management, Inc. and subsidiaries as
of December 31, 1993. This consolidated financial statement is the
responsibility of the Company's management. Our responsibility is to
express an opinion on this consolidated financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statement is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated statement of financial condition. 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 audit provides a reasonable basis for
our opinion.
In our opinion, such consolidated statement of financial condition
presents fairly, in all material respects, the financial position of
Prudential Mutual Fund Management, Inc. and subsidiaries at December 31,
1993 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
New York, New York
January 26, 1994
A-5
<PAGE>
Exhibit B
WELLINGTON MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
ASSETS
Current assets:
Cash-Note 3 .................................................. 624,000
Investment advisory fees receivable-Note 5 ................... 28,470,000
Other current assets ......................................... 1,331,000
-----------
Total current assets ..................................... 30,425,000
Fixed assets, net of accumulated depreciation-Note 2 ......... 12,265,000
Investments and other assets-Note 1 .......................... 2,601,000
-----------
Total assets ............................................. $45,291,000
===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Payable under revolving credit agreement-Note 3 .............. $11,900,000
Accounts payable and other accrued expenses .................. 3,156,000
Accrued compensation and benefits-Note 4 ..................... 3,352,000
-----------
Total current liabilities ................................ 18,408,000
Other liabilities ............................................ 2,429,000
-----------
Total liabilities ........................................ 20,837,000
-----------
Partners' capital ............................................ 24,454,000
Commitments-Note 6 ...........................................
-----------
Total liabilities and partners' capital .................. $45,291,000
===========
The accompanying notes are an integral part of the financial statement.
B-1
<PAGE>
WELLINGTON MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated balance sheet is prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles. Wellington Management Company ("WMC") maintains its books
and determines income reportabl Principles of Consolidation
The consolidated balance sheet includes the accounts of WMC and its
subsidiaries, principally consisting of Wellington Trust Company, N.A.
(a national trust company), Wellington Management International and
Wellington Luxembourg, S.C.A. All
Investments
Investments in mutual funds for which WMC has provided initial capital
are stated at the lower of cost or market. The Company has also made a
10% common stock investment in First Global Investment Trust Co., Ltd.,
a Taiwanese mutual fund man
Fixed Assets
Depreciation is provided on the straight-line basis over useful lives of
3 years for software, 4 to 7 years for equipment and furniture and over
the remaining lease term for leasehold improvements. Maintenance and
repairs are charged to expe
Income Taxes
No provision for federal income taxes is recognized in the consolidated
balance sheet for WMC because, as a general partnership, liability for
income taxes is the responsibility of the individual partners.
Provisions for Retired Partners
Payments made to retired partners are based upon profits of the
partnership and are treated as partnership distributions.
B-2
<PAGE>
2. FIXED ASSETS
Fixed assets at December 31, 1993 consist of:
Software ........................................ 1,752,000
Equipment and furniture ......................... 15,958,000
Leasehold improvements .......................... 3,882,000
-----------
21,592,000
Less-accumulated depreciation ................... (9,327,000)
-----------
$12,265,000
===========
3. REVOLVING CREDIT AGREEMENT
WMC and its subsidiaries have an unsecured line of credit with a bank
under which WMC may borrow up to $15,500,000, of which $1,000,000 can
only be utilized on a limited basis during the course of the year, with
interest at the prevailing prime rate and/or LIBOR plus 1.00% (.75% in
1992). WMC has agreed to maintain an average compensating balance with
the bank of $467,000. The amount outstanding under the revolving credit
agreement at December 31, 1993 is classified as a current liability in
the consolidated balance sheet because such amount is intended to be
repaid during the next year.
4. RETIREMENT PLANS
WMC has a defined contribution profit-sharing plan covering all
employees. Contributions to the profit-sharing plan are made by WMC
based on profits up to a rate of 10% of compensation paid or accrued to
employees before employee contributions to the plan through salary
reductions. Additionally, WMC has a money purchase pension plan, under
which WMC contributes 5% of compensation paid or accrued to employees
before employee contributions to the profit-sharing plan through salary
reductions. Partners may also contribute to both the defined
contribution profit-sharing plan and the money purchase pension plan.
Contributions to the retirement plans for employees and partners are
subject to certain limitations for each plan and for aggregate combined
contributions to both plans.
5. AGREEMENTS WITH THE VANGUARD GROUP OF
INVESTMENT COMPANIES
At December 31, 1993, WMC served as investment advisor under separate
agreements to each of sixteen investment companies of The Vanguard Group
of Investment Companies ("Vanguard"). The current agreements were
entered into effective at various times from June 1, 1980 through May
31, 1993 and expire at various times through June 19, 1994, subject to
renewal for additional one-year periods at the option of the individual
investment companies. The agreements may be terminated by either party
on 60 days' notice. The agreements provide for base fees calculated at
stated
B-3
<PAGE>
percentages of net assets, which vary by investment company.
Certain of the agreements also provide for an increase or decrease in
the base fee dependent upon the investment performance of the investment
company.
Investment advisory fees receivable from Vanguard investment companies
amounted to $7,683,000 at December 31, 1993.
6. COMMITMENTS
WMC has an agreement with a former principal executive providing for
payments of $36,000 per year. WMC leases substantially all of its office
space under noncancellable leases which require minimum annual rentals
as follows:
Fiscal Year Annual Amount
1994 $5,429,000
1995 5,399,000
1996 5,172,000
1997 5,126,000
1998 5,126,000
1999 - 2003 2,345,000
B-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Wellington Management Company
In our opinion, the accompanying consolidated balance sheet presents
fairly, in all material respects, the financial position of Wellington
Management Company (a partnership) and its subsidiaries (the "Company") at
December 31, 1993 in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the
Company's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit in
accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Boston, Massachusetts
February 3, 1994
B-5
<PAGE>
<PAGE>
Exhibit C
FORM OF AMENDMENT TO ARTICLES OF INCORPORATION
Article IV, Section 1 of the Fund's Articles of Incorporation are
proposed to be amended and restated as follows:
Article IV
COMMON STOCK
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is 2 billion shares of the par
value of $.001 per share and of the aggregate par value of $2,000,000 to
be divided initially into three classes, consisting of 666,666,666 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 a Rule 12b-1 distribution fee as determined by the Board
of Directors from time to time; (iv) The Class B Common Stock shall be
subject to a contingent deferred sales charge and a Rule 12b-1
distribution fee as determined by the Board of Directors from time to
time; and (v) The Class C Common Stock shall not be subject to either
an initial or a contingent deferred sales charge but shall be subject
to a Rule 12b-1 distribution fee as determined by the Board of
Directors from time to time. All shares of each particular class shall
represent an equal proportionate interest in that class, and each share
of any particular class shall be equal to each other share of that
class.
(b) Each share of the Class B Common Stock of the Corporation
shall be converted automatically, and without any action or choice on
the part of the holder thereof, into shares (including fractions
thereof) of the Class A Common Stock of the Corporation (computed in
the manner hereinafter described), at the applicable net asset value of
each Class, at the time of the calculation of the net asset value of
such Class B Common Stock at such times, which may vary between shares
originally issued for cash and shares purchased through the automatic
reinvestment of dividends and distributions with respect to Class B
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
C-1
<PAGE>
(l)(b) hereof shall equal the number (including for this purpose
fractions of a share) obtained by dividing the net asset value per
share of the Class B Common Stock for purposes of sales and redemptions
thereof at the time of the calculation of the net asset value on the
Conversion Date by the net asset value per share of the Class A Common
Stock for purposes of sales and redemptions thereof at the time of the
calculation of the net asset value on the Conversion Date.
(d) On the Conversion Date, the shares of the Class B Common Stock
of the Corporation converted into shares of the Class A Common Stock
will cease to accrue dividends and will no longer be outstanding and
the rights of the holders thereof will cease (except the right to
receive declared but unpaid dividends to the Conversion Date).
(e) The Board of Directors shall have full power and authority to
adopt such other terms and conditions concerning the conversion of
shares of the Class B Common Stock to shares of the Class A Common
Stock as they deem appropriate; provided such terms and conditions are
not inconsistent with the terms contained in this Section 1 and subject
to any restrictions or requirements under the Investment Company Act of
1940 and the rules, regulations and interpretations thereof promulgated
or issued by the Securities and Exchange Commission 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.
C-2
<PAGE>
Exhibit D
GLOBAL UTILITY FUND, INC.
Distribution and Service Plan
(Class A Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below
which is designed to conform to the requirements of Rule 12b-1 under the
Investment Company Act of 1940 (the Investment Company Act) and Article
III, Section 26 of the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. (NASD) has been adopted by 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 (the 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
Distribution Agreement, the Distributor will be entitled to receive
payments from investors of front-end sales charges with respect to the
sale of 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 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 Corpora-
D-1
<PAGE>
tion (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. 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 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-2
<PAGE>
(d) sales commissions (including trailer commissions) paid to, or
on account of, broker-dealers and financial institutions (other than
Prudential Securities and Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class A shares
of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of
Directors of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution
Activities (including payment of the service fee) and the purposes for
which such expenditures were made in compliance with the requirements of
Rule 12b-1. The Distributor will provide to the Board of Directors of the
Fund such additional information as the Board shall from time to time
reasonably request, including information about Distribution Activities
undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness: Continuation
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class A shares of the Fund, the Plan shall, unless
earlier terminated in accordance with its terms, continue in full force
and effect thereafter for so long as such continuance is specifically
approved at least annually by a majority of the Board of Directors of the
Fund and a majority of 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,
respectively, 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.
D-3
<PAGE>
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:
D-4
<PAGE>
Exhibit E
GLOBAL UTILITY FUND, INC.
Distribution and Service Plan
(Class B Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below
which is designed to conform to the requirements of Rule 12b-1 under the
Investment Company Act of 1940 (the Investment Company Act) and Article
III, Section 26 of the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. (NASD) has been adopted by 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 (the 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 Distribution Agreement, the Distributor will be
entitled to receive payments from investors of contingent deferred sales
charges imposed with respect to certain repurchases and redemptions of
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 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
E-1
<PAGE>
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. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of
.25 of 1% per annum of the average daily net assets of the Class B shares
(service fee). The Fund shall calculate and accrue daily amounts payable
by the Class B shares of the Fund hereunder and shall pay such amounts
monthly or at such other intervals as the Board of Directors may
determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services
a distribution fee of .75 of 1% per annum of the average daily net assets
of the Class B shares of the Fund for the performance of Distribution
Activities. The Fund shall calculate and accrue daily amounts payable by
the Class B shares of the Fund hereunder and shall pay such amounts
monthly or at such other intervals as the Board of Directors may
determine. Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class B shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any
other class of shares of the Fund except that distribution expenses
attributable to the Fund as a whole will be allocated to the Class B
shares according to the ratio of the sale of Class B shares to the total
sales of the Fund's shares over the Fund's fiscal year or such other
allocation method approved by the Board of Directors. The allocation of
distribution expenses among 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-2
<PAGE>
(e) sales commissions (including trailer commissions) paid to, or
on account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to Class B shares of the Fund.
4. Quarterly Reports: Additional Information
An appropriate officer of the Fund will provide to the Board of
Directors of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution
Activities (including payment of the service fee) and the purposes for
which such expenditures were made in compliance with the requirements of
Rule 12b-1. The Distributor will provide to the Board of Directors of the
Fund such additional information as they shall from time to time
reasonably request, including 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.
7. Amendments
The Plan may not be amended to change the combined service and
distribution expenses 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.
E-3
<PAGE>
8. Rule 12b-1 Directors or Trustees
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:
E-4
<PAGE>
PLEASE MARK, SIGN,
DATE AND RETURN THE
PROXY CARD PROMPTLY
USING THE ENCLOSED
ENVELOPE.
YOUR PROXY WILL BE ELECTRONICALLY SCANNED.
CAREFULLY DETACH HERE AND RETURN BOTTOM PORTION ONLY
PROXY (Class A) This Proxy is solicited on behalf of the Board of Directors.
GLOBAL UTILITY FUND
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
The undersigned hereby appoints Susan C. Cote,
S. Jane Rose and Ronald Amblard as Proxies,
each with the power of substitution, and hereby
authorizes each of them to represent and to
vote, as designated below, all the shares of
Class A common stock of Global Utility Fund
held of record by the undersigned
on , 1994 at the Special Meeting of
Shareholder's to be held on 1994
or any adjournment thereof.
Your Account No.:
Your voting shares are:
This proxy when properly executed will be
voted in the manner directed herein by the
undersigned shareholder(s). If no direction
is made, this proxy will be voted for all the
proposals listed below.
1-Election of Directors
[X] [X] [X]
Approve Withhold Withhold
All All Those Listed
Nominees Nominees On Back
To withhold authority for any individual
nominee, please write name on back
of form.
Daniel S. Ahearn
Edward D. Beach
Thomas T. Mooney
John B. Neff
Richard A. Redeker
Sir Michael Sandberg
Robin B. Smith
Nancy H. Teeters
For Against Abstain
2. To approve an amendment of the Fund's 2 [X] [X] [X]
Articles of Incorporation to permit a
conversion feature for Class B Shares.
3. To approve an amended and restated Class A 3 [X] [X] [X]
Distribution and Service Plan.
4. NOT APPLICABLE TO CLASS A SHAREHOLDERS. 4 [X] [X] [X]
5. To ratify the selection by the Board of 5 [X] [X] [X]
Directors of Deloitte & Touche as independent
accountants for the year ending December 31,
1994.
6. To transact such other business as may 6 [X] [X] [X]
properly come before the Meeting or any
adjournments thereof.
Only shares of common stock of the Fund of record at the
close of business of , 1994 are entitled to
notice of and to vote at this Meeting or any adjournment
thereof.
IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
- ----------------------------------------------------------
Signature Date
- ----------------------------------------------------------
Signature (Joint Ownership)
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
<PAGE>
PLEASE MARK, SIGN,
DATE AND RETURN THE
PROXY CARD PROMPTLY
USING THE ENCLOSED
ENVELOPE.
YOUR PROXY WILL BE ELECTRONICALLY SCANNED.
CAREFULLY DETACH HERE AND RETURN BOTTOM PORTION ONLY
PROXY (Class B) This Proxy is solicited on behalf of the Board of Directors.
GLOBAL UTILITY FUND
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
The undersigned hereby appoints Susan C. Cote,
S. Jane Rose and Ronald Amblard as Proxies,
each with the power of substitution, and hereby
authorizes each of them to represent and to
vote, as designated below, all the shares of
Class B common stock of Global Utility Fund
held of record by the undersigned
on , 1994 at the Special Meeting of
Shareholder's to be held on 1994
or any adjournment thereof.
Your Account No.:
Your voting shares are:
This proxy when properly executed will be
voted in the manner directed herein by the
undersigned shareholder(s). If no direction
is made, this proxy will be voted for all the
proposals listed below.
1-Election of Directors
[X] [X] [X]
Approve Withhold Withhold
All All Those Listed
Nominees Nominees On Back
To withhold authority for any individual
nominee, please write name on back
of form.
Daniel S. Ahearn
Edward D. Beach
Thomas T. Mooney
John B. Neff
Richard A. Redeker
Sir Michael Sandberg
Robin B. Smith
Nancy H. Teeters
For Against Abstain
2. To approve an amendment of the Fund's 2 [X] [X] [X]
Articles of Incorporation to permit a
conversion feature for Class B Shares.
3. To approve an amended and restated Class A 3 [X] [X] [X]
Distribution and Service Plan.
4. To approve an amended and restated Class B 4 [X] [X] [X]
Distribution and Service Plan.
5. To ratify the selection by the Board of 5 [X] [X] [X]
Directors of Deloitte & Touche as independent
accountants for the year ending December 31,
1994.
6. To transact such other business as may 6 [X] [X] [X]
properly come before the Meeting or any
adjournments thereof.
Only shares of common stock of the Fund of record at the
close of business of , 1994 are entitled to
notice of and to vote at this Meeting or any adjournment
thereof.
IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
- ----------------------------------------------------------
Signature Date
- ----------------------------------------------------------
Signature (Joint Ownership)
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
