As filed with the Securities and Exchange Commission on November 30, 2000
Securities Act Registration No. 33-37356
Investment Company Act Registration No. 811-5695
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.
Post-Effective Amendment No. 16 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 22 [X]
(Check appropriate box or boxes)
GLOBAL UTILITY FUND, INC.
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 Mulberry Street
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (973) 367-7530
George P. Attisano, Esq.
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102-4077
(Name and Address of Agent for Service of Process) Copy to:
Arthur J. Brown, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<S> <C>
[X] immediately upon filing pursuant to paragraph (b) [ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (b) [ ] on (date) pursuant to paragraphy (a)(2) of rule 485.
[ ] 60 days after filing pursuant to paragraphy (a)(1) If appropriate, check the following box:
[ ] on (date) pursuant to paragraph (a), of Rule 485 [ ] this post-effective amendment designates a new effective date
[ ] on (date) pursuant to paragraph (a)(1) for a previously filed post-effective amendment.
</TABLE>
Title of Securities Being Registered: Common Stock, par value $.001 per share.
<PAGE>
Prospectus NOVEMBER 30, 2000
Global Utility Fund, Inc.
Fund Type Global Stock
INVESTMENT OBJECTIVE Total return
[GRAPHIC OF "BUILD ON THE ROCK"]
BUILD ON THE ROCK
As with all mutual funds, the Securities and
Exchange Commission has not approved or disapproved
the Fund's shares, nor has the SEC determined that [LOGO OF PRUDENTIAL]
this prospectus is complete or accurate. It is a
criminal offense to state otherwise.
<PAGE>
-------------------------------------------------------------------------------
TABLE OF CONTENTS
-------------------------------------------------------------------------------
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
2 Principal Risks
3 Evaluating Performance
5 Fees and Expenses
7 HOW THE FUND INVESTS
7 Investment Objective and Policies
8 Other Investments and Strategies
12 Investment Risks
16 HOW THE FUND IS MANAGED
16 Board of Directors
16 Manager
16 Investment Adviser
17 Portfolio Managers
17 Distributor
18 FUND DISTRIBUTIONS AND TAX ISSUES
18 Distributions
19 Tax Issues
20 If You Sell or Exchange Your Shares
22 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
22 How to Buy Shares
30 How to Sell Your Shares
34 How to Exchange Your Shares
35 Telephone Redemptions and Exchanges
37 FINANCIAL HIGHLIGHTS
38 Class A Shares
39 Class B Shares
40 Class C Shares
41 Class Z Shares
42 THE PRUDENTIAL MUTUAL FUND FAMILY
FOR MORE INFORMATION (BACK COVER)
-------------------------------------------------------------------------------
GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
RISK/RETURN SUMMARY
-------------------------------------------------------------------------------
This section highlights key information about the Global Utility Fund, Inc.,
which we refer to as "the Fund." Additional information follows this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is to provide TOTAL RETURN, without incurring
undue risk, by investing primarily in INCOME-PRODUCING SECURITIES OF DOMESTIC
AND FOREIGN COMPANIES engaged primarily in the UTILITY INDUSTRIES. Total return
is made up of CURRENT INCOME and GROWTH OF CAPITAL. This means we seek
investments that will increase in value, as well as pay the Fund interest and
other income. We normally invest at least 65% of the Fund's total assets in
EQUITY-RELATED and DEBT SECURITIES of utility companies. UTILITY COMPANIES
include companies primarily engaged in the ownership or operation of electric,
gas, telecommunications and water facilities. Some of these securities are
issued by foreign companies. We consider a company to be a "utility company" if
either:
o more than 50% of the company's assets are devoted to the ownership or
operation of one or more facilities described above, or
o more than 50% of the company's operating revenues are derived from the
business or combination of businesses described above.
We also may invest up to 35% of the Fund's total assets in debt securities
of both utility and non-utility companies. We invest primarily in investment
grade debt securities, but may invest up to 5% of the Fund's assets in debt
securities rated below investment grade (also known as "junk bonds").
-------------------------------------------------------------------------------
HOW WE INVEST
We select investments on the basis of fundamental analysis to
identify those securities that provide current income and potential for growth
of income and long-term capital appreciation. Fundamental analysis involves
assessing a company and its business environment, management, balance sheet,
income statement, anticipated earnings and dividends and other related measures
of value. We monitor and evaluate the economic and political climate and the
principal securities markets of the country in which each company is located.
The relative weightings among common stocks, debt securities and preferred
stocks will vary from time to time based upon the investment adviser's judgment
of the extent to which investments in each category will help the Fund achieve
its investment objective.
-------------------------------------------------------------------------------
1
<PAGE>
--------------------------------------------------------------------------------
RISK/RETURN SUMMARY
--------------------------------------------------------------------------------
The Fund will invest in the securities of companies located in at least
three countries, one of which will be the United States. Under normal
circumstances, the percentage of the Fund's assets invested in securities of
U.S. issuers will be higher than that invested in securities of issuers in any
other single country.
We may invest up to 35% of the Fund's total assets in non-utility
equity-related securities, debt obligations and money market instruments. While
we make every effort to achieve our investment objective, we can't guarantee
success.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Because the
Fund focuses its investments in the utilities industries, the value of its
shares may rise and fall more than the value of shares of a fund that invests
more broadly. In addition, a change in prevailing interest rates is likely to
affect the Fund's net asset value because prices of debt securities and equity
securities of utility companies tend to increase when interest rates decline and
decrease when interest rates rise.
The utility companies in which the Fund invests, both in the U.S. and in
foreign countries, are subject to substantial regulation. Such regulation, while
intended to ensure appropriate standards for review and adequate capacity to
meet public demand, can adversely impact the profitability of investment in
these companies.
Since we invest in foreign securities, there are more risks than if we
invested only in obligations of the U.S. government and securities of U.S.
companies. The foreign securities held by the Fund normally will be denominated
in foreign currencies. The amount of income available for distribution may be
affected by our foreign currency gains or losses and certain hedging activities.
Foreign markets, especially those in developing countries, may be more volatile
than U.S. markets, and changes in currency exchange rates may reduce or increase
market performance. There is generally less public information available
regarding foreign companies, and such companies may not be subject to the same
accounting, auditing and financial reporting standards and requirements
applicable to U.S. companies.
The Fund may use risk management techniques to try to preserve assets or
enhance return. These strategies may present above-average risks. Derivatives
may not fully offset the underlying positions and this could result in losses to
the Fund that would not otherwise have occurred.
-------------------------------------------------------------------------------
2 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
RISK/RETURN SUMMARY
-------------------------------------------------------------------------------
Some of our investment strategies involve additional risks. Like any mutual
fund, an investment in the Fund could lose value, and you could lose money. For
more detailed information about the risks associated with the Fund, see
"Investment Risks."
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
EVALUATING PERFORMANCE
A number of factors--including risk--can affect how the Fund performs. The
following bar chart shows the Fund's performance for each full calendar year of
operation. The bar chart and table below demonstrate the risk of investing in
the Fund by showing how returns can change from year to year and by showing how
the Fund's average annual total returns compare with a stock index and a group
of similar mutual funds. Past performance does not mean that the Fund will
achieve similar results in the future.
-------------------------------------------------------------------------------
3
<PAGE>
-------------------------------------------------------------------------------
RISK/RETURN SUMMARY
-------------------------------------------------------------------------------
[REPRESENTATION OF BAR CHART]
ANNUAL RETURNS(1) (CLASS A SHARES)
-------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
8.70% 22.43% 9.25% 22.78% -7.76% 23.37% 13.77% 22.35% 19.47% 4.99%
Best quarter: 13.46% (4th quarter of 1998) WORST quarter: -5.78% (1st quarter
of 1992)
-------------------------------------------------------------------------------
(1) These annual returns do not include sales charges. If the sales
charges were included, the annual returns would be lower than
those shown. The total return on the Fund's Class A shares from
1-1-00 to 9-30-00 was 7.75%.
AVERAGE ANNUAL RETURNS(1) AS OF 12/31/99
--------------------------------------------------------------------------------
1 YR 5 YRS 10 YRS SINCE INCEPTION
Class A shares 4.99% 16.96% 13.69 13.69% (since 1-2-90)
Class B shares 4.74% 17.18% N/A 13.64% (since 3-18-91)
Class C shares 7.64% 17.05% N/A 14.63% (since 8-1-94)
Class Z shares 10.85% N/A N/A 19.20% (since 12-16-96)
FT/S&P
Actuaries World
Utilities Index(2) 32.89% 24.82% --
Lipper Average(3) 16.79% 19.17% --
-------------------------------------------------------------------------------
(1) The Fund's returns are after deduction of sales charges and expenses.
Without the distribution and service (12b-1) fee waiver for Class A shares,
the returns would have been lower.
(2) The Financial Times (FT)/S&P Actuaries World Utilities Index is an unmanaged
index and is currently comprised of approximately 183 world utility stocks
representing approximately 29 countries. These returns do not include the
effect of any sales charges or operating expenses of a mutual fund. These
returns would be lower if they included the effect of sales charges and
operating expenses. FT/S&P Actuaries World Utilities Index returns since
inception of each class are 14.46% for Class A, 17.74% for Class B, 21.80%
for Class C and 31.79% for Class Z shares. Source: Goldman, Sachs &Co.
(3) The Lipper Average is based on the average return of all mutual funds in the
Lipper Utility Fund category and does not include the effect of any sales
charges. Again, these returns would be lower if they included the effect of
sales charges. Lipper returns since the inception of each class are 12.50%
for Class A, 13.63% for Class B, 17.19% for Class C and 19.83% for Class Z
shares. Source:Lipper, Inc.
-------------------------------------------------------------------------------
4 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
RISK/RETURN SUMMARY
-------------------------------------------------------------------------------
FEES AND EXPENSES
These tables show the sales charges, fees and expenses that you may pay if
you buy and hold shares of each class of the Fund--Class A, B, C and Z. Each
share class has different sales charges--known as loads--and expenses, but
represents an investment in the same fund. Class Z shares are available only to
a limited group of investors. For more information about which share class may
be right for you, see "How to Buy, Sell and Exchange Shares of the Fund."
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
-------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
-------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 5% None 1% None
-------------------------------------------------------------------------------
Maximum deferred sales charge (load)
(as a percentage of the lower of original
purchase price or sale proceeds) None 5%(2) 1%(3) None
-------------------------------------------------------------------------------
Maximum sales charge (load) imposed
on reinvested dividends and other
distributions None None None None
-------------------------------------------------------------------------------
Redemption fees None None None None
-------------------------------------------------------------------------------
Exchange fee None None None None
-------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
-------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
-------------------------------------------------------------------------------
Management fees .70% .70% .70% .70%
-------------------------------------------------------------------------------
+ Distribution and service (12b-1) fees .30%(4) 1.00% 1.00% None
-------------------------------------------------------------------------------
+ Other expenses .25% .25% .25% .25%
-------------------------------------------------------------------------------
= Total annual Fund operating expenses 1.31% 2.01% 2.01% 1.01%
-------------------------------------------------------------------------------
- Fee waiver or expense reimbursement .05% None None None
-------------------------------------------------------------------------------
= NET ANNUAL FUND OPERATING EXPENSES 1.26%(4) 2.01% 2.01% 1.01%
--------------------------------------------------------------------------------
(1) Your broker may charge you a separate or additional fee for purchases and
sales of shares.
(2) The Contingent Deferred Sales Charge (CDSC) for Class B shares decreases by
1% annually to 1% in the fifth and sixth years and 0% in the seventh year.
Class B shares convert to Class A shares approximately seven years after
purchase.
(3) The CDSC for Class C shares is 1% for shares redeemed within 18 months of
purchase.
(4) For the fiscal year ending September 30, 2001, the Distributor of the Fund
has contractually agreed to reduce its distribution and service (12b-1)
fees for Class A shares to .25% of the average daily net assets of the Class
A shares.
--------------------------------------------------------------------------------
5
<PAGE>
-------------------------------------------------------------------------------
RISK/RETURN SUMMARY
-------------------------------------------------------------------------------
EXAMPLE
This example will help you compare the fees and expenses of the Fund's different
share classes and compare the cost of investing in the Fund with the cost
of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A shares of the
Fund during the first year. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
-------------------------------------------------------------------------------
1 yr 3 yrs 5 yrs 10 yrs
-------------------------------------------------------------------------------
Class A shares $622 $890 $1,178 $1,996
-------------------------------------------------------------------------------
Class B shares $704 $930 $1,183 $2,073
-------------------------------------------------------------------------------
Class C shares $402 $724 $1,172 $2,414
-------------------------------------------------------------------------------
Class Z shares $103 $322 $ 558 $1,236
-------------------------------------------------------------------------------
You would pay the following expenses on the same investment if you did not
sell your shares:
-------------------------------------------------------------------------------
1 yr 3 yrs 5 yrs 10 yrs
-------------------------------------------------------------------------------
Class A shares $622 $890 $1,178 $1,996
-------------------------------------------------------------------------------
Class B shares $204 $630 $1,083 $2,073
-------------------------------------------------------------------------------
Class C shares $302 $724 $1,172 $2,414
-------------------------------------------------------------------------------
Class Z shares $103 $322 $ 558 $1,236
-------------------------------------------------------------------------------
--------------------------------------------------------------------------------
6 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE](800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW THE FUND INVESTS
-------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide TOTAL RETURN, without
incurring undue risk, by investing primarily in INCOME-PRODUCING SECURITIES OF
DOMESTIC AND FOREIGN COMPANIES in the UTILITY INDUSTRIES. While we make every
effort to achieve our objective, we can't guarantee success.
In pursuing our objective, we normally invest at least 65% of the Fund's
total assets in a diversified portfolio of common stocks, debt securities and
preferred stocks issued by domestic and foreign utility companies, including
companies engaged in the ownership or operation of facilities used in the
generation, transmission or distribution of electricity, telecommunications, gas
or water. The Fund normally invests up to 35% of the Fund's total assets in debt
securities.
We can invest up to 35% of the Fund's total assets in non-utility
equity-related securities, debt obligations and money market instruments.
As a "global" fund, we usually invest in issuers from at least three
different countries, one of which will be the United States. Although the Fund
adjusts this mix as market conditions and economic outlooks change, it typically
invests a higher percentage of its total assets in U.S. securities than in the
securities of any other single country. The foreign securities held by the Fund
normally will be denominated in foreign currencies, including the euro--a
multinational currency unit. The Fund may invest in securities of developing
countries, which may be subject to more abrupt or erratic market movements than
those of developed countries.
EQUITY-RELATED SECURITIES
The Fund may invest all of its assets in EQUITY-RELATED SECURITIES. These
securities include common stocks, preferred stocks, warrants and rights that can
be exercised to obtain stock, and convertible securities. Convertible securities
are bonds, debentures, corporate notes and preferred stocks that can be
converted into the company's common stock or some other equity security.
The Fund may also invest in AMERICAN DEPOSITARY RECEIPTS (ADRS), AMERICAN
DEPOSITARY SHARES (ADSS), GLOBAL DEPOSITARY RECEIPTS (GDRS) and EUROPEAN
DEPOSITARY RECEIPTS (EDRs). ADRs, ADSs, GDRs and EDRs are certificates--usually
issued by a bank or trust company--that represent an equity investment in a
foreign company. ADRs and ADSs are issued by U.S. banks and trust companies and
are valued in U.S. dollars. EDRs and
-------------------------------------------------------------------------------
7
<PAGE>
--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------
GDRs are issued by foreign banks and trust companies and are usually valued in
foreign currencies.
DEBT SECURITIES
Most of the Fund's debt securities are "investment grade." This means that major
rating services, like Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service ("Moody's"), have rated the securities within one of their
four highest quality grades. Debt securities rated in the lowest of these four
quality grades (Baa/BBB) have certain speculative characteristics. Up to 5% of
the Fund's total assets may be invested in below-investment grade securities
(i.e., below Baa or BBB) that are riskier than investment grade securities and
are considered "speculative." We also may invest in obligations that are not
rated, but that we believe are of comparable quality to the obligations
described above.
For more information about this Fund and its investments, see "Investment
Risks" and the Statement of Additional Information, "Description of the Fund,
Its Investments and Risks." The Statement of Additional Information--which we
refer to as the SAI--contains additional information about the Fund. To obtain a
copy, see the back cover page of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board can change investment policies
that are not fundamental.
OTHER INVESTMENTS AND STRATEGIES
In addition to the principal strategies we may also use the following
investments or strategies to increase the Fund's returns or protect its assets
if market conditions warrant.
DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Fund's
returns. We may use hedging techniques to protect the Fund's assets. We cannot
guarantee that these strategies will work, that the instruments necessary to
implement these strategies will be available or that the Fund will not lose
money. Derivatives--such as futures, options, foreign currency forward contracts
and options on futures--involve costs and can be volatile. With derivatives, the
investment adviser tries to predict whether the underlying invest-
-------------------------------------------------------------------------------
8 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW THE FUND INVESTS
-------------------------------------------------------------------------------
ment-- a security, market index, currency, interest rate or some other
benchmark -- will go up or down at some future date. We may use derivatives to
try to reduce risk or to increase return consistent with the Fund's overall
investment objective. The investment adviser will consider other factors (such
as cost) in deciding whether to employ any particular strategy or use any
particular instrument. Any derivatives we use may not match the Fund's
underlying holdings.
CURRENCY HEDGES. Because we are a global fund and invest in securities
denominated in different foreign currencies, we may use "currency hedges."
Currency hedges can help protect the Fund's net asset value (NAV) from declining
if a particular foreign currency were to decrease in value compared to the U.S.
dollar.
The Fund may enter into forward foreign currency exchange contracts on a
spot, i.e., cash, basis at the rate then prevailing in the currency exchange
market or on a forward basis, by entering into a forward contract to purchase or
sell currency. A forward contract on foreign currency is an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days agreed upon by the parties from the date of the contract at a
price set on the date of the contract.
The Fund's dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. The Fund, and
thus the investor, may lose money through any unsuccessful use of these
strategies. Transaction hedging is the purchase or sale of a forward contract
with respect to specific receivables or payables of the Fund generally arising
in connection with the purchase or sale of its portfolio securities and accruals
of interest or dividends receivable and Fund expenses. Position hedging is the
sale of a foreign currency with respect to portfolio security positions
denominated or quoted in that currency or in a currency bearing a high degree of
positive correlation to the value of the currency (cross hedge). Although there
are no limits on the number of forward contracts which the Fund may enter into,
the Fund may not position hedge with respect to a particular currency for an
amount greater than the aggregate market value (determined at the
time of making any sale of forward currency) of the securities held in its
portfolio denominated or quoted in, or currently convertible into, such currency
or in a currency well correlated to the currency in which other securities are
denominated.
-------------------------------------------------------------------------------
9
<PAGE>
-------------------------------------------------------------------------------
HOW THE FUND INVESTS
-------------------------------------------------------------------------------
For more information about these strategies, see the SAI, "Description of
the Fund, Its Investments and Risks--Additional Investment Policies."
OPTIONS. The Fund may purchase and sell put and call options on securities
and currencies traded on U.S. or foreign securities exchanges or in the
over-the-counter market. An option is the right to buy or sell securities in
exchange for a premium. The options may be on debt securities, aggregates of
debt securities, financial indexes and U.S. government securities. The Fund will
sell only covered options.
FUTURES CONTRACTS AND RELATED OPTIONS
FOREIGN CURRENCY FORWARD CONTRACTS The Fund may purchase and sell financial
futures contracts and related options on debt securities, aggregates of debt
securities, currencies, financial indexes or U.S. government securities. A
futures contract is an agreement to buy or sell a set quantity of underlying
product at a future date or to make or receive a cash payment based on the value
of a securities index. The Fund also may enter into foreign currency forward
contracts to protect the value of its assets against future changes in the level
of foreign currency exchange rates. A foreign currency forward contract is an
obligation to buy or sell a given currency on a future date.
TEMPORARY DEFENSIVE INVESTMENTS
In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of the Fund's assets in high-quality money market
instruments denominated in U.S. dollars, including U.S. government securities,
or hold cash. Investing heavily in money market securities or holding cash
limits our ability to achieve capital appreciation, but can help to preserve the
Fund's assets when the markets are volatile.
REPURCHASE AGREEMENTS
The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund and is, in effect, a loan by the
Fund. Repurchase agreements are used for cash management purposes.
-------------------------------------------------------------------------------
10 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW THE FUND INVESTS
-------------------------------------------------------------------------------
ADDITIONAL STRATEGIES
The Fund may also use other non-principal strategies, such as purchasing debt
securites on a WHEN-ISSUED or DELAYED-DELIVERY basis. When the Fund makes this
type of purchase, the price and interest rate are fixed at the time of purchase,
but delivery and payment for the debt obligations take place at a later time.
The Fund does not earn interest income until the date the debt obligations are
delivered.
The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 331/3% of the value of its total assets); LENDS ITS SECURITIES to
others for cash management purposes (the Fund can lend up to 30% of the value of
its total assets, including collateral received in the transaction); and holds
ILLIQUID SECURITIES (the Fund may hold up to 15% of its net assets in illiquid
securities, including securities with legal or contractual restrictions, those
without a readily available market, and repurchase agreements with maturities
longer than seven days). The Fund is subject to certain investment restrictions
that are fundamental policies, which means they cannot be changed without
shareholder approval. For more information about these restrictions, see the
SAI.
-------------------------------------------------------------------------------
11
<PAGE>
--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception. Since the Fund's holdings can vary significantly from broad market
indexes, performance of the Fund can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of the Fund's principal
investments and certain other non-principal investments the Fund may make. The
investment types are listed in the order in which they normally will be used by
the portfolio managers. See, too, "Description of the Fund, Its Investments and
Risks" in the SAI.
INVESTMENT TYPE
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
--------------------------------------------------------------------------------
SECURITIES OF UTILITY o Inflationary and o Potential for both
COMPANIES other cost increases current income and
in fuel and other capital appreciation
AT LEAST 65% operating expenses,
including costs of o Utilities are
capital, may reduce regulated by the
the profitability of government so earnings
utility companies are more consistent
and less susceptible
o Utilities' earnings to economic cycles
growth may be slower
than that of broad o Most utility stocks
market indexes have higher yields
than other sectors of
o Deregulation of the market
utility companies may
increase competition,
reduce revenues and o Deregulation of
depress their earnings utility companies may
present opportunities
o Changes in regulatory for significant
environment may reduce capital appreciation
the profitability of
utility companies
o See equity-related
securities and debt
securities
--------------------------------------------------------------------------------
EQUITY-RELATED SECURITIES o Individual stocks o Historically, stocks
could lose value have outperformed
UP TO 100% other investments over
o The equity markets the long
could go down
resulting in a decline o Generally, economic
in value of the Fund's growth means higher
investments corporate profits,
which leads to an
o Companies that pay increase in stock
dividends may not do prices, known as
so if they don't have capital appreciation
profits or adequate
cash flow o May be a source of
dividend income
o Changes in economic or
political conditions,
both domestic and
international, may
result in a decline in
value of the Fund's
investments
-------------------------------------------------------------------------------
12 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW THE FUND INVESTS
-------------------------------------------------------------------------------
INVESTMENT TYPE
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
-------------------------------------------------------------------------------
FIXED INCOME o The Fund's holdings, o Bonds have generally
OBLIGATIONS share price, yield and outperformed money
total return may market instruments over
UP TO 35% fluctuate in response the long term with less
to bond market risk than stocks
movements
o Most bonds will rise in
o Credit risk--the value when interest
default of an issuer rates fall
would leave the Fund
with unpaid interest o Regular interest income
or principal. The
lower a bond's o Investment grade bonds
quality, the higher have a lower risk of
its potential default than junk bonds
volatility
o Investment grade bonds
o Market risk--the risk are generally more
that the market value secure than stock since
of an investment may companies must pay
move up or down, their debts before
sometimes rapidly or paying stockholders
unpredictably. Market
risk may affect an o Junk bonds offer higher
industry, a sector or yields and higher
the market as a whole potential gains than
investment grade bonds
o Interest rate risk--
the value of most
bonds will fall when
interest rates rise;
the longer a bond's
maturity and the lower
its credit quality,
the more its value
typically falls. It
can lead to price
volatility,
particularly for
below-investment
grade securities
("junk bonds")
o Junk bonds (rated
BB/Ba or lower) have a
higher risk of
default, tend to be
less liquid and may be
more difficult to
value than investment
grade securities
--------------------------------------------------------------------------------
13
<PAGE>
-------------------------------------------------------------------------------
HOW THE FUND INVESTS
-------------------------------------------------------------------------------
INVESTMENT TYPE
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
-------------------------------------------------------------------------------
FOREIGN SECURITIES o Foreign markets, o Investors can
economies and political participate in the
PERCENTAGE VARIES systems may not be as growth of foreign
stable as in the U.S., markets and companies
particularly those in operating in those
developing countries markets
o Currency risk--changing o May profit from
values of foreign changing value of
currencies can cause foreign currencies
losses
o Opportunities for
o Debt securities issued diversification
by foreign governments
and supranational o Principal and interest
organizations may be on foreign government
backed by limited securities may be
assets in the event of guaranteed
default
o May be less liquid than
U.S. stocks and bonds
o Differences in foreign
laws, accounting
standards, public
information, custody
and settlement
practices may provide
less reliable
information on foreign
investments and may
involve more risk
-------------------------------------------------------------------------------
DERIVATIVES o Derivatives such as o The Fund could make
futures, options and money and protect
PERCENTAGE VARIES foreign currency against losses if the
exchange contracts that investment analysis
are used for hedging proves correct
purposes may not fully
offset the underlying o Derivatives that
positions and this involve leverage could
could result in losses generate substantial
in the Fund that would gains at low cost
not have otherwise
occurred o May be used to hedge
against changes in
o Derivatives used for currency exchange rates
risk management may not
have the intended o One way to manage the
effects and may result Fund's risk/return
in losses or missed balance is by locking
opportunities in the value of an
investment ahead
o The other party to a of time
derivatives contract
could default
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
14 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW THE FUND INVESTS
-------------------------------------------------------------------------------
INVESTMENT TYPE
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
-------------------------------------------------------------------------------
DERIVATIVES (CONTINUED) o Derivatives that involve
leverage could magnify
PERCENTAGE VARIES losses
o Certain types of
derivatives involve
costs to the Fund that
can reduce returns
-------------------------------------------------------------------------------
ILLIQUID SECURITIES o May be difficult to o May offer a more
value precisely attractive yield or
UP TO 15% OF NET ASSETS potential for growth
o May be difficult to than more widely traded
sell at the time or securities
price desired
-------------------------------------------------------------------------------
U.S. GOVERNMENT o Not all are insured or o The U.S. government
SECURITIES guaranteed by the U.S. guarantees interest
government, but only by and principal payments
PERCENTAGE VARIES, AND the issuing agency on certain securities
UP TO 100% ON
A TEMPORARY BASIS o Limits potential for o Generally more secure
capital appreciation than lower quality debt
securities and equity
o Market risk securities
o Interest rate risk o May preserve the Fund's
assets
-------------------------------------------------------------------------------
MONEY MARKET o U.S. government money o May preserve the Fund's
INSTRUMENTS market securities offer assets
a lower yield than
UP TO 100% ON A lower-quality or
TEMPORARY BASIS longer-term securities
o Limits potential for
capital appreciation
o See credit risk and
market risk
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
15
<PAGE>
-------------------------------------------------------------------------------
HOW THE FUND IS MANAGED
-------------------------------------------------------------------------------
BOARD OF DIRECTORS
The Fund's Board of Directors oversees the actions of the Manager, Investment
Adviser and Distributor and decides on general policies. The Board also
oversees the Fund's officers, who conduct and supervise the daily business
operations of the Fund.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077
Under a management agreement with the Fund, PIFM manages the Fund's investment
operations and administers its business affairs. For the fiscal year ended
September 30, 2000, the Fund paid PIFM management fees of .70% of the Fund's
average net assets.
PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of October 31, 2000, PIFM served as the
manager to all 41 of the Prudential mutual funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $77.7 billion.
INVESTMENT ADVISER
WELLINGTON MANAGEMENT COMPANY, LLP ("WELLINGTON MANAGEMENT"), 75 State Street,
Boston, Massachusetts 02109, is the Fund's investment sub-adviser. For the
fiscal year ended September 30, 2000, PIFM paid fees to Wellington Management at
the rate of .50% of the Fund's average net assets. PIFM continues to have
responsibility for all investment advisory services in accordance with the
management agreement and supervises Wellington Management's performance of such
services.
Wellington Management is a Massachusetts limited liability partnership of
which the following persons are managing partners: Duncan M. McFarland, John R.
Ryan and Laurie A. Gabriel. Wellington Management is a professional investment
counseling firm which has provided investment services to investment companies,
employee benefit plans, endowment funds, foundations and other institutions and
individuals since 1928. As of October 31, 2000, Wellington Management held
investment authority over approximately $269 billion of assets. Wellington
Management is not affiliated with the Manager or any of its affiliates.
--------------------------------------------------------------------------------
16 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW THE FUND IS MANAGED
-------------------------------------------------------------------------------
PORTFOLIO MANAGERS
MARK J. BECKWITH, a Senior Vice President and Partner of Wellington
Management, has been responsible for managing the equity portion of the Fund's
portfolio since June 1999. Mr. Beckwith has been a portfolio manager with
Wellington Management since 1995. Mr. Beckwith specializes in utilities analysis
and serves as portfolio manager for a variety of the firm's institutional and
mutual fund clients. Prior to joining Wellington Management, Mr. Beckwith was an
electric utilities analyst and assistant portfolio manager with Silcap, Inc. The
fixed-income portion of the Fund's portfolio has been managed since May 1996 by
EARL E. MCEVOY, a Senior Vice President and Partner of Wellington Management.
Mr. McEvoy has been an investment professional with Wellington Management since
1978 and currently manages significant assets for a variety of the firm's
institutional and mutual fund clients.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has adopted
Distribution and Service Plans in accordance with Rule 12b-1 under the
Investment Company Act for its Class A, B, and C shares. Under the Plans and the
Distribution Agreement, PIMS pays the expenses of distributing the Fund's Class
A, B, C and Z shares and provides certain shareholder support services. The Fund
pays distribution and other fees to PIMS as compensation for its services for
each class of shares other than Class Z. These fees--known as 12b-1 fees--are
shown in the "Fees and Expenses" tables.
-------------------------------------------------------------------------------
17
<PAGE>
--------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
--------------------------------------------------------------------------------
Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS of ordinary income and any
realized net CAPITAL GAINS to shareholders. These distributions are subject to
taxes, unless you hold your shares in a 401(k) plan, an Individual Retirement
Account (IRA) or some other qualified or tax-deferred plan or account. Dividends
and distributions from the Fund also may be subject to state income tax.
Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless you hold your
shares in a qualified or tax-deferred plan or account.
The following briefly discusses some of the important federal tax issues
you should be aware of, but is not meant to be tax advice. For tax advice,
please speak with your tax adviser.
DISTRIBUTIONS
The Fund declares and distributes DIVIDENDS of any net investment income to
shareholders typically every quarter. For example, if the Fund owns ACME Corp.
stock and the stock pays a dividend, the Fund will pay out a portion of this
dividend to its shareholders, assuming the Fund's income is more than its costs
and expenses. The dividends you receive from the Fund will be taxed as ordinary
income, whether or not they are reinvested in the Fund.
The amount of income available for distribution to shareholders will be
affected by any foreign currency gains or losses generated by the Fund and
cannot be predicted. This fact, coupled with the different tax and accounting
treatment of certain currency gains and losses, increases the possibility that
distributions, in whole or in part, may be a return of capital to shareholders.
The Fund also distributes realized net CAPITAL GAINS to shareholders--
typically once a year. Capital gains are generated when the Fund sells its
assets for a profit. For example, if the Fund bought 100 shares of ACME Corp.
stock for a total of $1,000 and more than one year later sold the shares for a
total of $1,500, the Fund has net long-term capital gains of $500, which it will
pass on to shareholders (assuming the Fund's total gains are greater than any
losses it may have). Capital gains are taxed differently depending on how long
the Fund holds the security--if a security is held more than one year before it
is sold, LONG-TERM capital gains are taxed at the rate of 20%, but if the
security is held one year or less, SHORT-TERM capital gains are taxed at
ordinary income rates of up to 39.6%. Different rates apply to corporate
shareholders.
-------------------------------------------------------------------------------
18 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
-------------------------------------------------------------------------------
For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us to
pay the distributions in cash, we will send you a check if your account is with
the Transfer Agent. Otherwise, if your account is with a broker, you will
receive a credit to your account. Either way, the distributions may be subject
to taxes, unless your shares are held in a qualified or tax-deferred plan or
account. For more information about automatic reinvestment and other shareholder
services, see "Step 4: Additional Shareholder Services" in the next section.
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of
dividends and capital gains we distributed to you during the prior year. If you
own shares of the Fund as part of a qualified or tax-deferred plan or account,
your taxes are deferred, so you will not receive a Form 1099. However, you will
receive a Form 1099 when you take any distributions from your qualified or
tax-deferred plan or account.
Fund distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year. Corporate
shareholders are eligible for the 70% dividends-received deduction for certain
dividends.
WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your taxpayer
identification number and certifications as to your tax status, and you fail to
do this, or if you are otherwise subject to backup withholding, we will withhold
and pay to the U.S. Treasury 31% of your distributions and sale proceeds.
Dividends of net investment income and short-term capital gains paid to a
nonresident foreign shareholder generally will be subject to a U.S. withholding
tax of 30%. This rate may be lower, depending on any tax treaty the U.S. may
have with the shareholder's country.
-------------------------------------------------------------------------------
19
<PAGE>
-------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
-------------------------------------------------------------------------------
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to
you. As explained above, the distribution may be subject to income or capital
gains taxes. You may think you've done well, since you bought shares one day and
soon after received a distribution. That is not so because when dividends are
paid out, the value of each share of the Fund decreases by the amount of the
dividend to reflect the payout, although this may not be apparent because the
value of each share of the Fund also will be affected by the market changes, if
any. The distribution you receive makes up for the decrease in share value.
However, the timing of your purchase does mean that part of your investment came
back to you as taxable income.
QUALIFIED AND TAX-DEFERRED RETIREMENT PLANS
Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts, contributions are not tax deductible, but
distributions from the plan may be tax-free. Please contact your financial
adviser for information on a variety of Prudential mutual funds that are
suitable for retirement plans offered by Prudential.
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A
CAPITAL GAIN, which is subject to tax, unless you hold shares in a qualified or
tax-deferred plan or account. The amount of tax you pay depends on how
------------------------------------ long you owned your shares. If you sell
shares of the Fund for a loss, you may have
a capital loss, which you may use to offset
certain capital gains you have.
RECEIPTS [GRAPHIC] CAPITAL GAIN
FROM (taxes owed)
SALE OR
CAPITAL LOSS
(offset against
gain)
------------------------------------
--------------------------------------------------------------------------------
20 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
--------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
-------------------------------------------------------------------------------
If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before the
sale of the shares). If you acquire shares of the Fund and sell your shares
within 90 days, you may not be allowed to include certain charges incurred in
acquiring the shares for purposes of calculating gain or loss realized upon the
sale of the shares.
Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on Form 1099; however, proceeds from the sale or exchange will
be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified or tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Fund shares, as
well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event" because it does not involve an actual sale of
your Class B shares. This opinion, however, is not binding on the Internal
Revenue Service (IRS). For more information about the automatic conversion of
Class B shares, see "Class B Shares Convert to Class A Shares After
Approximately Seven Years" in the next section.
-------------------------------------------------------------------------------
21
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted
to buy or sell shares of the Fund for you, call Prudential Mutual Fund Services
LLC (PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 8179
PHILADELPHIA, PA 19101-8179
You may purchase shares by check or wire. We do not accept cash or money
orders. To purchase by wire, call the number above to obtain an application.
After PMFS receives your completed application, you will receive an account
number. For additional information about purchasing shares of the Fund, see the
back cover page of this prospectus. We have the right to reject any purchase
order (including an exchange into the Fund) or suspend or modify the Fund's sale
of its shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within six years (that is why it is called a Contingent
Deferred Sales Charge, or CDSC), but the operating expenses each year are higher
than Class A share expenses. With Class C shares, you pay a 1% front-end sales
charge and a 1% CDSC if you sell within 18 months of purchase, but the operating
expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:
o The amount of your investment
o The length of time you expect to hold the shares and the impact of
the varying distribution fees
------------------------------------------------------------------------------
22 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
o The different sales charges that apply to each share class--Class
A's front-end sales charge vs. Class B's CDSC vs. Class C's lower
front-end sales charge and low CDSC
o Whether you qualify for any reduction or waiver of sales charges
o The fact that Class B shares automatically convert to Class A
shares approximately seven years after purchase
o Whether you qualify to purchase Class Z shares.
See "How to Sell Your Shares" for a description of the impact of CDSCs.
SHARE CLASS COMPARISON. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum purchase amount(1) $1,000 $1,000 $2,500 None
-------------------------------------------------------------------------------------------------
Minimum amount for $100 $100 $100 None
subsequent purchases(1)
-------------------------------------------------------------------------------------------------
Maximum initial sales charge 5% of the None 1% of the None
public offering public
price offering
price
-------------------------------------------------------------------------------------------------
Contingent Deferred Sales None If sold during: 1% on sales None
Charge (CDSC)(2) Year 1 5% made within
Year 2 4% 18 months
Year 3 3% of purchase(2)
Year 4 2%
Year 5/6 1%
Year 7 0%
-------------------------------------------------------------------------------------------------
Annual distribution and
service (12b-1) fees shown .30 of 1% 1% 1% None
as a percentage of average (.25 of 1%)
net assets(3) (currently)
-------------------------------------------------------------------------------------------------
</TABLE>
(1) The minimum initial investment requirements do not apply to certain
retirement and employee savings plans and custodial accounts for minors. The
minimum investment for purchases made through the Automatic Investment Plan
is $50. For more information, see "Additional Shareholder Services--
Automatic Investment Plan."
(2) For more information about the CDSC and how it is calculated, see "How to
Sell Your Shares -- Contingent Deferred Sales Charge (CDSC)." Class C
shares bought before November 2, 1998 have a 1% CDSCif sold within one year.
(3) These distribution and service fees are paid from the Fund's assets on a
continuous basis. Over time, the fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
The service fee for Class A, Class B and Class C shares is .25 of 1%. The
distribution fee for Class A shares is limited to .30 of 1% (including the
.25 of 1% service fee) and is .75% for Class B and Class C shares. For the
fiscal year ending September 30, 2001, the Distributor of the Fund has
contractually agreed to reduce its distribution and service (12b-1)
fees for Class A shares to .25 of 1% of the average daily net assets
of the Class A shares.
-------------------------------------------------------------------------------
23
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid
paying Class A's initial sales charge.
INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's sales
charge by increasing the amount of your investment. This table shows you how the
sales charge decreases as the amount of your investment increases.
-------------------------------------------------------------------------------
SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED REALLOWANCE
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00% 4.17% 3.75%
$100,000 to $249,999 3.25% 3.36% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.40%
$500,000 to $999,999 2.00% 2.04% 1.90%
$1 million and above* None None None
-------------------------------------------------------------------------------
* If you invest $1 million or more, you can buy only Class A shares, unless you
qualify to buy Class Z shares.
To satisfy the purchase amounts above, you can:
o Invest with an eligible group of related investors
o Buy the Class A shares of two or more Prudential mutual funds at the same
time
o Use your RIGHTS OF ACCUMULATION, which allow you to combine the value of
Prudential mutual fund shares you already own (excluding money market
funds not acquired through the exchange privilege) with the value of the
shares you are purchasing for purposes of determining the applicable
sales charge (note: you must notify the Transfer Agent at the time of
purchase if you qualify for Rights of Accumulation)
o Sign a LETTER OF INTENT stating in writing that you or an eligible group
of related investors will invest a specific dollar amount in the Fund and
other Prudential mutual funds within 13 months.
The Distributor may reallow Class A's sales charges to dealers.
BENEFIT PLANS. Certain group retirement and savings plans may purchase
Class A shares without the initial sales charge if they meet the required
minimum for amount of assets, average account balance or number of eligible
employees. For more information about these requirements, call Prudential at
(800) 353-2847.
-------------------------------------------------------------------------------
24 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
MUTUAL FUND PROGRAMS. The initial sales charge will be waived for investors
in certain programs sponsored by broker-dealers, investment advisers and
financial planners who have agreements with Prudential Investments Advisory
Group relating to:
o Mutual fund "wrap" or asset allocation programs where the sponsor places
Fund trades and charges its clients a management, consulting or other
fee for its services, or
o Mutual fund "supermarket" programs where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor
charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
OTHER TYPES OF INVESTORS. Other investors pay no sales charge, including
certain officers, employees or agents of Prudential and its affiliates,
Prudential mutual funds, the subadvisers of the Prudential mutual funds and
clients of brokers that have entered into a selected dealer agreement with the
Distributor. To qualify for a reduction or waiver of the sales charge, you must
notify the Transfer Agent or your broker at the time of purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Reduction and Waiver of Initial Sales Charge--Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at (800)
353-2847.
INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The
initial sales charge will be waived for purchases of Class C shares if the
purchase is made with money from the redemption of shares of any unaffiliated
investment company, as long as the shares were not held in an account at
Prudential Securities Incorporated (Prudential Securities) or one of its
affili-
-------------------------------------------------------------------------------
25
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
ates. These purchases must be made within 60 days of the redemption. To
qualify for this waiver, you must do one of the following:
o purchase your shares through an account at Prudential Securities,
o purchase your shares through an ADVANTAGE Account or an Investor Account
with Pruco Securities Corporation, or
o purchase your shares through another broker.
This waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify your
broker, who may require any supporting documents it considers appropriate.
QUALIFYING FOR CLASS Z SHARES
BENEFIT PLANS. Certain group retirement plans may purchase Class Z shares
if they meet the required minimum for amount of assets, average account balance
or number of eligible employees. For more information about these requirements,
call Prudential at (800) 353-2847.
MUTUAL FUND PROGRAMS. Class Z shares can also be purchased by participants
in any fee-based program or trust program sponsored by Prudential or an
affiliate that includes the Fund as an available option. Class Z shares can also
be purchased by investors in certain programs sponsored by broker-dealers,
investment advisers and financial planners who have agreements with Prudential
Investments Advisory Group relating to:
o Mutual fund "wrap" or asset allocation programs, where the sponsor
places Fund trades, links its clients' accounts to a master account in
the sponsor's name and charges its clients a management, consulting or
other fee for its services, or
o Mutual fund "supermarket" programs, where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor
charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares of
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and
-------------------------------------------------------------------------------
26 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
other fees charged by these programs in connection with investing in each
available share class before selecting a share class.
Other Types of Investors. Class Z shares of the Fund can also be purchased
by any of the following:
o Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available option,
o Current and former Directors/Trustees of the Prudential mutual funds
(including the Fund), and
o Prudential, with an investment of $10 million or more.
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class A or Class Z
shares from their own resources based on a percentage of the net asset value of
shares sold or otherwise.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we
will automatically convert them into Class A shares without charge. At that
time, we will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than those for Class B shares, converting to Class A shares lowers your
Fund expenses.
When we do the conversion, you will get fewer Class A shares than the
number of Class B shares converted if the price of the Class A shares is higher
than the price of Class B shares. The total dollar value will be the same, so
you will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Conversion Feature--Class B Shares."
-------------------------------------------------------------------------------
27
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the net asset value or NAV--is determined
by a simple calculation--it's the total value of the Fund (assets minus
liabilities) divided by the total number of shares outstanding. For example, if
the value of the investments held by Fund XYZ (minus its liabilities) is $1,000
and there are 100 shares of Fund XYZ owned by shareholders, the price of one
share of the fund -- or the NAV--is $10 ($1,000 divided by 100). Portfolio
securities are valued based upon market quotations or, if not readily available,
at fair value as determined in good faith under procedures established by the
Fund's Board. Most national newspapers report the NAV of most mutual funds,
which allows investors to check the price of mutual funds daily.
--------------------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example if Fund XYZ holds ACME Corp. stock in
its portfolio and the price of ACME stock goes up, while the value of the fund's
other holdings remains the same and expenses don't change, the NAV of Fund XYZ
will increase.
--------------------------------------------------------------------------------
We determine the NAV of our shares once each business day at 4:15 p.m., New
York time, on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on national holidays and Good Friday. Because the Fund may
invest in foreign securities, the NAV can change on days when you cannot buy or
sell shares. We do not determine NAV on days when we have not received any
orders to purchase, sell or exchange Fund shares, or when changes in the value
of the Fund's portfolio do not materially affect the NAV.
WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class A and Class C shares, you'll pay the public offering price, which
is the NAV next determined after we receive your order to purchase, plus an
initial sales charge (unless you're entitled to a waiver). For Class B and Class
Z shares, you will pay the NAV next determined after we receive your order to
purchase (remember, there are no initial sales charges for these share classes).
Your broker may charge you a separate or additional fee for purchases of shares.
-------------------------------------------------------------------------------
28 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
--------------------------------------------------------------------------------
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV, without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends.
Prudential Mutual Fund Services LLC
Attn: Account Maintenance
P.O. Box 8159
Philadelphia, PA 19101
AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Fund for
as little as $50 by having the money automatically withdrawn from your bank or
brokerage account at specified intervals.
RETIREMENT PLAN SERVICES. Prudential offers a wide variety of retirement
plans for individuals and institutions, including large and small businesses.
For information on IRAs, including Roth IRAs or SEP-IRAs for a one-person
business, please contact your financial adviser. If you are interested in
opening a 401(k) or other company-sponsored retirement plan (SIMPLEs, SEP plans,
Keoghs, 403(b) plans, pension and profit-sharing plans), your financial adviser
will help you determine which retirement plan best meets your needs. Complete
instructions about how to establish and maintain your plan and how to open
accounts for you and your employees will be included in the retirement plan kit
you receive in the mail.
THE PRUTECTOR PROGRAM. Optional group term life insurance--which protects
the value of your Prudential mutual fund investment for your beneficiaries
against market declines--is available to investors who purchase their shares
through Prudential. Eligible investors who apply for PruTector cover-
-------------------------------------------------------------------------------
29
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
age after the initial 6-month enrollment period will need to provide
satisfactory evidence of insurability. This insurance is subject to other
restrictions and is not available in all states.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that
will provide you with monthly, quarterly, semi- annual or annual redemption
checks. Remember, the sale of Class B and Class C shares may be subject to a
CDSC.
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report
(along with an updated prospectus) and a semi-annual report which contain
important financial information about the Fund. To reduce Fund expenses, we will
send one annual shareholder report, one semi-annual shareholder report and one
annual prospectus per household, unless you instruct us or your broker
otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at
any time, subject to certain restrictions.
When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, he or she must receive your order to sell by 4:15 p.m., New York
time, to process the sale on that day. Otherwise, contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 8149
PHILADELPHIA, PA 19101
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid delay if you purchase by wire,
certified check or cashier's check. Your broker may charge you a separate or
additional fee for sales of shares.
-------------------------------------------------------------------------------
30 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the
Fund, or when we may delay paying you the proceeds from a sale. As permitted by
the Securities and Exchange Commission, this may happen during unusual market
conditions or emergencies when the Fund can't determine the value of its assets
or sell its holdings. For more information, see the SAI, "Purchase, Redemption
and Pricing of Fund Shares--Sale of Shares."
If you are selling more than $100,000 of shares, you want the redemption
proceeds payable to or sent to someone or some place that is not in our records
or you are a business or a trust and you hold your shares directly with the
Transfer Agent, you will need to have the signature on your sell order signature
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares--Sale
of Shares--Signature Guarantee."
CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares
within 18 months of purchase (one year for Class C shares purchased before
November 2, 1998), you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:
o Amounts representing shares you purchased with reinvested dividends and
distributions
o Amounts representing the increase in NAV above the total amount of
payments for shares made during the past six years for Class B shares
and 18 months for Class C shares (one year for Class C shares purchased
before November 2, 1998)
o Amounts representing the cost of shares held beyond the CDSC period (six
years for Class B shares and 18 months for Class C shares)
Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
--------------------------------------------------------------------------------
31
<PAGE>
--------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
--------------------------------------------------------------------------------
As we noted before in the "Share Class Comparison" chart, the CDSC for
Class B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in
the fourth and 1% in the fifth and sixth years. The rate decreases on the first
day of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares--which is applied to
shares sold within 18 months of purchase (one year for Class C shares purchased
before November 2, 1998). For both Class B and Class C shares, the CDSC is
calculated based on the lesser of the original purchase price or the redemption
proceeds. For purposes of determining how long you've held your shares, all
purchases during the month are grouped together and considered to have been made
on the last day of the month.
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding any
time shares that were held in a money market fund.
WAIVER OF THE CDSC -- CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
o After a shareholder is deceased or disabled (or, in the case of a trust
account, the death or disability of the grantor). This waiver applies to
individual shareholders, as well as shares held in joint tenancy,
provided the shares were purchased before the death or disability
o To provide for certain distributions--made without IRS penalty--from a
tax-deferred retirement plan, IRA or Section 403(b) custodial account
o On certain sales effected through a Systematic Withdrawal Plan.
For more information on the above and other waivers, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred
Sales Charge--Class B Shares."
WAIVER OF THE CDSC -- CLASS C SHARES
BENEFIT PLANS. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or recordkeeping services. The CDSC will also be waived
for certain redemptions by benefit plans sponsored by Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.
--------------------------------------------------------------------------------
32 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the
lesser of $250,000 or 1% of the value of the Fund's net assets, we can then give
you securities from the Fund's portfolio instead of cash. If you want to sell
the securities for cash, you would have to pay the costs charged by a broker.
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we
may sell the rest of your shares (without charging any CDSC) and close your
account. We would do this to minimize the Fund's expenses paid by other
shareholders. We will give you 60 days' notice, during which time you can
purchase additional shares to avoid this action. This involuntary sale does not
apply to shareholders who own their shares as part of a 401(k) plan, an IRA or
some other qualified or tax-deferred plan or account.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund and account
without paying an initial sales charge. Also, if you paid a CDSC when you
redeemed your shares, we will credit your account with the appropriate number of
shares to reflect the amount of the CDSC you paid. In order to take advantage of
this one-time privilege, you must notify the Transfer Agent or your broker at
the time of the repurchase. See the SAI, "Purchase, Redemption and Pricing of
Fund Shares--Sale of Shares."
RETIREMENT PLANS
To sell shares and receive a distribution from a retirement account, call
your broker or the Transfer Agent for a distribution request form. There are
special distribution and income tax withholding requirements for distributions
from retirement plans and you must submit a withholding form with your request
to avoid delay. If your retirement plan account is held for you by your employer
or plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.
-------------------------------------------------------------------------------
33
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Fund for shares of the same class in
certain other Prudential mutual funds--including certain money market funds--if
you satisfy the minimum investment requirements. For example, you can exchange
Class A shares of the Fund for Class A shares of another Prudential mutual fund,
but you can't exchange Class A shares for Class B, Class C or Class Z shares.
Class B and Class C shares may not be exchanged into money market funds other
than Prudential Special Money Market Fund, Inc. After an exchange, upon
redemption, the CDSC will be calculated from the first day of the month after
initial purchase, excluding any time shares were held in a money market fund. We
may change the terms of the exchange privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 8157
PHILADELPHIA, PA 19101
There is no sales charge for such exchanges. However, if you exchange--and
then sell--Class B shares within approximately six years of your original
purchase (five years for Class B shares purchased before January 22, 1990) or
Class C shares within 18 months of your original purchase (one year for Class C
shares purchased before November 2, 1998), you must still pay the applicable
CDSC. If you have exchanged Class B or Class C shares into a money market fund,
the time you hold the shares in the money market account will not be counted in
calculating the required holding periods for CDSC liability.
Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues -- If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than the amount that you paid for them, you may have to pay capital
gains tax. For additional information about exchanging shares, see the SAI,
"Shareholder Investment Account--Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A
-------------------------------------------------------------------------------
34 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
shares. We make such exchanges on a quarterly basis if you qualify for this
exchange privilege. We have obtained a legal opinion that this exchange is not a
"taxable event" for federal income tax purposes. This opinion is not binding on
the IRS.
FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in
the market--also known as "market timing"--may make it very difficult to manage
the Fund's investments. When market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Fund's performance may be hurt. When large dollar amounts are
involved, market timing can also make it difficult to use long-term investment
strategies because we cannot predict how much cash the Fund will have to invest.
When, in our opinion, such activity would have a disruptive effect on portfolio
management, the Fund reserves the right to refuse purchase orders and exchanges
into the Fund by any person, group or commonly controlled account. The decision
may be based upon dollar amount, volume and frequency of trading. The Fund may
notify a market timer of rejection of an exchange or purchase order after the
day the order is placed. If the Fund allows a market timer to trade Fund shares,
it may require the market timer to enter into a written agreement to follow
certain procedures and limitations.
TELEPHONE REDEMPTIONS AND EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must call the Fund before 4:15 p.m., New York time. You will receive a
redemption or exchange amount based on that day's NAV.
The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
-------------------------------------------------------------------------------
35
<PAGE>
-------------------------------------------------------------------------------
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------------------------------------------------
In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail or through your broker.
The telephone redemption and exchange privileges may be modified or
terminated at any time. If this occurs, you will receive a written notice from
the Fund.
-------------------------------------------------------------------------------
36 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants, which appear in the annual report and the SAI and are available
upon request. Additional performance information for each share class is
contained in the annual report, which you can receive at no charge.
-------------------------------------------------------------------------------
37
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
CLASS A SHARES
The financial highlights for the four years ended September 30, 2000 were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the year ended September 30, 1996 were audited by
another independent auditor, whose report was unqualified.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
CLASS A SHARES (FISCAL YEARS ENDED 9-30)
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $17.95 $17.66 $17.52 $15.03 $14.72
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .44(2) .41(2) .46(2) .49 .51
Net realized and unrealized gain (loss)
on investment and foreign
currency transactions (.21) 2.15 1.67 3.34 .73
TOTAL FROM INVESTMENT OPERATIONS .23 2.56 2.13 3.83 1.24
------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.40) (.38) (.46) (.49) (.51)
Distributions in excess of
net investment income -- -- (.02) (.02) --
Distributions from net realized gains (2.17) (1.89) (1.51) (.83) (.42)
TOTAL DISTRIBUTIONS (2.57) (2.27) (1.99) (1.34) (.93)
NET ASSET VALUE, END OF YEAR $15.61 $17.95 $17.66 $17.52 $15.03
TOTAL RETURN(1) .27% 15.36% 12.90% 26.90% 8.65%
-----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $140,736 $139,374 $123,346 $120,825 $112,800
Average Net Assets (000) $138,241 $136,690 $122,384 $116,303 $120,122
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 1.26% 1.17% 1.18% 1.21% 1.30%
Expenses, excluding distribution
fees 1.01% .92% .93% .96% 1.05%
Net investment income 2.59% 2.23% 2.49% 3.00% 3.38%
Portfolio turnover rate 49% 8% 20% 13% 13%
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES.
IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND
SOLD ON THE LAST DAY OF EACH YEAR REPORTED.
(2) CALCULATED BASED UPON WEIGHTED AVERAGE SHARES OUTSTANDING DURING THE YEAR.
-------------------------------------------------------------------------------
38 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
CLASS B SHARES
The financial highlights for the four years ended September 30, 2000 were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the year ended September 30, 1996 were audited by
another independent auditor, whose report was unqualified.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
CLASS B SHARES (FISCAL YEARS ENDED 9-30)
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $17.96 $17.66 $17.52 $15.03 $14.71
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .32(2) .27(2) .32(2) .37 .40
Net realized and unrealized gain (loss)
on investment and foreign
currency transactions (.22) 2.16 1.67 3.34 .74
TOTAL FROM INVESTMENT OPERATIONS .10 2.43 1.99 3.71 1.14
---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.26) (.24) (.32) (.37) (.40)
Distributions in excess of
net investment income -- -- (.02) (.02) --
Distributions from net realized gains (2.17) (1.89) (1.51) (.83) (.42)
TOTAL DISTRIBUTIONS (2.43) (2.13) (1.85) (1.22) (.82)
NET ASSET VALUE, END OF YEAR $15.63 $17.96 $17.66 $17.52 $15.03
TOTAL RETURN(1) (0.42)% 14.49% 12.06% 25.96% 7.90%
---------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $66,648 $132,583 $154,873 $179,270 $187,557
Average net assets (000) $110,769 $154,643 $177,326 $185,693 $210,305
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 2.01% 1.92% 1.93% 1.96% 2.05%
Expenses, excluding distribution fees 1.01% .92% .93% .96% 1.05%
Net investment income 1.84% 1.48% 1.74% 2.25% 2.62%
Portfolio turnover rate 49% 8% 20% 13% 13%
---------------------------------------------------------------------------------------------
</TABLE>
(1) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED.
(2) CALCULATED BASED UPON WEIGHTED AVERAGE SHARES OUTSTANDING DURING THE YEAR.
-------------------------------------------------------------------------------
39
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
CLASS C SHARES
The financial highlights for the four years ended September 30, 2000 were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the year ended September 30, 1996 were audited by
another independent auditor, whose report was unqualified.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
CLASS C SHARES (FISCAL YEARS ENDED 9-30)
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $17.96 $17.66 $17.52 $15.03 $14.71
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .31(2) .27(2) .32(2) .37 .40
Net realized and unrealized gain (loss)
on investment and foreign
currency transactions (.21) 2.16 1.67 3.34 .74
TOTAL FROM INVESTMENT OPERATIONS .10 2.43 1.99 3.71 1.14
-------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.26) (.24) (.32) (.37) (.40)
Distributions in excess of
net investment income -- -- (.02) (.02) --
Distributions from net realized gains (2.17) (1.89) (1.51) (.83) (.42)
TOTAL DISTRIBUTIONS (2.43) (2.13) (1.85) (1.22) (.82)
NET ASSET VALUE, END OF YEAR $15.63 $17.96 $17.66 $17.52 $15.03
TOTAL RETURN(1) (.42)% 14.49% 12.06% 25.96% 7.90%
-------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $948 $1,454 $957 $760 $661
Average net assets (000) $1,130 $1,212 $969 $727 $608
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 2.01% 1.92% 1.93% 1.96% 2.05%
Expenses, excluding distribution fees 1.01% .92% .93% .96% 1.05%
Net investment income 1.83% 1.50% 1.74% 2.25% 2.66%
Portfolio turnover rate 49% 8% 20% 13% 13%
-------------------------------------------------------------------------------------------------
</TABLE>
(1) Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each year
reported.
(2) Calculated based upon weighted average shares outstanding during the year.
-------------------------------------------------------------------------------
40 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
CLASS Z SHARES
The financial highlights for the three years ended September 30, 2000 and for
the period from December 16, 1996 through September 30, 1997 were audited by
PricewaterhouseCoopers LLP, independent accountants, whose report was
unqualified.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
CLASS Z SHARES (FISCAL PERIODS ENDED 9-30)
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997(1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $17.97 $17.68 $17.54 $15.02
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .50(2) .45(4) .50(4) .3(4)
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions (.23) 2.16 1.68 2.59
TOTAL FROM INVESTMENT OPERATIONS .27 2.61 2.18 2.93
------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.46) (.43) (.50) (.34)
Distributions in excess of
net investment income -- -- (.03) (.07)
Distributions from net realized gains (2.17) (1.89) (1.51) --
TOTAL DISTRIBUTIONS (2.63) (2.32) (2.04) (.41)
NET ASSET VALUE, END OF YEAR $15.61 $17.97 $17.68 $17.54
TOTAL RETURN(2) .56% 15.62% 13.18% 19.70%
------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997(1)
------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $5,208 $6,613 $6,065 $53
Average net assets (000) $6,563 $6,847 $4,041 $16
RATIOS TO AVERAGE NET ASSETS:
Expenses, including
distribution fees 1.01% .92% .93% .96%(3)
Expenses, excluding
distribution fees 1.01% .92% .93% .96%
Net investment income 2.89% 2.47% 2.74% 3.25%
Portfolio turnover rate 49% 8% 20% 13%
------------------------------------------------------------------------------------------
</TABLE>
(1) FOR THE PERIOD FROM DECEMBER 16, 1996 (WHEN CLASS Z SHARES WERE FIRST
OFFERED) THROUGH SEPTEMBER 30, 1997.
(2) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS.
IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON
THE LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN
A FULL YEAR IS NOT ANNUALIZED.
(3) ANNUALIZED.
(4) CALCULATED BASED UPON WEIGHTED AVERAGE SHARES OUTSTANDING DURING THE YEAR.
-------------------------------------------------------------------------------
41
<PAGE>
-------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
-------------------------------------------------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or
call us at (800) 225-1852. Read the prospectus carefully before you invest or
send money.
STOCK FUNDS ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL EQUITY FUND, INC. PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL INDEX SERIES FUND CONSERVATIVE GROWTH FUND
PRUDENTIAL STOCK INDEX FUND MODERATE GROWTH FUND
THE PRUDENTIAL INVESTMENT HIGH GROWTH FUND
PORTFOLIOS, INC. THE PRUDENTIAL INVESTMENT PORTFOLIOS,
PRUDENTIAL JENNISON EQUITY INC.
OPPORTUNITY FUND PRUDENTIAL ACTIVE BALANCED FUND
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND GLOBAL FUNDS
PRUDENTIAL SECTOR FUNDS, INC. GLOBAL STOCK FUNDS
PRUDENTIAL FINANCIAL SERVICES FUND PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL HEALTH SCIENCES FUND PRUDENTIAL NATURAL RESOURCES
PRUDENTIAL TECHNOLOGY FUND FUND, INC.
PRUDENTIAL UTILITY FUND PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL SMALL COMPANY FUND, INC. PRUDENTIAL WORLD FUND, INC.
PRUDENTIAL TAX-MANAGED FUNDS PRUDENTIAL GLOBAL GROWTH FUND
PRUDENTIAL TAX-MANAGED EQUITY PRUDENTIAL INTERNATIONAL VALUE FUND
FUND PRUDENTIAL JENNISON INTERNATIONAL
PRUDENTIAL TAX-MANAGED SMALL-CAP GROWTH FUND
FUND, INC. GLOBAL UTILITY FUND, INC.
PRUDENTIAL 20/20 FOCUS FUND TARGET FUNDS
PRUDENTIAL U.S. EMERGING GROWTH INTERNATIONAL EQUITY FUND
FUND, INC.
PRUDENTIAL VALUE FUND GLOBAL BOND FUND
NICHOLAS-APPLEGATE FUND, INC. PRUDENTIAL GLOBAL TOTAL RETURN FUND,
NICHOLAS-APPLEGATE GROWTH INC.
EQUITY FUND
TARGET FUNDS
LARGE CAPITALIZATION GROWTH FUND
LARGE CAPITALIZATION VALUE FUND
SMALL CAPITALIZATION GROWTH FUND
SMALL CAPITALIZATION VALUE FUND
-------------------------------------------------------------------------------
42 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
-------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
-------------------------------------------------------------------------------
BOND FUNDS MONEY MARKET FUNDS
TAXABLE BOND FUNDS TAXABLE MONEY MARKET FUNDS
PRUDENTIAL GOVERNMENT INCOME CASH ACCUMULATION TRUST
FUND, INC. LIQUID ASSETS FUND
PRUDENTIAL HIGH YIELD FUND, INC. NATIONAL MONEY MARKET FUND
PRUDENTIAL HIGH YIELD TOTAL RETURN PRUDENTIAL GOVERNMENT SECURITIES TRUST
FUND, INC. MONEY MARKET SERIES
PRUDENTIAL SHORT-TERM CORPORATE U.S. TREASURY MONEY MARKET SERIES
BOND FUND, INC. PRUDENTIAL SPECIAL MONEY MARKET
INCOME PORTFOLIO FUND, INC.
PRUDENTIAL TOTAL RETURN BOND FUND, INC. MONEY MARKET SERIES
TARGET FUNDS PRUDENTIAL MONEYMART ASSETS, INC.
TOTAL RETURN BOND FUND
TAX-FREE MONEY MARKET FUNDS
TAX-EXEMPT BOND FUNDS PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES CALIFORNIA MONEY MARKET SERIES
CALIFORNIA INCOME SERIES PRUDENTIAL MUNICIPAL SERIES FUND
PRUDENTIAL MUNICIPAL BOND FUND NEW JERSEY MONEY MARKET SERIES
HIGH INCOME SERIES NEW YORK MONEY MARKET SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND COMMAND FUNDS
FLORIDA SERIES COMMAND MONEY FUND
NEW JERSEY SERIES COMMAND GOVERNMENT FUND
NEW YORK SERIES COMMAND TAX-FREE FUND
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS INSTITUTIONAL MONEY MARKET FUNDS
FUND, INC. PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
-------------------------------------------------------------------------------
43
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
NOTES
-------------------------------------------------------------------------------
44 GLOBAL UTILITY FUND, INC. [GRAPHIC OF PHONE] (800) 225-1852
<PAGE>
FOR MORE INFORMATION
-------------------------------------------------------------------------------
Please read this prospectus before you
invest in the Fund and keep it for future
reference. For information or shareholder
questions contact
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 8098
PHILADELPHIA, PA 19101
(800) 225-1852
(732) 482-7555 (Calling from outside the U.S.)
-------------------------------------------------------------------------------
Outside Brokers should contact
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
P.O. BOX 8310
PHILADELPHIA, PA 19101
(800) 778-8769
-------------------------------------------------------------------------------
Visit Prudential's website at
http://www.prudential.com
-------------------------------------------------------------------------------
Additional information about the Fund
can be obtained without charge and can
be found in the following documents
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into
this prospectus)
ANNUAL REPORT
(contains a discussion of the market
conditions and investment strategies
that significantly affect the Fund's
performance)
SEMI-ANNUAL REPORT
You can also obtain copies of Fund
documents from the Securities and
Exchange Commission as follows
BY MAIL
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
By Electronic request
[email protected]
(The SEC charges a fee to copy documents.)
IN PERSON
Public Reference Room in Washington, DC
(For hours of operation, call
1-202-942-8090)
VIA THE INTERNET
on the EDGAR Database at
http://www.sec.gov
--------------------------------------------------------------------------------
CUSIP Numbers NASDAQ Symbols
Class A--37936G-30-3 GLUAX
Class B--37936G-20-4 GLUBX
Class C--37936G-40-2 --
Class Z--37936G-50-1 --
Investment Company Act File No. 811-5695
MF150A [Recycle Logo] Printed on Recycled Paper
<PAGE>
GLOBAL UTILITY FUND, INC.
Statement of Additional Information
dated November 30, 2000
Global Utility Fund, Inc. (the Fund) is an open-end, diversified management
investment company or mutual fund. The Fund's investment objective is to provide
total return, without incurring undue risk, by investing in income-producing
securities of domestic and foreign companies primarily engaged in the utility
industries. Under normal circumstances, at least 65% of the Fund's total assets
will be invested in a diversified portfolio of equity and debt securities of
domestic and foreign utility companies, principally electric,
telecommunications, gas or water companies. There can be no assurance that the
Fund's investment objective will be achieved. See "Description of the Fund, Its
Investments and Risks."
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077, and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated November 30, 2000, a copy
of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund History ............................................................ B-2
Description of the Fund, Its Investments and Risks ...................... B-2
Investment Restrictions ................................................. B-17
Management of the Fund .................................................. B-18
Control Persons and Principal Holders of Securities. .................... B-21
Investment Advisory and Other Services .................................. B-22
Brokerage Allocation and Other Practices ................................ B-26
Capital Shares, Other Securities and Organization ....................... B-27
Purchase, Redemption and Pricing of Fund Shares ......................... B-28
Shareholder Investment Account .......................................... B-37
Net Asset Value ......................................................... B-41
Taxes, Dividends and Distributions ...................................... B-42
Performance Information. ................................................ B-44
Financial Statements .................................................... B-47
Report of Independent Accountants ....................................... B-60
Description of Security Ratings ......................................... A-1
Appendix I-General Investment Information ............................... I-1
Appendix II-Historical Performance Data ................................. II-1
</TABLE>
================================================================================
MF150B
B-1
<PAGE>
FUND HISTORY
The Fund was incorporated under the laws of Maryland on February 21, 1990.
It operated as a closed-end fund until February 1, 1991. Since February 4, 1991,
the Fund has operated as an open-end management investment company under the
Investment Company Act of 1940, as amended (1940 Act).
DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS
(a) CLASSIFICATION. The Fund is a diversified, open-end management
investment company.
(b) AND (c) INVESTMENT STRATEGIES, POLICIES AND RISKS. This section
provides additional information on the principal investment policies and
strategies of the Fund, as well as information on certain non-principal
investment policies and strategies.
The Fund's investment objective is to provide total return, without
incurring undue risk, by investing in income-producing securities of domestic
and foreign companies primarily engaged in the utility industries. The Fund's
total return will consist of current income and growth of capital. Wellington
Management Company LLP, the Fund's subadviser (the Subadviser), will seek to
achieve the Fund's objective by investing, under normal circumstances, at least
65% of the Fund's total assets in a diversified portfolio of common stocks, debt
securities and preferred stocks issued by domestic and foreign companies
primarily engaged in the ownership or operation of facilities used in the
generation, transmission or distribution of electricity, telecommunications, gas
or water. There can be no assurance that the Fund's investment objective will be
achieved. Up to 5% of the above referenced 65% may be invested in options and
futures contracts on securities in the utility industries. In addition, up to
35% of the Fund's assets may be invested in equity and debt securities of
companies outside the utility industry.
UTILITY INDUSTRIES-DESCRIPTION AND RISK FACTORS
Utility companies in the United States and in foreign countries are
generally subject to regulation. In the United States, most utility companies
are regulated by state and/or federal authorities. Such regulation is intended
to ensure appropriate standards of service and adequate capacity to meet public
demand. Prices are also regulated, with the intention of protecting the public
while ensuring that the rate of return earned by utility companies is sufficient
to allow them to attract capital in order to grow and continue to provide
appropriate services. There can be no assurance that such pricing policies or
rates of return will continue in the future.
The nature of regulation of utility industries is evolving both in the
United States and in foreign countries. Changes in regulations in the United
States increasingly allow utility companies to provide services and products
outside their traditional geographic areas and lines of business, creating new
areas of competition within the industries. Furthermore, the Subadviser believes
that the emergence of competition will result in utility companies potentially
earning more than their traditional regulated rates of return. Although certain
companies may develop more profitable opportunities, others may be forced to
defend their core businesses and may be less profitable. The Subadviser seeks to
take advantage of favorable investment opportunities that are expected to arise
from these structural changes. Of course, there can be no assurance that
favorable developments will occur in the future.
Foreign utility companies are also subject to regulation, although such
regulation may or may not be comparable to that in the United States. Foreign
regulatory systems vary from country to country, and may evolve in ways
different from regulation in the United States. See "Foreign Securities" in this
Statement of Additional Information and in the Prospectus.
The Fund's investment policies are designed to enable it to capitalize on
evolving investment opportunities throughout the world. For example, the rapid
growth of certain foreign economies will necessitate expansion of capacity in
the utility industries in those countries. Although many foreign utility
companies currently are government owned, thereby limiting current investment
opportunities for the Fund, the Subadviser believes that in order to attract
significant capital for growth foreign governments are likely to seek global
investors through the privatization of their utility industries. Privatization,
which refers to the trend toward investor ownership of assets rather than
government ownership, is expected to occur in newer, faster-growing economies
and also in more mature economies. In addition, the economic unification of
European markets is expected to improve economic growth, reduce costs and
increase competition in Europe, which will result in opportunities for
investment by the Fund in European utility industries. Of course, there is no
assurance that such favorable developments will occur or that investment
opportunities in foreign markets for the Fund will increase.
The revenues of domestic and foreign utility companies generally reflect
the economic growth and developments in the geographic areas in which they do
business. The Subadviser takes into account anticipated economic growth rates
and other economic developments when selecting securities of utility companies.
Further descriptions of some of the anticipated opportunities and risks of
specific segments within the global utility industries are set forth below.
B-2
<PAGE>
ELECTRIC. The electric utility industry consists of companies that are
engaged principally in the generation, transmission and sale of electric energy,
although many such companies also provide other energy-related services.
Domestic electric utility companies in general recently have been favorably
affected by lower fuel and financing costs and the full or near completion of
major construction programs. In addition, many of these companies recently have
generated cash flows in excess of current operating expenses and construction
expenditures, permitting some degree of diversification into unregulated
businesses. Some electric utilities have also taken advantage of the right to
sell power outside of their traditional geographic areas. Electric utility
companies have historically been subject to the risks associated with increases
in fuel and other operating costs, high interest costs on borrowings needed for
capital construction programs, costs associated with compliance with
environmental, nuclear facility and other safety regulations and changes in the
regulatory climate. For example, in the United States, the construction and
operation of nuclear power facilities is subject to increased scrutiny by, and
evolving regulations of, the Nuclear Regulatory Commission. Increased scrutiny
might result in higher operating costs and higher capital expenditures, with the
risk that regulators may disallow inclusion of these costs in rate
authorizations.
TELECOMMUNICATIONS. The telephone communications industry is a distinct
utility industry segment that is subject to different risks and opportunities.
Companies that provide telephone services and access to the telephone networks
comprise the largest portion of this segment. The telephone industry is large
and highly concentrated. Telephone companies in the United States are still
experiencing the effects of the break-up of American Telephone & Telegraph
Company, which occurred in 1984. Since that date the number of local and
long-distance companies and the competition among such companies has increased.
In addition, since 1984, companies engaged in telephone communication services
have expanded their nonregulated activities into other businesses, including
cellular telephone services, data processing, equipment retailing and software
services. This expansion has provided significant opportunities for certain
telephone companies to increase their earnings and dividends at faster rates
than have been allowed in traditional regulated businesses. Increasing
competition and other structural changes, however, could adversely affect the
profitability of such utilities.
GAS. Gas transmission companies and gas distribution companies are also
undergoing significant changes. In the United States, interstate transmission
companies are regulated by the Federal Energy Regulatory Commission, which is
reducing its regulation of the industry. Many companies have diversified into
oil and gas exploration and development, making returns more sensitive to energy
prices. In the recent decade, gas utility companies have been adversely affected
by disruption in the oil industry and have also been affected by increased
concentration and competition. In the opinion of the Subadviser, however,
environmental considerations could improve the gas industry outlook in the
future. For example, natural gas is the cleanest of the hydrocarbon fuels and
this may result in incremental shifts in fuel consumption toward natural gas and
away from oil and coal.
WATER. Water supply utilities are companies that collect, purify,
distribute and sell water. In the United States and around the world, the
industry is highly fragmented, because most of the supplies are owned by local
authorities. Companies in this industry are generally mature and are
experiencing little or no per capita volume growth. In the opinion of the
Subadviser, there may be opportunities for certain companies to acquire other
water utility companies. The Subadviser believes that favorable investment
opportunities may result from consolidation within this industry.
There can be no assurance that the positive developments noted above,
including those relating to business growth and changing regulation, will occur
or that risk factors other than those noted above will not develop in the
future.
FOREIGN SECURITIES
Foreign securities in which the Fund invests generally will be denominated
in foreign currencies and will be traded on foreign markets, including foreign
stock exchanges. Foreign securities also may include securities of foreign
issuers that are traded in U.S. dollars in the United States although the
underlying security is usually denominated in a foreign currency. These
securities include, but are not limited to, securities traded in the form of
American Depository Receipts (ADRs) and securities registered in the United
States by foreign (including Canadian) governmental or private issuers, foreign
banks and foreign branches of U.S. banks. These securities also include European
Depository Receipts and Global Depository Receipts (EDRs and GDRs,
respectively).
Restrictions and controls on investment in the securities markets of some
countries may have an adverse effect on the availability and costs to the Fund
of investments in those countries. Costs may be incurred in connection with
conversions between various currencies. Moreover, there may be less publicly
available information about foreign issuers than about domestic issuers, and
foreign issuers generally are not subject to accounting, auditing and financial
reporting standards and requirements comparable to those of domestic issuers.
The value of the assets of the Fund as measured in U.S. dollars also may be
affected favorably or unfavorably by fluctuations in currency rates and exchange
control regulations. A change in the value of any such currency relative to the
U.S.
B-3
<PAGE>
dollar will result in a corresponding change in the U.S. dollar value of the
Fund's assets denominated in that currency. These changes will also affect the
Fund's return, income and distributions to shareholders. In addition, although
the Fund will receive income in such currencies, the Fund will be required to
compute and distribute its income in U.S. dollars. Therefore, if the value of
the U.S. dollar strengthens against a foreign currency after the Fund's income
has been accrued and translated into U.S. dollars, the Fund would experience a
foreign currency loss. Similarly, if the U.S. dollar value weakens against a
foreign currency between the time the Fund incurs expenses and the time such
expenses are paid, the amount of such currency required to be converted into
U.S. dollars in order to pay such expenses in U.S. dollars will be greater than
the equivalent amount of such currency at the time such expenses were incurred.
Under the Internal Revenue Code of 1986, as amended (the Code), changes in an
exchange rate which occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities will result in foreign exchange gains or losses that increase or
decrease investment company taxable income. Similarly, dispositions of certain
debt securities (by sale, at maturity or otherwise) at a U.S. dollar value that
is higher or lower than the Fund's original U.S. dollar cost may result in
foreign exchange gains or losses, which will increase or decrease investment
company taxable income. To the extent the Fund's currency exchange transactions
do not fully protect the Fund against adverse changes in exchange rates,
decreases in the value of the currencies of the countries in which the Fund
invests relative to the U.S. dollar will result in a corresponding decrease in
the U.S. dollar value of the Fund's assets denominated in those currencies. The
exchange rates between the U.S. dollar and other currencies can be volatile and
are determined by factors such as supply and demand in the currency exchange
markets, international balances of payments, government intervention,
speculation and other economic and political conditions.
The costs attributable to foreign investing that the Fund must bear are
higher than those attributable to domestic investing. For example, the cost of
maintaining custody of foreign securities generally exceeds custodian costs for
domestic securities, and transaction and settlement costs of foreign investing
also frequently are higher than those attributable to domestic investing.
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other government taxes that could reduce
the return to investors on these securities. Tax treaties between the United
States and certain foreign countries, however, may reduce or eliminate the
amount of foreign tax to which the Fund would be subject. See "Taxes, Dividends
and Distributions."
The Fund may invest in debt securities issued by supranational
organizations such as the World Bank, the European Investment Bank, the European
Coal and Steel Community and the Asian Development Bank.
The Fund may invest in debt securities issued by "semi-governmental
entities" such as entities owned by a national, state or equivalent government
or are obligations of a political unit that are not backed by a national
government's "full faith and credit" and general taxing powers. Examples of
semi-governmental issuers include, among others, the Province of Ontario and the
City of Stockholm.
Foreign government securities also include mortgage-backed securities
issued or guaranteed by foreign entities including semi-governmental entities
and Brady Bonds, which are long-term bonds issued by governmental entities in
developing countries as part of a restructuring of their commercial loans.
A change in the value of a foreign currency against the US. dollar will
result in a corresponding change in the U.S. dollar value of the Fund's assets
denominated in that currency. These currency fluctuations can result in gains or
losses for the Fund. For example, if a foreign security increases in value as
measured in its currency, an increase in value of the U.S. dollar, relative to
the currency in which the foreign security is denominated, can offset some or
all of such gains. These currency changes will also affect the Fund's return,
income and distributions to shareholders. In addition, although the Fund will
receive income in such currencies, the Fund will be required to compute and
distribute its income in U.S. dollars. Therefore, if the exchange rate for any
such currency decreases after the Fund's income has been accrued and translated
into U.S. dollars, the Fund could be required to liquidate portfolio securities
to make such distributions. Similarly, if an exchange rate for any such currency
decreases between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the amount of such currency required to be converted
into U.S. dollars in order to pay such expenses in U.S. dollars will be greater
than the equivalent amount of such currency at the time such expenses were
incurred. Under the Code, changes in an exchange rate which occur between the
time the Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities will result in foreign
exchange gains or losses that increase or decrease distributable net investment
income. Similarly, dispositions of certain debt securities (by sale, at maturity
or otherwise) at a U.S. dollar amount that is higher or lower than the Fund's
original U.S. dollar cost may result in foreign exchange gains or losses, which
will increase or decrease distributable net investment income. Gains and losses
on security and currency transactions cannot be predicted. This fact coupled
with the different tax
B-4
<PAGE>
and accounting treatment of certain currency gains and losses increases the
likelihood of distributions in whole or in part constituting a return of capital
to shareholders.
The Fund's interest income from foreign government securities issued in
local markets may, in some cases, be subject to applicable withholding taxes
imposed by governments in such markets. The Fund may sell a foreign security it
owns prior to maturity in order to avoid foreign withholding taxes on dividend
and interest income and buy back the same security for a future settlement date.
Interest on foreign government securities is not generally subject to foreign
withholding taxes. See "Taxes, Dividends and Distributions."
Returns available from foreign currency denominated debt instruments can be
adversely affected by changes in exchange rates. The Fund's investment adviser
believes that the use of foreign currency hedging techniques, including
"cross-currency hedges" may assist, under certain conditions, in helping to
protect against declines in the U.S. dollar value of income available for
distribution to shareholders and declines in the U.S. dollar value of income
available for distribution to shareholders and declines in the net asset value
of the Fund's shares resulting from adverse changes in currency exchange rates.
For example, the return available from securities denominated in a particular
foreign currency would diminish in the event the value of the U.S. dollar
increased against such currency. Such a decline could be partially or completely
offset by an increase in value of cross-currency hedges involving a forward
contract to sell a different foreign currency, where such contract is available
on terms more advantageous to the Fund than a contract to sell the currency in
which the position being hedged is denominated. Cross-currency hedges can,
therefore, under certain conditions, provide protection of net asset value in
the event of a general rise in the U.S. dollar against foreign currencies.
However, there can be no assurance that the Fund will be able to engage in
cross-currency hedging or that foreign exchange rate relationships will be
sufficiently predictable to enable the investment adviser to employ
cross-currency hedging techniques successfully. A cross-currency hedge cannot
protect against exchange rate risks perfectly, and if the investment adviser is
incorrect in its judgment of future exchange rate relationships, the Fund could
be in a less advantageous position than if such a hedge had not been
established.
RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN
EURO-DENOMINATED SECURITIES
On January 1, 1999, 11 of the 15 member states of the European Monetary
Union introduced the "euro" as a common currency. During a three year
transitional period, the euro will coexist with each participating state's
currency and on July 1, 2002, the euro is expected to become the sole currency
of the participating states. During the transition period, the Fund will treat
the euro as a separate currency from that of any participating state.
The conversion may adversely affect the Fund if the euro does not take
effect as planned; if a participating state withdraws from the European Monetary
Union; or if the computing, accounting and trading systems used by the Fund's
service providers, or by entities with which the Fund or its service providers
do business, are not capable of recognizing the euro as a distinct currency at
the time of, and following, euro conversion. In addition, the conversion could
cause markets to become more volatile.
The overall effect of the transition of member states' currencies to the
euro is not known at this time. It is likely that more general short- and
long-term ramifications can be expected, such as changes in the economic
environment and change in the behavior of investors, which would affect the
Fund's investments and its net asset value. In addition, although U.S. Treasury
regulations generally provide that the euro conversion will not, in itself,
cause a U.S. taxpayer to realize gain or loss, other changes that may occur at
the time of the conversion, such as accrual periods, holiday conventions,
indices, and other features may require the realization of a gain or loss by the
Fund as determined under exisiting tax law.
The Fund's Manager has taken steps: (1) that it believes will reasonably
address euro-related changes to enable the Fund and its service providers to
process transactions accurately and completely with minimal disruption to
business activities and (2) to obtain reasonable assurances that appropriate
steps have been taken by the Fund's other service providers to address the
conversion. The Fund has not borne any expense relating to these actions.
OTHER INVESTMENT STRATEGIES
At the discretion of the Subadviser, the Fund may employ the following
strategies in pursuing its investment objective.
LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. As described in the
Prospectus, consistent with applicable regulatory requirements, the Fund may
lend securities valued at up to 30% of its total assets to brokers, dealers,
banks or other recognized institutional borrowers of securities, provided that
such loans are callable at any time by the Fund and are at all times secured by
cash or equivalent collateral that is equal to at least the market value,
determined daily, of the loaned securities. If the borrower fails to maintain
the requisite amount of collateral, the loan automatically terminates and the
Fund could use the collateral to replace the securities while holding the
borrower liable for any excess of the replacement cost over the value of the
collateral. As with any extension of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. On termination of the loan, the
borrower is required to return the securities to the Fund, and any gain or loss
in the market price during the loan would inure to the Fund. The Fund may pay
reasonable administrative and custodial fees in connection with loans of its
securities.
The Fund may purchase U.S. Government securities and concurrently enter
into "repurchase agreements" with the seller of the securities whereby the
seller agrees to repurchase the securities at a specified price within a
specified time (generally one business day). The Fund's repurchase agreements
will at all times be fully collateralized in an amount at least equal to the
repurchase price, including accrued interest earned on the loan. The collateral
will be held by the Fund's custodian bank, either physically or in a book-entry
account. The Fund will not enter into a repurchase agreement with a maturity of
more than seven days if, as a result, more than 10% of the value of its total
assets would be invested in such repurchase agreements and other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market.
The Fund will enter into securities lending and repurchase agreement
transactions only with parties that meet creditworthiness standards approved by
the Fund's Board of Directors. The Subadviser will monitor and evaluate the
creditworthiness of such parties under the general supervision of the Board of
Directors. In the event of a default or bankruptcy by a counterparty, the Fund
will promptly seek to liquidate the collateral. To the extent that the proceeds
from any sale of such collateral upon a default in the obligation to repurchase
are less than the repurchase price, the Fund will suffer a loss.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. From time to time in the
ordinary course of business, the Fund may purchase securities on a when-issued
or delayed delivery basis, i.e., delivery and payment can take place as much as
a month or more after the date of the transaction. The purchase price and other
terms of the securities are fixed on the transaction date. Such investments are
subject to market fluctuation, and no interest accrues to the Fund until
delivery and payment take place. At the time the Fund makes the commitment to
purchase securities on a when-issued or delayed delivery basis, it will record
the transaction and thereafter reflect the value of such investments in
determining its net asset value on each day that net asset
B-5
<PAGE>
value is determined. The Fund will make commitments for such when-issued
transactions only with the intention of actually acquiring the underlying
securities. To facilitate such acquisitions, the Fund's custodian bank will
maintain, in a separate account of the Fund, cash or other liquid assets having
a value equal to or greater than such commitments. On delivery dates for such
transactions, the Fund will meet its obligations from maturities or sales of
securities held in the separate account and/or from then available cash flow. If
the Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition, it could, as with the disposition of other assets held in
its portfolio, incur a gain or loss due to market fluctuation.
HIGH YIELD SECURITIES. Fixed-income securities are subject to the risk of
an issuer's inability to meet principal and interest payments on the obligations
(credit risk) and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (market risk). Below-investment grade or
unrated (i.e., high yield) securities, commonly known as "junk bonds," are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in the general level
of interest rates. The Subadviser considers both credit risk and market risk in
making investment decisions for the Fund. Investors should carefully consider
the relative risks of investing in high yield securities and understand that
such securities are not generally meant for short-term investing.
Below-investment grade or unrated debt obligations also present risks based
on payment expectations. If an issuer calls the obligation for redemption, the
Fund may have to replace the security with a lower yielding security, resulting
in a decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher quality securities, resulting
in a decline in the overall credit quality of the Fund's portfolio and
increasing the exposure of the Fund to the risks of high yield securities.
ADDITIONAL INVESTMENT POLICIES
In seeking to protect against the effect of changes in interest rates or
currency exchange rates that are adverse to the present or prospective position
of the Fund and to enhance returns, the Fund may employ certain hedging, yield
enhancement and risk management techniques including the purchase and sale of
options, futures and options on futures on equity and debt securities, indices
of prices of equity and debt securities, other financial indices, foreign
currencies and forward contracts on foreign currencies. The Fund's ability to
engage in these practices may be limited by tax considerations and certain other
legal considerations. See "Taxes, Dividends and Distributions."
OPTIONS ON SECURITIES
The Fund may purchase put and call options and write put and call options
on equity and debt securities, aggregates of equity and debt securities or
indices of prices thereof, other financial indices and foreign currencies. These
may include options traded on U.S. or foreign exchanges and options traded in
U.S. or foreign over-the-counter (OTC) markets. Currently, many options on
equity securities and options on currencies are exchange-traded, whereas options
on debt securities are primarily traded on the OTC market.
When the Fund writes an option, it receives a premium that it retains
whether or not the option is exercised. The Fund's principal objective in
writing options is to realize, through the receipt of premiums, a greater return
than would be realized on the underlying securities alone.
The purchaser of a call option has the right, for a specified period of
time, to purchase the securities subject to the option at a specified price (the
exercise price or strike price). By writing a call option, the Fund becomes
obligated during the term of the option, upon exercise of the option, to sell,
depending upon the terms of the option contract, the underlying securities or a
specified amount of cash to the purchaser against receipt of the exercise price.
When the Fund writes a call option, the Fund loses the potential for a gain on
the underlying securities in excess of the exercise price of the option during
the period that the option is open.
Conversely, the purchaser of a put option has the right, for a specified
period of time, to sell the securities subject to the option to the writer of
the put at the specified exercise price. By writing a put option, the Fund
becomes obligated during the term of the option, upon exercise of the option, to
purchase the securities underlying the option at the exercise price. The Fund
might, therefore, be obligated to purchase the underlying securities for more
than their current market price.
The Fund may write only "covered" options or options for which it
establishes and maintains with its Custodian for the term of the option a
segregated account consisting of cash, U.S. government securities, equity
securities or other liquid, unencumbered assets, marked-to-market daily, having
a value at least equal to the fluctuating market value of the optioned
securities. An option is covered so long as the Fund is obligated as the writer
of a call option, to own the underlying securities subject to the option or an
option to purchase the same underlying securities, having an exercise price
equal to or less than
B-6
<PAGE>
the exercise price of the "covered" option. A put option written by the Fund
will be considered "covered" if, so long as the Fund is obligated as the writer
of the option, it owns an option to sell the underlying securities subject to
the option having an exercise price equal to or greater than the exercise price
of the "covered" option; otherwise the Fund will deposit and maintain with its
Custodian in a segregated account cash, U.S. government securities, equity
securities or other liquid, unencumbered assets, marked-to-market daily, having
a value equal to or greater than the exercise price of the option.
The Fund may also buy and write straddles (i.e., a combination of a call
and a put written on the same security at the same exercise price where the same
issue of the security is considered "cover" for both the put and the call). In
such cases, the Fund will also deposit in a segregated account with its
Custodian cash, U.S. government securities, equity securities or other liquid,
unencumbered assets, marked-to-market daily, equivalent in value to the amount,
if any, by which the put is "in-the-money," i.e., the amount by which the
exercise price of the put exceeds the current market value of the underlying
security.
The Fund may write both American style options and European style options.
An American style option is an option that may be exercised by the holder at any
time prior to its expiration. A European style option, however, may only be
exercised as of the expiration of the option. The writer of an American style
option has no control over when the underlying securities must be sold, in the
case of a call option, or purchased, in the case of a put option, since such
options may be exercised by the holder at any time prior to the expiration of
the option. Whether or not an option expires unexercised, the writer retains the
amount of the premium. This amount may be offset or exceeded, in the case of a
covered call option, by a decline and, in the case of a covered put option, by
an increase in the market value of the underlying security during the option
period. If a call option is exercised the writer must fulfill the obligation to
sell the underlying security at the exercise price, which will usually be lower
than the then market value of the underlying security. If a put option is
exercised, the writer must fulfill the obligation to purchase the underlying
security at the exercise price, which will usually exceed the then market value
of the underlying security.
The writer of an exchange-traded option that wishes to terminate its
obligation may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. (Options
of the same series are options with respect to the same underlying security,
having the same expiration date and the same strike price.) The effect of the
purchase is that the writer's position will be canceled by the exchange's
affiliated clearing organization. However, the writer of an option may not
effect a closing purchase transaction after being notified of the exercise of
the option. Likewise, an investor who is the holder of an option may liquidate a
position by effecting a "closing sale transaction." This is accomplished by
selling an option of the same series as the option previously purchased. There
is no guarantee that either a closing purchase or a closing sale transaction can
be effected.
An exchange-traded option position may be closed out only where there
exists a secondary market for an option of the same series. If a secondary
market does not exist, it might not be possible to effect closing transactions
in a particular option the Fund has purchased with the result that the Fund
would have to exercise the option in order to realize any profit. If the Fund is
unable to effect a closing purchase transaction in a secondary market in an
option the Fund has written, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon exercise or
it otherwise covers its position. Reasons for the absence of a liquid secondary
market include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by a securities exchange
(Exchange) on opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an Exchange; (v)
the facilities of an Exchange or clearing organization may not at all times be
adequate to handle current trading volume; or (vi) one or more Exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue trading of options (or a particular class or series of options), in
which event the secondary market on that Exchange (or in that class or series of
options) would cease to exist, although outstanding options would continue to be
exercisable in accordance with their terms.
Exchange-traded options in the U.S. are issued by clearing organizations
affiliated with the Exchange on which the option is listed which, in effect,
give their guarantee to every exchange-traded option transaction. In contrast,
OTC options are contracts between the Fund and its contra-party with no clearing
organization guarantee. Thus when the Fund purchases an OTC option, it relies on
the dealer from which it has purchased the OTC option to make or take delivery
of the securities underlying the option. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as the loss of the
expected benefit of the transaction. The Board of Directors will evaluate the
creditworthiness of any dealer from which the Fund proposes to purchase options.
Exchange-traded options generally have a continuous liquid market while OTC
options may not. Consequently, the Fund will generally be able to realize the
value of an OTC option it has purchased only by exercising it or reselling it to
the dealer who issued it. Similarly, when the Fund writes an OTC option, it
generally will be able to close out the OTC option prior to its expiration
B-7
<PAGE>
only by entering into a closing purchase transaction with the dealer to which
the Fund originally sold the OTC option. While the Fund will enter into OTC
options only with dealers which agree to, and which are expected to be capable
of, entering into closing transactions with the Fund, there can be no assurance
that the Fund will be able to liquidate an OTC option at a favorable price at
any time prior to expiration. Until the Fund is able to effect a closing
purchase transaction in a covered OTC call option the Fund has written, it will
not be able to liquidate securities used as cover until the option expires or is
exercised or different cover is substituted. In the event of insolvency of the
contra-party, the Fund may be unable to liquidate an OTC option. With respect to
options written by the Fund, inability to enter into a closing purchase
transaction may result in material losses to the Fund. For example, since the
Fund must maintain a covered position with respect to any call option on a
security it writes, the Fund may be limited in its ability to sell the
underlying security while the option is outstanding. This may impair the Fund's
ability to sell a portfolio security at a time when such a sale might be
advantageous.
The Fund may write options in connection with buy-and-write transactions;
that is, the Fund may purchase a security and concurrently write a call option
against that security. The exercise price of the call the Fund determines to
write will depend upon the expected price movement of the underlying security.
The exercise price of a call option may be below (in-the-money), equal to
(at-the-money) or above (out-of-the-money) the current value of the underlying
security at the time the option is written. Buy-and-write transactions using
in-the-money call options may be used when it is expected that the price of the
underlying security will remain flat or decline moderately during the option
period. Buy-and-write transactions using at-the-money call options may be used
when it is expected that the price of the underlying security will remain fixed
or advance moderately during the option period. A buy-and-write transaction
using an out-of-the-money call option may be used when it is expected that the
premium received from writing the call option plus the appreciation in the
market price of the underlying security up to the exercise price will be greater
than the appreciation in the price of the underlying security alone. If the call
option is exercised in such a transaction, the Fund's maximum gain will be the
premium received by it for writing the option, adjusted upwards or downwards by
the difference between the Fund's purchase price of the security and the
exercise price of the option. If the option is not exercised and the price of
the underlying security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close out the position or
take delivery of the underlying security at the exercise price. In that case,
the Fund's return will be the premium received from writing the put option,
minus the amount by which the market price of the security is below the exercise
price. Out-of-the-money, at-the-money and in-the-money covered put options may
be written by the Fund in the same market environments in which call options are
written in equivalent buy-and-write transactions.
The Fund may purchase a call option on a security it intends to acquire in
order to hedge against (and thereby benefit from) an anticipated market
appreciation in the price of the underlying security at limited risk and with a
limited cash outlay. If the market price does rise as anticipated, the Fund will
benefit from that rise but only to the extent that the rise exceeds the premium
paid. If the anticipated rise does not occur or if it does not exceed the
premium, the Fund will bear the expense of the option premium without gaining an
offsetting benefit.
The Fund may purchase put options on securities to hedge against a decline
in the value of its portfolio. If the market price of the Fund's portfolio
should increase, however, the profit which the Fund might otherwise have
realized will be reduced by the amount of the premium paid for the put option
and by transaction costs. The Fund may purchase call options on securities to
hedge against an anticipated rise in the price it will have to pay for
securities it intends to buy in the future. If the market price of the
securities should fall instead of rise, however, the benefit the Fund obtains
from purchasing the securities at a lower price will be reduced by both the
amount of the premium paid for the call options and transaction costs.
The Fund may purchase put options if the Fund believes that a defensive
posture is warranted for all or a portion of its portfolio. Protection is
provided during the life of the put because the put gives the Fund the right to
sell the underlying security at the put exercise price, regardless of a decline
in the underlying security's market price below the exercise price. This right
limits the Fund's losses from the security's possible decline in value below the
strike price of the option to the premium paid for the put option and related
transaction costs.
The Fund may wish to protect certain portfolio securities against a decline
in market value at a time when put options on those particular securities are
not available for purchase. The Fund may therefore purchase a put option on
other carefully selected securities, the values of which historically have a
high degree of positive correlation to the values of such portfolio securities.
If the Subadviser's judgement is correct, changes in the value of the put
options should generally offset changes in the value of the portfolio securities
being hedged. But the correlation between the two values may not be as close in
these
B-8
<PAGE>
transactions as in transactions in which the Fund purchases a put option on an
underlying security it owns. If the Subadviser's judgement is not correct, the
value of the securities underlying the put option may decrease less than the
value of the Fund's portfolio securities and therefore the put option may not
provide complete protection against a decline in the value of the Fund's
portfolio securities below the level sought to be protected by the put option.
The Fund may similarly wish to hedge against appreciation in the value of
securities that it intends to acquire at a time when call options on such
securities are not available. The Fund may, therefore, purchase call options on
other carefully selected securities, the values of which historically have a
high degree of positive correlation to values of securities that the Fund
intends to acquire. In such circumstances the Fund will be subject to risks
analogous to those summarized immediately above in the event that the
correlation between the value of call options so purchased and the value of the
securities intended to be acquired by the Fund is not as close as anticipated
and the value of the securities underlying the call options increases less than
the value of the securities to be acquired by the Fund.
FUTURES CONTRACTS
The Fund will enter into futures contracts only for certain bona fide
hedging, return enhancement and risk management purposes. The Fund may enter
into futures contracts for the purchase or sale of equity and debt securities,
aggregates of debt securities or indices of prices thereof, aggregates of equity
securities or indices of prices thereof, and other financial indices. It may
also enter futures contracts for the purchase or sale of foreign currencies
(such as the Japanese Yen, the British Pound and the German Mark) or composite
foreign currencies (such as the European Currency Unit) in which securities held
or to be acquired by the Fund are denominated, or the value of which have a high
degree of positive correlation to the value of such currencies as to constitute
an appropriate vehicle for hedging. The Fund may enter into such futures
contracts both on U.S. and foreign exchanges.
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time. A
"purchase" of a futures contract (or a "long" futures position) means the
assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price at a specified future time. Certain
futures contracts are settled on a net cash payment basis rather than by the
sale and delivery of the securities or currency underlying the futures
contracts. U.S. futures contracts have been designed by exchanges that have been
designated as "contract markets" by the Commodity Futures Trading Commission
(the CFTC), an agency of the U.S. government, and must be executed through a
futures commission merchant (i.e., a brokerage firm) which is a member of the
relevant contract market. Futures contracts trade on these contract markets and
the exchange's affiliated clearing organization guarantees performance of the
contracts as between the clearing members of the exchange.
At the time a futures contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment (initial margin). It is expected that
the initial margin on U.S. exchanges will vary from 3% to 15% of the value of
the securities or the commodities underlying the contract. Under certain
circumstances, however, such as periods of high volatility, the Fund may be
required by an exchange to increase the level of its initial margin payment.
Thereafter, the futures contract is valued daily and the payment in cash of
"variation margin" may be required, a process known as "mark to market." Each
day the Fund is required to provide or is entitled to receive variation margin
in an amount equal to any decline (in the case of a long futures position) or
increase (in the case of short futures position) in the contract's value since
the preceding day.
Although futures contracts by their terms may call for the actual delivery
or acquisition of underlying securities or currency, in most cases the
contractual obligation is extinguished or offset before the expiration of the
contract without having to make or take delivery of the securities or currency.
The offsetting of a contractual obligation is accomplished by buying (to offset
an earlier sale) or selling (to offset an earlier purchase) an identical futures
contract calling for delivery in the same month. Such a transaction cancels the
obligation to make or take delivery of the underlying securities or currency. In
all transactions on a U.S. futures exchange, the Fund will incur brokerage fees
and related transaction costs when it purchases or sells futures contracts. The
Fund may also incur brokerage fees and related transaction costs when it
purchases or sells futures contracts in markets outside the United States.
The ordinary spreads between values in the cash and futures markets, due to
differences in the character of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationships between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing price distortions. Third,
from the point of view of speculators, the margin deposit requirements in the
futures market are less onerous than
B-9
<PAGE>
margin requirements in the securities market. Increased participation by
speculators in the futures market may cause temporary price distortions. Due to
the possibility of distortion, a correct forecast of general interest rate
trends by the Subadviser may still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Fund believes
that use of such contracts will benefit the Fund, if the Subadviser's judgment
about the general direction of interest rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any such contracts.
For example, if the Fund has hedged against the possibility of an increase in
interest rates which would adversely affect the price of debt securities held in
its portfolio and interest rates decrease instead, the Fund will lose part or
all of the benefit of the increased value of its assets which it has hedged
because it will have offsetting losses in its futures positions. In addition,
particularly in such situations, if the Fund has insufficient cash, it may have
to sell assets from its portfolio to meet daily variation margin requirements.
The Fund may have to sell assets at a time when it may be disadvantageous to do
so.
If the Fund seeks to hedge against a decline in the value of its portfolio
securities and sells futures contracts for that purpose on other securities that
historically have had a high degree of positive correlation to the value of the
portfolio securities, the value of its portfolio securities might decline more
rapidly than the value of a poorly correlated futures contract rises. In that
case, the hedge will be less effective than if the correlation had been greater.
In a similar but more extreme situation, the value of the futures position might
in fact decline while the value of portfolio securities holds steady or rises.
This would result in a loss that would not have occurred but for the attempt to
hedge.
OPTIONS ON FUTURES CONTRACTS
The Fund will also enter into options on futures contracts for certain bona
fide hedging, return enhancement and risk management purposes. The Fund may
purchase put and call options and write (i.e., sell) put and call options on
futures contracts that are traded on U.S. and foreign futures exchanges. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume a short futures position (if the
option is a call) or a long futures position (if the option is a put). Upon
exercise of the option, the assumption of offsetting futures positions by the
writer and holder of the option will be accompanied by delivery of the
accumulated cash balance in the writer's futures margin account which represents
the amount by which the market price of the futures contract at exercise,
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
The Fund will be considered "covered" with respect to a call option it
writes on a futures contract if the Fund owns the securities or currency which
is deliverable under the futures contract or an option to purchase that futures
contract having a strike price equal to or less than the strike price of the
"covered" option and having an expiration date not earlier than the expiration
date of the "covered" option; otherwise, it will segregate and maintain with its
Custodian for the term of the option cash, U.S. government securities, equity
securities or other liquid, unencumbered assets, marked-to-market daily, equal
to the fluctuating value of the optioned futures. The Fund will be considered
"covered" with respect to a put option it writes on a futures contract if it
owns an option to sell that futures contract having a strike price equal to or
greater than the strike price of the "covered" option and having an expiration
date not earlier than the expiration date of the "covered" option; otherwise, it
will segregate and maintain with its Custodian for the term of the option cash
or other liquid assets at all times equal in value to the exercise price of the
put (less any initial margin deposited by the Fund with its Custodian with
respect to such put option). There is no limitation on the amount of the Fund's
assets that can be placed in the segregated account.
Writing a put option on a futures contract serves as a partial hedge
against an increase in the value of securities the Fund intends to acquire. If
the futures price at expiration of the option is above the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase that may have occurred in the price of the securities
the Fund intends to acquire. If the market price of the underlying futures
contract when the option is exercised is below the exercise price, however, the
Fund will incur a loss, which may be wholly or partially offset by the decrease
in the value of the securities the Fund intends to acquire.
Writing a call option on a futures contract serves as a partial hedge
against a decrease in the value of the Fund's portfolio securities. If the
market price of the underlying futures contract at expiration of a written call
option is below the exercise price, the Fund will retain the full amount of the
option premium, thereby partially hedging against any decline that may have
occurred in the Fund's holdings of debt securities. If the futures price when
the option is exercised is above the exercise price, however, the Fund will
incur a loss, which may be wholly or partially offset by the increase in the
value of the securities in the Fund's portfolio which were being hedged.
The Fund will purchase put options on futures contracts to hedge its
portfolio against the risk of a decline in the value of the debt securities it
owns as a result of rising interest rates or fluctuating currency exchange
rates. The Fund will also
B-10
<PAGE>
purchase call options on futures contracts as a hedge against an increase in the
value of securities the Fund intends to acquire as a result of declining
interest rates or fluctuating currency exchange rates.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON
The Fund will purchase or sell interest rate futures contracts to take
advantage of, or to protect the Fund against, fluctuations in interest rates
affecting the value of debt securities which the Fund holds or intends to
acquire. For example, if interest rates are expected to increase, the Fund might
sell futures contracts on debt securities, the values of which historically have
a high degree of positive correlation to the values of the Fund's portfolio
securities. Such a sale would have an effect similar to selling an equivalent
value of the Fund's portfolio securities. If interest rates increase, the value
of the Fund's portfolio securities will decline, but the value of the futures
contracts to the Fund will increase at approximately an equivalent rate thereby
keeping the net asset value of the Fund from declining as much as it otherwise
would have. The Fund could accomplish similar results by selling debt securities
with longer maturities and investing in debt securities with shorter maturities
when interest rates are expected to increase. However, since the futures market
may be more liquid than the cash market, the use of futures contracts as a risk
management technique allows the Fund to maintain a defensive position without
having to sell its portfolio securities.
Similarly, the Fund may purchase interest rate futures contracts when it is
expected that interest rates may decline. The purchase of futures contracts for
this purpose constitutes a hedge against increases in the price of debt
securities (caused by declining interest rates) that the Fund intends to
acquire. Since fluctuations in the value of appropriately selected futures
contracts should approximate that of the debt securities that will be purchased,
the Fund can take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Fund can make the
intended purchase of the debt securities in the cash market and liquidate its
futures position. To the extent the Fund enters into futures contracts for this
purpose, it will maintain in a segregated asset account with the Fund's
Custodian assets sufficient to cover the Fund's obligations with respect to such
futures contracts, which will consist of cash or other liquid assets, in an
amount equal to the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial margin deposited by the
Fund with its Custodian with respect to such futures contracts.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities. As with the purchase of futures contracts, when the
Fund is not fully invested, it may purchase a call option on a futures contract
to hedge against a market advance due to declining interest rates.
The purchase of a put option on a futures contract is similar to the
purchase of protective put options on portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates and consequent reduction in the value
of portfolio securities.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities that are deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium, which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
securities that are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of debt securities which the Fund
intends to purchase. If a put or call option the Fund has written is exercised,
the Fund will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Fund's losses from options on futures it has written may to some extent be
reduced or increased by changes in the value of its portfolio securities.
CURRENCY FUTURES AND OPTIONS THEREON
Generally, foreign currency futures contracts and options thereon are
similar to the interest rate futures contracts and options thereon discussed
previously. By entering into currency futures and options thereon on U.S. and
foreign exchanges, the Fund will seek to establish the rate at which it will be
entitled to exchange U.S. dollars for another currency at a future time. By
selling currency futures, the Fund will seek to establish the number of dollars
it will receive at delivery for a certain amount of a foreign currency. In this
way, whenever the Fund anticipates a decline in the value of a foreign currency
against the U.S. dollar, the Fund can attempt to "lock in" the U.S. dollar value
of some or all of the securities held in its portfolio that are denominated in
that currency. By purchasing currency futures, the Fund can establish the number
of dollars it will be required
B-11
<PAGE>
to pay for a specified amount of a foreign currency in a future month. Thus if
the Fund intends to buy securities in the future and expects the U.S. dollar
to decline against the relevant foreign currency during the period before the
purchase is effected, the Fund can attempt to "lock in" the price in U.S.
dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund, for the
price of the premium and related transaction costs it must pay for the option,
to decide whether or not to buy (in the case of a call option) or to sell (in
the case of a put option) a futures contract at a specified price at any time
during the period before the option expires. If the Subadviser, in purchasing an
option, has been correct in its judgement concerning the direction in which the
price of a foreign currency would move as against the U.S. dollar, the Fund may
exercise the option and thereby take a futures position to hedge against the
risk it had correctly anticipated or close out the option position at a gain
that will offset, to some extent, currency exchange losses otherwise suffered by
the Fund. If exchange rates move in a way the Fund did not anticipate, however,
the Fund will have incurred the expense of the option without obtaining the
expected benefit; any such movement in exchange rates may also thereby reduce
rather than enhance the Fund's profits on its underlying securities
transactions.
OPTIONS ON CURRENCIES
Instead of purchasing or selling futures or forward currency exchange
contracts, the Fund may attempt to accomplish similar objectives by purchasing
put or call options on currencies either on exchanges or in OTC markets or by
writing put options or covered call options on currencies. A put option gives
the Fund the right to purchase a currency at the exercise price until the option
expires. A call option gives the Fund the right to purchase a currency at the
exercise price until the option expires. Both options serve to insure against
adverse currency price movements in the underlying portfolio assets designated
in a given currency. Currency options traded on U.S. or other exchanges may be
subject to position limits which may limit the ability of the Fund to fully
hedge its positions by purchasing such options.
As in the case of interest rate futures contracts and options thereon, the
Fund may hedge against the risk of a decrease or increase in the U.S. dollar
value of a foreign currency denominated security which the Fund owns or intends
to acquire by purchasing or selling options contracts, futures contracts or
options thereon with respect to a foreign currency other than the foreign
currency in which such security is denominated, where the values of such
different currencies (vis-a-vis the U.S. dollar) historically have a high degree
of positive correlation.
SPECIAL CHARACTERISTICS OF FORWARD CURRENCY CONTRACTS AND ASSOCIATED RISKS
The Fund may use forward currency contracts to protect against uncertainty
in the level of future exchange rates. The Fund will not speculate with forward
currency contracts or foreign currency exchange rates. A forward currency
contract involves bilateral obligations of one party to purchase, and another
party to sell, a specified currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time the contract is entered into.
The Fund may enter into forward currency contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on a security that it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such payment, as the case
may be, by entering into a forward contract for the purchase or sale, for a
fixed amount of U.S. dollars per unit of foreign currency, of the amount of
foreign currency involved in the underlying transaction. The Fund will thereby
be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the period
between the date on which the security is purchased or sold, or on which the
payment is declared, and the date on which such payments are made or received.
The Fund also may use forward currency contracts to "lock-in" the U.S.
dollar value of portfolio positions, to increase the Fund's exposure to foreign
currencies that the Subadviser believes may rise in value relative to the U.S.
dollar or to shift the Fund's exposure to foreign currency fluctuations from one
country to another. For example, when the Subadviser believes that the currency
of a particular foreign country may suffer a substantial decline relative to the
U.S. dollar or another currency, it may enter into a forward contract to sell
the amount of the former foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. This
investment practice generally is referred to as "cross-hedging" when another
foreign currency is used. The Fund may only cross-hedge using a currency
bearing, in the Subadviser's view, a high degree of positive correlation to the
currency being hedged.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it is sold. Accordingly, it may
B-12
<PAGE>
be necessary for the Fund to purchase additional foreign currency on the spot
(i.e., cash) market (and bear the expense of such purchase) if the market value
of the security is less than the amount of foreign currency the Fund is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver. The projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transaction costs. The Fund may
enter into forward contracts or maintain a net exposure on such contracts only
if (1) the consummation of the contracts would not obligate the Fund to deliver
an amount of foreign currency in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency or (2) the Fund
maintains cash, U.S. government securities, equity securities or other liquid,
unencumbered assets, marked-to-market daily, in a segregated account in an
amount not less than the value of the Fund's total assets committed to the
consummation of the contract. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the Subadviser believes that it is important to have the flexibility to
enter into such forward contracts when it determines that the best interests of
the Fund will be served.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, the Fund may
close out a forward contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting forward currency
contract under either circumstance to the extent the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and the offsetting contract.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commission are involved.
The use of forward contracts does not eliminate fluctuations in the prices of
the underlying securities the Fund owns or intends to acquire, but it does fix a
rate of exchange in advance. In addition, although forward currency contracts
limit the risk of loss due to a decline in the value of the hedged currencies,
at the same time they limit any potential gain that might result should the
value of the currencies increase.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
ADDITIONAL RISKS OF OPTIONS ON SECURITIES AND CURRENCIES, FUTURES
CONTRACTS, OPTIONS ON FUTURES CONTRACTS AND FORWARD CONTRACTS
Options, futures contracts and options thereon and forward contracts on
securities and currencies may be traded on foreign exchanges. Such transactions
may not be regulated as effectively as similar transactions in the U.S., may not
involve a clearing mechanism and related guarantees, and are subject to the risk
of governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by (i)
other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in the
foreign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the U.S., and (v) lesser trading volume.
Exchanges on which options, futures and options on futures are traded may
impose limits on the positions that the Fund may take in certain circumstances.
If so, this would limit the ability of the Fund to fully hedge against these
risks.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions in such options
is subject to the maintenance of a liquid secondary market. To mitigate this
problem, the Fund will not purchase or write options on foreign currency futures
contracts unless and until, in the Subadviser's opinion, the market for such
options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with transactions in the
underlying foreign currency
B-13
<PAGE>
futures contracts. Compared to the purchase or sale of foreign currency futures
contracts, the purchase of call or put options thereon involves less potential
risk to the Fund because the maximum amount at risk is the premium paid for the
option (plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a foreign currency futures contract would
result in a loss, such as when there is no movement in the price of the
underlying currency or futures contract, when use of the underlying futures
contract would not.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options market until they
reopen. Because foreign currency transactions occurring in the interbank market
involve substantially larger amounts than those that may be involved in the use
of foreign currency options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
A holder of a stock index option who exercises it before the closing index
value for that day is available runs the risk that the level of the underlying
index may subsequently change. For example, in the case of a call, if such a
change causes the closing index value to fall below the exercise price of the
option on that index, the exercising holder will be required to pay the
difference between the closing index value and the exercise price of the option.
SPECIAL RISK CONSIDERATIONS RELATING TO FUTURES AND OPTIONS THEREON
The Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the development
and maintenance of a liquid market. Although the Fund generally will purchase or
sell only those futures contracts and options thereon for which there appears to
be a liquid market, there is no assurance that a liquid market on an exchange
will exist for any particular futures contract or option thereon at any
particular time. In the event no liquid market exists for a particular futures
contract or option thereon in which the Fund maintains a position, it will not
be possible to effect a closing transaction in that contract or to do so at a
satisfactory price and the Fund would have to either make or take delivery under
the futures contract or, in the case of a written option, wait to sell the
underlying securities until the option expires or is exercised. In the case of a
futures contract or an option on a futures contract which the Fund has written
and which the Fund is unable to close, the Fund would be required to maintain
margin deposits on the futures contract or option and to make variation margin
payments until the contract is closed.
Successful use of futures contracts and options thereon by the Fund is
subject to the ability of the Fund's Subadviser to predict correctly movements
in the direction of interest rates and currency exchange rates and other factors
affecting markets for securities. If the Subadviser's expectations are not met,
the Fund would be in a worse position than if a hedging strategy had not been
pursued. For example, if the Fund has hedged against the possibility of an
increase in interest rates which would adversely affect the price of securities
in its portfolio and the price of such securities increases instead, the Fund
will lose part or all of the benefit of the increased value of its securities
because it will have offsetting losses in its futures positions. In addition, in
such situations, if the Fund has insufficient cash to meet daily variation
margin requirements, it may have to sell securities to meet such requirements.
Such sales of securities may be, but will not necessarily be, at increased
prices which reflect the rising market. The Fund may have to sell securities at
a time when it is disadvantageous to do so.
LIMITATIONS ON THE PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON
FUTURES CONTRACTS
The Fund will engage in transactions in interest rate and foreign currency
futures contracts and options thereon only for bona fide hedging, return
enhancement and risk management purposes, in each case in accordance with the
rules and regulations of the CFTC, and not for speculation. In instances
involving the purchase of futures contracts or call options thereon or the
writing of put options thereon by the Fund, an amount of cash, U.S. Government
securities, equity securities or other liquid, unencumbered assets,
marked-to-market daily, equal to the market value of the futures contracts and
options thereon (less any related margin deposits), will be deposited in a
segregated account with the Fund's Custodian to cover the position, or the Fund
will own an offsetting position in securities, currencies or other options,
forward-currency contracts or futures contracts sufficient to ensure that the
use of such techniques is unleveraged. There are no limitations on the Fund's
use of
B-14
<PAGE>
futures contracts and options on futures contracts beyond the restrictions set
forth above and the economic limitations that are implicit in the use of futures
and options on futures, within these restrictions, only for bona fide hedging,
yield enhancement and risk management purposes, in each case in accordance with
rules and regulations of the CFTC and not for speculation.
Although the Fund intends to purchase or sell futures and options on
futures only on exchanges where there appears to be an active market, there is
no guarantee that an active market will exist for any particular contract or at
any particular time. If there is not a liquid market at a particular time, it
may not be possible to close a futures position at such time, and, in the event
of adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, when futures positions are used to
hedge portfolio securities, such securities will not be sold until the futures
positions can be liquidated. In such circumstances, an increase in the price of
securities, if any, may partially or completely offset losses on the futures
contracts.
ILLIQUID SECURITIES
The Fund may not hold more than 15% of its net assets in repurchase
agreements that have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market (either within or outside of the United States) or
legal or contractual restrictions on resale.
If the Fund were to exceed this limit, the Subadviser would take reasonable
measures to reduce the Fund's holding in illiquid securities to no more than 15%
of its net assets within seven days, including the sale of such securities.
Securities eligible for resale in accordance with Rule 144A under the Securities
Act of 1933, as amended (the Securities Act), and privately placed commercial
paper with legal or contractual restrictions on resale but with a readily
available market are not considered illiquid for purposes of this limitation.
The Subadviser will monitor the liquidity of such restricted securities under
the supervision of the Board of Directors.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act, securities that are not otherwise readily
marketable, and repurchase agreements having a maturity of longer than seven
days. Securities that have not been registered under the Securities Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities, and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days. A
mutual fund might also have to register such restricted securities in order to
dispose of them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The Subadviser anticipates that the market for
certain restricted securities such as foreign convertible securities will expand
further as a result of this new regulation and the development of automated
systems for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The Subadviser will monitor the
liquidity of restricted securities in the Fund's portfolio under the supervision
of the Board of Directors. In reaching liquidity decisions, the Subadviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (ii) it must not be "traded
flat" (i.e., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
B-15
<PAGE>
The staff of the Securities and Exchange Commission (the SEC) has taken the
position that purchased OTC Options and the assets used as "cover" for written
OTC Options are illiquid securities unless the Fund and the counterparty have
provided for the Fund, at the Fund's election, to unwind the OTC Option. The
exercise of such an option ordinarily would involve the payment by the Fund of
an amount designed to reflect the counterparty's economic loss from an early
termination, but does allow the Fund to treat the assets used as "cover" as
"liquid."
BORROWING
As stated in the Prospectus, the Fund may borrow an amount up to 33 1/3% of
the value of its total assets (computed at the time the loan is made) from banks
for temporary or emergency purposes. However, the Fund will not purchase
portfolio securities if borrowings exceed 5% of the Fund's total assets. Upon
the vote of the Board of Directors to change the nonfundamental policy described
above, the Fund is authorized, at the Subadviser's discretion and under the
supervision of the Board of Directors, to borrow from banks amounts up to
33 1/3% of the Fund's total assets (including the amount borrowed), less all
liabilities and indebtedness other than the specific bank borrowing, which is
equivalent to permitting such borrowing to equal 50% of the value of the Fund's
net assets.
SEGREGATED ASSETS
When the Fund is required to segregate assets in connection with certain
hedging transactions, it will mark cash or liquid assets as segregated with the
Fund's Custodian. "Liquid assets" means cash, U.S. government securities, equity
securities (including foreign securities), debt obligations or other liquid,
unencumbered assets, marked-to-market daily.
DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a defensive strategy, the Fund may temporarily
invest without limit in securities denominated in U.S. dollars or U.S. Treasury
securities or hold cash.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is not expected to exceed 100%. The
portfolio turnover rates for the Fund for the fiscal years ended September 30,
2000 and 1999 were 49% and 8%, respectively. The portfolio turnover rate is
generally the percentage computed by dividing the lesser of portfolio purchases
or sales (excluding all securities, including options, whose maturities or
expiration date at acquisition were one year or less) by the monthly average
value of the long-term portfolio. High portfolio turnover (100% or more)
involves correspondingly greater brokerage commissions and other transaction
costs, which are borne directly by the Fund. In addition, high portfolio
turnover may also mean that a proportionately greater amount of distributions to
shareholders will be taxed as ordinary income rather than long-term capital
gains compared to investment companies with lower portfolio turnover. See
"Brokerage Allocations and Other Practices" and "Taxes, Dividends and
Distributions."
B-16
<PAGE>
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. The Fund's fundamental
policies cannot be changed without the approval of a majority of the Fund's
outstanding voting securities. A "majority of the Fund's outstanding voting
securities" when used in this Statement of Additional Information means the
lesser of (1) 67% or more of the voting securities of the Fund represented at a
meeting at which more than 50% of the outstanding voting securities of the Fund
are present in person or represented by proxy or (2) more than 50% of the
outstanding voting securities of the Fund.
The Fund may not:
(1) Purchase any security if, as a result thereof, 25% or more of its total
assets would be invested in the securities of issuers having their principal
business activities in the same industry, other than the utility industries,
except for temporary emergency purposes, and except that this limitation does
not apply to securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(2) Purchase the securities of any issuer if, as a result, the Fund would
fail to be a diversified company within the meaning of the 1940 Act, and the
rules and regulations promulgated thereunder, as such statute, rules, and
regulations are amended from time to time or are interpreted from time to time
by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or to
the extent that the Fund may be permitted to do so by exemptive order or similar
relief (collectively, with the 1940 Act Laws and Interpretations, the "1940 Act
Laws, Interpretations and Exemptions"). The Fund is a "diversified company" as
defined in the 1940 Act.
(3) Issue senior securities or borrow money, except as permitted by the
1940 Act Laws, Interpretations and Exemptions.
(4) Purchase or sell physical commodities, but the Fund may purchase, sell
or enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments.
(5) Purchase or sell real estate, except that investments in securities of
issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by interests
in real estate are not subject to this limitation, and except that the Fund may
exercise rights under agreements relating to such securities, including the
right to enforce security interests and to hold real estate acquired by reason
of such enforcement until that real estate can be liquidated in an orderly
manner.
(6) Make loans, except through loans of assets of the Fund or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers' acceptances or
similar instruments will not be considered the making of a "loan."
(7) Act as an underwriter except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed to be an underwriter
under certain federal securities laws.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
The Fund is also subject to the following nonfundamental restriction.
Nonfundamental restrictions may be changed without shareholder approval, in
compliance with applicable law and regulatory policy.
(1) The Fund will not purchase securities on margin, provided that the Fund
may obtain short-term credits as may be necessary for the clearance of purchases
and sales of securities, and further provided that the Fund may make margin
deposits in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other futures contracts or
derivative instruments.
B-17
<PAGE>
MANAGEMENT OF THE FUND
<TABLE>
<CAPTION>
NAME, ADDRESS+ POSITION(S) HELD PRINCIPAL OCCUPATIONS
AND AGE WITH THE FUND DURING PAST FIVE YEARS
--------------------------- ------------------ ------------------------------------------------------------------
<S> <C> <C>
Eugene C. Dorsey (73) Director Retired President, Chief Executive Officer and Trustee of the
Gannett Foundation (now Freedom Forum); former publisher of
four Gannett newspapers and Vice President of Gannett Co.,
Inc.; past Chairman, Independent Sector, Washington, D.C.
(largest national coalition of philanthropic organizations);
former Chairman of the American Council for the Arts; former
Director of the Advisory Board of Chase Manhattan Bank of
Rochester; Director of First Financial Fund, Inc. and The High Yield
Plus Fund, Inc.
Saul K. Fenster, Ph.D. (67) Director President, New Jersey Institute of Technology; Commissioner of
the Middle States Association, Commission on Higher
Education; Member of the New Jersey Commission on Science
and Technology; formerly, director or trustee of the New Jersey
State Chamber of Commerce, Society of Manufacturing
Engineering Education Foundation, the Research and
Development Council of New Jersey, Prosperity New Jersey,
Inc., the Edison Partnership, National Action Council for
Minorities in Engineering, and IDT Corporation.
*Robert F. Gunia (53) Director Executive Vice President and Chief Administrative Officer (since
June 1999) of Prudential Investments; Executive Vice President
and Treasurer (since December 1996) of PIFM; President (since
April 1999) of Prudential Investment Management Services LLC
(PIMS); Corporate Vice President (since September 1997) of
The Prudential Insurance Company of America (Prudential);
formerly Senior Vice President (March 1987-May 1999) of
Prudential Securities Incorporated; formerly Chief
Administrative Officer (July 1989-September 1996), Director
(January 1989-September 1996) and Executive Vice President,
Treasurer and Chief Financial Officer (June 1987-December
1996) of Prudential Mutual Fund Management, Inc. (PMF); Vice
President and Director (since May 1989) of The Asia Pacific
Fund, Inc.
Maurice Holmes (57) Director Director of Center for Innovation in Product Development,
Professor of Engineering, Massachusetts Institute of Technology
(since January 1998); formerly Chief Engineer and Corporate
Vice President, Xerox Corporation (1972-1997).
</TABLE>
B-18
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS+ POSITION(S) HELD PRINCIPAL OCCUPATIONS
AND AGE WITH THE FUND DURING PAST FIVE YEARS
------------------------------------ ------------------ --------------------------------------------------------------------
<S> <C> <C>
Robert E. LaBlanc (66) Director President of Robert E. LaBlanc Associates, Inc.
(telecommunications); formerly General Partner at Salomon
Brothers and Vice-Chairman of Continental Telecom. Director of
Storage Technology Corporation, Chartered Semiconductor
Manufacturing, Ltd., Titan Corporation, Salient 3
Communications, Inc. and Tribune Company; Trustee of
Manhattan College; Director of First Financial Fund, Inc. and The
High Yield Plus Fund, Inc.
Douglas H. McCorkindale (61) Director Chairman (since June 2000), and President (since September
1997) and Vice Chairman (since March 1984) of Gannett Co.
Inc. (publishing and media); formerly Vice Chairman (March
1994-May 2000) of Gannett Co. Inc.; Director of Continental
Airlines, Inc., Gannett Co. Inc. and Global Crossing Ltd.; Director
of First Financial Fund, Inc. and The High Yield Plus Fund, Inc.
W. Scott McDonald, Jr., Ph.D. (63) Director Vice President (since 1997), Kaludis Consulting Group, Inc. (a
Sallie Mae company serving higher education); formerly
principal (1993-1997), Scott McDonald & Associates, Chief
Operating Officer (1991-1995), Fairleigh Dickinson University,
Executive Vice President and Chief Operating Officer
(1975-1991), Drew University, interim President (1988-1990),
Drew University and founding director of School, College and
University Underwriters Ltd.
Thomas T. Mooney (59) Director President of the Greater Rochester Metro Chamber of Commerce;
former Rochester City Manager; former Deputy Monroe County
Executive; Trustee of Center for Governmental Research, Inc.;
Director of Blue Cross of Rochester, Monroe County Water
Authority and Executive Service Corps of Rochester; Director,
President and Treasurer of First Financial Fund, Inc. and The
High Yield Plus Fund, Inc.
*David R. Odenath, Jr. (43) Director and Officer in Charge, President, Chief Executive Officer and Chief
President Operating Officer (since June 1999) of PIFM; Senior Vice
President (since June 1999) of Prudential; Senior Vice President
(August 1993-May 1999), PaineWebber Group, Inc.
Stephen Stoneburn (57) Director President and Chief Executive Officer (since June 1996) of
Quadrant Media Corp. (a publishing company); formerly
President (June 1995-June 1996) of Argus Integrated Media,
Inc.; Senior Vice President and Managing Director (January
1993-1995) of Cowles Business Media and Senior Vice
President of Fairchild Publications, Inc.
</TABLE>
B-19
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS+ POSITION(S) HELD PRINCIPAL OCCUPATIONS
AND AGE WITH THE FUND DURING PAST FIVE YEARS
-------------------------- --------------------- --------------------------------------------------------------------
<S> <C> <C>
Joseph Weber, Ph.D. (76) Director Vice President, Finance, Interclass (international corporate
learning) since 1991; formerly President, The Alliance for
Learning; retired Vice President, Member of the Board of
Directors and Member of the Executive and Operating
Committees, Hoffmann-LaRoche Inc.; Member, Board of
Overseers, New Jersey Institute of Technology; Trustee and Vice
Chairman Emeritus, Fairleigh Dickinson University.
Clay T. Whitehead (62) Director President of National Exchange Inc. (new business development
firm) (since May 1983); director of First Financial Fund, Inc.
and The High Yield Plus Fund, Inc.
Judy A. Rice (52) Vice President Executive Vice President (since 1999) of Prudential Investments;
Executive Vice President (since 1999) of PIFM; formerly, various
positions to Senior Vice President (1992-1999), Prudential Securities,
Inc; and various positions to Managing Director (1975-1992), Shearson
Lehman Advisors; Governor of the Money Management Institute; Member
of the Prudential Securities Operating Council, Board Member of the
National Association for Variable Annuities.
George P. Attisano (45) Secretary Assistant General Counsel (since September 2000) of Prudential; formerly
Associate Attorney (April 1998-September 2000) of Kramer Levin
Naftalis & Frankel LLP; Associate Attorney (September 1996-April
1998) of Willkie Farr & Gallagher; Counsel (September 1995-September 1996)
of The Dreyfus Corporation (Dreyfus).
William V. Healey (46) Assistant Secretary Vice President and Associate General Counsel of Prudential and formerly
Chief Legal Officer of Prudential Investments (since August
1998); Director, ICI Mutual Insurance Company (since June
1999); formerly Associate General Counsel of Dreyfus, a subsidiary of
Mellon Bank, N.A. (Mellon Bank), and an officer and/or director of various
affiliates of Mellon Bank and Dreyfus.
Grace C. Torres (41) Treasurer First Vice President (since December 1996) of PIFM;
First Vice and Principal President (since March 1994) of
Prudential Securities; formerly Financial and First Vice
President (March 1994-September 1996) of Prudential Accounting
Officer Mutual Fund Management, Inc.
</TABLE>
----------
* Indicates those Directors that are "interested persons" of the Fund as defined
in the 1940 Act.
+ The address of the Directors and Officers is Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Management of the Fund" below, review such actions and decide on general
policy.
The Directors have adopted a retirement policy that calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 75, except that Mr. Weber will retire by December 31, 2002.
Pursuant to the terms of the Management Agreement with the Fund, the
Manager or Subadviser, as appropriate, pays all compensation of officers and
employees of the Fund as well as the fees and expenses of all Directors of the
Fund who are affiliated persons of the Manager or Subadviser. The Fund pays each
of its Directors who is not an affiliated person of the Manager or the
Subadviser annual compensation of $5,000, in addition to certain out-of-pocket
expenses. The amount of annual compensation paid to each Director may change as
a result of the introduction of additional funds on the boards of which the
Director will be asked to serve.
B-20
<PAGE>
Directors may receive their Director's fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Director's fees in installments which accrue interest at a
rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury Bills
at the beginning of each calendar quarter or, pursuant to an exemptive order
from the Commission, at the daily rate of return of the Fund. Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Director. The Fund's obligation to make payments of deferred Directors'
fees, together with interest thereon, is a general obligation of the Fund. As
of December 31, 1997, Mr. Dorsey elected to reduce his Director's fees pursuant
to the deferred fee agreement.
The following table sets forth the aggregate compensation paid by the Fund
to the Directors who are not affiliated with the Manager for the fiscal year
ended September 30, 2000 and the aggregate compensation paid to such Director
for service on the Fund's Board and the Boards of all other investment companies
managed by PIFM (Fund Complex) for the calendar year ended December 31, 1999.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM THE FUND AND THE
NAME OF DIRECTOR FROM THE FUND FUND COMPLEX
---------------- ------------- ------------
<S> <C> <C>
Eugene C. Dorsey* $4,225 $ 81,000 (17/48)**
Saul K. Fenster*** None $ 35,000 ( 5/21)**
Robert F. Gunia+ None None
Maurice Holmes*** $1,650 None
Robert E. LaBlanc $3,925 $ 61,250 (20/39)**
Douglas H. McCorkindale* $3,925 $ 80,000 (24/49)**
W. Scott McDonald, Jr.*** $ 233 $ 35,000 ( 5/21)**
Thomas T. Mooney* $4,475 $129,500 (35/75)**
David R. Odenath, Jr.+ None None
Stephen Stoneburn $3,925 $ 61,250 (20/39)**
John R. Strangfeld, Jr.+,*** None None
Joseph Weber*** None $ 35,000 ( 5/21)**
Clay T. Whitehead $3,925 $ 77,000 (38/66)**
</TABLE>
----------
* Total compensation from all the Funds in the Fund Complex for the calendar
year ended December 31, 1999 includes amounts deferred at the election of
Directors under the Funds' deferred compensation plan. Including accrued
interest, total compensation amounted to approximately $103,573 for Mr.
Dorsey, $97,915 for Mr. McCorkindale, and $135,901 for Mr. Mooney.
** Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
*** Mr. Holmes joined the Board in May 2000, Messrs. Fenster, McDonald and Weber
joined the Board in August 2000, and Mr. Strangfeld resigned from the Board
in November 2000.
+ Interested Directors do not receive compensation from the Fund or any fund
in the Fund Complex.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of November 17, 2000, the Directors and officers of the Fund, as a
group, owned beneficially less than 1% of the outstanding shares of beneficial
interest of the Fund, for Classes A, B, C and Z shares.
As of November 17, 2000, the only entity owning more than 5% of the
outstanding voting securities of any class was Nelag Partners, 37791 Halper Lake
Drive, Rancho Mirage, CA 92270, which held 6.80% of the Fund's Class C shares.
As of November 17, 2000, Prudential Securities was record holder of
5,573,314 Class A shares (or 63.44% of the outstanding Class A shares) and
2,374,041 Class B shares (or 57.52% of the outstanding Class B shares) of the
Fund. In the event of any meetings of shareholders, Prudential Securities will
forward, or cause to be forwarded, proxy material to the beneficial owners for
which it is the record holder.
B-21
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
(a) MANAGER AND SUBADVISER
The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. The Manager serves as manager to all of the other investment
companies that, together with the Fund, comprise the Prudential mutual funds.
See "How the Fund is Managed-Manager" in the Prospectus. As of October 31,
2000, the Manager managed and/or administered open-end and closed-end management
investment companies with assets of approximately $77 billion.
PIFM is a subsidiary of Prudential Securities and The Prudential Insurance
Company of America (Prudential). Prudential Mutual Fund Services LLC (the
Transfer Agent), a wholly-owned subsidiary of the Manager, serves as the
transfer agent and dividend distribution agent for the Prudential mutual funds
and, in addition, provides customer service, recordkeeping and management and
administration services to qualified plans.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), the Manager, subject to the supervision of the Fund's Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, the Manager is obligated to keep certain books and records of the
Fund. The Manager also administers the Fund's business affairs and, in
connection therewith, furnishes the Fund with office facilities, together with
those ordinary clerical and bookkeeping services that are not being furnished by
State Street Bank and Trust Company (the Custodian), the Fund's custodian, and
the Fund's Transfer Agent and dividend disbursing agent. The management services
of the Manager for the Fund are not exclusive under the terms of the Management
Agreement and the Manager is free to, and does, render management services to
others.
For its services, PIFM receives from the Fund, pursuant to the Management
Agreement, a fee at an annual rate of .70% of the average daily net assets of
the Fund up to and including $250 million, .55% of the Fund's average daily net
assets in excess of $250 million up to and including $500 million, .50% of the
Fund's average daily net assets in excess of $500 million up to and including $1
billion and .45% of the Fund's average daily net assets in excess of $1 billion.
The fee is computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of the Fund (including the fees of
PIFM, but excluding interest, taxes, brokerage commissions, distribution fees
and litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to PIFM will be
reduced by the amount of such excess. Reductions in excess of the total
compensation payable to PIFM will be paid by PIFM to the Fund. No jurisdiction
currently limits the Fund's expenses.
In connection with its management of the business affairs of the Fund, the
Manager bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel
except the fees and expenses of Directors who are not affiliated persons of the
Manager or Subadviser;
(b) all expenses incurred by the Manager or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those assumed by
the Fund as described below; and
(c) the subadvisory agreement between the Manager and the Subadviser (the
Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated persons of the Manager
or the Subadviser, (c) the fees and certain expenses of the Custodian and
Transfer Agent, including the cost of providing records to the Manager in
connection with its obligation of maintaining required records of the Fund and
of pricing the Fund's shares, (d) the charges and expenses of legal counsel and
independent accountants for the Fund, (e) brokerage commissions and any issue or
transfer taxes chargeable to the Fund in connection with its securities
transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade associations of which the Fund
may be a member, (h) the cost of share certificates representing shares of the
Fund, (i) the cost of fidelity and liability insurance, (j) certain organization
expenses of the Fund and the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the SEC, including
the preparation and printing of the Fund's registration statement and
B-22
<PAGE>
prospectuses for such purposes, (k) allocable communications expenses with
respect to investor services and all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing reports, proxy statements and
prospectuses to shareholders in the amount necessary for distribution to the
shareholders, (l) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business and (m) distribution fees.
The Management Agreement provides that the Manager will not be liable for
any error of judgment or for any loss suffered by the Fund in connection with
the matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically if
assigned, and that it may be terminated without penalty by either party upon not
more than 60 days' nor less than 30 days' written notice. The Management
Agreement will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the 1940 Act.
Wellington Management Company, LLP (Wellington Management or the
Subadviser), 75 State Street, Boston, Massachusetts 02109, serves as the Fund's
Subadviser. The Subadvisory Agreement provides that Wellington Management shall
furnish investment advisory services in connection with the management of the
Fund. In connection therewith, Wellington Management is obligated to keep
certain books and records of the Fund. PIFM continues to have responsibility for
all investment advisory services pursuant to the Management Agreement and
supervises Wellington Management's performance of such services. Under the
Subadvisory Agreement, PIFM, not the Fund, pays Wellington Management a fee,
computed daily and payable monthly, at an annual rate of .50% of the Fund's
average daily net assets for the portion of such assets up to and including $250
million, .35% of the Fund's average daily net assets in excess of $250 million
up to and including $500 million, .30% of the Fund's average daily net assets in
excess of $500 million up to and including $1 billion and .25% of the Fund's
average daily net assets in excess of $1 billion.
The Subadvisory Agreement provides that Wellington Management will not be
liable for any error of judgment or for any loss suffered by the Fund in
connection with the matters to which the Subadvisory Agreement relates, except a
loss resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard of duty. The Subadvisory Agreement provides that it will terminate
automatically if assigned, and that it may be terminated without penalty by any
party upon not more than 60 days' or less than 30 days' written notice. The
Subadvisory Agreement will continue in effect for a period of more than two
years from the date of execution only so long as such continuance is
specifically approved at least annually in conformity with the 1940 Act. The
Subadvisory Agreement was last approved by the Board of Directors of the Fund,
including all of the Directors who are not parties to the contract or
"interested persons" (as defined in the 1940 Act) of any such party, on May 24,
2000, and by shareholders of the Fund on December 30, 1991.
For the fiscal years ended September 30, 2000, 1999 and 1998, the Fund paid
$1,786,869, $2,021,652 and $2,050,958, respectively, to PIFM under the
Management Agreement and PIFM paid subadvisory fees of $1,273,462, $1,422,870
and $1,441,519, respectively, to Wellington Management under the Subadvisory
Agreement.
(b) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12b-1 PLANS
Prudential Investment Management Services LLC (the Distributor), Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts as the
distributor of the shares of the Fund. Prior to June 1, 1998, Prudential
Securities Incorporated (Prudential Securities) was the Fund's distributor. The
Distributor and Prudential Securities are subsidiaries of Prudential.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the 1940 Act and a distribution agreement (the
Distribution Agreement), the Distributor incurs the expenses of distributing the
Fund's Class A, Class B and Class C shares. The Distributor also incurs the
expenses of distributing the Fund's Class Z shares under a Distribution
Agreement, none of which are reimbursed by or paid for by the Fund.
The expenses incurred under the Plans include commissions and account
servicing fees paid to, or on account of brokers or financial institutions which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of the Distributor associated with the sale of Fund shares,
including lease, utility, communications and sales promotion expenses.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed
B-23
<PAGE>
its distribution and service fees, the Fund will not be obligated to pay any
additional expenses. If the Distributor's expenses are less than such
distribution and service fees, it will retain its full fees and realize a
profit.
The distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis brokers in consideration for the distribution,
marketing, administrative and other services and activities provided by brokers
with respect to the promotion of the sale of the Fund's shares and the
maintenance of related shareholder accounts.
Prior to February 4, 1991, the Fund operated as a closed-end fund and
offered only one class of shares (the existing Class A shares). On October 15,
1990, the Board of Directors, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plans or in any agreement related to the Plans
(the Rule 12b-1 Directors), at a meeting called for the purpose of voting on the
Class A Plan, adopted a plan of distribution for the Class A shares of the Fund.
On November 13, 1990, the Board of Directors, including the Rule 12b-1
Directors, at a meeting called for the purpose of voting on the Class B Plan,
adopted a plan of distribution for the Class B shares of the Fund. On February
10, 1993, the Board of Directors, including a majority of the Rule 12b-1
Directors, at a meeting called for the purpose of voting on each Plan, approved
modifications to the Fund's Class A and Class B Plans and Distribution
Agreements to conform them to recent amendments to the National Association of
Securities Dealers, Inc. (NASD) maximum sales charge rule described below. As
modified, the Class A Plan provides that (i) up to .25 of 1% of the average
daily net assets of the Class A shares may be used to pay for personal service
and the maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30 of
1%. As modified, the Class B Plan provides that (i) up to .25 of 1% of the
average daily net assets of the Class B shares may be paid as a service fee and
(ii) up to .75 of 1% (not including the service fee) of the average daily net
assets of the Class B shares (asset-based sales charge) may be used as
reimbursement for distribution-related expenses with respect to the Class B
shares. On May 5, 1993, the Board of Directors, including a majority of the Rule
12b-1 Directors, at a meeting called for the purpose of voting on each Plan,
adopted a plan of distribution for the Class C shares of the Fund and approved
further amendments to the plans of distribution for the Fund's Class A and Class
B shares changing them from reimbursement type plans to compensation type plans.
The Plans, as amended and restated, were last approved by the Board of
Directors, including a majority of the Rule 12b-1 Directors, on May 26, 1999.
The Class A Plan as previously amended, was approved by Class A and Class B
shareholders, and the Class B Plan, as previously amended, was approved by Class
B shareholders on July 19, 1994. The Class C Plan was approved by the sole
shareholder of Class C shares on August 1, 1994.
CLASS A PLAN. For the fiscal year ended September 30, 2000, the Distributor
received payments of approximately $345,603 under the Class A Plan and spent
approximately $325,725 in distributing the Class A shares. This amount was
primarily expended for payments of account servicing fees to financial advisers
and other persons who sell Class A shares. For the fiscal year ended September
30, 2000, the Distributor also received approximately $26,100 in initial sales
charges.
CLASS B PLAN. For the fiscal year ended September 30, 2000, the Distributor
received $1,107,688 from the Fund under the Class B Plan and spent approximately
$376,382 in distributing the Fund's Class B shares. It is estimated that of the
amount spent approximately 5.4% ($20,327) was spent on printing and mailing of
prospectuses to other than current shareholders; 10.83% ($40,755) was spent on
compensation to broker-dealers for commissions to representatives and other
expenses, including an allocation of overhead and other branch office
distribution-related expenses, incurred for distribution of Fund shares; and
83.77% ($315,300) on the aggregate of (1) payments of commissions and account
servicing fees to financial advisers (73.16% or $275,379) and (2) an allocation
of overhead and other branch office distribution-related expenses for payments
of related expenses (10.61% or $39,921). The term "overhead and other branch
office distribution-related expenses" represents (a) the expenses of operating
Prudential Securities' and Pruco Securities Corporation's (Prusec's) branch
offices in connection with the sale of Fund shares, including lease costs, the
salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(b) the costs of client sales seminars, (c) expenses of mutual fund sales
coordinators to promote the sale of Fund shares and (d) other incidental
expenses relating to branch promotion of Fund sales.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class B shares. For the
fiscal year ended September 30, 2000, the Distributor received approximately
$84,600 in contingent deferred sales charges attributable to Class B shares.
B-24
<PAGE>
CLASS C PLAN. For the fiscal year ended September 30, 2000, the Distributor
received $11,304 under the Class C Plan and spent approximately $11,065 in
distributing Class C shares. It is estimated that of the amount spent,
approximately 1.92%, ($213) was spent on printing and mailing of prospectuses to
other than current shareholders; 1.72% ($190) on compensation to broker-dealers
for commissions to representatives and other expenses, including an allocation
of overhead and other branch office distribution-related expenses, incurred for
distribution of Fund shares; and 96.28%, ($10,653) on the aggregate of (1)
payments of commissions and account servicing fees to financial advisers (86.71%
or $9,594) and (2) an allocation of overhead and other branch office
distribution-related expenses for payments of related expenses (9.57% or
$1,059).
The Distributor receives the proceeds of the 1.00% front-end sales charge
paid by investors upon purchase of Class C shares. For the fiscal year ended
September 30, 2000, the Distributor received approximately $1,400 in front-end
sales charges attributable to Class C shares.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class C shares. For the
fiscal year ended September 30, 2000, the Distributor received approximately
$700 in contingent deferred sales charges attributable to Class C shares.
Distribution expenses attributable to the sale of Class A, Class B and
Class C shares of the Fund are allocated to each such class based upon the ratio
of sales of each such class to the sales of Class A, Class B and Class C shares
of the Fund other than expenses allocable to a particular class. The
distribution fee and sales charge of one class will not be used to subsidize the
sale of another class.
The Class A, Class B and Class C Plans continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the 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. A Plan may be terminated at any time, without penalty, by the vote
of a majority of the Rule 12b-1 Directors or by the vote of the holders of a
majority of the outstanding shares of the applicable class of the Fund on not
more than 30 days' written notice to any other party to the Plan. The Plans may
not be amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of the applicable class
(by both Class A and Class B shareholders, voting separately, in the case of
material amendments to the Class A Plan), and all material amendments are
required to be approved by the Directors in the manner described above. Each
Plan will automatically terminate in the event of its assignment. The Fund will
not be contractually obligated to pay expenses incurred under any Plan if it is
terminated or not continued.
Pursuant to each Plan, the Directors will review at least quarterly a
written report of the distribution expenses incurred on behalf of each class of
shares of the Fund by the Distributor. The report includes an itemization of the
distribution expenses and the purposes of such expenditures. In addition, as
long as the Plans remain in effect, the selection and nomination of the Rule
12b-1 Directors shall be committed to the Rule 12b-1 Directors.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under federal securities laws.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments to dealers (including Prudential Securities) and other persons
which distribute shares of the Fund (including Class Z shares). Such payments
may be calculated by reference to the net asset value of shares sold by such
persons or otherwise.
FEE WAIVERS/SUBSIDIES
PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. In addition,
the Distributor has waived a portion of its distribution fees as described
above. These voluntary waivers may be terminated at any time. Fee waivers and
subsidies will increase the Fund's total return.
NASD MAXIMUM SALES CHARGE RULE
Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares. Interest charges
on unreimbursed distribution expenses equal to the prime rate plus one percent
per annum may be added to the 6.25% limitation. Sales from the reinvestment of
dividends and distributions are not included in the calculation of the 6.25%
limitation. The annual asset-based sales charge on shares of the Fund may not
exceed .75 of 1% per class. The 6.25% limitation applies to each class of the
Fund rather than on a per shareholder basis. If aggregate sales charges were to
exceed 6.25% of total gross sales of any class, all sales charges on shares of
that class would be suspended.
B-25
<PAGE>
(c) OTHER SERVICE PROVIDERS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Subcustodians provide custodial
services for the Fund's foreign assets held outside the United States.
The Transfer Agent, 194 Wood Avenue South, Iselin, New Jersey 08830, serves
as the transfer and dividend disbursing agent of the Fund. The Transfer Agent is
a wholly-owned subsidiary of the Manager. The Transfer Agent provides customary
transfer agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions and
related functions. For these services, the Transfer Agent receives an annual fee
of $13.00 per shareholder account, a new account set-up fee of $2.00 for each
manually established account and a monthly inactive zero balance account fee of
$0.20 per shareholder account. The Transfer Agent is also reimbursed for its
out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communication expenses and other costs.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountant and in that capacity audits
the Fund's annual financial statements.
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington,
D.C. 20036, serves as counsel to the Fund (except with respect to the opinions
of counsel referred to in "Fund Distributions and Tax Issues" and "How to Buy,
Sell and Exchange Shares of the Fund" in the Prospectus).
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics. In
addition, PIFM, the Subadviser and PIMS have each adopted a Code of Ethics (the
Codes). The Codes permit personnel subject to the Codes to invest in securities,
including securities that may be purchased or held by the Fund. However, the
protective provisions of the Codes prohibit certain investments and limit such
personnel from making investments during periods when the Fund is making such
investments. The Codes are on public file with, and are available from, the SEC.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Subject to policies established by the Board of Directors of the Fund and
the oversight and review of the Manager, the Subadviser will arrange for the
execution of the Fund's portfolio transactions and the allocation of brokerage.
In executing portfolio transactions, the Subadviser seeks to obtain the best net
results for the Fund, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved. The Fund may invest
in securities traded in the OTC markets and deal directly with the dealers who
make markets in the securities involved, unless a better price or execution
could be obtained by using a broker. While the Subadviser generally will seek
reasonably competitive commission rates, payment of the lowest commission or
spread is not necessarily consistent with best net results in particular
transactions. The Fund will not deal with Prudential Securities (or any
affiliate) in any transaction in which Prudential Securities (or an affiliate)
acts as principal, except in accordance with the rules of the Commission.
Purchases and sales of securities on a securities exchange are effected through
brokers who charge a negotiated commission for their services. On a foreign
securities exchange, commissions may be fixed. Orders may be directed to any
broker including, to the extent and in the manner permitted by applicable law,
Prudential Securities.
In placing orders with brokers and dealers, the Subadviser will attempt to
obtain the best net price and the most favorable execution for orders; however,
the Subadviser may, in its discretion, purchase and sell portfolio securities
through brokers and dealers who provide the Subadviser or the Fund with
research, analysis, advice and similar services. The Subadviser may, in return
for research and analysis, pay brokers a higher commission than may be charged
by other brokers, provided that the Subadviser determines in good faith that
such commission is reasonable in terms either of that particular transaction or
of the overall responsibility of the Subadviser to the Fund and its other
clients, and that the total commission paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long term. Information and
research received from such brokers and dealers will be in addition to, and not
in lieu of, the services required to be performed by the Manager under its
Management Agreement with the Fund and by the Subadviser under the Subadvisory
Agreement. Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. The Subadviser's policy is to
pay higher commissions to brokers or futures commission merchants other than
Prudential Securities (or any affiliate) for particular transactions than might
be charged if
B-26
<PAGE>
a different broker had been selected, on occasions when, in the Subadviser's
opinion, this policy furthers the objective of obtaining best price and
execution. The allocation of orders among brokers and the commission rates paid
are reviewed periodically by the Fund's Board of Directors. Portfolio securities
may not be purchased from any underwriting or selling syndicate of which
Prudential Securities (or any affiliate), during the existence of the syndicate,
is a principal underwriter (as defined in the 1940 Act), except in accordance
with rules of the Commission. This limitation, in the opinion of the Fund, will
not significantly affect the Fund's ability to pursue its present investment
objective. However, in the future in other circumstances, the Fund may be at a
disadvantage because of this limitation in comparison to other funds with
similar objectives but not subject to such limitations.
Purchases and sales of securities, futures or options on futures on an
exchange (including a board of trade), and options on securities may be effected
through securities brokers or futures commission merchants that charge a
commission for their services. The Fund has no obligation to deal with any
broker or group of brokers in the execution of transactions. The Fund
contemplates that, consistent with the policy of obtaining the best net results,
the Fund may use Prudential Securities and its affiliates for brokerage
transactions. In order for Prudential Securities or its affiliates to effect any
such transaction for the Fund, the commissions, fees or other remuneration
received by Prudential Securities or its affiliates must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities, futures or
options on futures being purchased or sold on an exchange during a comparable
period of time. The Fund's Board of Directors has adopted procedures designed to
ensure that all brokerage commissions, fees or other remuneration paid to such
firm or its affiliates are reasonable and fair.
Investment decisions for the Fund and for other investment accounts managed
by the Subadviser are made independently of each other in the light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for two or more such accounts. In such cases,
simultaneous transactions are inevitable. Purchases or sales are then averaged
as to price and allocated to accounts according to a formula deemed equitable to
each account. While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned, in
other cases it is believed to be beneficial to the Fund.
The Fund's brokerage transactions involving securities of companies
headquartered in countries other than the United States will be conducted
primarily on the markets and principal exchanges of such countries. Foreign
markets are generally not as developed as those located in the United States,
which may result in higher transaction costs, delayed settlement and less
liquidity for trades effected in foreign markets. Transactions on foreign
exchanges are usually subject to fixed commissions that generally are higher
than negotiated commissions on U.S. transactions. There is generally less
government supervision and regulation of exchanges and brokers in foreign
countries than in the United States.
In accordance with Section 11(a) under the Securities Exchange Act of 1934,
as amended, Prudential Securities may not retain compensation for effecting
transactions on a national securities exchange for the Fund unless the Fund has
expressly authorized the retention of such compensation. Prudential Securities
must furnish to the Fund at least annually a statement setting forth the total
amount of all compensation retained by Prudential Securities from transactions
effected for the Fund during the applicable period. Brokerage transactions with
Prudential Securities (or any affiliate) are also subject to such fiduciary
standards as may be imposed upon Prudential Securities (or any affiliate) by
applicable law.
The table below sets forth information concerning the payment of
commissions by the Fund for the three years ended September 30, 2000.
<TABLE>
<CAPTION>
2000 1999 1998
--------- ---------- -----------
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund .......... $320,430 $89,946 $140,952
</TABLE>
During the fiscal year ended September 30, 2000, the Fund effected
transactions that involved the payment of $16,300 of commissions to Prudential
Securities. The Fund effected no transactions that involved the payment of
commissions to Prudential Securities or other affiliates of the Fund, the
Manager, the Subadviser or the Distributor during the two fiscal years ended
September 30, 1999.
The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined in Rule 10b-1 of the 1940 Act) and their
parents. As of September 30, 2000, the Fund held debt securities of Lehman
Brothers Holdings, Inc. totaling $7,987,000.
CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION
The Fund is authorized to issue 2 billion shares of common stock, $.001 per
share divided into four classes, designated Class A, Class B, Class C and Class
Z shares, initially all of one series. Each class of common stock represents an
interest in the same assets of the Fund and is identical in all respects except
that (1) each class is subject to different sales charges and
B-27
<PAGE>
distribution and/or service fees (except for Class Z shares, which are not
subject to any sales charges and distribution and/or service fees), which may
affect performance, (2) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (3) each
class has a different exchange privilege, (4) only Class B shares have a
conversion feature and (5) Class Z shares are offered exclusively for sale to a
limited group of investors. In accordance with the Fund's Articles of
Incorporation, the Directors may authorize the creation of additional series and
classes within such series, with such preferences, privileges, limitations and
voting and dividend rights as the Directors may determine. The voting rights of
the shareholders of a series or class can be modified only by the majority vote
of shareholders of that series or class.
Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances. Each share of
each class is equal as to earnings, assets and voting privileges, except as
noted above, and each class of shares (with the exception of Class Z shares,
which are not subject to any distribution or service fees) bears the expenses
related to the distribution of its shares. Except for the conversion feature
applicable to the Class B shares, there are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of the Fund is
entitled to its portion of all of the Fund's assets after all debt and expenses
of the Fund have been paid. Since Class B and Class C shares generally bear
higher distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders and to Class Z shareholders, whose shares are not subject to any
distribution and/or service fees.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of Directors is required to be
acted on by shareholders under the 1940 Act. Shareholders have certain rights,
including the right to call a meeting upon the vote of 10% of the Fund's
outstanding shares for the purpose of voting on the removal of one or more
Directors or to transact any other business.
Under the Articles of Incorporation, the Directors may authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset value
procedures) with such preferences, privileges, limitations and voting and
dividend rights as the Directors may determine. All consideration received by
the Fund for shares of any additional series, and all assets in which such
consideration is invested, would belong to that series (subject only to the
rights of creditors of that series) and would be subject to the liabilities
related thereto. Under the 1940 Act, shareholders of any additional series of
shares would normally have to approve the adoption of any advisory contract
relating to such series and of any changes in the investment policies related
thereto. The Directors do not intend to authorize additional series at the
present time.
The Directors have the power to alter the number and the terms of office of
the Directors and they may at any time lengthen their own terms or make their
terms of unlimited duration and appoint their own successors, provided that
always at least a majority of the Directors have been elected by the
shareholders of the Fund. The voting rights of shareholders are not cumulative,
so that holders of more than 50 percent of the shares voting can, if they
choose, elect all Directors being selected, while the holders of the remaining
shares would be unable to elect any Directors.
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value (NAV) per share plus a sales charge which, at the election of
the investor, may be imposed either (1) at the time of purchase (Class A or
Class C shares) and/or (2) on a deferred basis (Class B or Class C shares).
Class Z shares of the Fund are offered to a limited group of investors at NAV
without any sales charges. See "How to Buy, Sell and Exchange Shares of the
Fund" in the Prospectus.
Each class of shares represents an interest in the same assets of the Fund
and is identical in all respects except that (i) each class is subject to
different sales charges and distribution and/or service fees (except for Class Z
shares, which are not subject to any sales charges and distribution and/or
service fees), which may affect performance, (ii) each class has exclusive
voting rights with respect to any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv) only
Class B shares have a conversion feature and (v) Class Z shares are offered
exclusively for sale to a limited group of investors. See "Shareholder
Investment Account- Exchange Privilege."
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, an
investor must complete an application and telephone the Transfer Agent at (800)
225-1852 (toll-free) to receive an account number. The following information
will be
B-28
<PAGE>
requested: the investor's name, address, tax identification number, fund and
class elections, dividend distribution election, amount being wired and wiring
bank. Instructions should then be given by the investor to his/her bank to
transfer funds by wire to the Fund's Custodian, State Street Bank and Trust
Company, Boston, Massachusetts, Custody and Shareholder Services Division,
Attention: Global Utility Fund, Inc., specifying on the wire the account number
assigned by the Transfer Agent and the investor's name and identifying the class
in which the investor is investing (Class A, Class B, Class C or Class
Z shares).
If an investor arranges for receipt by the Custodian of federal funds prior
to the calculation of NAV (4:15 P.M., New York time), on a business day, the
investor may purchase shares of the Fund as of that day.
In making a subsequent purchase order by wire, an investor should wire the
Custodian directly and should be sure that the wire specifies Global Utility
Fund, Inc.; Class A, Class B, Class C or Class Z shares; and the investor's name
and individual account number. It is not necessary to call the Transfer Agent to
make subsequent purchase orders utilizing federal funds. The minimum amount
which may be invested by wire is $1,000.
ISSUANCE OF FUND SHARES FOR SECURITIES
Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (1) reorganizations, (2) statutory mergers, or (3)
other acquisitions of portfolio securities that: (a) meet the investment
objective and policies of the Fund, (b) are liquid and not subject to
restrictions on resale, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market, and (d) are approved by the Fund's investment adviser.
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares of the Fund are sold at a maximum sales charge of
5%, Class C* shares are sold with a 1% sales charge, and Class B* and Class Z
shares of the Fund are sold at NAV. Using the NAV at September 30, 2000, the
maximum offering price of the Fund's shares is as follows:
<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share ................. $15.61
======
Maximum sales charge (5% of offering price)............................. $ .82
Maximum offering price to public ....................................... $16.43
======
CLASS B
Net asset value, redemption price and offering price per Class B share* $15.63
======
CLASS C
Net asset value and redemption price per Class C share* ................ $15.63
======
Sales Charge (1% of offering price) .................................... $ .16
======
Offering price to public ............................................... $15.79
======
CLASS Z
Net asset value, redemption price and offering price per Class Z share . $15.61
======
</TABLE>
----------
* Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions.
SELECTING A PURCHASE ALTERNATIVE
The following is provided to assist investors in determining which method
of purchase best suits their individual circumstances and is based on current
fees and expenses being charged to the Fund:
If you intend to hold your investment in a Fund for less than 4 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to an initial sales charge of 5% and Class B shares are
subject to a CDSC of 5% which declines to zero over a 6-year period, you should
consider purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for more than 4 years, but less than
5 years, you may consider purchasing Class B or Class C shares because: (1) the
contingent-deferred sales load plus the cumulative annual distribution-related
fee on Class B shares; and (ii) the maximum 1% initial sales charge plus the
cumulative annual distribution-related fee on Class C shares would be lower than
the maximum 5% initial sales charge plus the cumulative annual
distribution-related fee on Class A shares. In addition, more of your money
would be invested initially in the case of Class C shares, because of the
relatively low initial sales charge, and all of your money would be invested
initially in the case of Class B shares, which are sold at NAV.
If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual
distribution-related fee on
B-29
<PAGE>
Class A shares would be less than the cumulative annual distribution-related fee
on Class B shares and less than the initial sales charge plus the cumulative
annual distribution-related fee on Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless or how long you intend to hold you investment. However, unlike
Class B shares, you would not have all of your money invested initially because
the sales charge on Class A shares is deducted at the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and for more than 5 years in the
case of Class C shares for the higher cumulative annual distribution-related fee
on those shares plus, in the case of Class C shares, the 1% initial sales charge
to exceed the initial sales charge plus the cumulative annual
distribution-related fees on Class A shares. This does not take into account the
time value of money, which further reduces the impact of the higher Class B or
Class C distribution-related fee on the investment, fluctuations in NAV, the
effect of the return on the investment over this period of time or redemptions
when the CDSC is applicable.
REDUCTION AND WAIVER OF INITIAL SALES CHARGE-CLASS A SHARES
BENEFIT PLANS. Certain group retirement and savings plans may purchase
Class A shares without the initial sales charge if they meet the required
minimum for amount of assets, average account balance or number of eligible
employees. For more information about these requirements, call Prudential at
(800) 353-2847.
OTHER WAIVERS. In addition, Class A shares may be purchased at NAV,
through the Distributor or the Transfer Agent, by:
o officers of the Prudential mutual funds (including the Fund);
o employees of the Distributor, Prudential Securities, the Manager and
their subsidiaries and members of the families of such persons who
maintain an "employee related" account at Prudential Securities or the
Transfer Agent;
o employees of subadvisers of the Prudential mutual funds provided that
purchases at NAV are permitted by such person's employer;
o Prudential, employees and special agents of Prudential and its
subsidiaries and all persons who have retired directly from active
service with Prudential or one of its subsidiaries;
o real estate brokers, agents and employees of real estate brokerage
companies affiliated with the Prudential Real Estate Affiliates who
maintain an account at Prudential Securities, Prusec or with the Transfer
Agent;
o members of the Board of Directors of The Prudential Insurance Company of
America;
o registered representatives and employees of brokers who have entered into
a selected dealer agreement with the Distributor provided that purchases
at NAV are permitted by such person's employer;
o investors who have a business relationship with a financial adviser who
joined Prudential Securities from another investment firm, provided that
(1) the purchase is made within 180 days of the commencement of the
financial adviser's employment at Prudential Securities, or within one
year in the case of benefit plans, (2) the purchase is made with proceeds
of a redemption of shares of any open-end non-money market fund sponsored
by the financial adviser's previous employer (other than a fund which
imposes a distribution or service fee of .25 of 1% or less) and (3) the
financial adviser served as the client's broker on the previous purchase;
o investors in Individual Retirement Accounts, provided the purchase is
made in a directed rollover to such Individual Retirement Account or with
the proceeds of a tax-free rollover of assets from a benefit plan for
which Prudential provides administrative or recordkeeping services and
further provided that such purchase is made within 60 days of receipt of
the benefit plan distribution;
o orders placed by broker-dealers, investment advisers or financial
planners who have entered into an agreement with the Distributor, who
place trades for their own accounts or the accounts of their clients and
who charge a management, consulting or other fee for their services (for
example, mutual fund "wrap" or asset allocation programs); and
o orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for customer accounts if the accounts
are linked to the master account of such broker-dealer, investment
adviser or financial planner and the broker-dealer, investment adviser or
financial planner charges its clients a separate fee for its services
(for example, mutual fund "supermarket" programs).
B-30
<PAGE>
Broker-dealers, investment advisers or financial planners sponsoring
fee-based programs (such as mutual fund "wrap" or asset allocation programs and
mutual fund "supermarket" programs) may offer their clients more than one class
of shares in the Fund in connection with different pricing options for their
programs. Investors should consider carefully any separate transaction and other
fees charged by these programs in connection with investing in each available
share class before selecting a share class.
For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the broker
facilitating the transaction that the purchase qualifies for the reduced or
waived sales charge. The reduction or waiver will be granted subject to
confirmation of your entitlement. No initial sales charges are imposed upon
Class A shares acquired upon the reinvestment of dividends and distributions.
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential mutual funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See "How to Buy, Sell and Exchange Shares of the Fund-How to
Buy Shares-Reducing or Waiving Class A's Initial Sales Charge" in the
Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
o an individual;
o the individual's spouse, their children and their parents;
o the individual's and spouse's Individual Retirement Account (IRA);
o any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will
be deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners);
o a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
o a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
o one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).
The Transfer Agent, the Distributor or a broker must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charge will be granted subject to confirmation of the investor's
holdings. The Combined Purchase and Cumulative Purchase Privilege does not apply
to individual participants in any retirement or group plan.
LETTERS OF INTENT. Reduced sales charges are also available to investors
(or an eligible group of related investors) who enter into a written Letter of
Intent providing for the investment, within a thirteen-month period, of a
specified dollar amount in the Fund or other Prudential mutual funds. Retirement
and group plans do not qualify to purchase Class A shares at NAV by entering
into a Letter of Intent.
For purposes of the Letter of Intent, all shares of the Fund and shares of
other Prudential mutual funds (excluding money market funds other than those
acquired pursuant to the exchange privilege) which were previously purchased and
are still owned are also included in determining the applicable reduction.
However, the value of shares held directly with the Transfer Agent, Prudential
or its affiliates and through your broker will not be aggregated to determine
the reduced sales charge.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter of Intent will be held by the Transfer Agent in the name of the investor.
The effective date of a Letter of Intent may be back-dated up to 90 days, in
order that any investment made during this 90-day period, valued at the
investor's cost, can be applied to the fulfillment of the Letter of Intent goal.
B-31
<PAGE>
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not satisfied within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and the sales charge actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investor's holdings.
CLASS B SHARES
The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following receipt
of an order in proper form by the Transfer Agent, a broker or the Distributor.
Although there is no sales charge imposed at the time of purchase, redemptions
of Class B shares may be subject to a CDSC. See "Sale of Shares-Contingent
Deferred Sales Charge," below.
The Distributor will pay, from its own resources, sales commissions of up
to 4% of the purchase price of Class B shares to brokers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase. The Distributor anticipates that it will
recoup its advancement of sales commissions from the combination of the CDSC and
the distribution fee.
CLASS C SHARES
The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, financial advisers and other persons
which distribute Class C shares a sales commission of up to 2% of the purchase
price at the time of the sale.
WAIVER OF INITIAL SALES CHARGE-CLASS C SHARES
BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at
(800) 353-2847.
INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES.
Investors may purchase Class C shares at NAV, without the initial sales charge,
with the proceeds from the redemption of shares of any unaffiliated registered
investment company which were not held through an account with any Prudential
affiliate. Such purchases must be made within 60 days of the redemption.
Investors eligible for this waiver include: (1) investors purchasing shares
through an account at Prudential Securities, (2) investors purchasing shares
through an ADVANTAGE Account or an Investor Account with Prusec, and (3)
investors purchasing shares through other brokers. This waiver is not available
to investors who purchase shares directly from the Transfer Agent. You must
notify your broker if you are entitled to this waiver and provide such
supporting documents as it may deem appropriate.
CLASS Z SHARES
BENEFIT PLANS. Certain group retirement plans may purchase Class Z shares
if they meet the required minimum for amount of assets, average account balance
or number of eligible employees. For more information about these requirements,
call Prudential at (800) 353-2847.
MUTUAL FUND PROGRAMS. Class Z shares can also be purchased by participants
in any fee-based program or trust program sponsored by Prudential or an
affiliate that includes the Fund as an available option. Class Z shares can also
be purchased by investors in certain programs sponsored by broker-dealers,
investment advisers and financial planners who have agreements with Prudential
Investments Advisory Group relating to:
o Mutual fund "wrap" or asset allocation programs, where the sponsor places
Fund trades, links it clients' accounts to a master account in the
sponsor's name and charges its clients a management, consulting or other
fee for its services; or
o Mutual fund "supermarket" programs, where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor
charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
B-32
<PAGE>
OTHER TYPES OF INVESTORS. Class Z shares of the Fund currently are
available for purchase by the following categories of investors:
o certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by an affiliate of the Distributor for whom Class Z
shares of the Prudential mutual funds are an available investment option;
o current and former Directors/Trustees of the Prudential mutual funds
(including the Fund),
o Prudential, with an investment of $10 million or more.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay brokers, financial advisers and other persons
which distribute shares a finders' fee, from its own resources, based on a
percentage of the net asset value of shares sold by such persons.
RIGHTS OF ACCUMULATION
Reduced sales charges also are available through rights of accumulation,
under which an investor or an eligible group of related investors, as described
above under "Combined Purchase and Cumulative Purchase Privilege," may aggregate
the value of their existing holdings of shares of the Fund and shares of other
Prudential mutual funds (excluding money market funds other than those acquired
pursuant to the exchange privilege) to determine the reduced sales charge.
Rights of accumulation may be applied across the classes of shares of the
Prudential mutual funds. The value of shares held directly with the Transfer
Agent and through your broker will not be aggregated to determine the reduced
sales charge. The value of existing holdings for purposes of determining the
reduced sales charge is calculated using the maximum offering price (NAV plus
maximum sales charge) as of the previous business day.
The Distributor or the Transfer Agent must be notified at the time of
purchase that the shareholder is entitled to a reduced sales charge. The reduced
sales charge will be granted subject to confirmation of the investor's holdings.
Rights of accumulation are not available to individual participants in any
retirement or group plans.
SALE OF SHARES
You can redeem shares at any time for cash at the NAV next determined after
the redemption request is received in proper form (in accordance with procedures
established by the Transfer Agent in connection with investors' accounts) by the
Transfer Agent, the Distributor or the investor's broker. In certain cases,
however, redemption proceeds will be reduced by the amount of any applicable
CDSC, as described below. See "Contingent Deferred Sales Charge" below. If you
are redeeming your shares through a broker, the broker must receive your sell
order before the Fund computes its NAV for that day (that is, 4:15 p.m., New
York time) in order to receive that day's NAV. Your broker will be responsible
for furnishing all necessary documentation to the Distributor and may charge you
for its services in connection with redeeming shares of the Fund.
If you hold shares of the Fund through Prudential Securities, you must
redeem the shares through Prudential Securities. Please contact your Prudential
Securities Financial Advisor.
In order to redeem shares, a written request for redemption signed by you
exactly as the account is registered is required. If you hold certificates, the
certificates must be received by the Transfer Agent, the Distributor or your
broker in order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written evidence of
authority acceptable to the Transfer Agent must be submitted before such request
will be accepted. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, attention: Redemption Services, P.O. Box 8149, Philadelphia,
Pennsylvania 19101, to the Distributor or to your broker.
SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed $100,000
(2) are to be paid to a person other than shareholder(s), (3) are to be sent to
an address other than the address on the Transfer Agent's records, or (4) are to
be paid to a corporation, partnership, trust or fiduciary, and are held directly
with the Transfer Agent, the signature(s) on the redemption request or stock
power must be signature guaranteed by an "eligible guarantor institution." An
"eligible guarantor institution" includes any bank, broker, dealer or credit
union. The Transfer Agent reserves the right to request additional information
from, and make reasonable inquiries of, any eligible guarantor institution.
B-33
<PAGE>
Payment for shares presented for redemption will be made by check within
seven days after receipt of the written request, and certificates if applicable
by the Transfer Agent, the Distributor or the broker of the certificate and/or
written request, except as indicated below. If an investor holds shares through
Prudential Securities, payment for shares presented for redemption will be
credited to the investor's account at his or her broker, unless the investor
indicates otherwise. Such payment may be postponed or the right of redemption
suspended at times (1) when the New York Stock Exchange is closed for other than
customary weekends and holidays, (2) when trading on such Exchange is
restricted, (3) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (4) during any other period when the SEC, by order, so permits;
provided that applicable rules and regulations of the SEC shall govern as to
whether the conditions prescribed in (2), (3) or (4) exist.
REDEMPTION IN KIND. If the Directors determine that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the SEC.
Securities will be readily marketable and will be valued in the same manner as
in a regular redemption. If your shares are redeemed in kind, you would incur
transaction costs in converting the assets into cash. The Fund, however, has
elected to be governed by Rule 18f-1 under the 1940 Act, under which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the NAV of the Fund during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the
Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No CDSC will be imposed on any such
involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If a shareholder redeems shares and has not
previously exercised the repurchase privilege, the shareholder may reinvest back
into the same account any portion or all of the proceeds of such redemption in
shares of the same fund at the NAV next determined after the order is received,
which must be within 90 days after the date of the redemption. Any CDSC paid in
connection with such redemption will be credited (in shares) to the
shareholder's account. (If less than a full repurchase is made, the credit will
be on a pro rata basis.) The shareholder must notify the Transfer Agent, either
directly or through the Distributor or the shareholder's broker, at the time the
repurchase privilege is exercised to adjust for the CDSC previously paid.
Thereafter, any redemptions will be subject to the CDSC applicable at the time
of the redemption. See "Contingent Deferred Sales Charge" below. Exercise of the
repurchase privilege will generally not affect federal tax treatment of any gain
realized upon redemption. However, if the redemption was made within a 30 day
period of the repurchase and if the redemption resulted in a loss, some or all
of the loss, depending on the amount reinvested, may not be allowed for federal
income tax purposes.
CONTINGENT DEFERRED SALES CHARGE
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period (five
years for shares purchased prior to January 22, 1990). Class C shares redeemed
within 18 months of purchase will be subject to a 1% CDSC (one year for Class C
Shares purchased before November 2, 1998). The CDSC will be deducted from the
redemption proceeds and reduce the amount received by the shareholder. The CDSC
will be imposed on any redemption by a shareholder which reduces the current
value of the Class B or Class C shares to an amount which is lower than the
amount of all purchases by the shareholder of shares during the preceding four
years, in the case of Class B shares and 18 months in the case of Class C shares
(one year for Class C shares purchased before November 2, 1998). A CDSC will be
applied on the lesser of the original purchase price or the current value of the
shares being redeemed. Increases in the value of shares or shares acquired
through reinvestment of dividends or distributions are not subject to a CDSC.
The amount of any CDSC will be paid to and retained by the Distributor.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of the purchase of shares until the time of redemption of such
shares. Solely for purposes of determining the number of years from the purchase
of shares, all purchases during a month will be aggregated and deemed to have
been made on the last day of the month. The CDSC will be calculated from the
first day of the month after the initial purchase, excluding the time shares
were held in a money market fund.
B-34
<PAGE>
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEARS SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------- -------------------------
<S> <C>
First ............................................. 5.0%
Second ............................................ 4.0%
Third ............................................. 3.0%
Fourth ............................................ 2.0%
Fifth ............................................. 1.0%
Sixth ............................................. 1.0%
Seventh and thereafter ............................ None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in NAV above the total amount of
purchases of Fund shares made during the preceding six years for Class B shares
(five years for Class B shares purchased prior to January 22, 1990) and 18
months for Class C shares (one year for Class C shares bought before November 2,
1998); then of amounts representing the cost of shares held beyond the
applicable CDSC period; and finally, of amounts representing the cost of shares
held for the longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE-CLASS B SHARES. The CDSC will be
waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
at the time of death or initial determination of disability, provided that the
shares were purchased prior to death or disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Code
from a tax-deferred retirement plan, an IRA or Section 403(b) custodial account.
For more information, call Prudential at (800) 353-2847.
Finally, the CDSC will be waived to the extent that the proceeds from
shares redeemed are invested in Prudential mutual funds, the Guaranteed
Investment Account, the Guaranteed Insulated Separate Account or units of the
Stable Value Fund.
SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions effected through a Systematic Withdrawal Plan. On an annual basis,
up to 12% of the total dollar amount subject to the CDSC may be redeemed without
charge. The Transfer Agent will calculate the total amount available for this
waiver annually on the anniversary date of your purchase or, for shares
purchased prior to March 1, 1997, on March 1 of the current year. The CDSC will
be waived (or reduced) on redemptions until this threshold 12% is reached.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
Shareholders must notify the Fund's Transfer Agent either directly or
through their broker at the time of redemption that they are entitled to waiver
of the CDSC and provide the Transfer Agent or their broker with such supporting
documentation as it may deem appropriate. The waiver will be granted subject to
confirmation of your entitlement.
B-35
<PAGE>
In connection with these waivers, the Transfer Agent will require you to
submit the supporting documentation set forth below.
<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A certified copy of the shareholder's death certificate
or, in the case of a trust, a certified copy of the
grantor's death certificate, plus a certified copy of
the trust agreement identifying the grantor.
Disability-An individual will be considered disabled A copy of the Social Security Administration award letter
if he or she is unable to engage in any substantial or a letter from a physician on the physician's
gainful activity by reason of any medically letterhead stating that the shareholder (or, in the case
determinable physical or mental impairment which can of a trust, the grantor (a copy of the trust agreement
be expected to result in death or to be of identifying the grantor will be required as well)) is
long-continued and indefinite duration. permanently disabled. The letter must also indicate the
date of disability. In the case of a trust, the Transfer
Agent will also require a certified copy of the trust.
Distribution from an IRA or 403(b) Custodial Account A copy of the distribution form from the custodial firm
indicating (i) the date of birth of the shareholder and
(ii) that the shareholder is over age 59 1/2 and is
taking a normal distribution-signed by the shareholder.
Distribution from Retirement Plan A letter signed by the plan administrator/trustee
indicating the reason for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or the plan
administrator/trustee on company letterhead indicating
the amount of the excess and whether or not taxes have
been paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
QUANTITY DISCOUNT--SHARES PURCHASED PRIOR TO AUGUST 1, 1994
While a quantity discount is not available for Class B shares of the Fund,
a quantity discount may apply to Class B shares of another Prudential mutual
fund acquired pursuant to the exchange of Class B shares of the Fund. The
applicable quantity discount, if any, will be that applicable to the shares
acquired as a result of the exchange of Class B shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES
BENEFIT PLANS. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or recordkeeping services. The CDSC will also be waived
for certain redemptions by benefit plans sponsored by Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.
CONVERSION FEATURE-CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (1)
the ratio of (a) the amounts paid for Class B shares purchased at least five
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (2) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately 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
B-36
<PAGE>
purchase of 100 shares was subsequently made at $11 per share (for a total of
$1,100), 95.24 shares would convert approximately seven years from the initial
purchase (I.E., $1,000 divided by $2,100 (47.62%), multiplied by 200 shares
equals 95.24 shares). The Manager reserves the right to modify the formula for
determining the number of Eligible Shares in the future as it deems appropriate
on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share NAV of the Class A shares may be higher than that
of the Class B shares at the time of conversion. Thus, although the aggregate
dollar value will be the same, you may receive fewer Class A shares than Class B
shares converted.
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such assets were held in the money market fund will be excluded. For
example, Class B shares acquired through an exchange of assets held in a money
market fund for one year would not convert to Class A shares 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.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) that the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Code and (2) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a share certificate is desired, it must be
requested in writing. Certificates are issued only for full shares and may be
redeposited in the Account at any time. There is no charge to the investor for
issuance of a certificate. The Fund makes available to its shareholders the
following privileges and plans.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at net asset
value per share. An investor may direct the Transfer Agent in writing not less
than five full business days prior to the record date to have subsequent
dividends and/or distributions sent in cash rather than reinvested. In the case
of recently purchased shares for which registration instructions have not been
received on the record date, cash payment will be made directly to the broker.
Any shareholder who receives dividends or distributions in cash may subsequently
reinvest any such dividends or distributions at NAV within 30 days after the
payment date. The reinvestment will be made at the NAV next determined after
receipt of the check by the Transfer Agent. Shares purchased with reinvested
dividends and/or distributions will not be subject to any CDSC upon redemption.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders the privilege of exchanging
shares of the Fund for shares of certain other Prudential mutual funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
mutual funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of the relative NAV next determined after receipt of an order
in proper form. An exchange will be treated as a redemption and purchase for tax
purposes. Shares may be exchanged for shares of another fund only if shares of
such fund may legally be sold under applicable state laws. For retirement and
group plans having a limited menu of Prudential mutual funds, the exchange
privilege is available for those funds eligible for investment in the particular
program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
B-37
<PAGE>
In order to exchange shares by telephone, a shareholder must authorize
telephone exchanges on his or her initial application form or by written notice
to the Transfer Agent and hold shares in non-certificate form. Thereafter, a
shareholder may call the Fund at (800) 225-1852 to execute a telephone exchange
of shares, on weekdays, except holidays, between the hours of 8:00 A.M. and 8:00
P.M., New York time. For the shareholder's protection and to prevent fraudulent
exchanges, telephone calls will be recorded and the shareholder will be asked to
provide his or her personal identification number. A written confirmation of the
exchange transaction will be sent to the shareholder. Neither the Fund nor its
agents will be liable for any loss, liability or cost which results from acting
upon instructions reasonably believed to be genuine under the foregoing
procedures. All exchanges will be made on the basis of the relative NAV of the
two funds next determined after the request is received in good order. The
exchange privilege is available only in states where the exhange may be legally
made.
If a shareholder holds shares through Prudential Securities, the shares
must be exchanged by contacting the shareholder's Prudential Securities
financial adviser.
If a shareholder holds certificates, the certificates must be returned in
order for the shares to be exchanged.
A shareholder may also exchange shares by mail by writing to the Fund's
Transfer Agent, Prudential Mutual Fund Services LLC, Attention: Exchange
Processing, P.O. Box 8157, Philadelphia, Pennsylvania 19101.
In periods of severe market or economic conditions, the telephone exchange
of shares may be difficult to implement. A shareholder should then make
exchanges by mail by writing to the Transfer Agent at the address noted above.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential mutual funds and shares of the money
market funds specified below. No fee or CDSC will be imposed upon the exchange.
Shareholders of money market funds who acquired such shares upon exchange of
Class A shares may use the exchange privilege only to acquire Class A shares of
the Prudential mutual funds participating in the exchange privilege.
The following money market funds participate in the Class A exchange
privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(New Jersey Series)
(New York Series)
Prudential MoneyMart Assets, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B
and Class C shares of the Fund for Class B and Class C shares, respectively, of
certain other Prudential mutual funds and shares of Prudential Special Money
Market Fund, Inc. No CDSC will be assessed upon such exchange, but a CDSC may be
assessed upon the redemption of the Class B and Class C shares acquired as a
result of the exchange. The applicable sales charge will be that imposed by the
fund in which shares were initially purchased and the purchase date will be
deemed to be the first day of the month after the initial purchase, rather than
the date of the exchange.
Class B and Class C shares of the Fund may also be exchanged for shares of
an eligible money market fund without imposition of any CDSC at the time of
exchange. Upon subsequent redemption from such money market fund or after
re-exchange into the Fund, such shares will be subject to the CDSC calculated
without regard to the time such shares were held in the money market fund. In
order to minimize the period of time in which shares are subject to a CDSC,
shares exchanged out of the money market fund will be exchanged on the basis of
their remaining holding periods, with the longest remaining holding periods
being exchanged first. In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month. Thus, if
shares are exchanged into the Fund from a money market fund during the month
(and are held in the Fund at the end of the month), the entire month will be
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period. For purposes of calculating the seven year holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded.
At any time after acquiring shares of other funds participating in the
Class B or Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B or Class C
shares of the Fund,
B-38
<PAGE>
respectively, without subjecting such shares to any CDSC. Shares of any fund
participating in the Class B or Class C exchange privilege that were acquired
through reinvestment of dividends or distributions may be exchanged for Class B
or Class C shares of other funds, respectively, without being subject to any
CDSC.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential mutual funds.
SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for shareholders
who qualify to purchase Class Z shares. Under this exchange privilege, amounts
representing any Class B and Class C shares that are not subject to a CDSC held
in such a shareholder's account will be automatically exchanged for Class A
shares for shareholders who qualify to purchase Class A shares at NAV on a
quarterly basis, unless the shareholder elects otherwise.
Shareholders who qualify to purchase Class Z shares will have their Class B
and Class C shares that are not subject to a CDSC and their Class A shares
exchanged for Class Z shares on a quarterly basis. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange. Amounts representing Class B or Class C shares that are not subject to
a CDSC include the following: (1) amounts representing Class B or Class C shares
acquired pursuant to the automatic reinvestment of dividends and distributions,
(2) amounts representing the increase in the net asset value above the total
amount of payments for the purchase of Class B or Class C shares and (3) amounts
representing Class B or Class C shares held beyond the applicable CDSC period.
Class B and Class C shareholders must notify the Transfer Agent either directly
or through Prudential Securities, Prusec or another broker that they are
eligible for this special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value. Similarly, participants in Prudential Securities' 401(k) Plan for which
the Fund's Class Z shares is an available option and who wish to transfer their
Class Z shares out of the Prudential Securities 401(k) Plan following separation
from service (that is, voluntary or involuntary termination of employment or
retirement) will have their Class Z shares exchanged for Class A shares at NAV.
Additional details about the exchange privilege and prospectuses for each
of the Prudential mutual funds are available from the Fund's Transfer Agent, the
Distributor or your broker. The exchange privilege may be modified, terminated
or suspended on sixty days' notice, and any fund, including the Fund, or the
Distributor, has the right to reject any exchange application relating to such
fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. A shareholder buys more
shares when the price is low and fewer shares when the price is high. The
average cost per share is lower than it would be if a constant number of shares
were bought at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure such as the purchase of a home or to finance a
college education. The cost of a year's education at a four-year college today
averages around $22,500 at a private college and around $10,600 at a public
university. Assuming these costs increase at a rate of 7% a year, the cost of
one year at a private college could reach approximately $44,300 and $21,000 at a
public university in 10 years.(1)
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
-------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years ............... $ 105 $ 158 $ 210 $ 263
20 Years ............... 170 255 340 424
15 Years ............... 289 433 578 722
10 Years ............... 547 820 1,093 1,366
5 Years ................ 1,361 2,041 2,721 3,402
See "Automatic Investment Plan."
</TABLE>
B-39
<PAGE>
----------
(1) Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges.
Average costs for private institutions include tuition, fees, room and board
for the 1998-1999 academic year.
(2) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.
AUTOMATIC INVESTMENT PLAN (AIP)
Under AIP, a shareholder may arrange to have a fixed amount automatically
invested in shares of the Fund by authorizing his or her bank account or
brokerage account (including a Prudential Securities Command Account) to be
debited for specified dollar amounts to be invested in shares of the Fund. The
shareholder's bank must be a member of the Automatic Clearing House System.
Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through the
Transfer Agent, the Distributor or a shareholder's broker. Such withdrawal plan
provides for monthly, quarterly, semi-annual or annual redemption checks in any
amount, except as provided below, up to the value of the shares in the
shareholder's account. Systematic withdrawals of Class B or Class C shares may
be subject to a CDSC.
In the case of shares held through the Transfer Agent, (1) a $10,000
minimum account value applies, (2) systematic withdrawals may not be for less
than $100 and (3) all dividends and/or distributions must be automatically
reinvested in order for the shareholder to participate in this plan.
The Transfer Agent, the Distributor or the shareholder's broker acts as
agent for the shareholder in redeeming sufficient full and fractional shares to
provide the amount of the systematic withdrawal. The systematic withdrawal plan
may be terminated at any time, and the Distributor reserves the right to
initiate a fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.
Systematic withdrawals should not be considered as dividends, yield or
income. If systematic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each systematic withdrawal constitutes a redemption of shares,
and any gain or loss realized must generally be recognized for federal income
tax purposes. In addition, systematic withdrawals made concurrently with
purchases of additional shares are inadvisable because of the sales charges
applicable to (1) the purchase of Class A and Class C shares and (2) the
redemption of Class B and Class C shares. Each shareholder should consult his or
her own tax adviser with regard to the tax consequences of the systematic
withdrawal plan, particularly if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS
Various tax-deferred retirement plans, including a 401(k) plan,
self-directed individual retirement accounts and "tax-deferred accounts" under
Section 403(b)(7) of the Code are available through the Distributor. These plans
are for use by both self-employed individuals and corporate employers. These
plans permit either self-direction of accounts by participants, or a pooled
account arrangement. Information regarding the establishment of these plans, the
administration, custodial fees and other details are available from the
Distributor or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings
B-40
<PAGE>
in a personal savings account with those in an IRA, assuming a $2,000 annual
contribution, an 8% rate of return and a 39.6% federal income tax bracket and
shows how much more retirement income can accumulate within an IRA as opposed to
a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(1)
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
----------- -------- -------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
----------
(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings in
a traditional IRA account will be subject to tax when withdrawn from the
account. Distributions from a Roth IRA that meet the conditions required under
the Code will not be subject to tax upon withdrawal from the account.
MUTUAL FUND PROGRAMS
From time to time, the Fund may be included in a mutual fund program with
other Prudential mutual funds. Under such a program, a group of portfolios will
be selected and thereafter marketed collectively. Typically, these programs are
created with an investment theme, such as pursuit of greater diversification,
protection from interest rate movements or access to different management
styles. In the event such a program is instituted, there may be a minimum
investment requirement for the program as a whole. The Fund may waive or reduce
the minimum initial investment requirements in connection with such a program.
The mutual funds in the program may be purchased individually or as part of
a program. Since the allocation of portfolios included in the program may not be
appropriate for all investors, individuals should consult their financial
adviser concerning the appropriate blend of portfolios for them. If investors
elect to purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
NET ASSET VALUE
The Fund's net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. The
Directors have fixed the specific time of day for the computation of the Fund's
net asset value to be as of 4:15 P.M., New York time. The Fund will compute its
NAV at 4:15 P.M., New York time, on each day the New York Stock Exchange is open
for trading except on days on which no orders to purchase, sell or redeem Fund
shares have been received or days on which changes in the value of the Fund's
portfolio securities do not affect NAV. In the event the New York Stock Exchange
closes early on any business day, the NAV of the Fund's shares shall be
determined at the time between such closing and 4:15 P.M., New York time. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Under the 1940 Act, the Directors are responsible for determining in good
faith the fair value of securities of the Fund. In accordance with procedures
adopted by the Directors, the value of investments listed on a securities
exchange and Nasdaq National Market System securities (other than options on
stock and stock indices) are valued at the last sale price of such exchange
system on the day of valuation or, if there was no sale on such day, the mean
between the last bid and asked prices on such day, or at the bid price on such
day in the absence of an asked price. Corporate bonds (other than convertible
debt securities) and U.S. government securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed by the Manager in consultation with the Subadviser to be
over-the-counter, are valued on the basis of valuations provided by an
independent pricing agent or principal market maker which uses information with
respect to transactions in bonds, quotations from bond dealers, agency ratings,
market transactions in comparable securities and various relationships between
securities in determining value. Convertible debt securities that are actively
traded in the over-the-counter market, including listed securities for which the
primary market is believed by the Manager in consultation with the Subadviser to
be over-the-counter, are valued at the mean between the last reported bid and
asked prices provided
B-41
<PAGE>
by principal market makers. Options on stock and stock indices traded on an
exchange are valued at the mean between the most recently quoted bid and asked
prices on the respective exchange and futures contracts and options thereon are
valued at their last sale prices as of the close of trading on the applicable
commodities exchange or board of trade or, if there was no sale on the
applicable commodities exchange or board of trade on such day, at the mean
between the most recently quoted bid and asked prices on such exchange or board
of trade. Quotations of foreign securities in a foreign currency are converted
to U.S. dollar equivalents at the current rate obtained from a recognized bank
or dealer, and foreign currency forward contracts are valued at the current cost
of covering or offsetting such contacts. Should an extraordinary event, which is
likely to affect the value of the security, occur after the close of an exchange
on which a portfolio security is traded, such security will be valued at fair
value considering factors determined in good faith by the investment adviser
under procedures established by and under the general supervision of the Fund's
Board of Directors.
Securities or other assets for which reliable market quotations are not
readily available or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation or methodology
that, in the judgment of the Manager or Subadviser (or Valuation Committee or
Board of Directors) does not represent fair value, are valued by the Valuation
Committee or Board of Directors in consultation with the Manager or Subadviser,
including its portfolio manager, traders, and its research and credit analysts,
on the basis of the following factors: cost of the security, transactions in
comparable securities, relationships among various securities and such other
factors as may be determined by the Manager, Subadviser, Board of Directors or
Valuation Committee to materially affect the value of the security. Short-term
debt securities are valued at cost, with interest accrued or discount amortized
to the date of maturity, if their original maturity was 60 days or less, unless
this is determined by the Directors not to represent fair value. Short-term
securities with remaining maturities of more than 60 days, for which market
quotations are readily available, are valued at their current market quotations
as supplied by an independent pricing agent or principal market maker.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. The
NAV of Class Z shares will generally be higher than the NAV of Class A, Class B
or Class C shares as a result of the fact that the Class Z shares are not
subject to any distribution or service fee. It is expected, however, that the
NAV of the four classes will tend to converge immediately after the recording of
dividends, if any, which will differ by approximately the amount of the
distribution and/or service fee expense accrual differential among the classes.
TAXES, DIVIDENDS AND DISTRIBUTIONS
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Code. Qualification of
the Fund as a regulated investment company requires, among other things, that
(a) the Fund derive at least 90% of its annual gross income (without reduction
for losses from the sale or other disposition of securities or foreign
currencies) from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or options thereon or
foreign currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
value of the Fund's assets is represented by cash, U.S. government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the value of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
government securities); and (c) the Fund distribute to its shareholders at least
90% of its net investment income and net short-term gains (I.E., the excess of
net short-term capital gains over net long-term capital losses) in each year.
Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year, except in certain cases where the Fund acquires a put or
writes a call thereon or otherwise holds an offsetting position with respect to
the securities. Other gains or losses on the sale of securities will be
short-termcapital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by the Fund on securities lapses or
is terminated through a closing transaction, such as a repurchase by the Fund of
the option from its holder, the Fund will generally realize short-term capital
gain or loss. If securities are sold by the Fund pursuant to the exercise of a
call option written by it, the Fund will include the premium received in the
sale proceeds of the securities delivered in determining the amount of gain or
loss on the sale. Certain of the Fund's transactions may be subject to wash
sale, short sale, constructive sale, anti-conversion and straddle provisions of
the Code which may, among other things, require the Fund to defer recognition of
losses. In addition,
B-42
<PAGE>
debt securities acquired by the Fund may be subject to original issue discount
and market discount rules which, respectively, may cause the Fund to accrue
income in advance of the receipt of cash with respect to interest or cause gains
to be treated as ordinary income.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and foreign currency forward contracts in which the Fund may
invest. See "Description of the Fund, Its Investments and Risks." These
investments will generally constitute Section 1256 contracts and will be
required to be "marked to market" for federal income tax purposes at the end of
the Fund's taxable year; that is, treated as having been sold at market value.
Except with respect to certain foreign currency forward contracts, sixty percent
of any gain or loss recognized on such deemed sales and on actual dispositions
will be treated as long-term capital gain or loss, and the remainder will be
treated as short-term capital gain or loss.
Gain or loss on the sale, lapse or other termination of options on stock
and on narrowly-based stock indices will be capital gain or loss and will be
long-term or short-term depending on the holding period of the option. In
addition, positions which are part of a "straddle" will be subject to certain
wash sale, short sale and constructive sale provisions of the Internal Revenue
Code. In the case of a straddle, the Fund may be required to defer the
recognition of losses on positions it holds to the extent of any unrecognized
gain on offsetting positions held by the Fund.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses on foreign currency
forward contracts or dispositions of debt securities denominated in a foreign
currency attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security and the date of disposition also
are treated as ordinary gain or loss. These gains, referred to under the Code as
"Section 988" gains or losses, increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to its
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. If Section 988 losses exceed other investment
company taxable income during a taxable year, the Fund would not be able to make
any ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as a return of capital to shareholders,
rather than as an ordinary dividend, reducing each shareholder's basis in his or
her Fund shares.
Shareholders electing to receive dividends and distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share of the Fund on the
reinvestment date.
Any dividend or distribution paid shortly after a purchase by an investor
may have the effect of reducing the per share net asset value of the investor's
shares by the per share amount of the dividends or distributions. Furthermore,
such dividend or distribution, although in effect a return of capital, is
subject to federal income taxes. Therefore, prior to purchasing shares of the
Fund, the investor should carefully consider the impact of dividends or capital
gains distributions which are expected to be or have been announced.
Any loss realized on a sale, redemption or exchange of shares of the Fund
by a shareholder will be disallowed to the extent the shares are replaced within
a 61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the Fund.
Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a nominee
or fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) withholding tax upon the gross amount of the dividends unless the
dividends are effectively connected with a U.S. trade or business conducted by
the foreign shareholder. Net capital gain distributions paid to a foreign
shareholder are generally not subject to withholding tax. A foreign shareholder
will, however, be required to pay U.S. income tax on any dividend and capital
gain distribution which is effectively connected with a U.S. trade or business
of the foreign shareholder.
Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent a Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Dividends attributable to foreign corporations, interest income, capital and
currency gain, gain or loss from Section 1256 contracts (described above) and
income from certain other sources will not constitute qualified dividends.
Individual shareholders are not eligible for the dividends-received deduction.
B-43
<PAGE>
The per share dividends on Class B and Class C shares will be lower than
the per share dividends on Class A and Class Z shares as a result of the higher
distribution-related fee applicable to Class B and Class C shares and lower on
Class A shares in relation to Class Z shares. The per share distributions of net
capital gains, if any, will be paid in the same amount for Class A, Class B,
Class C and Class Z shares. See "Net Asset Value."
The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
twelve months ending on October 31 of such calendar year. In addition, the Fund
must distribute during the calendar year all undistributed ordinary income and
undistributed capital gain net income from the prior year or the twelve-month
period ending on October 31 of such prior calendar year, respectively. To the
extent it does not meet these distribution requirements, the Fund will be
subject to a non-deductible 4% excise tax on the undistributed amount. For
purposes of this excise tax, income on which the Fund pays income tax is treated
as distributed.
The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations that, in general, satisfy
either of the following tests: (a) at least 75% of its gross income is passive
or (b) an average of at least 50% of its assets produce, or are held for the
production of, passive income. If the Fund acquires and holds stock in a PFIC
beyond the end of the year of its acquisition, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or of any gain from disposition of the stock (collectively, PFIC income),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders. The
Fund may make a "mark-to-market" election with respect to any marketable stock
it holds of a PFIC. If the election is in effect, at the end of the Fund's
taxable year, the Fund will recognize the amount of gains, if any, as ordinary
income with respect to PFIC stock. No loss will be recognized on PFIC stock,
except to the extent of gains recognized in prior years. Alternatively, the
Fund, if it meets certain requirements, may elect to treat any PFIC in which it
invests as a "qualified electing fund," in which case, in lieu of the foregoing
tax and interest obligation, the Fund will be required to include in income each
year its PRO RATA share of the qualified electing fund's annual ordinary
earnings and net capital gain, even if they are not distributed to the Fund;
those amounts would be subject to the distribution requirements applicable to
the Fund described above.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries will vary. The Fund does not expect
to meet the requirements of the Internal Revenue Code for "passing-through" to
its shareholders any foreign income taxes paid.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.
Dividends and distributions may also be subject to state and local taxes.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares.
Average annual total return is computed according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof).
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal or
state income taxes that may be payable upon redemption.
The average annual total returns for Class A shares for the one year, five
year, 10 year and since inception (January 2, 1990) periods ended September 30,
2000 were (4.74)%, 11.34%, 13.40% and 13.04%, respectively. The average annual
total returns for
B-44
<PAGE>
Class B shares for the one year, five year and since inception (March 18,
1991) periods ended September 30, 2000 were (5.40)%, 11.54% and 11.49%,
respectively. The average annual total returns for Class C shares for the one
year, five year and since inception (August 1, 1994) periods ended September 30,
2000 were (2.40)%, 11.44% and 11.18%, respectively. The average annual total
returns for the Class Z shares for the one year and since inception (December
16, 1996) periods ended September 30, 2000 were .56% and 12.74%, respectively.
AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value at the end of the 1, 5 or 10 year periods
(or fractional portion thereof) of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The aggregate total returns for Class A shares for the one year, five year,
10 year and since inception (January 2, 1990) periods ended on September 30,
2000 were 0.27%, 80.08%, 251.66% and 250.01%, respectively. The aggregate total
returns for Class B shares for the one year, five year and since inception
(March 18, 1991) periods ended on September 30, 2000 were (0.42)%, 73.63% and
182.31%, respectively. The aggregate total returns for Class C shares for the
one year, five year, and since inception (August 1, 1994) periods ended
September 30, 2000 were (0.42)%, 73.63% and 94.15%, respectively. The aggregate
total returns for the Class Z shares for the one year and since inception
(December 16, 1996) periods ended September 30, 2000 were 0.56% and 57.54%,
respectively.
YIELD. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B, Class
C and Class Z shares. The yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
a - b 6
YIELD = 2[(----- + 1) -1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period.
The Fund's 30-day yields for the 30 days ended September 30, 2000 were
1.63%, 0.94%, 0.94% and 1.95% for the Class A, Class B, Class C and Class Z
shares, respectively.
B-45
<PAGE>
From time to time, the performance of the Fund may be measured against
various indices. Such performance information may include data from Lipper,
Inc., Morningstar Publications, Inc., other industry publications, business
periodicals and market indices. Set forth below is a chart which compares the
performance of different types of investments over the long-term and the rate
of inflation.(1)
[THE DATA BELOW REPRESENTS A BAR GRAPH IN THE PRINTED PIECE]
PERFORMANCE COMPARISON OF
DIFFERENT TYPES OF
INVESTMENTS OVER THE
LONG TERM
(12/31/25 - 12/31/98)
Common Stocks ................................. 11.2%
Long Term Gov't Bonds ......................... 5.3%
Inflation ..................................... 3.1%
(1) SOURCE: IBBOTSON ASSOCIATES. USED WITH PERMISSION. ALL RIGHTS RESERVED.
COMMON STOCK RETURNS ARE BASED ON THE STANDARD & POOR'S 500 STOCK INDEX, A
MARKET-WEIGHTED, UNMANAGED INDEX OF 500 COMMON STOCKS IN A VARIETY OF
INDUSTRY SECTORS. IT IS A COMMONLY USED INDICATOR OF BROAD STOCK PRICE
MOVEMENTS. THIS CHART IS FOR ILLUSTRATIVE PURPOSES ONLY AND IS NOT
INTENDED TO REPRESENT THE PERFORMANCE OF ANY PARTICULAR INVESTMENT OR
FUND. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX. PAST PERFORMANCE IS
NOT A GUARANTEE OF FUTURE RESULTS.
B-46
<PAGE>
Global Utility Fund, Inc.
Portfolio of Investments as of September 30, 2000
<TABLE>
<CAPTION>
Shares Description US$ Value (Note 1)
<C> <S> <C>
---------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 97.0%
Common Stocks 75.6%
---------------------------------------------------------------------------------------
Electrical Utilities 26.1%
80,600 Calpine Corp.(a) $ 8,412,625
7,100 Capstone Turbine Corp.(a) 491,675
100,000 CMS Energy Corp. 2,693,750
60,000 Constellation Energy Group 2,985,000
180,000 Companhia Paranaense de Energia-COPEL
(ADR-Preferred B Shares) (Brazil) 1,597,500
104,347 DPL, Inc. 3,104,323
200,000 Endesa SA (ADR) (Spain) 3,750,000
187,800 Espoon Sahko Oyj (ADR) (Finland) 2,817,225
100,000 FPL Group, Inc. 6,575,000
160,000 Montana Power Co. 5,340,000
105,000 Pinnacle West Capital Corp. 5,341,875
250,000 Scottish Power PLC (ADR) (United Kingdom) 1,932,330
277,300 Shandong Huaneng Power Ltd. (ADR) (China) 2,113,026
6,500 Southern Energy, Inc.(a) 203,938
150,000 Unicom Corp. 8,428,125
--------------------
55,786,392
-------------------------------------------------------------------------------------
Gas Utilities 14.8%
359,459 Australian Gas Light Co. (Australia) 1,992,893
50,000 Dynegy, Inc. (Class A shares) 2,850,000
125,000 El Paso Energy Corp. 7,703,125
75,000 Enron Corp. 6,571,875
20,000 Equitable Resources, Inc. 1,267,500
50,000 MCN Energy Group, Inc. 1,281,250
200,000 TransCanada Pipelines Ltd. (Canada) 1,880,149
250,000 Westcoast Energy, Inc. (Canada) 4,758,504
75,000 Williams Companies, Inc. 3,168,750
--------------------
31,474,046
</TABLE>
See Notes to Financial Statements
B-47
<PAGE>
Global Utility Fund, Inc.
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description US$ Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C>
Telecommunications 32.6%
50,000 ALLTEL Corp. $ 2,609,375
60,000 AT&T Corp. 1,762,500
32,200 China Unicom Ltd. (ADR) (China)(a) 702,363
101,096 Compania de Telecomunicaciones de Chile, SA
(ADR) (Chile) 1,756,543
2,700 Flag Telecom Hldgs. Ltd.(a) 29,700
111,222 Hellenic Telecommunications Organization SA
(Greece)(a) 2,121,094
87,282 Koninklijke KPN NV (Netherlands) 1,893,904
110,000 Korea Telecom Corp. (ADR) (Korea) 3,698,750
280,600 McLeodUSA, Inc.(a) 4,016,088
75,000 Nextel Communications, Inc.(a) 3,506,250
60,000 Nippon Telegraph & Telephone Corp. (ADR) (Japan) 2,940,000
31,407 Nortel Networks Corp. (Canada) 1,870,679
85,040 NTL, Inc.(a) 3,938,415
86,466 Qwest Communications Intl., Inc.(a) 4,155,772
150,000 SBC Communications, Inc. 7,500,000
65,000 Sprint Corp. 1,905,313
50,000 Tele Danmark (ADR) (Denmark) 1,406,250
40,000 Telecom Corp. of New Zealand Ltd. (ADR) (New
Zealand) 800,000
85,000 Telefonos de Mexico SA (ADR - Class L Shares)
(Mexico) 4,520,937
331,100 Telekomunikacja Polska SA (GDR) (Poland) 1,775,027
361,774 Telstra Corp. Ltd. (Australia) 592,111
25,000 TELUS Corp. (Non-Voting) (Canada)(a) 649,416
75,000 TELUS Corp. (Voting) (Canada)(a) 2,018,004
220,000 Videsh Sanchar Nigam Ltd. (GDR) (India) 1,760,000
100,000 Vodafone Group PLC (ADR) (United Kingdom) 3,700,000
30,000 VoiceStream Wireless Corp.(a) 3,481,875
150,000 WorldCom, Inc.(a) 4,556,250
--------------------
69,666,616
</TABLE>
See Notes to Financial Statements
B-48
<PAGE>
Global Utility Fund, Inc.
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description US$ Value (Note 1)
---------------------------------------------------------------------------------------
<C> <S> <C>
Water Utilities & Other 2.1%
41,000 ENI SpA (ADR) (Italy) $ 2,170,437
15,000 Suez Lyonnaise des Eaux SA (France) 2,317,131
--------------------
4,487,568
--------------------
Total common stocks (cost $133,471,783) 161,414,622
--------------------
</TABLE>
DEBT OBLIGATIONS 21.4%
Corporate Bonds 20.9%
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Electrical Utilities 13.8%
Alabama Power Co.,
A2 $ 1,000 5.35%, 11/15/03, Ser. I 952,860
Appalachian Power Co.,
Baa1 1,000 6.60%, 5/1/09, Ser. C 925,840
Arizona Public Service Co.,
Baa2 1,000 6.25%, 1/15/05 958,770
Carolina Power & Light Co.,
A2 1,000 5.95%, 3/1/09 904,470
Cleveland Elec. Illum. Co.,
Baa3 1,000 7.43%, 11/1/09 977,000
CMS Energy Corp.,
BB(c) 1,000 8.125%, 5/15/02 992,860
Compania De Transporte Energetica
(Brazil),
BBB-(c) 1,000(b) 9.25%, 4/1/08 910,000
Consolidated Edison Co. of NY,
Inc.,
A1 1,000 7.625%, 3/1/04 1,020,910
El Paso Electric Co.,
Baa3 1,000 8.25%, 2/1/03, Ser. C 1,010,770
Empresa Electrica del Norte
Grande SA (Chile),
B1 1,000(b) 7.75%, 3/15/06 320,000
</TABLE>
See Notes to Financial Statements
B-49
<PAGE>
Global Utility Fund, Inc.
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description US$ Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida Power Corp.,
Aa3 $ 500 6.00%, 7/1/03 $ 490,475
Gulf States Utilities Co.,
Baa3 1,000 8.25%, 4/1/04 1,028,430
Hyder PLC (United Kingdom),
Baa2 1,000(b) 6.875%, 12/15/07 868,894
Inversora Electrica Buenos Aires
SA (Argentina),
B+(c) 1,000(b) 9.00%, 9/16/04 350,000
Niagara Mohawk Power Corp.,
Baa3 1,000 7.75%, 10/1/08, Ser. G 1,002,870
Northern States Power Co.,
Aa3 1,000 6.50%, 3/1/28 867,050
NRG Energy, Inc.,
Baa3 1,000 7.50%, 6/15/07 955,720
Pennsylvania Electric Co.,
A2 1,000 6.125%, 4/1/09, Ser. B 906,790
Philadelphia Electric Co.,
A(c) 1,000 6.50%, 5/1/03 984,230
PP&L Capital Funding, Inc.,
Baa2 1,000 6.79%, 11/22/04 992,910
Public Service Co.,
Baa3 1,000 7.10%, 8/1/05 976,510
Baa1 1,000 6.875%, 7/15/09 953,080
Puget Sound Energy, Inc.,
Baa1 1,000 6.46%, 3/9/09 929,940
Quebec Hydro.,
A2 1,000(b) 7.50%, 4/1/16 (Canada) 1,017,070
Southern Investments PLC
(United Kingdom),
Baa1 1,000(b) 6.80%, 12/1/06 919,850
Tampa Electric Co.,
Aa2 1,000 7.75%, 11/1/22 978,330
Texas Utilities Electric Co.,
A3 1,000 8.25%, 4/1/04 1,040,080
TXU Australia Hldgs. Ltd.
(Australia),
BBB+(c) 1,000(b) 6.75%, 12/1/06 969,420
</TABLE>
See Notes to Financial Statements
B-50
<PAGE>
Global Utility Fund, Inc.
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description US$ Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United Utilities PLC (United
Kingdom),
A3 $ 1,000(b) 6.45%, 4/1/08 $ 903,410
Virginia Electric Power Co.,
A2 1,000 6.625%, 4/1/03 995,050
Wisconsin Electric Power Co.,
Aa3 1,000 6.625%, 11/15/06 971,370
Wisconsin Power & Light Co.,
Aa3 500 5.70%, 10/15/08 445,400
Yorkshire Power Finance Ltd.
(United Kingdom),
Baa2 1,000(b) 6.496%, 2/25/08 906,910
--------------------
29,427,269
-------------------------------------------------------------------------------------
Gas Distribution & Other Industries 0.6%
El Paso Natural Gas Co.,
Baa1 1,000 7.50%, 11/15/26 950,640
Wisconsin Gas Co.,
Aa2 535 5.50%, 1/15/09 481,757
--------------------
1,432,397
------------------------------------------------------------------------------------------
Telecommunications, Media & Related Industries 6.5%
AES Corp.,
Ba3 1,000 8.375%, 8/15/07 950,000
Alestra (Mexico),
BB-(c) 500(b) 12.125%, 5/15/06 486,250
AT&T Corp.,
AA-(c) 1,000 7.75%, 3/1/07 1,026,070
Century Telephone Enterprises,
Inc.,
BBB+(c) 1,000 6.30%, 1/15/08 903,080
Flag Telecom Holdings Ltd.,
Ba3 500 8.25%, 1/30/08 440,000
Global Crossing Hldgs. Ltd.,
Ba2 500 9.125%, 11/15/06 495,000
GTE Corp.,
A2 1,000 7.51%, 4/1/09 1,003,650
Indiana Bell Telephone Co., Inc.,
Aa2 1,000 7.30%, 8/15/26 917,070
</TABLE>
See Notes to Financial Statements
B-51
<PAGE>
Global Utility Fund, Inc.
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description US$ Value (Note 1)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Level 3 Communications, Inc.,
B(c) $ 500 11.00%, 3/15/08 $ 475,000
New Jersey Bell Telephone Co.,
Aa2 1,000 8.00%, 6/1/22 993,020
New York Telephone Co.,
A1 1,000 6.00%, 4/15/08 922,650
Nextel Communications,
B1 500 9.375%, 11/15/09 490,000
Pacific Bell Corp.,
Aa3 1,000 6.625%, 11/1/09 952,140
Philippine Long Distance
Telephone Co. (The Philippines),
BB+(c) 1,000(b) 9.25%, 6/30/06 898,750
Sprint Capital Corp.,
Baa1 1,000 5.70%, 11/15/03 956,350
Telecomunicaciones de Puerto
Rico,
BBB(c) 1,000 6.65%, 5/15/06 955,240
Worldcom, Inc.,
A3 1,000 6.40%, 8/15/05 973,750
--------------------
13,838,020
--------------------
Total corporate bonds
(cost $48,530,114) 44,697,686
--------------------
------------------------------------------------------------------------------------------
U.S. Government Obligations 0.5%
United States Treasury Notes.,
5.75%, 8/15/03
Aaa 1,000 (cost $1,021,094) 994,370
--------------------
Total debt obligations
(cost $49,551,208) 45,692,056
--------------------
Total long-term investments
(cost $183,022,991) 207,106,678
--------------------
</TABLE>
See Notes to Financial Statements
B-52
<PAGE>
Global Utility Fund, Inc.
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description US$ Value (Note 1)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreement 3.7%
Lehman Brothers Hldgs., Inc.
6.53% due 10/02/00 in the amount
of $7,991,346 (cost $7,987,000;
collateralized by $14,695,000
U.S. Treasury Bonds, Zero
Coupon, due 5/15/10, value of
collateral including interest
$ 7,987 $8,239,927) $ 7,987,000
--------------------
Total Investments 100.7%
(cost $191,009,991; Note 4) 215,093,678
Liabilities in excess of other
assets (0.7%) (1,554,129)
--------------------
Net Assets 100% $ 213,539,549
--------------------
--------------------
</TABLE>
--------------------------------------------------------------------------------
(a) Non-income-producing security.
(b) US$ Denominated Bonds.
(c) Standard & Poor's rating.
ADR--American Depository Receipts.
GDR--Global Depository Receipts.
NV--Naamkee Vennootachap (Dutch Corporation).
PLC--Public Limited Company.
Oyj--Jalkinen Osakeyhtio (Finnish Corporation)
SA--Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation).
SpA--Societe par Atione (Italian Corporation).
See Notes to Financial Statements
B-53
<PAGE>
Global Utility Fund, Inc.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
September 30, 2000
<S> <C>
----------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $191,009,991) $215,093,678
Foreign currency, at value (cost $124,509) 122,889
Dividends and interest receivable 1,448,017
Receivable for Fund shares sold 44,745
Deferred expenses and other assets 6,317
------------------
Total assets 216,715,646
------------------
LIABILITIES
Payable to custodian 23,035
Payable for Fund shares reacquired 2,398,226
Accrued expenses 366,498
Payable for investments purchased 143,000
Management fee payable 127,770
Distribution fee payable 88,558
Withholding taxes payable 29,010
------------------
Total liabilities 3,176,097
------------------
NET ASSETS $213,539,549
------------------
------------------
Net assets were comprised of:
Common stock, at par $ 13,675
Paid-in capital in excess of par 148,343,178
------------------
148,356,853
Accumulated undistributed net investment income 1,247,646
Accumulated net realized gains on investments and
foreign currency transactions 39,856,019
Net unrealized appreciation on investments and foreign
currencies 24,079,031
------------------
Net assets, September 30, 2000 $213,539,549
------------------
------------------
</TABLE>
See Notes to Financial Statements
B-54
<PAGE>
Global Utility Fund, Inc.
Statement of Assets and Liabilities Cont'd.
<TABLE>
<CAPTION>
September 30, 2000
<S> <C>
----------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share
($140,736,073 / 9,015,012 shares of common stock issued
and outstanding) $15.61
Maximum sales charge (5.00% of offering price) .82
Maximum offering price to public $16.43
------------------
------------------
Class B:
Net asset value, offering price and redemption price per
share ($66,648,068 / 4,265,469 shares of common stock
issued and outstanding) $15.63
------------------
------------------
Class C:
Net asset value and redemption price per share ($947,635 /
60,634 shares of common stock issued and outstanding) $15.63
Sales charge (1.00% of offering price) .16
Offering price to public $15.79
------------------
------------------
Class Z:
Net asset value, offering price and redemption price per
share ($5,207,773 / 333,551 shares of common stock
issued and outstanding) $15.61
------------------
------------------
</TABLE>
See Notes to Financial Statements
B-55
<PAGE>
Global Utility Fund, Inc.
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
September 30, 2000
<S> <C>
----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes of $233,074) $ 5,495,059
Interest (net of foreign withholding taxes of $1,122) 4,400,593
------------------
Total income 9,895,652
------------------
Expenses
Management fee 1,786,869
Distribution fee--Class A 345,603
Distribution fee--Class B 1,107,688
Distribution fee--Class C 11,304
Transfer agent's fees and expenses 320,000
Custodian's fees and expenses 180,000
Reports to shareholders 125,000
Legal fees and expenses 60,000
Registration fees 43,000
Audit fee 33,000
Directors' fees and expenses 25,000
Insurance 4,000
Miscellaneous 10,475
------------------
Total expenses 4,051,939
------------------
Net investment income 5,843,713
------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investment transactions 58,074,774
Foreign currency transactions (13,673)
------------------
58,061,101
------------------
Net change in unrealized appreciation/depreciation on:
Investments (59,688,298)
Foreign currencies (12,139)
------------------
(59,700,437)
------------------
Net loss on investments and foreign currencies (1,639,336)
------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,204,377
------------------
------------------
</TABLE>
See Notes to Financial Statements
B-56
<PAGE>
Global Utility Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Year
Ended Ended
September 30, 2000 September 30, 1999
<S> <C> <C>
------------------------------------------------------------------------------------
INCREASE/(DECREASE) IN NET ASSETS
Operations
Net investment income $ 5,843,713 $ 5,513,314
Net realized gain on investment and
foreign currency transactions 58,061,101 29,188,396
Net change in unrealized
appreciation/depreciation of
investments and foreign currencies (59,700,437) 6,993,940
------------------ ------------------
Net increase in net assets resulting
from operations 4,204,377 41,695,650
------------------ ------------------
Dividends and distributions (Note 1)
Dividends from net investment income
Class A (3,281,780) (2,818,425)
Class B (1,436,038) (1,980,640)
Class C (15,776) (16,127)
Class Z (165,534) (155,936)
------------------ ------------------
(4,899,128) (4,971,128)
------------------ ------------------
Distributions from net realized gains
Class A (16,339,591) (13,406,633)
Class B (15,377,368) (15,777,009)
Class C (129,077) (109,977)
Class Z (800,929) (641,421)
------------------ ------------------
(32,646,965) (29,935,040)
------------------ ------------------
Fund share transactions (net of share
conversions) (Note 5)
Net proceeds from shares sold 28,296,701 37,013,685
Net asset value of shares issued in
reinvestment of dividends and
distributions 31,763,702 29,276,900
Cost of shares reacquired (93,202,959) (78,296,960)
------------------ ------------------
Net decrease in net assets from Fund
share transactions (33,142,556) (12,006,375)
------------------ ------------------
Total decrease (66,484,272) (5,216,893)
NET ASSETS
Beginning of period 280,023,821 285,240,714
------------------ ------------------
End of period(a) $213,539,549 $280,023,821
------------------ ------------------
------------------ ------------------
---------------
(a) Includes undistributed net investment
income of $ 1,247,646 $ 594,864
------------------ ------------------
</TABLE>
See Notes to Financial Statements
B-57
<PAGE>
Global Utility Fund, Inc.
Notes to Financial Statements
Global Utility Fund, Inc. (the 'Fund') is an open-end diversified
management investment company. The Fund seeks to achieve its investment
objective of obtaining a high total return, without incurring undue risk, by
investing primarily in common stocks, debt securities and preferred stocks of
domestic and foreign companies in the utility industries. Debt securities in
which the Fund invests are generally within the four highest ratings categories
of a nationally recognized statistical rating organization or, if not rated, are
of comparable quality. The ability of the issuers of the debt securities held by
the Fund to meet their obligations may be affected by economic developments in a
specific country or industry.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: In valuing the Fund's assets, quotations of
foreign securities in a foreign currency are converted to U.S. dollar
equivalents at the then current exchange rate. Any security for which the
primary market is on an exchange is valued at the last sale price on such
exchange on the day of valuation or, if there was no sale on such day, the last
bid price quoted on such day. Portfolio securities that are actively traded in
the over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at the mean between the
most recently quoted bid and asked prices provided by an independent pricing
service or by principal market makers. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost.
In connection with transactions in repurchase agreements with U.S.
financial institutions, it is the Fund's policy that its custodian take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Foreign Currency Translation: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, other assets and
liabilities--at the closing rates of exchange.
B-58
<PAGE>
Global Utility Fund, Inc.
Notes to Financial Statements Cont'd.
(ii) purchases and sales of investment securities, income and expenses--at
the rates of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the fiscal period, the Fund does not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of the securities held at fiscal period end. Similarly, the Fund
does not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term securities
sold during the fiscal period. Accordingly, realized foreign currency gains
(losses) are included in the reported net realized gain on investment
transactions.
The Fund recognizes foreign currency gains and losses from the holding of
foreign currencies, the sales and maturities of short-term securities and
forward currency contracts, and the difference between the amounts of dividends,
interest and foreign taxes recorded on the Fund's books and the U.S. dollar
equivalent of amounts actually received or paid.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin
as a result of, among other factors, the possibility of political and economic
instability and the level of governmental supervision and regulation of foreign
securities markets.
Securities Transactions and Net Investment Income: Security
transactions are recorded on the trade date. Realized gains and losses from
security and currency transactions are calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. The Fund amortizes premiums and original issue
discounts on purchases of debt securities as adjustments to interest income.
Expenses are recorded on the accrual basis which may require the use of certain
estimates by management.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends and interest are provided in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
B-59
<PAGE>
Global Utility Fund, Inc.
Notes to Financial Statements Cont'd.
Dividends and Distributions: Dividends from net investment income are
declared and paid quarterly. The Fund will distribute at least annually any net
capital gains in excess of loss carryforwards. Dividends and distributions are
recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for wash sales and foreign currency transactions.
Reclassification of Capital Accounts: The Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants (AICPA) Statement of Position 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to decrease undistributed net investment income by $291,803,
increase paid in capital in excess of par by $12,947,159 and decrease
accumulated net realized gains on investments by $12,655,356 due to the Fund
treating redemptions as distributions for federal income tax purposes and net
realized foreign currency losses during the fiscal year ended September 30,
2000. Net investment income, net realized gains and net assets were not affected
by this change.
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with Wellington
Management Company, LLP ('Wellington'); Wellington furnishes investment advisory
services in connection with the management of the Fund. PIFM pays for the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PIFM is computed daily and payable monthly at an
annual rate of .70% of the Fund's average daily net assets up to and including
$250 million, .55% of the Fund's average daily net assets of the next $250
million, .50% of the Fund's average daily net assets of the next $500 million
and .45% of the Fund's average daily net assets in excess of $1 billion.
Pursuant to the subadvisory agreement, PIFM compensates Wellington for its
services at an annual rate of .50% of the Fund's average daily net assets up to
and including $250 million, .35% of the Fund's average daily net assets of the
next $250 million, .30% of the Fund's average daily net
B-60
<PAGE>
Global Utility Fund, Inc.
Notes to Financial Statements Cont'd.
assets of the next $500 million and .25% of the Fund's average daily net assets
in excess of $1 billion.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS') which acts as the distributor of the Class A,
Class B, Class C and Class Z shares of the Fund. The Fund compensates PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares,
pursuant to plans of distribution (the 'Class A, Class B and Class C Plans'),
regardless of expenses actually incurred by them. The distribution fees are
accrued daily and payable monthly. No distribution or service fees are paid to
PIMS as distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1%, of the average daily
net assets of the Class A, B and C shares, respectively, for the year ended
September 30, 2000.
PIMS has advised the Fund that it received approximately $26,100 and
$1,400 in front-end sales charges resulting from sales of Class A and Class C
shares during the year ended September 30, 2000. From these fees PIMS paid such
sales charges to affiliated broker-dealers which in turn paid commissions to
salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the year ended September 30, 2000 it
received approximately $84,600 and $700 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIMS and PIFM are wholly owned subsidiaries of The Prudential Insurance
Company of America.
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
Prior to March 9, 2000, the commitment fee was .065 of 1% of the unused portion
of the credit facility. The Fund did not borrow any amounts pursuant to the SCA
during the year ended September 30, 2000.
B-61
<PAGE>
Global Utility Fund, Inc.
Notes to Financial Statements Cont'd.
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the year ended September 30,
2000, the Fund incurred fees of approximately $273,500 for the services of PMFS.
As of September 30, 2000, approximately $18,400 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
For the year ended September 30, 2000, Prudential Securities Incorporated,
an indirect wholly owned subsidiary of Prudential, earned $16,300 in brokerage
commissions from portfolio transactions on behalf of the Fund.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended September 30, 2000 were $121,625,859 and $180,276,671,
respectively.
The cost basis of investments for federal income tax purposes is
substantially the same for financial reporting purposes and, accordingly, as of
September 30, 2000, net unrealized appreciation for federal income tax purposes
was $24,083,687 (gross unrealized appreciation--$47,729,681; gross unrealized
depreciation--$23,645,994).
The Fund has elected to treat approximately $29,742 of net foreign
currency losses incurred in the eleven months ended September 30, 2000 as having
been incurred in the following fiscal year.
Note 5. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with an initial sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending upon
the period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. A special exchange
privilege is also available for shareholders who qualify to purchase Class A
shares at net asset value. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively for sale to a limited group of
investors.
The Fund has authorized 2 billion shares of common stock at $.001 par
value per share equally divided into Class A, B, C and Z shares.
B-62
<PAGE>
Global Utility Fund, Inc.
Notes to Financial Statements Cont'd.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
---------------------------------------------------------- ----------- -------------
<S> <C> <C>
Year ended September 30, 2000:
Shares sold 892,189 $ 14,814,086
Shares issued in reinvestment of dividends and
distributions 894,963 15,174,944
Shares reacquired (2,796,776) (47,255,396)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (1,009,624) (17,266,366)
Shares issued upon conversion from Class B 2,261,622 37,564,883
----------- -------------
Net increase (decrease) in shares outstanding 1,251,998 $ 20,298,517
----------- -------------
----------- -------------
Year ended September 30, 1999:
Shares sold 874,576 $ 16,047,074
Shares issued in reinvestment of dividends and
distributions 708,621 12,158,388
Shares reacquired (1,520,250) (27,731,764)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion 62,947 473,698
Shares issued upon conversion from Class B 715,401 13,239,554
----------- -------------
Net increase (decrease) in shares outstanding 778,348 $ 13,713,252
----------- -------------
----------- -------------
<CAPTION>
Class B
----------------------------------------------------------
<S> <C> <C>
Year ended September 30, 2000:
Shares sold 312,132 $ 5,435,464
Shares issued in reinvestment of dividends and
distributions 908,974 15,486,409
Shares reacquired (2,076,403) (35,841,226)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (855,297) (14,919,353)
Shares reacquired upon conversion into Class A (2,263,127) (37,564,883)
----------- -------------
Net increase (decrease) in shares outstanding (3,118,424) $ (52,484,236)
----------- -------------
----------- -------------
Year ended September 30, 1999:
Shares sold 661,124 $ 12,049,586
Shares issued in reinvestment of dividends and
distributions 946,862 16,199,281
Shares reacquired (2,278,722) (41,623,502)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (670,736) (13,374,635)
Shares reacquired upon conversion into Class A (716,563) (13,239,554)
----------- -------------
Net increase (decrease) in shares outstanding (1,387,299) $ (26,614,189)
----------- -------------
----------- -------------
</TABLE>
B-63
<PAGE>
Global Utility Fund, Inc.
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class C Shares Amount
---------------------------------------------------------- ----------- -------------
Year ended September 30, 2000:
<S> <C> <C>
Shares sold 369,362 $ 6,471,258
Shares issued in reinvestment of dividends and
distributions 8,125 138,179
Shares reacquired (397,800) (7,004,050)
----------- -------------
Net increase (decrease) in shares outstanding (20,313) $ (394,613)
----------- -------------
----------- -------------
Year ended September 30, 1999:
Shares sold 408,004 $ 7,449,727
Shares issued in reinvestment of dividends and
distributions 7,015 120,147
Shares reacquired (388,275) (7,080,380)
----------- -------------
Net increase (decrease) in shares outstanding 26,744 $ 489,494
----------- -------------
----------- -------------
<CAPTION>
Class Z
----------------------------------------------------------
<S> <C> <C>
Year ended September 30, 2000:
Shares sold 91,728 $ 1,575,893
Shares issued in reinvestment of dividends and
distributions 56,760 964,170
Shares reacquired (182,943) (3,102,287)
----------- -------------
Net increase (decrease) in shares outstanding (34,455) $ (562,224)
----------- -------------
----------- -------------
Year ended September 30, 1999:
Shares sold 80,233 $ 1,467,298
Shares issued in reinvestment of dividends and
distributions 46,480 799,084
Shares reacquired (101,821) (1,861,314)
----------- -------------
Net increase (decrease) in shares outstanding 24,892 $ 405,068
----------- -------------
----------- -------------
</TABLE>
B-64
<PAGE>
Global Utility Fund, Inc.
Financial Highlights
<TABLE>
<CAPTION>
Class A
<S> <C>
------------------
<CAPTION>
Year Ended
September 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 17.95
----------
Income from investment operations
Net investment income 0.44(b)
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (0.21)
----------
Total from investment operations 0.23
----------
Less distributions
Dividends from net investment income (0.40)
Distributions in excess of net investment income --
Distributions from net realized gains (2.17)
----------
Total distributions (2.57)
----------
Net asset value, end of year $ 15.61
----------
----------
TOTAL RETURN(a) 0.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $140,736
Average net assets (000) $138,241
Ratios to average net assets:
Expenses, including distribution fees 1.26%
Expenses, excluding distribution fees 1.01%
Net investment income 2.59%
For Class A, B, C and Z shares:
Portfolio turnover rate 49%
</TABLE>
------------------------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions.
(b) Calculated based upon weighted average shares outstanding during the year.
See Notes to Financial Statements
B-65
<PAGE>
Global Utility Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class A
<S> <C> <C> <C>
---------------------------------------------------------------------------------
<CAPTION>
Year Ended Sepember 30,
---------------------------------------------------------------------------------
1999 1998 1997 1996
---------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 17.66 $ 17.52 $ 15.03 $ 14.72
---------------- ---------------- ---------------- ----------------
.41(b) .46(b) .49 .51
2.15 1.67 3.34 .73
---------------- ---------------- ---------------- ----------------
2.56 2.13 3.83 1.24
---------------- ---------------- ---------------- ----------------
(.38) (.46) (.49) (.51)
-- (.02) (.02) --
(1.89) (1.51) (.83) (.42)
---------------- ---------------- ---------------- ----------------
(2.27) (1.99) (1.34) (.93)
---------------- ---------------- ---------------- ----------------
$ 17.95 $ 17.66 $ 17.52 $ 15.03
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
15.36% 12.90% 26.90% 8.65%
$139,374 $123,346 $120,825 $112,800
$136,690 $122,384 $116,303 $120,122
1.17% 1.18% 1.21% 1.30%
.92% .93% .96% 1.05%
2.23% 2.49% 3.00% 3.38%
8% 20% 13% 13%
</TABLE>
See Notes to Financial Statements
B-66
<PAGE>
Global Utility Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class B
<S> <C>
------------------
<CAPTION>
Year Ended
September 30, 2000
------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 17.96
----------
Income from investment operations
Net investment income 0.32(b)
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (0.22)
----------
Total from investment operations 0.10
----------
Less distributions
Dividends from net investment income (0.26)
Distributions in excess of net investment income --
Distributions from net realized gains (2.17)
----------
Total distributions (2.43)
----------
Net asset value, end of year $ 15.63
----------
----------
TOTAL RETURN(a) (0.42)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 66,648
Average net assets (000) $110,769
Ratios to average net assets:
Expenses, including distribution fees 2.01%
Expenses, excluding distribution fees 1.01%
Net investment income 1.84%
</TABLE>
------------------------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions.
(b) Calculated based upon weighted average shares outstanding during the year.
See Notes to Financial Statements
B-67
<PAGE>
Global Utility Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class B
<S> <C> <C> <C>
--------------------------------------------------------------------------------
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------------
1999 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 17.66 $ 17.52 $ 15.03 $ 14.71
---------------- ---------------- ---------------- ----------------
.27(b) .32(b) .37 .40
2.16 1.67 3.34 .74
---------------- ---------------- ---------------- ----------------
2.43 1.99 3.71 1.14
---------------- ---------------- ---------------- ----------------
(.24) (.32) (.37) (.40)
-- (.02) (.02) --
(1.89) (1.51) (.83) (.42)
---------------- ---------------- ---------------- ----------------
(2.13) (1.85) (1.22) (.82)
---------------- ---------------- ---------------- ----------------
$ 17.96 $ 17.66 $ 17.52 $ 15.03
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
14.49% 12.06% 25.96% 7.90%
$132,583 $154,873 $179,270 $187,557
$154,643 $177,326 $185,693 $210,305
1.92% 1.93% 1.96% 2.05%
.92% .93% .96% 1.05%
1.48% 1.74% 2.25% 2.62%
</TABLE>
See Notes to Financial Statements
B-68
<PAGE>
Global Utility Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
<S> <C>
------------------
<CAPTION>
Year Ended
September 30, 2000
-----------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $17.96
-------
Income from investment operations
Net investment income 0.31(b)
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (0.21)
-------
Total from investment operations 0.10
-------
Less distributions
Dividends from net investment income (0.26)
Distributions in excess of net investment income --
Distributions from net realized gains (2.17)
-------
Total distributions (2.43)
-------
Net asset value, end of year $15.63
-------
-------
TOTAL RETURN(a) (0.42)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 948
Average net assets (000) $1,130
Ratios to average net assets:
Expenses, including distribution fees 2.01%
Expenses, excluding distribution fees 1.01%
Net investment income 1.83%
</TABLE>
------------------------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions.
(b) Calculated based upon weighted average shares outstanding during the year.
See Notes to Financial Statements
B-69
<PAGE>
Global Utility Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
<S> <C> <C> <C>
--------------------------------------------------------------------------------
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------------
1999 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 17.66 $ 17.52 $ 15.03 $ 14.71
---------------- ---------------- ---------------- ----------------
.27(b) .32(b) .37 .40
2.16 1.67 3.34 .74
---------------- ---------------- ---------------- ----------------
2.43 1.99 3.71 1.14
---------------- ---------------- ---------------- ----------------
(.24) (.32) (.37) (.40)
-- (.02) (.02) --
(1.89) (1.51) (.83) (.42)
---------------- ---------------- ---------------- ----------------
(2.13) (1.85) (1.22) (.82)
---------------- ---------------- ---------------- ----------------
$ 17.96 $ 17.66 $ 17.52 $ 15.03
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
14.49% 12.06% 25.96% 7.90%
$ 1,454 $ 957 $ 760 $ 661
$ 1,212 $ 969 $ 727 $ 608
1.92% 1.93% 1.96% 2.05%
.92% .93% .96% 1.05%
1.50% 1.74% 2.25% 2.66%
</TABLE>
See Notes to Financial Statements
B-70
<PAGE>
Global Utility Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
<S> <C>
------------------
<CAPTION>
Year Ended
September 30, 2000
------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $17.97
-------
Income from investment operations
Net investment income 0.50(b)
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (0.23)
-------
Total from investment operations 0.27
-------
Less distributions
Dividends from net investment income (0.46)
Distributions in excess of net investment income --
Distributions from net realized gains (2.17)
-------
Total distributions (2.63)
-------
Net asset value, end of period $15.61
-------
-------
TOTAL RETURN(a) 0.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $5,208
Average net assets (000) $6,563
Ratios to average net assets:
Expenses, including distribution fees 1.01%
Expenses, excluding distribution fees 1.01%
Net investment income 2.89%
</TABLE>
------------------------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total return for periods of less than a full year are not
annualized.
(b) Calculated based upon weighted average shares outstanding during the year.
(c) Annualized.
(d) Commencement of offering of Class Z shares.
3 See Notes to Financial Statements
B-71
<PAGE>
Global Utility Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
<S> <C> <C>
------------------------------------------------------------------
<CAPTION>
Year Ended September 30, December 16, 1996(d)
------------------------------------- through September 30,
1999 1998 1997
------------------------------------------------------------------
<S> <C> <C>
$17.68 $17.54 $ 15.02
------- ------- -------
.45(b) .50(b) .34
2.16 1.68 2.59
------- ------- -------
2.61 2.18 2.93
------- ------- -------
(.43) (.50) (.34)
-- (.03) (.07)
(1.89) (1.51) --
------- ------- -------
(2.32) (2.04) (.41)
------- ------- -------
$17.97 $17.68 $ 17.54
------- ------- -------
------- ------- -------
15.62% 13.18% 19.70%
$6,613 $6,065 $ 53
$6,847 $4,041 $ 16
.92% .93% .96%(c)
.92% .93% .96%(c)
2.47% 2.74% 3.25%(c)
</TABLE>
See Notes to Financial Statements
B-72
<PAGE>
GLOBAL UTILITY FUND, INC.
Report of Independent Accountants
To the Shareholders and Board of Directors of
Global Utility Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Global Utility Fund, Inc. (the
"Fund") at September 30, 2000, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the four years in the period
then ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The accompanying financial highlights for the year ended September
30, 1996 were audited by other independent accountants, whose opinion dated
November 14, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 22, 2000
B-73
<PAGE>
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obliqations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This normally will
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP
DEBT RATINGS
AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: An obligation rated AA differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB, B, CCC and CC: Obligations rated BB, B, CCC and CC are regarded as
having significant speculative characteristics. BB indicates the least degree of
speculation and CC the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-2
<PAGE>
APPENDIX I-GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk and providing balance.
Asset allocation among different types of securities within an overall
investment portfolio helps reduce risk and potentially provide stable returns,
while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, I.E., principal and interest
rate payments. Duration is expressed as a measure of time in years-the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing-buying securities when prices are low and selling them when
prices are relatively higher-may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
STANDARD DEVIATION
Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.
I-1
<PAGE>
APPENDIX II-HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
The following chart shows the long-term performance of various asset
classes and the rate of inflation.
HISTORICAL PERFORMANCE DATA
[Figures below represents line chart in its printed piece]
[GRAPHIC OMITTED]
Value of $1 Invested on 1/1/1926 Through 12/31/99
<TABLE>
<CAPTION>
Common U.S. Small U.S.Long-Term U.S. 30 Day U.S.
S&P 500 TR Stock TR Gvt. Bond TR Treasury Bills Inflation
Index Index Index Index Value
------------- ----------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Dec-25 1.00 1.00 1.00 1.00 1.00
Jan-26 1.00 1.07 1.01 1.00 1.00
Feb-26 0.96 1.00 1.02 1.01 1.00
Mar-26 0.91 0.89 1.02 1.01 0.99
Apr-26 0.93 0.91 1.03 1.01 1.00
May-26 0.95 0.90 1.03 1.01 0.99
Jun-26 0.99 0.94 1.04 1.02 0.99
Jul-26 1.04 0.95 1.04 1.02 0.98
Aug-26 1.06 0.97 1.04 1.02 0.97
Sep-26 1.09 0.97 1.04 1.02 0.98
Oct-26 1.06 0.95 1.05 1.03 0.98
Nov-26 1.09 0.97 1.07 1.03 0.99
Dec-26 1.12 1.00 1.08 1.03 0.99
Jan-27 1.09 1.03 1.09 1.04 0.98
Feb-27 1.15 1.09 1.10 1.04 0.97
Mar-27 1.16 1.03 1.12 1.04 0.96
Apr-27 1.19 1.09 1.12 1.04 0.96
May-27 1.26 1.17 1.13 1.05 0.97
Jun-27 1.25 1.13 1.13 1.05 0.98
Jul-27 1.33 1.19 1.13 1.05 0.96
Aug-27 1.40 1.17 1.14 1.06 0.96
Sep-27 1.47 1.18 1.14 1.06 0.96
Oct-27 1.39 1.10 1.15 1.06 0.97
Nov-27 1.49 1.19 1.17 1.06 0.97
Dec-27 1.53 1.22 1.17 1.06 0.96
Jan-28 1.53 1.28 1.17 1.07 0.96
Feb-28 1.51 1.25 1.18 1.07 0.95
Mar-28 1.68 1.32 1.18 1.07 0.95
Apr-28 1.73 1.44 1.18 1.08 0.96
May-28 1.77 1.50 1.17 1.08 0.96
Jun-28 1.70 1.38 1.18 1.08 0.95
Jul-28 1.72 1.38 1.15 1.09 0.95
Aug-28 1.86 1.45 1.16 1.09 0.96
Sep-28 1.91 1.57 1.16 1.09 0.96
Oct-28 1.94 1.62 1.17 1.10 0.96
Nov-28 2.19 1.80 1.17 1.10 0.96
Dec-28 2.20 1.71 1.18 1.10 0.96
Jan-29 2.33 1.72 1.16 1.11 0.95
Feb-29 2.33 1.71 1.15 1.11 0.95
Mar-29 2.33 1.68 1.13 1.11 0.95
Apr-29 2.37 1.73 1.16 1.12 0.94
May-29 2.28 1.50 1.14 1.12 0.95
Jun-29 2.54 1.58 1.15 1.13 0.95
Jul-29 2.66 1.60 1.15 1.13 0.96
Aug-29 2.93 1.57 1.15 1.14 0.97
Sep-29 2.79 1.42 1.15 1.14 0.96
Oct-29 2.24 1.03 1.20 1.15 0.96
Nov-29 1.96 0.88 1.23 1.15 0.96
Dec-29 2.02 0.83 1.22 1.16 0.96
Jan-30 2.15 0.94 1.21 1.16 0.95
Feb-30 2.20 1.00 1.22 1.16 0.95
Mar-30 2.38 1.10 1.23 1.16 0.94
Apr-30 2.36 1.02 1.23 1.17 0.95
May-30 2.34 0.97 1.25 1.17 0.94
Jun-30 1.96 0.76 1.26 1.17 0.94
Jul-30 2.04 0.78 1.26 1.18 0.93
Aug-30 2.06 0.77 1.26 1.18 0.92
Sep-30 1.80 0.66 1.27 1.18 0.93
Oct-30 1.65 0.58 1.28 1.18 0.92
Nov-30 1.63 0.58 1.28 1.18 0.91
Dec-30 1.52 0.51 1.27 1.18 0.90
Jan-31 1.59 0.62 1.26 1.18 0.89
Feb-31 1.78 0.78 1.27 1.19 0.87
Mar-31 1.66 0.73 1.28 1.19 0.87
Apr-31 1.51 0.57 1.29 1.19 0.86
May-31 1.31 0.49 1.31 1.19 0.85
Jun-31 1.50 0.58 1.31 1.19 0.84
Jul-31 1.39 0.55 1.31 1.19 0.84
Aug-31 1.42 0.51 1.31 1.19 0.84
Sep-31 1.00 0.34 1.27 1.19 0.84
Oct-31 1.09 0.37 1.23 1.19 0.83
Nov-31 1.00 0.33 1.23 1.19 0.82
Dec-31 0.86 0.26 1.20 1.20 0.81
Jan-32 0.84 0.28 1.21 1.20 0.80
Feb-32 0.88 0.29 1.26 1.20 0.79
Mar-32 0.78 0.25 1.26 1.20 0.78
Apr-32 0.63 0.20 1.33 1.20 0.78
May-32 0.49 0.17 1.31 1.21 0.77
Jun-32 0.49 0.18 1.32 1.21 0.76
Jul-32 0.67 0.24 1.38 1.21 0.76
Aug-32 0.93 0.41 1.38 1.21 0.75
Sep-32 0.90 0.36 1.39 1.21 0.75
Oct-32 0.78 0.29 1.38 1.21 0.74
Nov-32 0.75 0.26 1.39 1.21 0.74
Dec-32 0.79 0.24 1.41 1.21 0.73
Jan-33 0.80 0.24 1.43 1.21 0.72
Feb-33 0.65 0.21 1.39 1.21 0.71
Mar-33 0.68 0.24 1.40 1.21 0.70
Apr-33 0.97 0.35 1.40 1.21 0.70
May-33 1.13 0.58 1.44 1.21 0.70
Jun-33 1.28 0.73 1.45 1.21 0.71
Jul-33 1.17 0.69 1.45 1.21 0.73
Aug-33 1.31 0.75 1.45 1.21 0.74
Sep-33 1.16 0.63 1.46 1.21 0.74
Oct-33 1.06 0.55 1.44 1.21 0.74
Nov-33 1.18 0.59 1.42 1.21 0.74
Dec-33 1.21 0.59 1.41 1.21 0.73
Jan-34 1.34 0.83 1.44 1.21 0.74
Feb-34 1.30 0.84 1.45 1.21 0.74
Mar-34 1.30 0.84 1.48 1.21 0.74
Apr-34 1.27 0.86 1.50 1.21 0.74
May-34 1.17 0.75 1.52 1.21 0.74
Jun-34 1.20 0.75 1.53 1.21 0.74
Jul-34 1.07 0.58 1.54 1.21 0.74
Aug-34 1.13 0.67 1.52 1.21 0.75
Sep-34 1.13 0.66 1.50 1.21 0.76
Oct-34 1.09 0.66 1.52 1.21 0.75
Nov-34 1.20 0.73 1.53 1.21 0.75
Dec-34 1.20 0.74 1.55 1.21 0.75
Jan-35 1.15 0.71 1.58 1.21 0.76
Feb-35 1.11 0.67 1.59 1.21 0.77
Mar-35 1.08 0.59 1.60 1.21 0.76
Apr-35 1.18 0.64 1.61 1.21 0.77
May-35 1.23 0.64 1.60 1.21 0.77
Jun-35 1.32 0.66 1.61 1.21 0.77
Jul-35 1.43 0.71 1.62 1.21 0.76
Aug-35 1.47 0.75 1.60 1.21 0.76
Sep-35 1.51 0.78 1.60 1.21 0.77
Oct-35 1.62 0.86 1.61 1.21 0.77
Nov-35 1.70 0.98 1.61 1.21 0.77
Dec-35 1.77 1.03 1.62 1.21 0.77
Jan-36 1.89 1.35 1.63 1.21 0.77
Feb-36 1.93 1.43 1.65 1.22 0.77
Mar-36 1.98 1.44 1.66 1.22 0.76
Apr-36 1.83 1.18 1.67 1.22 0.76
May-36 1.93 1.21 1.68 1.22 0.76
Jun-36 2.00 1.18 1.68 1.22 0.77
Jul-36 2.13 1.29 1.69 1.22 0.77
Aug-36 2.17 1.31 1.71 1.22 0.78
Sep-36 2.17 1.38 1.70 1.22 0.78
Oct-36 2.34 1.47 1.70 1.22 0.78
Nov-36 2.37 1.68 1.74 1.22 0.78
Dec-36 2.37 1.71 1.75 1.22 0.78
Jan-37 2.46 1.92 1.74 1.22 0.79
Feb-37 2.51 2.05 1.76 1.22 0.79
Mar-37 2.49 2.07 1.69 1.22 0.79
Apr-37 2.29 1.72 1.69 1.22 0.80
May-37 2.28 1.65 1.70 1.22 0.80
Jun-37 2.16 1.46 1.70 1.22 0.80
Jul-37 2.39 1.64 1.72 1.22 0.81
Aug-37 2.28 1.52 1.70 1.22 0.81
Sep-37 1.96 1.13 1.71 1.22 0.82
Oct-37 1.76 1.01 1.72 1.22 0.81
Nov-37 1.61 0.86 1.74 1.22 0.81
Dec-37 1.54 0.72 1.75 1.22 0.80
Jan-38 1.56 0.75 1.76 1.22 0.79
Feb-38 1.67 0.78 1.77 1.22 0.79
Mar-38 1.25 0.50 1.76 1.22 0.79
Apr-38 1.43 0.64 1.80 1.22 0.79
May-38 1.39 0.58 1.81 1.22 0.79
Jun-38 1.73 0.79 1.81 1.22 0.79
Jul-38 1.86 0.91 1.82 1.22 0.79
Aug-38 1.82 0.82 1.82 1.22 0.79
Sep-38 1.85 0.80 1.82 1.22 0.79
Oct-38 1.99 0.97 1.84 1.22 0.78
Nov-38 1.94 0.91 1.83 1.22 0.78
Dec-38 2.02 0.95 1.85 1.22 0.78
Jan-39 1.88 0.87 1.86 1.22 0.78
Feb-39 1.95 0.88 1.87 1.22 0.77
Mar-39 1.69 0.66 1.90 1.22 0.77
Apr-39 1.69 0.67 1.92 1.22 0.77
May-39 1.81 0.75 1.95 1.22 0.77
Jun-39 1.70 0.67 1.95 1.22 0.77
Jul-39 1.89 0.84 1.97 1.22 0.77
Aug-39 1.77 0.70 1.93 1.22 0.77
Sep-39 2.06 1.07 1.82 1.22 0.79
Oct-39 2.04 1.02 1.90 1.22 0.78
Nov-39 1.96 0.92 1.93 1.22 0.78
Dec-39 2.01 0.95 1.96 1.22 0.78
Jan-40 1.94 0.96 1.95 1.22 0.78
Feb-40 1.97 1.03 1.96 1.22 0.78
Mar-40 1.99 1.10 1.99 1.22 0.78
Apr-40 1.99 1.17 1.99 1.22 0.78
May-40 1.53 0.74 1.93 1.22 0.78
Jun-40 1.66 0.82 1.98 1.22 0.78
Jul-40 1.71 0.84 1.99 1.22 0.78
Aug-40 1.77 0.86 1.99 1.22 0.78
Sep-40 1.79 0.88 2.01 1.22 0.78
Oct-40 1.87 0.92 2.02 1.22 0.78
Nov-40 1.81 0.95 2.06 1.22 0.78
Dec-40 1.81 0.90 2.08 1.22 0.79
Jan-41 1.73 0.91 2.03 1.22 0.79
Feb-41 1.72 0.88 2.04 1.22 0.79
Mar-41 1.73 0.91 2.06 1.22 0.79
Apr-41 1.62 0.85 2.08 1.22 0.80
May-41 1.65 0.85 2.09 1.22 0.80
Jun-41 1.75 0.92 2.10 1.22 0.82
Jul-41 1.85 1.11 2.11 1.22 0.82
Aug-41 1.85 1.11 2.11 1.22 0.83
Sep-41 1.84 1.06 2.11 1.22 0.84
Oct-41 1.72 0.98 2.14 1.22 0.85
Nov-41 1.67 0.94 2.13 1.22 0.86
Dec-41 1.60 0.82 2.10 1.22 0.86
Jan-42 1.63 0.98 2.11 1.22 0.87
Feb-42 1.60 0.97 2.11 1.22 0.88
Mar-42 1.50 0.90 2.13 1.22 0.89
Apr-42 1.44 0.87 2.13 1.22 0.90
May-42 1.55 0.87 2.14 1.22 0.91
Jun-42 1.59 0.90 2.14 1.22 0.91
Jul-42 1.64 0.96 2.15 1.22 0.91
Aug-42 1.67 1.00 2.15 1.22 0.92
Sep-42 1.71 1.09 2.15 1.22 0.92
Oct-42 1.83 1.20 2.16 1.22 0.93
Nov-42 1.83 1.14 2.15 1.22 0.93
Dec-42 1.93 1.19 2.16 1.22 0.94
Jan-43 2.07 1.44 2.17 1.23 0.94
Feb-43 2.19 1.72 2.17 1.23 0.94
Mar-43 2.31 1.97 2.17 1.23 0.96
Apr-43 2.32 2.16 2.18 1.23 0.97
May-43 2.45 2.40 2.19 1.23 0.98
Jun-43 2.50 2.38 2.20 1.23 0.98
Jul-43 2.37 2.13 2.20 1.23 0.97
Aug-43 2.41 2.13 2.20 1.23 0.96
Sep-43 2.47 2.22 2.20 1.23 0.97
Oct-43 2.45 2.24 2.20 1.23 0.97
Nov-43 2.29 1.99 2.20 1.23 0.97
Dec-43 2.43 2.24 2.21 1.23 0.97
Jan-44 2.47 2.39 2.21 1.23 0.97
Feb-44 2.48 2.46 2.22 1.23 0.97
Mar-44 2.53 2.64 2.22 1.23 0.97
Apr-44 2.50 2.50 2.23 1.23 0.97
May-44 2.63 2.68 2.23 1.23 0.98
Jun-44 2.77 3.06 2.24 1.23 0.98
Jul-44 2.72 2.96 2.24 1.23 0.99
Aug-44 2.76 3.06 2.25 1.23 0.99
Sep-44 2.76 3.05 2.25 1.23 0.99
Oct-44 2.76 3.02 2.26 1.23 0.99
Nov-44 2.80 3.17 2.26 1.23 0.99
Dec-44 2.91 3.45 2.27 1.23 0.99
Jan-45 2.95 3.61 2.30 1.23 0.99
Feb-45 3.15 3.98 2.32 1.23 0.99
Mar-45 3.01 3.63 2.32 1.23 0.99
Apr-45 3.29 4.05 2.36 1.23 0.99
May-45 3.35 4.26 2.37 1.23 1.00
Jun-45 3.35 4.62 2.41 1.24 1.01
Jul-45 3.29 4.36 2.39 1.24 1.01
Aug-45 3.50 4.61 2.40 1.24 1.01
Sep-45 3.65 4.92 2.41 1.24 1.01
Oct-45 3.77 5.26 2.44 1.24 1.01
Nov-45 3.92 5.88 2.47 1.24 1.01
Dec-45 3.96 5.98 2.51 1.24 1.01
Jan-46 4.25 6.92 2.52 1.24 1.01
Feb-46 3.98 6.48 2.53 1.24 1.01
Mar-46 4.17 6.65 2.53 1.24 1.02
Apr-46 4.33 7.12 2.50 1.24 1.02
May-46 4.46 7.54 2.49 1.24 1.03
Jun-46 4.29 7.19 2.51 1.24 1.04
Jul-46 4.19 6.81 2.50 1.24 1.10
Aug-46 3.91 6.23 2.47 1.24 1.13
Sep-46 3.52 5.23 2.47 1.24 1.14
Oct-46 3.50 5.17 2.49 1.24 1.16
Nov-46 3.49 5.10 2.48 1.24 1.19
Dec-46 3.64 5.29 2.51 1.24 1.20
Jan-47 3.74 5.51 2.51 1.24 1.20
Feb-47 3.71 5.49 2.52 1.24 1.20
Mar-47 3.65 5.30 2.52 1.24 1.22
Apr-47 3.52 4.76 2.51 1.24 1.22
May-47 3.53 4.50 2.52 1.24 1.22
Jun-47 3.72 4.75 2.52 1.24 1.23
Jul-47 3.86 5.13 2.54 1.24 1.24
Aug-47 3.78 5.11 2.56 1.24 1.25
Sep-47 3.74 5.17 2.55 1.25 1.28
Oct-47 3.83 5.31 2.54 1.25 1.28
Nov-47 3.76 5.15 2.49 1.25 1.29
Dec-47 3.85 5.34 2.45 1.25 1.31
Jan-48 3.71 5.25 2.45 1.25 1.32
Feb-48 3.56 4.84 2.46 1.25 1.31
Mar-48 3.85 5.32 2.47 1.25 1.31
Apr-48 3.96 5.52 2.48 1.25 1.33
May-48 4.31 6.10 2.52 1.25 1.34
Jun-48 4.33 6.13 2.50 1.25 1.34
Jul-48 4.11 5.77 2.49 1.25 1.36
Aug-48 4.17 5.78 2.49 1.26 1.37
Sep-48 4.06 5.47 2.49 1.26 1.37
Oct-48 4.35 5.83 2.50 1.26 1.36
Nov-48 3.93 5.18 2.51 1.26 1.35
Dec-48 4.06 5.22 2.53 1.26 1.34
Jan-49 4.08 5.32 2.55 1.26 1.34
Feb-49 3.96 5.06 2.56 1.26 1.33
Mar-49 4.09 5.38 2.58 1.26 1.33
Apr-49 4.02 5.20 2.58 1.26 1.33
May-49 3.91 4.91 2.59 1.26 1.33
Jun-49 3.92 4.86 2.63 1.27 1.33
Jul-49 4.17 5.18 2.64 1.27 1.32
Aug-49 4.27 5.32 2.67 1.27 1.33
Sep-49 4.38 5.58 2.67 1.27 1.33
Oct-49 4.53 5.84 2.67 1.27 1.32
Nov-49 4.61 5.85 2.68 1.27 1.33
Dec-49 4.83 6.25 2.69 1.27 1.32
Jan-50 4.92 6.56 2.68 1.27 1.31
Feb-50 5.02 6.71 2.68 1.27 1.31
Mar-50 5.06 6.68 2.68 1.28 1.31
Apr-50 5.30 6.96 2.69 1.28 1.32
May-50 5.57 7.13 2.70 1.28 1.32
Jun-50 5.27 6.58 2.69 1.28 1.33
Jul-50 5.33 6.97 2.71 1.28 1.34
Aug-50 5.57 7.34 2.71 1.28 1.35
Sep-50 5.89 7.72 2.69 1.28 1.36
Oct-50 5.95 7.67 2.68 1.28 1.37
Nov-50 6.05 7.92 2.69 1.29 1.38
Dec-50 6.36 8.68 2.69 1.29 1.39
Jan-51 6.77 9.40 2.71 1.29 1.42
Feb-51 6.87 9.46 2.69 1.29 1.43
Mar-51 6.76 9.00 2.65 1.29 1.44
Apr-51 7.11 9.33 2.63 1.29 1.44
May-51 6.90 9.03 2.61 1.29 1.45
Jun-51 6.74 8.55 2.60 1.30 1.45
Jul-51 7.22 8.87 2.63 1.30 1.45
Aug-51 7.56 9.40 2.66 1.30 1.45
Sep-51 7.57 9.61 2.64 1.30 1.46
Oct-51 7.49 9.39 2.64 1.30 1.46
Nov-51 7.57 9.31 2.60 1.30 1.47
Dec-51 7.89 9.35 2.59 1.31 1.48
Jan-52 8.03 9.53 2.59 1.31 1.48
Feb-52 7.80 9.25 2.60 1.31 1.47
Mar-52 8.20 9.41 2.63 1.31 1.47
Apr-52 7.87 8.92 2.67 1.31 1.47
May-52 8.14 8.95 2.66 1.31 1.47
Jun-52 8.54 9.19 2.66 1.32 1.48
Jul-52 8.70 9.30 2.66 1.32 1.49
Aug-52 8.64 9.29 2.64 1.32 1.49
Sep-52 8.49 9.14 2.61 1.32 1.49
Oct-52 8.51 9.05 2.64 1.32 1.49
Nov-52 8.99 9.49 2.64 1.33 1.49
Dec-52 9.34 9.64 2.62 1.33 1.49
Jan-53 9.29 10.03 2.62 1.33 1.49
Feb-53 9.19 10.30 2.60 1.33 1.48
Mar-53 9.00 10.23 2.57 1.33 1.48
Apr-53 8.78 9.94 2.55 1.34 1.48
May-53 8.85 10.08 2.51 1.34 1.49
Jun-53 8.73 9.59 2.57 1.34 1.49
Jul-53 8.97 9.73 2.58 1.34 1.50
Aug-53 8.52 9.12 2.57 1.35 1.50
Sep-53 8.55 8.88 2.65 1.35 1.50
Oct-53 9.01 9.14 2.67 1.35 1.51
Nov-53 9.20 9.26 2.66 1.35 1.50
Dec-53 9.24 9.01 2.71 1.35 1.50
Jan-54 9.74 9.69 2.74 1.35 1.50
Feb-54 9.85 9.79 2.80 1.35 1.50
Mar-54 10.17 9.96 2.82 1.36 1.50
Apr-54 10.69 10.10 2.85 1.36 1.50
May-54 11.14 10.56 2.82 1.36 1.50
Jun-54 11.17 10.65 2.87 1.36 1.50
Jul-54 11.83 11.51 2.91 1.36 1.50
Aug-54 11.51 11.53 2.90 1.36 1.50
Sep-54 12.49 12.00 2.89 1.36 1.50
Oct-54 12.28 12.08 2.90 1.36 1.49
Nov-54 13.39 13.02 2.89 1.36 1.50
Dec-54 14.11 14.47 2.91 1.36 1.49
Jan-55 14.39 14.76 2.84 1.36 1.49
Feb-55 14.53 15.47 2.82 1.37 1.49
Mar-55 14.48 15.60 2.84 1.37 1.49
Apr-55 15.06 15.84 2.84 1.37 1.49
May-55 15.14 15.96 2.86 1.37 1.49
Jun-55 16.42 16.43 2.84 1.37 1.49
Jul-55 17.44 16.53 2.81 1.37 1.50
Aug-55 17.39 16.49 2.81 1.38 1.49
Sep-55 17.62 16.67 2.83 1.38 1.50
Oct-55 17.12 16.38 2.87 1.38 1.50
Nov-55 18.53 17.15 2.86 1.38 1.50
Dec-55 18.56 17.43 2.87 1.39 1.50
Jan-56 17.92 17.35 2.89 1.39 1.50
Feb-56 18.66 17.83 2.89 1.39 1.50
Mar-56 19.98 18.60 2.85 1.39 1.50
Apr-56 19.97 18.69 2.82 1.40 1.50
May-56 18.79 17.94 2.88 1.40 1.51
Jun-56 19.56 18.04 2.89 1.40 1.52
Jul-56 20.59 18.55 2.83 1.40 1.53
Aug-56 19.92 18.30 2.78 1.41 1.53
Sep-56 19.04 17.83 2.79 1.41 1.53
Oct-56 19.17 18.01 2.77 1.41 1.54
Nov-56 19.07 18.11 2.76 1.42 1.54
Dec-56 19.78 18.18 2.71 1.42 1.54
Jan-57 18.99 18.61 2.80 1.42 1.54
Feb-57 18.48 18.23 2.81 1.43 1.55
Mar-57 18.88 18.54 2.80 1.43 1.55
Apr-57 19.61 19.00 2.74 1.43 1.56
May-57 20.47 19.14 2.74 1.44 1.56
Jun-57 20.48 19.28 2.69 1.44 1.57
Jul-57 20.75 19.17 2.67 1.44 1.58
Aug-57 19.70 18.43 2.68 1.45 1.58
Sep-57 18.52 17.59 2.70 1.45 1.58
Oct-57 17.96 16.13 2.68 1.46 1.58
Nov-57 18.37 16.31 2.83 1.46 1.59
Dec-57 17.65 15.53 2.91 1.46 1.59
Jan-58 18.43 17.24 2.89 1.47 1.60
Feb-58 18.17 16.95 2.92 1.47 1.60
Mar-58 18.77 17.75 2.95 1.47 1.61
Apr-58 19.40 18.42 3.00 1.47 1.61
May-58 19.81 19.13 3.00 1.47 1.61
Jun-58 20.36 19.75 2.95 1.47 1.61
Jul-58 21.28 20.72 2.87 1.48 1.62
Aug-58 21.65 21.61 2.75 1.48 1.61
Sep-58 22.73 22.73 2.71 1.48 1.61
Oct-58 23.35 23.65 2.75 1.48 1.61
Nov-58 24.01 24.83 2.78 1.48 1.62
Dec-58 25.30 25.61 2.73 1.49 1.61
Jan-59 25.43 27.08 2.71 1.49 1.62
Feb-59 25.55 27.88 2.74 1.49 1.61
Mar-59 25.61 27.95 2.75 1.50 1.61
Apr-59 26.63 28.28 2.72 1.50 1.62
May-59 27.27 28.32 2.72 1.50 1.62
Jun-59 27.21 28.20 2.72 1.51 1.63
Jul-59 28.20 29.12 2.73 1.51 1.63
Aug-59 27.91 28.86 2.72 1.51 1.63
Sep-59 26.67 27.62 2.71 1.52 1.63
Oct-59 27.02 28.25 2.75 1.52 1.64
Nov-59 27.52 28.87 2.72 1.53 1.64
Dec-59 28.32 29.80 2.67 1.53 1.64
Jan-60 26.34 28.89 2.70 1.54 1.64
Feb-60 26.73 29.03 2.76 1.54 1.64
Mar-60 26.40 28.12 2.84 1.55 1.64
Apr-60 25.98 27.59 2.79 1.55 1.65
May-60 26.82 28.16 2.83 1.55 1.65
Jun-60 27.39 29.12 2.88 1.56 1.65
Jul-60 26.75 28.56 2.98 1.56 1.65
Aug-60 27.60 30.06 2.96 1.56 1.65
Sep-60 25.97 27.84 2.99 1.56 1.65
Oct-60 25.95 26.73 2.98 1.57 1.66
Nov-60 27.15 27.90 2.96 1.57 1.66
Dec-60 28.45 28.82 3.04 1.57 1.66
Jan-61 30.29 31.46 3.01 1.57 1.66
Feb-61 31.26 33.31 3.07 1.58 1.66
Mar-61 32.10 35.38 3.06 1.58 1.66
Apr-61 32.26 35.83 3.09 1.58 1.66
May-61 33.03 37.36 3.08 1.59 1.66
Jun-61 32.12 35.33 3.05 1.59 1.66
Jul-61 33.22 35.44 3.07 1.59 1.67
Aug-61 34.03 35.90 3.05 1.59 1.67
Sep-61 33.40 34.68 3.09 1.60 1.67
Oct-61 34.40 35.59 3.12 1.60 1.67
Nov-61 35.94 37.77 3.11 1.60 1.67
Dec-61 36.11 38.07 3.07 1.60 1.67
Jan-62 34.78 38.59 3.07 1.61 1.67
Feb-62 35.51 39.31 3.10 1.61 1.68
Mar-62 35.35 39.54 3.18 1.61 1.68
Apr-62 33.20 36.46 3.20 1.62 1.69
May-62 30.51 32.79 3.22 1.62 1.69
Jun-62 28.06 30.21 3.19 1.63 1.69
Jul-62 29.89 32.52 3.16 1.63 1.69
Aug-62 30.51 33.46 3.22 1.63 1.69
Sep-62 29.09 31.25 3.24 1.64 1.70
Oct-62 29.28 30.09 3.26 1.64 1.70
Nov-62 32.46 33.84 3.27 1.64 1.70
Dec-62 32.95 33.54 3.28 1.65 1.69
Jan-63 34.62 36.58 3.28 1.65 1.70
Feb-63 33.79 36.71 3.28 1.66 1.70
Mar-63 35.05 37.25 3.29 1.66 1.70
Apr-63 36.80 38.41 3.28 1.66 1.70
May-63 37.51 40.09 3.29 1.67 1.70
Jun-63 36.81 39.61 3.30 1.67 1.71
Jul-63 36.73 39.74 3.31 1.68 1.72
Aug-63 38.69 41.80 3.31 1.68 1.72
Sep-63 38.32 41.12 3.32 1.69 1.72
Oct-63 39.62 42.09 3.31 1.69 1.72
Nov-63 39.43 41.64 3.32 1.69 1.72
Dec-63 40.47 41.44 3.32 1.70 1.72
Jan-64 41.61 42.58 3.32 1.70 1.72
Feb-64 42.22 44.13 3.31 1.71 1.72
Mar-64 42.92 45.10 3.33 1.71 1.72
Apr-64 43.24 45.52 3.34 1.72 1.73
May-64 43.94 46.23 3.36 1.72 1.73
Jun-64 44.72 46.99 3.38 1.73 1.73
Jul-64 45.59 48.86 3.38 1.73 1.73
Aug-64 45.05 48.72 3.39 1.74 1.73
Sep-64 46.41 50.68 3.41 1.74 1.74
Oct-64 46.86 51.72 3.42 1.75 1.74
Nov-64 46.88 51.77 3.43 1.75 1.74
Dec-64 47.14 51.19 3.44 1.76 1.74
Jan-65 48.76 53.90 3.45 1.76 1.74
Feb-65 48.91 56.00 3.46 1.77 1.74
Mar-65 48.26 57.34 3.48 1.78 1.74
Apr-65 49.98 60.25 3.49 1.78 1.75
May-65 49.83 59.78 3.49 1.79 1.75
Jun-65 47.48 54.40 3.51 1.79 1.76
Jul-65 48.18 56.84 3.52 1.80 1.77
Aug-65 49.49 60.22 3.51 1.81 1.76
Sep-65 51.14 62.31 3.50 1.81 1.77
Oct-65 52.62 65.88 3.51 1.82 1.77
Nov-65 52.45 68.32 3.49 1.82 1.77
Dec-65 53.01 72.57 3.46 1.83 1.78
Jan-66 53.33 78.05 3.43 1.84 1.78
Feb-66 52.63 80.48 3.34 1.84 1.79
Mar-66 51.56 78.93 3.44 1.85 1.79
Apr-66 52.69 81.64 3.42 1.86 1.80
May-66 50.10 73.80 3.40 1.86 1.80
Jun-66 49.36 73.71 3.39 1.87 1.81
Jul-66 48.77 73.62 3.38 1.88 1.81
Aug-66 45.23 65.67 3.31 1.88 1.82
Sep-66 44.99 64.59 3.42 1.89 1.83
Oct-66 47.21 63.90 3.50 1.90 1.83
Nov-66 47.66 67.04 3.45 1.91 1.83
Dec-66 47.67 67.48 3.59 1.92 1.84
Jan-67 51.48 79.88 3.64 1.92 1.84
Feb-67 51.85 83.47 3.56 1.93 1.84
Mar-67 53.97 88.61 3.63 1.94 1.84
Apr-67 56.32 91.00 3.53 1.94 1.85
May-67 53.64 90.23 3.51 1.95 1.85
Jun-67 54.66 99.41 3.41 1.96 1.86
Jul-67 57.22 108.86 3.43 1.96 1.87
Aug-67 56.82 109.08 3.40 1.97 1.87
Sep-67 58.76 115.24 3.40 1.98 1.88
Oct-67 57.14 111.66 3.26 1.98 1.88
Nov-67 57.51 112.96 3.20 1.99 1.89
Dec-67 59.10 123.87 3.26 2.00 1.89
Jan-68 56.59 125.78 3.37 2.00 1.90
Feb-68 55.11 116.86 3.36 2.01 1.91
Mar-68 55.72 115.59 3.28 2.02 1.91
Apr-68 60.36 132.47 3.36 2.03 1.92
May-68 61.33 145.70 3.37 2.04 1.93
Jun-68 61.98 146.14 3.45 2.05 1.94
Jul-68 60.92 141.09 3.55 2.06 1.95
Aug-68 61.91 146.27 3.55 2.06 1.95
Sep-68 64.39 155.03 3.51 2.07 1.96
Oct-68 64.95 155.51 3.47 2.08 1.97
Nov-68 68.39 167.39 3.37 2.09 1.98
Dec-68 65.64 168.43 3.25 2.10 1.98
Jan-69 65.19 165.63 3.18 2.11 1.99
Feb-69 62.41 149.24 3.20 2.12 1.99
Mar-69 64.65 155.14 3.20 2.13 2.01
Apr-69 66.13 161.26 3.34 2.14 2.02
May-69 66.30 164.06 3.17 2.15 2.03
Jun-69 62.71 144.95 3.24 2.16 2.04
Jul-69 59.02 129.45 3.27 2.18 2.05
Aug-69 61.70 138.93 3.24 2.19 2.06
Sep-69 60.25 135.30 3.07 2.20 2.07
Oct-69 63.01 143.55 3.18 2.21 2.08
Nov-69 61.14 135.55 3.11 2.22 2.09
Dec-69 60.06 126.23 3.09 2.24 2.10
Jan-70 55.59 118.55 3.08 2.25 2.11
Feb-70 58.85 123.14 3.26 2.27 2.12
Mar-70 59.03 119.64 3.24 2.28 2.13
Apr-70 53.78 98.97 3.10 2.29 2.15
May-70 50.84 88.76 2.96 2.30 2.15
Jun-70 48.39 80.52 3.10 2.32 2.17
Jul-70 52.03 84.98 3.20 2.33 2.17
Aug-70 54.67 93.04 3.20 2.34 2.18
Sep-70 56.57 103.14 3.27 2.35 2.19
Oct-70 56.02 95.86 3.23 2.36 2.20
Nov-70 59.02 97.17 3.49 2.37 2.21
Dec-70 62.47 104.23 3.46 2.38 2.22
Jan-71 65.08 120.82 3.63 2.39 2.22
Feb-71 66.00 124.65 3.58 2.40 2.22
Mar-71 68.52 131.68 3.76 2.41 2.23
Apr-71 71.10 134.92 3.66 2.42 2.24
May-71 68.49 126.76 3.65 2.42 2.25
Jun-71 68.64 122.71 3.60 2.43 2.26
Jul-71 65.90 115.80 3.61 2.44 2.27
Aug-71 68.61 122.56 3.78 2.45 2.27
Sep-71 68.23 119.78 3.85 2.46 2.28
Oct-71 65.48 113.18 3.92 2.47 2.28
Nov-71 65.65 108.95 3.90 2.48 2.28
Dec-71 71.41 121.42 3.92 2.49 2.29
Jan-72 72.79 135.14 3.89 2.50 2.29
Feb-72 74.97 139.14 3.93 2.50 2.31
Mar-72 75.51 137.14 3.89 2.51 2.31
Apr-72 75.94 138.91 3.91 2.52 2.31
May-72 77.60 136.26 4.01 2.52 2.32
Jun-72 76.01 132.10 3.98 2.53 2.33
Jul-72 76.29 126.64 4.07 2.54 2.34
Aug-72 79.27 129.01 4.08 2.55 2.34
Sep-72 78.99 124.51 4.05 2.56 2.35
Oct-72 79.83 122.33 4.14 2.57 2.36
Nov-72 83.86 129.58 4.24 2.58 2.36
Dec-72 84.96 126.81 4.14 2.59 2.37
Jan-73 83.60 121.33 4.01 2.60 2.38
Feb-73 80.82 111.63 4.01 2.61 2.39
Mar-73 80.81 109.32 4.05 2.62 2.42
Apr-73 77.62 102.53 4.06 2.63 2.43
May-73 76.54 94.21 4.02 2.65 2.45
Jun-73 76.14 91.48 4.01 2.66 2.47
Jul-73 79.15 102.40 3.84 2.68 2.47
Aug-73 76.63 97.84 3.99 2.70 2.52
Sep-73 79.81 108.24 4.12 2.71 2.52
Oct-73 79.83 109.16 4.20 2.73 2.54
Nov-73 71.19 87.74 4.13 2.75 2.56
Dec-73 72.50 87.62 4.09 2.76 2.58
Jan-74 71.88 99.24 4.06 2.78 2.60
Feb-74 72.02 98.39 4.05 2.80 2.64
Mar-74 70.45 97.66 3.93 2.81 2.66
Apr-74 67.82 93.13 3.83 2.83 2.68
May-74 65.97 85.75 3.88 2.86 2.71
Jun-74 65.13 84.49 3.90 2.87 2.74
Jul-74 60.18 82.64 3.89 2.89 2.76
Aug-74 55.20 77.01 3.80 2.91 2.79
Sep-74 48.74 71.98 3.89 2.93 2.82
Oct-74 56.82 79.63 4.08 2.95 2.85
Nov-74 54.27 76.14 4.20 2.96 2.87
Dec-74 53.31 70.14 4.27 2.99 2.89
Jan-75 59.98 89.55 4.37 3.00 2.91
Feb-75 64.03 92.11 4.43 3.02 2.93
Mar-75 65.54 97.80 4.31 3.03 2.94
Apr-75 68.77 102.99 4.23 3.04 2.95
May-75 72.27 109.82 4.32 3.05 2.97
Jun-75 75.61 118.05 4.45 3.07 2.99
Jul-75 70.63 115.06 4.41 3.08 3.02
Aug-75 69.61 108.46 4.38 3.10 3.03
Sep-75 67.33 106.49 4.33 3.11 3.05
Oct-75 71.61 105.95 4.54 3.13 3.07
Nov-75 73.86 109.34 4.49 3.14 3.08
Dec-75 73.14 107.19 4.67 3.16 3.10
Jan-76 81.92 135.96 4.71 3.17 3.10
Feb-76 81.44 154.85 4.74 3.18 3.11
Mar-76 84.09 154.63 4.81 3.20 3.12
Apr-76 83.26 149.08 4.82 3.21 3.13
May-76 82.65 143.70 4.75 3.22 3.15
Jun-76 86.19 150.30 4.85 3.24 3.17
Jul-76 85.60 150.98 4.88 3.25 3.19
Aug-76 85.72 146.59 4.99 3.27 3.20
Sep-76 87.83 148.12 5.06 3.28 3.21
Oct-76 86.02 145.03 5.10 3.29 3.23
Nov-76 85.95 150.88 5.27 3.31 3.24
Dec-76 90.58 168.69 5.45 3.32 3.25
Jan-77 86.15 176.28 5.24 3.33 3.26
Feb-77 84.85 175.59 5.21 3.34 3.30
Mar-77 83.84 177.88 5.26 3.36 3.32
Apr-77 83.96 181.94 5.29 3.37 3.34
May-77 82.70 181.43 5.36 3.38 3.36
Jun-77 86.63 195.44 5.45 3.39 3.39
Jul-77 85.32 196.03 5.41 3.41 3.40
Aug-77 84.19 193.92 5.52 3.42 3.41
Sep-77 84.19 195.71 5.50 3.44 3.43
Oct-77 80.69 189.25 5.45 3.46 3.44
Nov-77 83.68 209.80 5.50 3.47 3.45
Dec-77 84.08 211.50 5.41 3.49 3.47
Jan-78 79.06 207.50 5.37 3.51 3.48
Feb-78 77.79 214.71 5.37 3.52 3.51
Mar-78 79.93 236.87 5.36 3.54 3.53
Apr-78 86.89 255.53 5.35 3.56 3.56
May-78 88.07 276.48 5.32 3.58 3.60
Jun-78 86.73 271.25 5.29 3.60 3.64
Jul-78 91.58 289.81 5.37 3.62 3.66
Aug-78 94.70 317.01 5.48 3.64 3.68
Sep-78 94.24 316.00 5.42 3.66 3.71
Oct-78 85.85 239.30 5.32 3.69 3.74
Nov-78 88.08 256.81 5.42 3.71 3.76
Dec-78 89.59 261.12 5.35 3.74 3.78
Jan-79 93.37 295.62 5.45 3.77 3.81
Feb-79 90.72 287.28 5.37 3.80 3.86
Mar-79 95.93 319.45 5.44 3.83 3.89
Apr-79 96.28 331.81 5.38 3.86 3.94
May-79 94.66 332.96 5.52 3.89 3.99
Jun-79 98.54 348.68 5.70 3.92 4.02
Jul-79 99.62 354.64 5.65 3.95 4.08
Aug-79 105.70 381.46 5.63 3.98 4.12
Sep-79 105.97 368.35 5.56 4.01 4.16
Oct-79 99.02 325.83 5.09 4.05 4.20
Nov-79 104.11 353.80 5.25 4.09 4.24
Dec-79 106.11 374.61 5.28 4.13 4.28
Jan-80 112.59 405.93 4.89 4.16 4.34
Feb-80 112.93 394.41 4.66 4.20 4.40
Mar-80 101.79 324.30 4.51 4.25 4.47
Apr-80 106.16 346.79 5.20 4.30 4.52
May-80 112.13 372.81 5.42 4.34 4.56
Jun-80 115.45 389.67 5.61 4.36 4.61
Jul-80 123.25 441.22 5.35 4.39 4.61
Aug-80 124.87 467.89 5.12 4.41 4.64
Sep-80 128.37 487.47 4.98 4.45 4.69
Oct-80 130.76 503.72 4.85 4.49 4.73
Nov-80 145.09 542.33 4.90 4.53 4.77
Dec-80 140.51 523.99 5.07 4.59 4.81
Jan-81 134.36 534.84 5.01 4.64 4.85
Feb-81 137.15 539.87 4.79 4.69 4.90
Mar-81 142.37 590.78 4.98 4.75 4.94
Apr-81 139.33 629.59 4.72 4.80 4.97
May-81 140.20 656.16 5.01 4.85 5.01
Jun-81 139.08 661.15 4.93 4.92 5.05
Jul-81 139.17 640.25 4.75 4.98 5.11
Aug-81 131.46 596.46 4.57 5.04 5.15
Sep-81 124.86 552.74 4.50 5.10 5.20
Oct-81 131.46 593.75 4.87 5.17 5.21
Nov-81 137.25 610.14 5.56 5.22 5.23
Dec-81 133.62 596.72 5.17 5.27 5.24
Jan-82 131.44 585.02 5.19 5.31 5.26
Feb-82 124.71 567.70 5.28 5.36 5.28
Mar-82 123.96 562.82 5.41 5.41 5.27
Apr-82 129.09 584.38 5.61 5.47 5.29
May-82 125.37 569.89 5.63 5.53 5.35
Jun-82 123.19 560.82 5.50 5.58 5.41
Jul-82 120.54 559.98 5.78 5.64 5.44
Aug-82 135.82 599.07 6.23 5.68 5.45
Sep-82 137.31 618.66 6.61 5.71 5.46
Oct-82 152.77 699.39 7.03 5.75 5.48
Nov-82 159.46 753.88 7.03 5.78 5.47
Dec-82 162.22 763.83 7.25 5.82 5.45
Jan-83 167.87 811.79 7.03 5.86 5.46
Feb-83 172.23 869.62 7.37 5.90 5.46
Mar-83 178.52 915.27 7.30 5.94 5.46
Apr-83 192.05 985.45 7.56 5.98 5.50
May-83 191.05 1,071.15 7.27 6.02 5.53
Jun-83 198.35 1,108.46 7.29 6.06 5.55
Jul-83 192.14 1,098.66 6.94 6.10 5.57
Aug-83 195.41 1,077.05 6.95 6.15 5.59
Sep-83 198.07 1,091.42 7.30 6.20 5.62
Oct-83 195.41 1,029.46 7.21 6.25 5.64
Nov-83 199.96 1,082.53 7.34 6.29 5.64
Dec-83 198.75 1,066.83 7.30 6.33 5.65
Jan-84 197.45 1,065.97 7.48 6.38 5.68
Feb-84 190.98 997.22 7.34 6.43 5.71
Mar-84 194.24 1,014.57 7.23 6.48 5.72
Apr-84 195.58 1,005.95 7.15 6.53 5.75
May-84 185.14 953.54 6.78 6.58 5.77
Jun-84 189.23 982.14 6.88 6.63 5.79
Jul-84 186.52 940.89 7.36 6.68 5.80
Aug-84 207.51 1,034.79 7.56 6.74 5.83
Sep-84 207.55 1,037.59 7.82 6.80 5.86
Oct-84 208.09 1,015.07 8.25 6.86 5.87
Nov-84 205.99 980.97 8.35 6.91 5.87
Dec-84 211.20 995.68 8.43 6.96 5.88
Jan-85 227.42 1,101.12 8.73 7.00 5.89
Feb-85 230.53 1,131.07 8.30 7.04 5.91
Mar-85 230.95 1,106.87 8.56 7.09 5.94
Apr-85 230.21 1,087.61 8.77 7.14 5.96
May-85 244.37 1,117.63 9.55 7.19 5.98
Jun-85 248.25 1,129.47 9.69 7.23 6.00
Jul-85 247.61 1,158.84 9.51 7.27 6.01
Aug-85 246.10 1,150.50 9.76 7.31 6.02
Sep-85 238.20 1,087.91 9.74 7.35 6.04
Oct-85 248.85 1,116.30 10.07 7.40 6.06
Nov-85 266.66 1,185.51 10.47 7.45 6.08
Dec-85 279.12 1,241.23 11.04 7.50 6.10
Jan-86 280.34 1,255.14 11.01 7.54 6.12
Feb-86 301.68 1,345.38 12.27 7.58 6.10
Mar-86 318.39 1,409.55 13.21 7.62 6.07
Apr-86 314.44 1,418.58 13.11 7.66 6.06
May-86 331.71 1,469.64 12.45 7.70 6.08
Jun-86 337.21 1,473.47 13.21 7.74 6.11
Jul-86 318.03 1,368.85 13.07 7.78 6.11
Aug-86 341.81 1,398.69 13.72 7.82 6.12
Sep-86 313.72 1,320.50 13.03 7.85 6.15
Oct-86 331.16 1,366.19 13.41 7.89 6.15
Nov-86 339.64 1,361.96 13.77 7.92 6.16
Dec-86 330.67 1,326.27 13.74 7.96 6.17
Jan-87 375.08 1,451.34 13.97 7.99 6.20
Feb-87 390.57 1,568.76 14.25 8.03 6.23
Mar-87 401.19 1,605.31 13.93 8.06 6.26
Apr-87 397.66 1,555.06 13.27 8.10 6.29
May-87 401.76 1,549.00 13.13 8.13 6.31
Jun-87 421.81 1,590.20 13.26 8.17 6.33
Jul-87 442.81 1,648.08 13.02 8.21 6.35
Aug-87 459.86 1,695.38 12.81 8.24 6.38
Sep-87 449.74 1,681.65 12.34 8.28 6.41
Oct-87 352.96 1,190.78 13.11 8.33 6.43
Nov-87 324.05 1,143.50 13.15 8.36 6.44
Dec-87 347.97 1,202.97 13.37 8.39 6.44
Jan-88 362.83 1,269.85 14.26 8.42 6.45
Feb-88 379.88 1,366.36 14.34 8.46 6.47
Mar-88 368.41 1,422.11 13.90 8.49 6.50
Apr-88 372.38 1,451.83 13.68 8.53 6.53
May-88 375.29 1,425.84 13.54 8.58 6.55
Jun-88 392.70 1,513.10 14.03 8.62 6.58
Jul-88 391.13 1,509.32 13.80 8.66 6.61
Aug-88 378.19 1,472.19 13.88 8.71 6.64
Sep-88 394.22 1,505.61 14.35 8.77 6.68
Oct-88 404.98 1,487.09 14.80 8.82 6.71
Nov-88 399.23 1,422.10 14.51 8.87 6.71
Dec-88 406.46 1,478.14 14.67 8.93 6.72
Jan-89 435.85 1,537.85 14.96 8.97 6.76
Feb-89 424.99 1,550.62 14.69 9.03 6.78
Mar-89 435.02 1,606.13 14.87 9.09 6.82
Apr-89 457.47 1,650.94 15.11 9.15 6.87
May-89 475.86 1,710.70 15.72 9.22 6.91
Jun-89 473.29 1,676.32 16.58 9.29 6.92
Jul-89 515.79 1,744.54 16.98 9.35 6.94
Aug-89 525.75 1,765.83 16.54 9.42 6.95
Sep-89 523.70 1,765.83 16.57 9.48 6.97
Oct-89 511.49 1,659.17 17.20 9.55 7.01
Nov-89 522.13 1,650.71 17.33 9.61 7.02
Dec-89 534.46 1,628.59 17.32 9.67 7.03
Jan-90 498.59 1,504.17 16.73 9.73 7.11
Feb-90 505.03 1,532.29 16.69 9.78 7.14
Mar-90 518.31 1,588.68 16.61 9.85 7.18
Apr-90 505.51 1,546.42 16.28 9.91 7.19
May-90 554.79 1,633.18 16.95 9.98 7.21
Jun-90 550.91 1,656.70 17.34 10.04 7.25
Jul-90 549.15 1,593.41 17.53 10.11 7.27
Aug-90 499.56 1,386.90 16.80 10.18 7.34
Sep-90 474.98 1,271.93 16.99 10.24 7.40
Oct-90 473.22 1,199.17 17.36 10.31 7.45
Nov-90 503.70 1,253.14 18.06 10.37 7.46
Dec-90 517.50 1,277.45 18.39 10.43 7.46
Jan-91 540.37 1,384.88 18.63 10.48 7.51
Feb-91 579.06 1,539.02 18.69 10.53 7.52
Mar-91 592.84 1,643.67 18.76 10.58 7.53
Apr-91 594.50 1,649.26 19.02 10.64 7.54
May-91 619.95 1,704.35 19.02 10.69 7.56
Jun-91 591.62 1,621.69 18.90 10.73 7.59
Jul-91 619.31 1,687.69 19.20 10.78 7.60
Aug-91 633.86 1,731.74 19.86 10.83 7.62
Sep-91 623.46 1,737.28 20.46 10.88 7.65
Oct-91 631.82 1,792.35 20.57 10.93 7.66
Nov-91 606.29 1,742.88 20.74 10.97 7.69
Dec-91 675.59 1,847.63 21.94 11.01 7.69
Jan-92 663.03 2,056.04 21.23 11.05 7.70
Feb-92 671.51 2,148.97 21.34 11.08 7.73
Mar-92 658.35 2,095.46 21.14 11.12 7.77
Apr-92 677.51 2,011.02 21.17 11.15 7.78
May-92 681.17 2,008.20 21.69 11.18 7.79
Jun-92 671.29 1,903.98 22.12 11.22 7.82
Jul-92 698.34 1,974.42 23.00 11.26 7.84
Aug-92 684.24 1,929.41 23.15 11.28 7.86
Sep-92 692.11 1,954.68 23.58 11.31 7.88
Oct-92 694.60 2,005.31 23.12 11.34 7.91
Nov-92 718.01 2,182.78 23.14 11.37 7.92
Dec-92 727.41 2,279.04 23.71 11.40 7.92
Jan-93 732.72 2,402.79 24.37 11.42 7.95
Feb-93 742.61 2,359.54 25.24 11.45 7.98
Mar-93 758.58 2,427.73 25.29 11.48 8.01
Apr-93 739.99 2,353.44 25.47 11.51 8.03
May-93 759.97 2,433.93 25.59 11.53 8.04
Jun-93 762.48 2,424.68 26.74 11.56 8.06
Jul-93 758.90 2,464.93 27.25 11.59 8.06
Aug-93 787.81 2,548.49 28.43 11.62 8.08
Sep-93 781.98 2,629.02 28.45 11.65 8.09
Oct-93 797.86 2,752.85 28.72 11.67 8.13
Nov-93 790.36 2,704.68 27.98 11.70 8.13
Dec-93 800.08 2,757.15 28.03 11.73 8.13
Jan-94 826.88 2,927.54 28.76 11.76 8.16
Feb-94 804.56 2,920.81 27.46 11.78 8.18
Mar-94 769.56 2,790.54 26.38 11.81 8.21
Apr-94 779.56 2,807.28 25.98 11.85 8.22
May-94 792.27 2,803.91 25.77 11.88 8.23
Jun-94 772.70 2,730.45 25.51 11.92 8.26
Jul-94 798.28 2,780.69 26.44 11.95 8.28
Aug-94 830.77 2,874.40 26.21 12.00 8.31
Sep-94 810.74 2,904.58 25.34 12.04 8.33
Oct-94 829.31 2,937.98 25.28 12.09 8.34
Nov-94 798.87 2,842.20 25.45 12.13 8.35
Dec-94 810.54 2,842.77 25.86 12.19 8.35
Jan-95 831.61 2,923.22 26.56 12.24 8.38
Feb-95 863.88 2,996.89 27.32 12.29 8.42
Mar-95 889.45 3,040.34 27.57 12.34 8.45
Apr-95 915.33 3,147.36 28.04 12.40 8.47
May-95 951.49 3,241.16 30.26 12.46 8.49
Jun-95 973.85 3,425.25 30.68 12.52 8.51
Jul-95 1,006.28 3,646.18 30.16 12.58 8.51
Aug-95 1,008.99 3,776.72 30.87 12.64 8.53
Sep-95 1,051.27 3,850.36 31.41 12.69 8.55
Oct-95 1,047.59 3,662.85 32.34 12.75 8.57
Nov-95 1,093.69 3,733.18 33.14 12.81 8.57
Dec-95 1,113.92 3,822.40 34.04 12.87 8.56
Jan-96 1,152.24 3,833.10 34.01 12.92 8.61
Feb-96 1,163.30 3,974.54 32.37 12.97 8.64
Mar-96 1,174.47 4,065.16 31.69 13.02 8.69
Apr-96 1,191.73 4,409.89 31.16 13.08 8.72
May-96 1,222.48 4,740.19 30.99 13.14 8.74
Jun-96 1,227.49 4,464.31 31.62 13.19 8.74
Jul-96 1,172.87 4,043.32 31.68 13.25 8.76
Aug-96 1,197.73 4,235.79 31.24 13.31 8.77
Sep-96 1,265.04 4,359.05 32.14 13.36 8.80
Oct-96 1,299.71 4,282.77 33.44 13.42 8.83
Nov-96 1,398.35 4,406.11 34.61 13.48 8.85
Dec-96 1,370.95 4,495.99 33.73 13.54 8.85
Jan-97 1,456.08 4,684.82 33.46 13.60 8.88
Feb-97 1,467.88 4,588.32 33.48 13.65 8.90
Mar-97 1,406.81 4,363.49 32.63 13.71 8.93
Apr-97 1,490.80 4,243.06 33.47 13.77 8.94
May-97 1,582.33 4,676.70 33.79 13.84 8.93
Jun-97 1,652.91 4,909.60 34.45 13.89 8.94
Jul-97 1,784.15 5,206.63 36.60 13.95 8.95
Aug-97 1,684.95 5,471.65 35.44 14.01 8.97
Sep-97 1,777.23 5,933.45 36.56 14.07 8.99
Oct-97 1,717.87 5,704.42 37.81 14.13 9.01
Nov-97 1,797.41 5,616.00 38.37 14.18 9.01
Dec-97 1,828.33 5,519.97 39.07 14.25 9.00
Jan-98 1,848.62 5,487.40 39.86 14.31 9.01
Feb-98 1,981.94 5,843.53 39.57 14.37 9.03
Mar-98 2,083.44 6,124.61 39.67 14.42 9.05
Apr-98 2,104.40 6,227.50 39.77 14.49 9.07
May-98 2,068.22 5,917.99 40.50 14.54 9.08
Jun-98 2,152.23 5,796.08 41.42 14.60 9.09
Jul-98 2,129.31 5,407.17 41.26 14.66 9.10
Aug-98 1,821.46 4,320.33 43.17 14.72 9.12
Sep-98 1,938.14 4,479.75 44.88 14.79 9.13
Oct-98 2,095.79 4,639.23 43.90 14.84 9.15
Nov-98 2,222.81 4,990.88 44.32 14.89 9.15
Dec-98 2,350.89 5,116.65 44.18 14.94 9.14
Jan-99 2,449.21 5,259.40 44.71 14.99 9.17
Feb-99 2,373.09 4,898.08 42.39 15.05 9.18
Mar-99 2,468.03 4,712.44 42.36 15.11 9.20
Apr-99 2,563.62 5,159.66 42.44 15.17 9.27
May-99 2,503.09 5,359.33 41.66 15.22 9.27
Jun-99 2,642.01 5,663.74 41.34 15.28 9.27
Jul-99 2,559.53 5,715.85 41.02 15.34 9.30
Aug-99 2,546.86 5,606.68 40.80 15.40 9.32
Sep-99 2,477.05 5,482.77 41.15 15.46 9.37
Oct-99 2,633.80 5,435.07 41.10 15.52 9.38
Nov-99 2,687.34 5,962.82 40.85 15.57 9.39
Dec-99 2,845.63 6,640.79 40.22 15.64 9.40
</TABLE>
Source: Ibbotson Associates
Source: Ibbotson Associates. Used with permission. All rights reserved. This
chart is for illustrative purposes only and is not indicative of the past,
present, or future performance of any asset class or any Prudential mutual fund.
Generally, stock returns are due to capital appreciation and the reinvestment of
any gains. Bond returns are due to reinvesting interest. Also, stock prices
usually are more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 are those of stocks comprising the 5th quintile of the New
York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the S&P
Composite Stock Price Index, a market-weighted, unmanaged index 500 stocks
(currently) in a variety of industries. It is often used as a broad measure of
stock market performance.
Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).
II-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1988
through 1999. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Risk/Return Summary-Fees and Expenses" in the prospectus.
The net effect of the deduction of the operating expenses of a mutual fund on
these historical total returns, including the compounded effect over time, could
be substantial.
[GRAPHIC OMITTED]
----------
(1) LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one
year.
(2) LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of
the Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation
(FHLMC).
(3) LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S.
dollar-denominated issues and include debt issued or guaranteed by foreign
sovereign governments, municipalities, governmental agencies or
international agencies. All bonds in the index have maturities of at least
one year.
(4) LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or
Fitch Investors Service). All bonds in the index have maturities of at
least one year.
(5) SALOMON SMITH BARNEY BROTHERS WORLD GOVERNMENT INDEX (NON U.S.) includes
over 800 bonds issued by various foreign governments or agencies, excluding
those in the U.S., but including those in Japan, Germany, France, the U.K.,
Canada, Italy, Australia, Belgium, Denmark, the Netherlands, Spain, Sweden,
and Austria. All bonds in the index have maturities of at least one year.
II-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from December 31, 1985 through December 31, 1999. It does not represent
the performance of any Prudential mutual fund.
AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS 12/31/85-12/31/98 (IN
U.S. DOLLARS)
[Table below represents chart in its printed piece]
Sweden 22.70%
Hong Kong 20.37%
Spain 20.11%
Netherland 18.63%
Belgium 18.41%
France 17.69%
USA 17.39%
U.K. 16.41%
Europe 16.28%
Switzerland 15.58%
Sing/Mlysia 15.07%
Denmark 14.72%
Germany 13.29%
Australia 11.68%
Italy 11.39%
Canada 11.10%
Japan 9.59%
Norway 8.91%
Austria 7.09%
Source: Morgan Stanley Capital International (MSCI) and Lipper, Inc. as of
12/31/99. Used with permission. Morgan Stanley Country indices are unmanaged
indices which include those stocks making up the largest two-thirds of each
country's total stock market capitalization. Returns reflect the reinvestment of
all distributions. This chart is for illustrative purposes only and is not
indicative of the past, present or future performance of any specific
investment. Investors cannot invest directly in stock indices.
This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 stock index with and without reinvested
dividends.
[Figures below represents line chart in its printed piece]
Capital Appreciation vs. Capital Appreciation plus Dividends
S & P 500 S & P 500
Index P Mnthly Reinv
---------- -------------
12/31/1969 1,000.00 1,000.00
06/30/1970 7,899.20 8,051.71
12/31/1970 10,009.78 10,394.79
06/30/1971 10,829.89 11,420.79
12/31/1971 11,089.51 11,881.17
06/30/1972 11,638.06 12,648.24
12/31/1972 12,823.16 14,138.01
06/30/1973 11,326.31 12,670.96
12/31/1973 10,596.35 12,061.20
06/30/1974 9,340.65 10,834.76
12/31/1974 7,447.32 8,869.10
06/30/1975 10,340.00 12,579.67
12/31/1975 9,796.87 12,170.87
06/30/1976 11,327.39 14,338.95
12/31/1976 11,672.82 15,082.87
06/30/1977 10,914.62 14,421.95
12/31/1977 10,330.22 14,003.47
06/30/1978 10,376.93 14,445.99
12/31/1978 10,439.93 14,924.58
06/30/1979 11,178.58 16,418.99
12/31/1979 11,724.85 17,700.02
06/30/1980 12,409.19 19,260.23
12/31/1980 14,746.79 23,453.21
06/30/1981 14,252.55 23,230.06
12/31/1981 13,311.86 22,298.50
06/30/1982 11,906.26 20,552.88
12/31/1982 15,276.99 27,102.88
06/30/1983 18,260.92 33,127.50
12/31/1983 17,915.49 33,215.96
06/30/1984 16,639.15 31,587.63
12/31/1984 18,166.41 35,299.82
06/30/1985 20,839.67 41,368.35
12/31/1985 22,950.25 46,499.59
06/30/1986 27,247.45 56,185.40
12/31/1986 26,305.67 55,178.71
06/30/1987 33,021.94 70,322.00
12/31/1987 26,839.01 58,075.84
06/30/1988 29,708.88 65,449.44
12/31/1988 30,167.28 67,694.63
06/30/1989 34,540.51 78,878.96
12/31/1989 38,388.00 89,107.41
06/30/1990 38,889.85 91,850.94
12/31/1990 35,870.08 86,337.31
06/30/1991 40,317.18 98,621.45
12/31/1991 45,306.32 112,583.79
06/30/1992 44,334.13 111,827.50
12/31/1992 47,328.91 121,149.50
06/30/1993 48,938.73 127,042.63
12/31/1993 50,668.04 133,333.28
06/30/1994 48,258.74 128,821.93
12/31/1994 49,887.03 135,084.70
06/30/1995 59,173.36 162,352.61
12/31/1995 66,905.27 185,787.02
06/30/1996 72,847.05 204,531.27
12/31/1996 80,462.73 228,415.94
06/30/1997 96,145.98 275,463.22
12/31/1997 105,412.77 304,594.88
06/30/1998 123,163.14 358,574.97
12/31/1998 133,524.86 391,705.63
06/30/1999 149,110.34 440,193.28
12/31/99 159,596.98 474,093.88
Source: Lipper, Inc. Used with permission. All rights reserved. This chart is
used for illustrative purposes only and is not intended to represent the past,
present or future performance of any Prudential mutual fund. Common stock total
return is based on the Standard & Poor's 500 Stock Index, a
market-value-weighted index made up of 500 of the largest stocks in the U.S.
based upon their stock market value. Investors cannot invest directly in
indices.
----------------------------------------
WORLD STOCK MARKET CAPITALIZATION BY REGION
WORLD TOTAL: $20.7 TRILLION
[THE DATA BELOW REPRESENTS PIE CHART IN ITS PRINTED PIECE]
Canada 2.1%
Pacific Basin 16.4%
Europe 32.5%
U.S. 49.0%
Source: Morgan Stanley Capital International, December 31,
1999. Used with permission. This chart represents the
capitalization of major world stock markets as measured by
the Morgan Stanley Capital International (MSCI) World Index.
The total market capitalization is based on the value of
approximately 1577 companies in 22 countries (representing
approximately 60% of the aggregate market value of the stock
exchanges). This chart is for illustrative purposes only and
does not represent the allocation of any Prudential mutual
fund.
II-3
<PAGE>
This chart below shows the historical volatility of general interest rates as
measured by the long U.S. Treasury Bond.
[Figures below represents line graph in printed piece]
Long-Term U.S. Treasury Bond Yield in Percent (1926-1999)
U.S. LT Gvt Yld
%Yield
---------------
Dec-26 3.54
Dec-27 3.16
Dec-28 3.40
Dec-29 3.40
Dec-30 3.30
Dec-31 4.07
Dec-32 3.15
Dec-33 3.36
Dec-34 2.93
Dec-35 2.76
Dec-36 2.55
Dec-37 2.73
Dec-38 2.52
Dec-39 2.26
Dec-40 1.94
Dec-41 2.04
Dec-42 2.46
Dec-43 2.48
Dec-44 2.46
Dec-45 1.99
Dec-46 2.12
Dec-47 2.43
Dec-48 2.37
Dec-49 2.09
Dec-50 2.24
Dec-51 2.69
Dec-52 2.79
Dec-53 2.74
Dec-54 2.72
Dec-55 2.95
Dec-56 3.45
Dec-57 3.23
Dec-58 3.82
Dec-59 4.47
Dec-60 3.80
Dec-61 4.15
Dec-62 3.95
Dec-63 4.17
Dec-64 4.23
Dec-65 4.50
Dec-66 4.55
Dec-67 5.56
Dec-68 5.98
Dec-69 6.87
Dec-70 6.48
Dec-71 5.97
Dec-72 5.99
Dec-73 7.26
Dec-74 7.60
Dec-75 8.05
Dec-76 7.21
Dec-77 8.03
Dec-78 8.98
Dec-79 10.12
Dec-80 11.99
Dec-81 13.34
Dec-82 10.95
Dec-83 11.97
Dec-84 11.70
Dec-85 9.56
Dec-86 7.89
Dec-87 9.20
Dec-88 9.18
Dec-89 8.16
Dec-90 8.44
Dec-91 7.30
Dec-92 7.26
Dec-93 6.54
Dec-94 7.99
Dec-95 6.03
Dec-96 6.73
Dec-97 6.02
Dec-98 5.42
Dec-99 6.82
Source: Ibbotson Associates
----------------------------------------
Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-1998. Yields represent that of an annually renewed one-bond portfolio with
a remaining maturity of approximately 20 years. This chart is for illustrative
purposes and should not be construed to represent the yields of any Prudential
mutual fund.
II-4
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) (1) Amended and Restated Articles of Incorporation.(1)
(2) Articles of Amendment to the Articles of Incorporation.(1)
(3) Articles of Amendment to the Articles of Incorporation.(2)
(4) Articles Supplementary (Class C Change).(3)
(b) (1) By-Laws.(4)
(2) Amendment No. 1 to By-Laws.(5)
(c) Instruments defining rights of shareholders.(6)
(d) (1) Management Agreement between Registrant and Prudential Mutual Fund
Management, Inc.(4)
(2) Subadvisory Agreement among Registrant, Prudential Mutual Fund
Management, Inc. and Wellington Management Company ("Wellington").(4)
(e) (1) Distribution Agreement.(3)
(2) Form of Selected Dealer Agreement.(3)
(f) Not applicable.
(g) (1) Form of Custodian Contract between Registrant and State Street Bank
and Trust Company.(4)
(2) Amendment dated February 22, 1999 to Custodian Contract between
Registrant and State Street Bank and Trust Company*
(h) (1) Transfer Agency and Service Agreement between Registrant and
Prudential Mutual Fund Services, Inc.(*)
(2) Amendment to Transfer Agency and Service Agreement*
(i) Legal opinion*
(j) Accountants consent*
(k) Not applicable.
(l) Not applicable.
(m) (1) Amended and Restated Distribution and Service Plan for Class A
shares.(3)
(2) Amended and Restated Distribution and Service Plan for Class B
shares.(3)
(3) Amended and Restated Distribution and Service Plan for Class C
shares.(3)
(n) Amended and Restated Rule 18f-3 Plan.(3)
(p) (1) Code of Ethics of Registrant.*
(2) Code of Ethics of Prudential Investments Fund Management LLC ("PIFM")
and Prudential Investment Management Services LLC.*
(3) Code of Ethics of Wellington.*
---------
1. Incorporated by reference to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on January
30, 1995.
2. Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on December
2, 1996.
3. Incorporated by reference to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on November
27, 1998.
4. Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on December
1, 1997.
5. Incorporated by reference to Post-Effective Amendment No. 15 to the
Registration statement on Form N-1A (File No. 33-37356) filed on December
1, 1999.
C-1
<PAGE>
6. Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on November
30, 1993.
* Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by or under common control with the Registrant.
ITEM 25. INDEMNIFICATION.
As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940 (the "1940 Act") and pursuant to Article VI of the Fund's Articles of
Incorporation (Exhibit (a) to the Registration Statement) and Section 2-418 of
the Maryland General Law, officers and directors of the Registrant may be
indemnified against liabilities in connection with the Registrant unless it is
proved that (i) the act or omission of the director or officer was material to
the cause of action adjudicated in the proceeding and was committed in bad faith
or with active and deliberate dishonesty, (ii) the director actually received an
improper personal benefit in money, property or services, or (iii) in the case
of a criminal proceeding, the director had reasonable cause to believe that the
act or omission was unlawful. As permitted by Section 17(i) of the 1940 Act,
pursuant to Section 10 of the Distribution Agreement (Exhibit (e) (1) to the
Registration Statement), the Distributor of the Registrant may be indemnified
against liabilities which it may incur except liabilities arising from bad
faith, gross negligence, willful misfeasance or reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended ("Securities Act"), may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant intends to purchase an insurance policy insuring its
officers and directors against certain liabilities, and certain costs of
defending claims against such officers and directors, to the extent such
officers and directors are not found to have committed conduct constituting
willful misfeasance, bad faith, gross negligence or reckless disregard of their
duties. The insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit (d)(1) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit (d) (2) to the
Registration Statement) limit the liability of Prudential Investments Fund
Management, LLC (PIFM) and Wellington Management Company (the Subadviser),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws, the Management Agreement and the Distribution
Agreement in a manner consistent with Release No. 11330 of the Securities and
Exchange Commission under the 1940 Act so long as the interpretation of Sections
17(h) and 17(i) of such Act remain, in effect.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Prudential Investments Fund Management LLC (PIFM).
See "How the Fund is Managed-Manager" in the Prospectus constituting Part A
of this Registration Statement and "Investment Advisory and Other Services" in
the Statement of Additional Information constituting Part B of this Registration
Statement.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is 100 Mulberry Street, Gateway Center Three, Newark, New
Jersey 07102-4077.
C-2
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
---------------- ------------------ ---------------------
<S> <C> <C>
David R. Odenath, Jr. Officer in Charge, President, Officer in Charge, President, Chief Executive
Chief Executive Officer and Officer and Chief Operating Officer, PIFM;
Chief Operating Officer Senior Vice President, The Prudential Insurance
Company of America (Prudential)
Robert F. Gunia Executive Vice President & Executive Vice President & Chief Administrative
Chief Administrative Officer Officer, PIFM; Vice President, Prudential;
President, Prudential Investment Management
Services LLC (PIMS)
William V. Healey Executive Vice President, Chief Executive Vice President, Chief Legal Officer and
Legal Officer and Secretary Secretary, PIFM; Vice President and Associate
General Counsel, Prudential; Senior Vice
President, Chief Legal Officer and Secretary,
PIMS
Stephen Pelletier Executive Vice President Executive Vice President, PIFM
Judy A. Rice Executive Vice President Executive Vice President, PIFM
Lynn M. Waldvogel Executive Vice President Executive Vice President, PIFM
</TABLE>
(b) Wellington, the Subadviser, is a Massachusetts partnership and is a
registered investment adviser engaged in the investment advisory business.
Information as to the general partners of the Subadviser is included in its Form
ADV filed with the Securities and Exchange Commission (File No. 801-15908), and
is incorporated herein by reference thereto.
See "How the Fund is Managed-Investment Adviser" in the Prospectus
constituting Part A of this Registration Statement and "Investment Advisory and
Other Services" in the Statement of Additional Information constituting Part B
of this Registration Statement.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Prudential Investment Management Services LLC (PIMS)
PIMS is distributor for Cash Accumulation Trust, Command Money Fund,
Command Tax-Free Fund, Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund, Prudential
California Municipal Fund, Prudential Diversified Bond Fund, Inc., Prudential
Diversified Funds, Prudential U.S. Emerging Growth Fund, Inc., Prudential Equity
Fund, Inc., Prudential Value Fund, Prudential Europe Growth Fund, Inc.,
Prudential Global Genesis Fund, Inc., Prudential Global Total Return Fund, Inc.,
Prudential Government Income Fund, Inc., Prudential Government Securities Trust,
Prudential High Yield Fund, Inc., Prudential High Yield Total Return Fund, Inc.,
Prudential Index Series Fund, Prudential Institutional Liquidity Portfolio,
Inc., Prudential International Bond Fund, Inc., Prudential MoneyMart Assets,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund,
Prudential National Municipals Fund, Inc., Prudential Natural Resources Fund,
Inc., Prudential Pacific Growth Fund, Inc., Prudential Real Estate Securities
Fund, Prudential Sector Funds, Inc., Prudential Short-Term Corporate Bond Fund,
Inc., Prudential Small Company Fund, Inc., Prudential Special Money Market Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential Total Return Bond
Fund Inc., Prudential 20/20 Focus Fund, Prudential Tax-Free Money Fund, Inc.,
Prudential Tax-Managed Funds, Prudential Tax-Managed Small-Cap Fund, Inc.,
Prudential World Fund, Inc. Strategic Partners Series, Target Funds, The
Prudential Investment Portfolios, Inc. and The Target Portfolio Trust.
PIMS is also distributor of the following unit investment trusts: Separate
Accounts: Prudential's Gibraltar Fund Inc., The Prudential Variable Contract
Account-2, The Prudential Variable Contract Account-10, The Prudential Variable
Contract Account-11, The Prudential Variable Contract Account-24, The Prudential
Contract Account GI-2, The Prudential Discovery Select Group Variable Contract
Account, The Pruco Life Flexible Premium Variable Annuity Account, The Pruco
Life of New Jersey Flexible Premium Variable Annuity Account, The Prudential
Individual Variable Contract Account and The Prudential Qualified Individual
Variable Contract Account.
(b) Information concerning the officers and directors of PIMS is set forth
below.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME(1) WITH UNDERWRITER WITH REGISTRANT
------- ---------------- ---------------
<S> <C> <C>
Margaret M. Deverell ............ Vice President and Chief Financial Officer None
Kevin B. Frawley ................ Senior Vice President and Chief Compliance None
213 Washington St. Officer
Newark, NJ 07102
Robert F. Gunia ................. President Vice President
William V. Healey ............... Senior Vice President, Secretary and Chief None
Legal Officer
John R. Strangfeld, Jr. ......... Advisory Board member None
</TABLE>
-----------
(1) Except as otherwise indicated the address of each person named is 751 Broad
Street, Newark, New Jersey 07102.
(c) Registrant has no principal underwriter who is not an affiliated person
of Registrant.
C-3
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts 02171, Wellington Management Company, 75 State Street,
Boston, Massachusetts 02109, Registrant, Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077 and Prudential Mutual Fund Services LLC,
194 Wood Avenue South, Iselin, New Jersey 08830. Documents required by Rules
31a-1 (b)(5), (6), (7), (9), (10) and (11), 31a-1(f) 31a-1(b)(4) and 11 and
31a-1(d) will be kept at Gateway Center Three, 100 Mulberry Street, Newark, NJ
07102-4077 and the remaining accounts, books and other documents required by
such other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services LLC.
ITEM 29. MANAGEMENT SERVICES
Other than as set forth under the caption "How the Fund is Managed" in the
Prospectus and the caption "Investment Advisory and Other Services" in the
Statement of Additional Information, constituting Parts A and B, respectively,
of this Post-Effective Amendment to the Registration Statement, Registrant is
not a party to any management-related service contract.
ITEM 30. UNDERTAKING
Not Applicable.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Newark, and State of New Jersey, on the 30th day of November, 2000.
GLOBAL UTILITY FUND, INC.
/s/ David R. Odenath, Jr.
--------------------------
David R. Odenath, Jr.,
President
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Eugene C. Dorsey Director November 30, 2000
------------------------------
Eugene C. Dorsey
/s/ Saul K. Fenster Director November 30, 2000
------------------------------
Saul K. Fenster
/s/ Robert F. Gunia Director November 30, 2000
------------------------------
Robert F. Gunia
/s/ Maurice Holmes Director November 30, 2000
------------------------------
Maurice Holmes
/s/ Robert E. LaBlanc Director November 30, 2000
------------------------------
Robert E. LaBlanc
/s/ Douglas H. McCorkindale Director November 30, 2000
------------------------------
Douglas H. McCorkindale
/s/ W. Scott McDonald, Jr. Director November 30, 2000
------------------------------
W. Scott McDonald, Jr.
/s/ Thomas T. Mooney Director November 30, 2000
------------------------------
Thomas T. Mooney
/s/ David R. Odenath, Jr. Director and President November 30, 2000
------------------------------
David R. Odenath, Jr.
/s/ Steven Stoneburn Director November 30, 2000
------------------------------
Steven Stoneburn
/s/ Grace C. Torres Treasurer and Principal Financial November 30, 2000
------------------------------ and Accounting Officer
Grace C. Torres
/s/ Joseph Weber Director November 30, 2000
------------------------------
Joseph Weber
/s/ Clay T. Whitehead Director November 30, 2000
------------------------------
Clay T. Whitehead
</TABLE>
C-5
<PAGE>
EXHIBIT INDEX
(g) (2) Amendment dated February 22, 1999 to Custodian Contract between
Registrant and State Street.
(h) (1) Transfer Agency and Service Agreement.
(2) Amendment to Transfer Agency and Service Agreement.
(i) Legal opinion.
(j) Accountants consent.
(p) (1) Code of Ethics of Registrant.
(2) Code of Ethics of Prudential Investments Fund Management LLC
and Prudential Investment Management Services LLC.
(3) Code of Ethics of Wellington.
C-6
