As filed with the Securities and Exchange Commission on May 6, 1994
Registration Statement No. 33-33477
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 5 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 6 [X]
(CHECK APPROPRIATE BOX OR BOXES)
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PRUDENTIAL MULTI-SECTOR FUND, INC.
(FORMERLY PRUDENTIAL-BACHE MULTI-SECTOR FUND, INC.)
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 214-1250
S. JANE ROSE, ESQ.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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COPY TO:
PAUL H. DYKSTRA, ESQ.
GARDNER, CARTON & DOUGLAS
QUAKER TOWER
321 NORTH CLARK STREET
CHICAGO, ILLINOIS 60610-4795
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APPROXIMATE DATE OF PUBLIC OFFERING: As soon as practicable after the
effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (a), of Rule 485.
PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940,
REGISTRANT HAS PREVIOUSLY REGISTERED AN INDEFINITE NUMBER OF SHARES OF COMMON
STOCK, PAR VALUE $.001 PER SHARE. THE REGISTRANT WILL FILE A NOTICE UNDER SUCH
RULE FOR ITS FISCAL YEAR ENDED APRIL 30, 1994 ON OR BEFORE JUNE 30, 1994.
==============================================================================
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
- ------------- --------
Part A
<S> <C> <C>
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . Fund Expenses
Item 3. Condensed Financial Information. . . . . . . . . . . . Fund Expenses; Financial
Highlights
Item 4. General Description of Registrant. . . . . . . . . . . Cover Page; How the Fund
Invests; General Information
Item 5. Management of Fund . . . . . . . . . . . . . . . . . . How the Fund is Managed;
General Information
Item 6. Capital Stock and Other Securities . . . . . . . . . . Taxes, Dividends and
Distributions; General
Information
Item 7. Purchase of Securities Being Offered . . . . . . . . . Shareholder Guide; How the Fund
Values Its Shares
Item 8. Redemption or Repurchase . . . . . . . . . . . . . . . Shareholder Guide
Item 9. Pending Legal Proceedings. . . . . . . . . . . . . . . Not Applicable
Part B
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents. . . . . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History. . . . . . . . . . . . General Information
Item 13. Investment Objectives and Policies . . . . . . . . . . Investment Objective and
Policies; Investment
Restrictions
Item 14. Management of the Fund . . . . . . . . . . . . . . . . Directors and Officers;
Manager; Distributor
Item 15. Control Persons and Principal Holders of Securities. . Not Applicable
Item 16. Investment Advisory and Other Services . . . . . . . . Manager; Distributor;
Custodian, Transfer and
Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other Practices . . . . . . . Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities . . . . . . . . . . Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered . . . . . . . . . . . . . . . . . . . . Purchase and Redemption of Fund
Shares; Shareholder Investment
Account
Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . . . Taxes
Item 21. Underwriters . . . . . . . . . . . . . . . . . . . . . Distributor
Item 22. Calculation of Performance Data. . . . . . . . . . . . Performance Information
Item 23. Financial Statements . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
<PAGE>
Prudential Multi-Sector Fund, Inc.
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Prospectus dated , 1994
- ------------------------------------------------------------------------------
Prudential Multi-Sector Fund, Inc. (the Fund) is an open-end, non-diversified
management investment company whose primary investment objective is long-term
growth of capital. The Fund seeks to achieve this objective by focusing its
investments in domestic and foreign securities, primarily equity securities,
of companies in the economic sectors described in the Appendix to this
Prospectus. The investment adviser expects to make significant shifts in the
Fund's investments among those sectors that the investment adviser believes
may benefit from economic, demographic or other changes in the 1990's and into
the 21st century. Current income is a secondary objective. The Fund's
portfolio is aggressively managed and therefore an investment in the Fund
should not be considered to be a complete investment program. The Fund may
engage in short-selling and short-term trading. These techniques may be
considered speculative and may result in higher risks and costs to the Fund.
There can be no assurance that the Fund's investment objectives will be
achieved. See "How the Fund Invests--Investment Objective and Policies." The
Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated , 1994, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund, at the
address or telephone number noted above.
- ------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
What is Prudential Multi-Sector Fund, Inc.?
Prudential Multi-Sector Fund, Inc. is a mutual fund. A mutual fund pools
the resources of investors by selling its shares to the public and investing
the proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, non-diversified
management investment company.
What is the Fund's Investment Objective?
The Fund's primary investment objective is long-term growth of capital.
It seeks to achieve this objective by focusing its investments in domestic and
foreign securities, primarily equity securities, of companies in the economic
sectors described in the Appendix to this Prospectus. Current income is a
secondary objective. See "How the Fund Invests--Investment Objective and
Policies" at page 6.
What Are the Fund's Special Characteristics and Risks?
The Fund may focus its investments in certain economic sectors, thereby
increasing its vulnerability to single economic, political or regulatory
developments. The Fund may also engage in short-selling and short-term
trading, both techniques which may be considered speculative and may result in
higher risks and costs to the Fund. See "How the Fund Invests--Investment
Objective and Policies" at page 6.
Who Manages the Fund?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
.65 of 1% of the Fund's average daily net assets. As of March 31, 1994, PMF
served as manager or administrator to [66] investment companies, including
[37] mutual funds, with aggregate assets of approximately $[51] billion. The
Prudential Investment Corporation (PIC or the Subadviser) furnishes investment
advisory services in connection with the management of the Fund under a
Subadvisory Agreement with PMF. PIC has entered into a consulting arrangement
with Greg A. Smith, pursuant to which Mr. Smith makes recommendations to PIC
with respect to the Fund's allocation of assets. See "How the Fund is
Managed--Manager" at page 14.
Who Distributes the Fund's Shares?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor
of the Fund's Class A shares and is currently paid for its services at an
annual rate of .25 of 1% of the average daily net assets of the Class A
shares.
Prudential Securities Incorporated (Prudential Securities or PSI), a
major securities underwriter and securities and commodities broker, acts as
the Distributor of the Fund's Class B and Class C shares and is paid for its
services at an annual rate of 1% of the average daily net assets of each of
the Class B and Class C shares.
See "How the Fund is Managed--Distributor" at page 15.
What is the Minimum Investment?
The minimum initial investment for Class A and Class B shares is $1,000
per class and $5,000 for Class C shares. The minimum subsequent investment is
$100 for all classes. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan the
minimum initial and subsequent investment is $50. See "Shareholder Guide--How
to Buy Shares of the Fund" at page 20 and "Shareholder Guide--Shareholder
Services" at page 28.
2
<PAGE>
How Do I Purchase Shares?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its
transfer agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer
Agent), at the net asset value per share (NAV) next determined after receipt
of your purchase order by the Transfer Agent or Prudential Securities plus a
sales charge which may be imposed either (i) at the time of purchase (Class A
shares) or (ii) on a deferred basis (Class B or Class C shares). See "How the
Fund Values its Shares" at page 16 and "Shareholder Guide--How to Buy Shares
of the Fund" at page 20.
What Are My Purchase Alternatives?
The Fund offers three classes of shares:
. Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
. Class B Shares: Sold without an initial sales charge but are subject
to a contingent deferred sales charge or CDSC
(declining from 5% to zero of the lower of the amount
invested or the redemption proceeds) which will be
imposed on certain redemptions made within six years
of purchase. Although Class B shares are subject to
higher ongoing distribution-related expenses than
Class A shares, Class B shares will automatically
convert to Class A shares (which are subject to lower
ongoing expenses) approximately seven years after
purchase.
. Class C Shares: Sold without an initial sales charge and for one year
after purchase are subject to a 1% CDSC on
redemptions. Like Class B shares, Class C shares are
subject to higher ongoing distribution-related
expenses than Class A shares but do not convert to
another class.
See "Shareholder Guide--Alternative Purchase Plan" at page 21.
How Do I Sell My Shares?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 23.
How Are Dividends and Distributions Paid?
The Fund expects to pay dividends of net investment income, if any,
semi-annually and make distributions of any net capital gains at least
annually. Dividends and distributions will be automatically reinvested in
additional shares of the Fund at NAV without a sales charge unless you request
that they be paid to you in cash. See "Taxes, Dividends and Distributions" at
page 17.
3
<PAGE>
<TABLE>
<CAPTION>
FUND EXPENSES
Shareholder Transaction Expenses+ Class A Shares Class B Shares Class C Shares
-------------- ------------- --------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . 5% None None
Maximum Sales Load or Deferred Sales Load Imposed on
Reinvested Dividends . . . . . . . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, whichever is lower) . . . None 5% during the first year, 1% on
decreasing 1% annually to redemptions
1% in the fifth and sixth made within one
years and 0% the seventh year of purchase
year*
Redemption Fees . . . . . . . . . . . . . . . . . . . . . None None None
Exchange Fee. . . . . . . . . . . . . . . . . . . . . . . None None None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average net assets) Class A Shares Class B Shares Class C Shares**
--------------- -------------- ----------------
<S> <C> <C> <C>
Management Fees . . . . . . . . . . . . . . . . . . . . . .65% .65% .65%
12b-1 Fees. . . . . . . . . . . . . . . . . . . . . . . . .25++ 1.00 1.00
Other Expenses. . . . . . . . . . . . . . . . . . . . . . .43 .45 .43
------ ----- -----
Total Fund Operating Expenses . . . . . . . . . . . . . . 1.33% 2.08% 2.08%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
Example year years years years
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63 $90 $119 $202
Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $71 $95 $122 $213
Class C**. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $31 $65 $112 $241
You would pay the following expenses on the same investment, assuming no
redemption:
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63 $90 $119 $202
Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21 $65 $112 $213
Class C**. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21 $65 $112 $241
The above example with respect to Class A and Class B shares is based on
restated data for the Fund's fiscal year ended April 30, 1994. The above
example with respect to Class C shares is based on expenses expected to have
been incurred if Class C shares had been in existence during the fiscal year
ended April 30, 1994. The example should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Fund is Managed." "Other Expenses" include an estimate of
operating expenses of the Fund, such as Directors' and professional fees,
registration fees, reports to shareholders, transfer agency and custodian fees
and franchise taxes.
- -------------
<FN>
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion
Feature--Class B Shares."
** Estimated based on expenses expected to have been incurred if Class C
shares had been in existence during the fiscal year ended April 30, 1994.
+ Pursuant to rules of the National Association of Securities Dealers,
Inc., effective on July 7, 1993, the aggregate initial sales charges,
deferred sales charges and asset-based sales charges on shares of the
Fund may not exceed 6.25% of total gross sales, subject to certain
exclusions. This 6.25% limitation is imposed on the Fund rather than on a
per shareholder basis. Therefore long-term Class B and Class C
shareholders of the Fund may pay more in total sales charges than the
economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Plan provides that the Fund may pay a distribution
fee of up to .30 of 1% per annum of the average daily net assets of the
Class A shares, the Distributor has agreed to limit its distribution
expenses with respect to the Class A shares of the Fund to no more than
.25 of 1% of the average daily net asset value of the Class A shares for
the fiscal year ending April 30, 1995. See "How the Fund is
Managed--Distributor."
</FN>
</TABLE>
4
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
The following financial highlights have been audited by Deloitte &
Touche, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
the notes thereto, which appear in the Statement of Additional Information.
The following financial highlights contain selected data for a Class A and
Class B share of common stock outstanding, total return, ratios to average net
assets and other supplemental data for the periods indicated. The information
is based on data contained in the financial statements. No Class C shares were
outstanding during the periods indicated.
<TABLE>
<CAPTION>
Class A Class B
---------------------------------------- ---------------------------------
June 29, June 29,
1990+ 1990+
Year Ended April 30, Through Year Ended April 30, Through
------------------- April 30, ------------------- April 30,
1993 1992 1991 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period. . . . $ 12.51 $ 12.10 $ 11.37 $ 12.47 $ 12.06 $ 11.37
------- ------- ------- ------- ------- -------
Income from investment operations
Net investment income . . . . . . . . . . . .30 .23 .40 .19 .13 .32
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions . . . . . . . . . . . . . . . 1.47 .50 .59 1.47 .51 .59
------- ------- ------- ------- ------- -------
Total from investment operations. . . . . . 1.77 .73 .99 1.66 .64 .91
------- ------- ------- ------- ------- -------
Less distributions
Dividends from net investment income. . . . (.30) (.30) (.26) (.19) (.21) (.22)
Distributions from net realized capital
and currency gains . . . . . . . . . . . . (.79) (.02) -- (.79) (.02) --
------- ------- ------- ------- ------- -------
Total distributions . . . . . . . . . . . . (1.09) (.32) (.26) (.98) (.23) (.22)
------- ------- ------- ------- ------- -------
Net asset value, end of period. . . . . . . $ 13.19 $ 12.51 $ 12.10 $ 13.15 $ 12.47 $ 12.06
======= ======= ======= ======= ======= =======
TOTAL RETURN**: . . . . . . . . . . . . . . 15.14% 6.16% 17.64%* 14.13% 5.39% 16.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) . . . . . . $43,390 $52,625 $59,085 $92,921 $108,276 $99,537
Average net assets (000). . . . . . . . . . $46,890 $57,403 $55,545 $99,072 $108,510 $82,890
Ratios to average net assets:
Expenses, including distribution fees. . . 1.28% 1.29% 1.35%* 2.08% 2.09% 2.15%*
Expenses, excluding distribution fees. . . 1.08% 1.09% 1.15%* 1.08% 1.09% 1.15%*
Net investment income. . . . . . . . . . . 2.44% 1.83% 4.28%* 1.64% 1.03% 3.39%*
Portfolio turnover rate . . . . . . . . . . 209% 147% 253% 209% 147% 253%
- ----------
<FN>
+ Commencement of investment operations.
* Annualized.
** Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
</FN>
</TABLE>
5
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
The primary investment objective of the Fund is long-term growth of
capital. The Fund seeks to achieve this objective by focusing its investments
in domestic and foreign securities, primarily equity securities, of companies
in the economic sectors described in the Appendix to this Prospectus. The
investment adviser expects to make significant shifts in the Fund's
investments among those sectors that the investment adviser believes may
benefit from economic, demographic or other changes in the 1990's and into the
21st century. Current income is a secondary objective. There can be no
assurance that the Fund will achieve its investment objectives. See
"Investment Objective and Policies" in the Statement of Additional
Information.
Through analyzing economic, demographic and other trends, such as the
aging of the general population, shifts in population growth that may enhance
the economic potential of regions such as the Pacific Northwest, the
globalization of American businesses and increased foreign competition, the
investment adviser will identify companies whose products and services appear
to respond to the changing environment of the 1990's and beyond. In making
portfolio selections, the investment adviser will place particular emphasis on
companies that it believes have internal strengths, such as good financial
resources, a satisfactory rate of return on capital, a favorable industry
position and superior management. Companies with these characteristics are
considered to have favorable prospects of achieving consistent earnings
growth, which in turn may result in long-term capital appreciation.
In pursuing its investment strategy and in response to changes in the
general economy or within particular sectors, the Fund may increase, decrease
or eliminate entirely a particular sector's representation in the Fund's
portfolio.
The Fund's investment objective is a fundamental policy and, therefore,
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the Investment Company Act
of 1940, as amended (the Investment Company Act). Fund policies that are not
fundamental may be modified by the Board of Directors.
Equity Securities
Under normal circumstances, at least 65% of the Fund's total assets will
be invested in equity securities (including common stocks, convertible debt
securities and warrants) of companies in up to seven economic sectors. At no
time will any one sector comprise more than 50% of the Fund's total assets nor
will 25% or more of the Fund's total assets be concentrated in the securities
of companies falling into any one industry or group of industries.
Nonetheless, the Fund may be affected to a greater extent by any single
economic, political or regulatory development than a mutual fund that does not
focus its investments. See the Appendix.
The Fund has registered as a "non-diversified" investment company so that
more than 5% of the Fund's total assets may be invested in the securities of
each of one or more issuers. As a result of such non-diversified status, the
Fund's shares may be more susceptible to adverse changes in the value of
securities of a particular company than would be the shares of a diversified
investment company.
The economic sectors in which the Fund will invest are described in the
Appendix and include autos and housing, basic industry, business services,
consumer goods and services, defense and aerospace, energy, environmental,
financial services, health care, natural resources, precious metals, public
utilities, retailing, technology, and transportation. Each of these sectors
consists of several related industries, and a single industry, or a company
within an industry, may fall into more than one sector. The Fund's investment
adviser will determine the sectors in which particular industries and
companies belong on the basis of relevant market and business considerations.
Companies will be
6
<PAGE>
assigned to sectors based on their principal business activity as reflected by
gross revenues. Companies will not be reassigned to other sectors unless their
principal business activity changes.
While the principal investment emphasis will be on common stocks, the
Fund also may seek appreciation in other types of equity securities, such as
convertible bonds, convertible preferred stocks and warrants to purchase
common stock, when relative values make these investments appear attractive
either as individual issues or as types of securities in certain economic
environments.
Debt Obligations
Under normal circumstances, the Fund may invest up to 35% of its total
assets in U.S. Government securities, foreign government securities and U.S.
and foreign corporate debt obligations. The Fund anticipates that it will
primarily invest in fixed-income securities rated A or better by Moody's
Investors Service, Inc. (Moody's) or Standard & Poor's Corporation (S&P). The
Fund may also invest up to 30% of its total assets in fixed-income securities
rated Baa or lower by Moody's or BBB or lower by S&P. Subsequent to its
purchase by the Fund, a fixed-income obligation may be assigned a lower rating
or cease to be rated. Such an event would not require the elimination of the
issue from the portfolio, but the investment adviser will consider such an
event in determining whether the Fund should continue to hold the security in
its portfolio. Securities rated Baa by Moody's or BBB by S&P have speculative
characteristics and changes in economic conditions or other circumstances
could lead to a weakened capacity to make principal and interest payments.
Securities rated BB, Ba or lower by S&P or Moody's, respectively, are
generally considered to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. A description of
corporate bond ratings is contained in the Appendix to the Statement of
Additional Information. The Fund may also invest in unrated fixed-income
securities which, in the opinion of the investment adviser, are of a quality
comparable to rated securities in which the Fund may invest.
Risks of Investing in High Yield Securities
Fixed-income securities are subject to the risk of an issuer's inability
to meet principal and interest payments on the obligations (credit risk) and
may also be subject to price volatility due to such factors as interest rate
sensitivity and the market perception of the creditworthiness of the issuer
(market risk). Lower rated or unrated (i.e., high yield) securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in the general
level of interest rates. The investment adviser considers both credit risk and
market risk in making investment decisions for the Fund. See "Investment
Objective and Policies--Risks of Investing in High Yield Securities" in the
Statement of Additional Information.
U.S. Government Securities
The Fund may invest in U.S. Treasury obligations, including bills, notes,
bonds and other debt obligations issued by the U.S. Treasury. These
instruments are direct obligations of the U.S. Government and, as such, are
backed by the "full faith and credit" of the United States. They differ
primarily in their interest rates, the lengths of their maturities and the
dates of their issuances.
Securities Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities
The Fund will also invest in obligations which are issued or guaranteed
by agencies of the U.S. Government or instrumentalities established or
sponsored by the U.S. Government. These obligations, including those which are
guaranteed by federal agencies or instrumentalities, may or may not be backed
by the "full faith and credit" of the United States. Obligations of the
Government National Mortgage Association (GNMA), the Farmers Home
Administration and the Small Business Administration are backed by the "full
faith and credit" of the United States. In the case of securities not backed
by the "full faith and credit" of the United States, the Fund must look
principally to the agency issuing or
7
<PAGE>
guaranteeing the obligation for ultimate repayment and may not be able to
assert a claim against the United States if the agency or instrumentality does
not meet its commitments. Instruments in which the Fund may invest which are
not backed by the "full faith and credit" of the United States include
obligations issued by the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation (FHLMC), the Federal National Mortgage Association
(FNMA), the Resolution Funding Corporation, the Student Loan Marketing
Association and the Tennessee Valley Authority, each of which has the right to
borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. Obligations of FHLMC may include
collateralized mortgage obligations (CMOs). The Fund will invest in
mortgage-backed securities (e.g., GNMA, FNMA and FHLMC certificates) only to
the extent such securities are used as collateral for repurchase agreements
entered into by the Fund.
Foreign Government Securities
The Fund may invest in foreign government securities, including debt
securities issued or guaranteed as to payment of principal and interest by
governments, quasi-governmental entities, government agencies, supranational
entities and other governmental entities denominated in the currency of a
foreign country or in U.S. dollars.
A supranational entity is an entity constituted by the national
governments of several countries to promote economic development, such as the
World Bank (International Bank for Reconstruction and Development), the
European Investment Bank and the Asian Development Bank. Debt securities of
quasi-governmental entities are issued by entities owned by either a national,
state or equivalent government or are obligations of a political unit that is
not backed by the national government's full faith and credit and general
taxing powers. Foreign government securities also include debt securities
denominated in European Currency Units. A European Currency Unit represents
specified amounts of the currencies of certain of the twelve member states of
the European Community.
The Fund will invest in foreign government securities rated A or better
by S&P or Moody's or in non-rated securities of comparable quality in the
opinion of the investment adviser. The Fund will invest only in foreign
currency denominated government debt securities that are freely convertible
into U.S. dollars without legal restriction at the time of purchase.
Investment in foreign government securities involves additional risks and
considerations not typically associated with investing in U.S. Government
securities and domestic issuers. Investments in obligations of foreign issuers
may be subject to certain risks, including future political and economic
developments, the possible imposition of withholding taxes on interest income,
the seizure or nationalization of foreign deposits and foreign exchange
controls or other restrictions. In addition, there may be less publicly
available information about foreign issuers than about domestic issuers and
foreign issuers are generally not subject to the same accounting, auditing and
financial recordkeeping standards and requirements as domestic issuers. In the
event of a default with respect to any foreign debt obligations, it may be
more difficult for the Fund to obtain or enforce a judgment against the issuer
of such securities. There is no limitation on the amount of the Fund's assets
that may be invested in foreign securities.
Money Market Instruments
When conditions dictate a temporary defensive strategy or during
temporary periods of portfolio structuring and restructuring, the Fund may
invest in money market instruments without limit. The Fund may invest in high
quality money market instruments, including commercial paper of a U.S. or
foreign company or foreign government; certificates of deposit, bankers'
acceptances and time deposits of domestic and foreign banks; and obligations
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. Commercial paper will be rated, at the time of investment,
at least A-2 by S&P or Prime-2 by Moody's, or, if not rated, issued by an
entity having an outstanding unsecured debt issue rated at least A or A-2 by
S&P or A or Prime-2 by Moody's.
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HEDGING AND INCOME ENHANCEMENT STRATEGIES
The Fund may also engage in various portfolio strategies to reduce
certain risks of its investments and to attempt to enhance income. These
strategies include (1) the purchase and writing (i.e., sale) of call options
and purchase of put options on stocks and stock indices and (2) the purchase
and sale of futures contracts on interest-bearing securities, interest rate
indices and stock indices and the purchase and sale of related options
thereon. The Fund may engage in these transactions on national securities
exchanges or, in the case of futures, on commodities exchanges or, in the case
of equity and stock index options, in the over-the-counter market. The Fund's
ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations and there can be no assurance that
any of these strategies will succeed. New financial products and risk
management techniques continue to be developed and the Fund may use these new
investments and techniques to the extent consistent with its investment
objectives and policies. See "Investment Objective and Policies" in the
Statement of Additional Information.
Option Transactions
The Fund may purchase and write (i.e., sell) call options and purchase
put options on stocks and stock indices that are traded on national securities
exchanges or that are listed on NASDAQ or in the over-the-counter market for
hedging purposes, to realize income and to increase capital appreciation.
A call option is a short-term contract (having a duration of nine months
or less) which gives the purchaser, in return for a premium paid, the right to
buy the security subject to the option at a specified exercise price at any
time during the term of the option. The writer of the call option, in return
for the premium, has the obligation, upon exercise of the option, to deliver,
depending on the terms of the option contract, the underlying security to the
purchaser upon receipt of the exercise price. When the Fund writes a call
option, the Fund gives up the potential for gain on the underlying securities
in excess of the exercise price of the option during the period that the
option is open.
A put option is a similar contract which gives the purchaser, in return
for a premium, the right, for a specified period of time, to sell the security
subject to the option to the writer of the put at the specified exercise
price. The writer of the put, in return for the premium, has the obligation
upon exercise of the option, to acquire the security underlying the option at
the exercise price. Successful use of stock and index options requires skills
different from those needed to select portfolio securities. The investment
adviser manages other portfolios that use these techniques.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than
the premium received from writing the option or is less than the premium paid
to purchase the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying security owned
by the Fund.
The Fund may also purchase a "protective put," i.e., a put option
acquired for the purpose of protecting a portfolio security from a decline in
market value. In exchange for the premium paid for the put option, the Fund
acquires the right to sell the underlying security at the exercise price of
the put regardless of the extent to which the underlying security declines in
value. The loss to the Fund is limited to the premium paid for, and
transaction costs incurred in connection with, the put plus the initial
excess, if any, of the market price of the underlying security over the
exercise price. However, if the market price of the security underlying the
put rises, the profit the Fund realizes on the sale of the security will be
reduced by the premium paid for the put option less any amount (net of
transaction costs) for which the put may be sold. Similar principles apply to
the purchase of puts on stock indices, as described below. Although the Fund
will generally purchase or write only those options for which there appears to
be an active secondary market, there is no assurance that a liquid secondary
market on an exchange or other trading facility will exist for any particular
option, or at any particular time, and for some options no secondary market
may exist.
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<PAGE>
Options on Stock Indices. Options on stock indices are similar to options
on equity securities except that, rather than the right to take or make
delivery of stock at a specified price, an option on a stock index gives the
holder the right, in return for a premium paid, to receive, upon exercise of
the option, an amount of cash if the closing level of the stock index upon
which the option is based is greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the option. The writer of an
index option, in return for a premium, is obligated to pay the amount of cash
due upon exercise of the option.
Because exercises of index options are settled in cash, a call writer
cannot determine the amount of its settlement obligations in advance and,
unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. In addition, unless the Fund has other liquid assets
which are sufficient to satisfy the exercise of a call, the Fund would be
required to liquidate portfolio securities or borrow in order to satisfy the
exercise.
Because the value of an index option depends upon movements in the level
of the index rather than the price of a particular stock, whether the Fund
will realize a gain or loss on the purchase or sale of an option on an index
depends upon movements in the level of stock prices in the stock market
generally or in an industry or market segment rather than movements in the
price of a particular stock. Accordingly, successful use by the Fund of
options on indices would be subject to the investment adviser's ability to
predict correctly movements in the direction of the stock market generally or
of a particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks. The investment adviser
manages other portfolios that use options on stock indices.
So long as shares of the Fund are registered in certain states, the Fund
will not purchase (i) put options on stocks not held by the Fund, (ii) put
options on indices and (iii) call options on stock or stock indices if, after
any such purchase, the total premiums paid for such options would exceed 10%
of the Fund's total assets; provided, however, that the Fund may purchase put
options on stock held by the Fund if after such purchase the aggregate
premiums paid for such options do not exceed 20% of the Fund's total net
assets. In addition, the aggregate value of the securities that are the
subject of the put options will not exceed 50% of the Fund's net assets.
Except for certain limitations under the Internal Revenue Code of 1986 (the
Internal Revenue Code), there are no other limitations on the Fund's ability
to purchase and write options. See "Taxes" in the Statement of Additional
Information.
Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts for
hedging purposes. A forward contract involves an obligation to purchase or
sell a specific 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 of the contract. These contracts are traded in the interbank
market conducted directly between currency traders (typically large commercial
banks) and their customers. A forward contract generally has no deposit
requirements, and no commissions are charged for such trades.
When the Fund invests in foreign securities, the Fund may enter into
forward foreign currency exchange contracts in several circumstances to
protect the value of its portfolio. The Fund may not use forward contracts to
generate income, although the use of such contracts may incidentally generate
income. There is no limitation on the value of forward contracts into which
the Fund may enter.
Futures Transactions
The Fund may buy and sell futures contracts on interest-bearing
securities, interest rate indices and stock indices (futures contracts) and
may buy and write (i.e., sell) options thereon for hedging purposes and, with
respect to writing call options on futures contracts, to generate additional
income. The Fund will engage in transactions in only those futures contracts
and options thereon that are traded on a commodities exchange or a board of
trade. Exchanges and boards of trade may impose daily market price limits for
certain futures contracts.
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<PAGE>
The Fund may not purchase or sell futures contracts or options thereon
for income enhancement (as defined in the Commodity Futures Trading Commission
(CFTC) regulations) if, immediately thereafter, the sum of the amount of
margin deposits on the Fund's existing futures positions and premiums paid for
outstanding options on futures contracts would exceed 5% of the liquidation
value of the Fund's total assets. There are no limitations on the percentage
of the Fund which may be hedged, and there are no limitations on the use of
assets to cover futures contracts and options thereon, except that the
aggregate value of the securities that are the subject of put options will not
exceed 50% of the Fund's net assets. See "Taxes" in the Statement of
Additional Information.
The Fund's successful use of futures contracts and options thereon
depends upon the investment adviser's ability to predict the direction of the
market and of interest rates and requires skills and techniques different from
those used in selecting portfolio securities. The correlation between
movements in the price of the futures contract and the price of the securities
being hedged is imperfect, particularly when the composition of the Fund's
portfolio diverges from the composition of the relevant index. With respect to
interest rate futures contracts, there is a risk that the futures contracts
will not correlate with interest rates. In addition, if the Fund purchases
futures contracts to hedge against market advances before it can invest in
common stock or fixed-income securities in an advantageous manner and the
market declines, the Fund might incur a loss on the futures contract. The
Fund's ability to establish and maintain positions will depend on market
liquidity. In addition, the ability of the Fund to close out a futures
position or an option depends upon a liquid secondary market. There is no
assurance that liquid secondary markets will exist for any particular futures
contract or option at any particular time. The investment adviser manages
other portfolios that use futures contracts and options thereon.
The Fund's ability to enter into futures contracts and options thereon
may also be limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company.
Special Risks of Hedging and Income Enhancement Strategies
Participation in the options or futures markets involves investment risks
and transaction costs to which the Fund would not be subject absent the use of
these strategies. If the investment adviser's prediction of movements in the
direction of the securities and interest rate markets are inaccurate, the
adverse consequences to the Fund may leave the Fund in a worse position than
if such strategies were not used. Risks inherent in the use of options and
futures contracts and options on futures contracts include (1) dependence on
the investment adviser's ability to predict correctly movements in the
direction of interest rates, securities prices and markets; (2) imperfect
correlation between the price of option securities contracts and options
thereon and movements in the prices of the securities being hedged; (3) the
fact that skills needed to use these strategies are different from those
needed to select portfolio securities; (4) the possible absence of a liquid
secondary market for any particular instrument at any time; (5) the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (6) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do
so, or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions. See "Investment
Objective and Policies" and "Taxes" in the Statement of Additional
Information.
OTHER INVESTMENTS AND POLICIES
When-Issued or Delayed Delivery Securities
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place as much as a month or more in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. The Fund's Custodian will maintain, in a
segregated account of the Fund, cash, U.S. Government securities or other
liquid high-grade debt obligations having a value equal to or greater than the
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<PAGE>
Fund's purchase commitments. The Custodian will likewise segregate securities
sold on a delayed delivery basis. The securities so purchased are subject to
market fluctuation and no interest accrues to the purchaser during the period
between purchase and settlement. At the time of delivery of the securities the
value may be more or less than the purchase price and an increase in the
percentage of the Fund's assets committed to the purchase of securities on a
when-issued or delayed delivery basis may increase the volatility of the
Fund's net asset value. See "Investment Objective and Policies--When-Issued
and Delayed Delivery Securities" in the Statement of Additional Information.
Repurchase Agreements
The Fund may on occasion enter into repurchase agreements whereby the
seller of a security agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The repurchase date is usually within a
day or two of the original purchase, although it may not be for a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's money
is invested in the security. The Fund's repurchase agreements will at all
times be fully collateralized in an amount at least equal to the purchase
price, including accrued interest earned on the underlying securities. The
instruments held as collateral are valued daily, and as the value of the
instruments declines, the Fund will require additional collateral. If the
seller defaults and the value of the collateral securing the repurchase
agreement declines, the Fund may incur a loss. The Fund participates in a
joint repurchase account with other investment companies managed by Prudential
Mutual Fund Management, Inc. pursuant to an order of the Securities and
Exchange Commission (SEC).
Illiquid Securities
The Fund may invest up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven
days, securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933, as amended (the Securities Act) that have a readily available market
are not considered illiquid for purposes of this limitation. The investment
adviser will monitor the liquidity of such restricted securities under the
supervision of the Board of Directors. Repurchase agreements subject to demand
are deemed to have a maturity equal to the applicable notice period.
The staff of the SEC has taken the position that purchased
over-the-counter options and the assets used as "cover" for written
over-the-counter options are illiquid securities unless the Fund and the
counterparty have provided for the Fund, at the Fund's election, to unwind the
over-the-counter option. The exercise of such an option ordinarily would
involve the payment by the Fund of an amount designed to reflect the
counterparty's economic loss from an early termination, but does allow the
Fund to treat the assets used as "cover" as "liquid." Moreover, with respect
to U.S. Government securities, the Fund may treat the securities it uses as
"cover" for written over-the-counter options on U.S. Government securities as
liquid provided it follows a specified procedure. The Fund may sell such
over-the-counter options only to qualified dealers who agree that the Fund may
repurchase any options it writes for a maximum price to be calculated by a
predetermined formula. In such cases, over-the-counter options would be
considered liquid only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option.
Short Selling
The Fund may sell a security it does not own in anticipation of a decline
in the market value of that security (short sales). To complete such a
transaction, the Fund must borrow the security to make delivery to the buyer.
The Fund then is obligated to replace the security borrowed by purchasing it
at market price at the time of replacement. The price at such time may be more
or less than the price at which the security was sold by the Fund. Until the
security is replaced, the Fund is required to pay to the lender any dividends
or interest which accrue during the period of the loan. To borrow the
security, the Fund also may be required to pay a premium, which would increase
the cost of the security sold. The proceeds of the short sale will be retained
by the broker, to the extent necessary to meet margin requirements, until the
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<PAGE>
short position is closed out. Until the Fund replaces a borrowed security, the
Fund will maintain daily a segregated account, containing cash or U.S.
Government securities, at such a level that (i) the amount deposited in the
account plus the amount deposited with the broker as collateral will equal the
current value of the security sold short and (ii) the amount deposited in the
segregated account plus the amount deposited with the broker as collateral
will not be less than the market value of the security at the time it was sold
short. The Fund will incur a loss as a result of the short sale if the price
of the security increases between the date of the short sale and the date on
which the Fund replaces the borrowed security. The Fund will realize a gain if
the security declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a long position in a
security. The amount of any gain will be decreased, and the amount of any loss
increased, by the amount of any premium, dividends or interest the Fund may be
required to pay in connection with a short sale. No more than 25% of the
Fund's net assets will be, when added together: (i) deposited as collateral
for the obligation to replace securities borrowed to effect short sales; and
(ii) allocated to segregated accounts in connection with short sales.
The Fund also may make short sales "against-the-box," in which the Fund
enters into a short sale of a security which the Fund owns or has the right to
obtain at no added cost. Not more than 25% of the Fund's net assets
(determined at the time of the short sale against-the-box) may be subject to
such sales. See "Investment Objective and Policies--Short Sales
Against-the-Box" in the Statement of Additional Information.
Borrowing
The Fund may borrow up to 20% of the value of its total assets (computed
at the time the loan is made) for temporary, extraordinary or emergency
purposes or for the clearance of transactions and to take advantage of
investment opportunities. Such borrowings shall be made only from banks,
unless the Fund receives an order from the SEC to permit borrowings from
entities other than banks. The Fund may pledge up to 20% of its total assets
to secure such borrowings. If the Fund's asset coverage for borrowings falls
below 300%, the Fund will take prompt action to reduce its borrowings. If the
Fund borrows to invest in securities, any investment gains made on the
securities in excess of interest paid on the borrowing will cause the net
asset value of the shares to rise faster than would otherwise be the case. On
the other hand, if the investment performance of the additional securities
purchased fails to cover their cost (including any interest paid on the money
borrowed) to the Fund, the net asset value of the Fund's shares will decrease
faster than would otherwise be the case. This is the speculative factor known
as "leverage." See "Investment Restrictions" in the Statement of Additional
Information.
Securities Lending
The Fund is permitted to lend its portfolio securities, although it has
no present intention of doing so. See "Investment Objective and
Policies--Lending of Portfolio Securities" in the Statement of Additional
Information.
Portfolio Turnover
The portfolio turnover rate for the Fund is not expected to exceed 200%
under normal circumstances. Due to market volatility, the portfolio turnover
rate for the fiscal period ended April 30, 1993 was 209%. The portfolio
turnover rate is calculated by dividing the lesser of sales or purchases of
portfolio securities by the average monthly value of the Fund's portfolio
securities, excluding securities having a maturity at the date of purchase of
one year or less. High portfolio turnover may involve correspondingly greater
brokerage commissions and other transaction costs, which will be borne
directly by the Fund. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objectives, constitute fundamental policies. Fundamental policies
may not be changed without the approval of the holders of a majority of the
Fund's
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outstanding voting securities, as defined in the Investment Company Act. See
"Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
The Fund has a Board of Directors which, in addition to overseeing the
actions of the Fund's Manager, Subadviser and Distributor, as set forth below,
decides upon matters of general policy. The Fund's Manager conducts and
supervises the daily business operations of the Fund. The Fund's Subadviser
furnishes daily investment advisory services.
For the fiscal year ended April 30, 1993, total expenses as a percentage
of average net assets were 1.28% and 2.08% of the Fund's Class A and Class B
shares, respectively. See "Financial Highlights." No Class C shares were
outstanding during the fiscal year ended April 30, 1994.
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, is the Manager of the Fund and is compensated
for its services at an annual rate of .65 of 1% of the average daily net
assets of the Fund. It was incorporated in May 1987 under the laws of the
State of Delaware. For the fiscal year ended April 30, 1994, the Fund paid a
management fee of .65% of the Fund's average net assets. See "Manager" in the
Statement of Additional Information.
As of March 31, 1994, PMF served as the manager to [37] open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator to [29] closed-end investment companies with
aggregate assets of approximately $[51] billion.
Under the Management Agreement with the Fund, PMF manages the investment
operations of the Fund and also administers the Fund's corporate affairs. See
"Manager" in the Statement of Additional Information.
Under a Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), PIC furnishes investment advisory
services in connection with the management of the Fund and is reimbursed by
PMF for its reasonable costs and expenses incurred in providing such services.
PMF continues to have responsibility for all investment advisory services
pursuant to the Management Agreement and supervises PIC's performance of such
services.
[The current portfolio manager of the Fund is Gregory Goldberg, a Vice
President of Prudential Investment Advisors, a unit of PIC. Mr. Goldberg has
responsibility for the day-to-day management of the Fund's portifolio. Mr.
Goldberg has managed the Fund's portfolio since [February 1994]. Mr. Goldberg
was previously employed by Daina International Captial Management (January
1988-December 1993) as a portfolio manager for International clients. Prior
therto, he was employed by Industrial Bank of Japan (October 1986-January
1988). Mr. Goldberg joined PIC on January 11, 1994.
The Fund's Subadviser has entered into a consulting arrangement with Greg
A. Smith, pursuant to which Mr. Smith makes recommendations to PIC with
respect to the Fund's allocation of assets. Mr. Smith is a consultant to
Prudential Securities Incorporated (Prudential Securities), an affiliate of
both the Subadviser and the Fund. Mr. Smith is recognized in the financial
community as a leading asset allocation strategist. For the last ten years, he
has been named by Institutional Investor magazine as a member of its
All-America Research Team and, in 1992, was ranked number 1 for portfolio
strategy. He is also responsible for Prudential Securities' receiving the top
ranking for asset allocation for the entire five-year period ended December
31, 1992 in a continuing survey conducted by The Wall Street Journal and
Wilshire Associates.
PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
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DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, is a corporation organized under the laws of the State
of Delaware and serves as the distributor of the Class A shares of the Fund.
It is a wholly-owned subsidiary of PMF.
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, is a corporation organized under the
laws of the State of Delaware and serves as the distributor of the Class B and
Class C shares of the Fund. It is an indirect, wholly-owned subsidiary of
Prudential.
Under separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the
Fund under Rule 12b-1 under the Investment Company Act and separate
distribution agreements (the Distribution Agreements), PMFD and Prudential
Securities (collectively, the Distributor) incur the expenses of distributing
the Fund's Class A, Class B and Class C shares. These expenses include
commissions and account servicing fees paid to, or on account of, financial
advisers of Prudential Securities and Pruco Securities Corporation (Prusec),
an affiliated broker-dealer, commissions and account servicing fees paid to,
or on account of, other broker-dealers or financial institutions (other than
national banks) which have entered into agreements with the Distributor,
advertising expenses, the cost of printing and mailing prospectuses to
potential investors and indirect and overhead costs of Prudential Securities
and Prusec associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses. The State of Texas requires that
shares of the Fund may be sold in that state only by dealers or other
financial institutions which are registered there as broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
Under the Class A Plan, the Fund may pay PMFD for its
distribution-related expenses with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net assets of the Class A shares. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1%. PMFD
has agreed to limit its distribution-related fees payable under the Class A
Plan to .25 of 1% of the average daily net assets of the Class A shares for
the fiscal year ending April 30, 1995.
For the fiscal year ended April 30, 1993, PMFD received payments of
$93,780 under the Class A Plan,as reimbursement of expenses related to the
distribution of Class A shares. This amount was primarily expended for payment
of account servicing fees to financial advisers and other persons who sell
Class A shares. For the fiscal year ended April 30, 1993, PMFD also received
approximately $54,000 in initial sales charges.
Under the Class B and Class C Plans, the Fund pays Prudential Securities
for its distribution-related expenses with respect to Class B and Class C
shares at an annual rate of 1% of the average daily net assets of each of the
Class B and Class C shares. The Class B and Class C Plans provide for the
payment to Prudential Securities of (i) an asset-based sales charge of .75 of
1% of the average daily net assets of each of the Class B and Class C shares,
and (ii) a service fee of .25 of 1% of the average daily net assets of each of
the Class B and Class C shares. The service fee is used to pay for personal
service and/or the maintenance of shareholder accounts. Prudential Securities
also receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."
For the fiscal year ended April 30, 1993, Prudential Securities incurred
distribution expenses of approximately $373,200 under the Class B Plan and
received $990,720 from the Fund under the Class B Plan. In addition,
Prudential Securities received approximately $559,500 in contingent deferred
sales charges from redemptions of Class B shares during this period. No Class C
shares were outstanding during the fiscal year ended April 30, 1994.
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For the fiscal year ended April 30, 1994, the Fund paid distribution
expenses of .20% and 1.00% of the average daily net asset value of the Class A
shares and the Class B shares, respectively. The Fund records all payments
made under the Plans as expenses in the calculation of net investment income.
No Class C shares were outstanding during the fiscal year ended April 30,
1994.
Distribution expenses attributable to the sale of shares of the Fund,
other than expenses allocated to a particular class, will be allocated to each
class based upon the ratio of sales of each class to the sales of all shares
of the Fund. The distribution fee and sales charge of one class will not be
used to subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to
the Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each
Plan may be terminated at any time by vote of a majority of the Rule 12b-1
Directors or a majority of the outstanding shares of the applicable class of
the Fund. The Fund will not be obligated to pay expenses incurred under any
Plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments to dealers and other persons who distribute shares of the Fund.
Such payments may be calculated by reference to the net asset value of shares
sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor" in
the Statement of Additional Information.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant
for the Fund, provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage"
in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Fund. Its mailing address
is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and,
in those capacities, maintains certain books and records for the Fund. PMFS is
a wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
The Fund's net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. The
Board of Directors has fixed the specific time of day for the computation of
the Fund's net asset value to be as of 4:15 P.M., New York time.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Board of Directors. See "Net Asset Value" in the Statement
of Additional Information.
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<PAGE>
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of the Fund's portfolio securities do not materially affect the
NAV. The New York Stock Exchange is closed on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
net asset values and dividends. The NAV of Class B and Class C shares will
generally be lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. It
is expected, however, that the NAV of the three classes will tend to converge
immediately after the recording of dividends which will differ by
approximately the amount of the distribution-related expense accrual
differential among the classes.
HOW THE FUND CALCULATES PERFORMANCE
From time to time the Fund may advertise its total return (including
"average annual" total return and "aggregate total return") and yield in
advertisements or sales literature. Total return and yield are calculated
separately for Class A, Class B and Class C shares. These figures are based on
historical earnings and are not intended to indicate future performance. The
"total return" shows how much an investment in the Fund would have increased
(decreased) over a specified period of time (i.e., one, five or ten years or
since inception of the Fund) assuming that all distributions and dividends by
the Fund were reinvested on the reinvestment dates during the period and less
all recurring fees. The "aggregate" total return reflects actual performance
over a stated period of time. "Average annual" total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
aggregate total return if performance had been constant over the entire
period. "Average annual" total return smooths out variations in performance
and takes into account any applicable initial or contingent deferred sales
charges. Neither "average annual" total return nor "aggregate" total return
takes into account federal or state income taxes which may be payable upon
redemption. The "yield" refers to the income generated by an investment in the
Fund over a one-month or 30-day period. This income is then "annualized;" that
is, the amount of income generated by the investment during that 30-day period
is assumed to be generated each 30-day period for twelve periods and is shown
as a percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also
may include comparative performance information in advertising or marketing
the Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., other industry publications, business periodicals
and market indices. See "Performance Information" in the Statement of
Additional Information. The Fund will include performance data for each class
of shares of the Fund in any advertisement or information including
performance data of the Fund. Further performance information is contained in
the Fund's annual and semi-annual reports to shareholders, which may be
obtained without charge. See "Shareholder Guide--Shareholder Services--Reports
to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
Taxation of the Fund
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code. Accordingly, the
Fund will not be subject to federal income taxes on its net investment income
and capital gains, if any, that it distributes to its shareholders. See
"Taxes" in the Statement of Additional Information.
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<PAGE>
Under the Internal Revenue Code, special rules apply to the treatment of
certain options and futures contracts (Section 1256 contracts). At the end of
each year, such investments held by the Fund will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been sold
at market value. Sixty percent of any gain or loss recognized on these "deemed
sales" and on actual dispositions will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss.
See "Taxes" in the Statement of Additional Information.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. Certain of these taxes may be credited to shareholders.
See "Taxes" in the Statement of Additional Information. The Fund may, from
time to time, invest in Passive Foreign Investment Companies (PFICs). PFICs
are foreign corporations which derive a majority of their income from passive
sources. For tax purposes, the Fund's investments in PFICs may subject the
Fund to federal income taxes on certain income and gains realized by the Fund.
Certain gains or losses from fluctuations in foreign currency exchange
rates (Section 988 gains and losses) will affect the amount of ordinary income
the Fund will be able to pay as dividends. See "Taxes" in the Statement of
Additional Information.
The Fund has obtained an opinion of counsel to the effect that the
conversion of Class B shares into Class A shares does not constitute a taxable
event for U.S. income tax purposes. However, such opinion is not binding on
the Internal Revenue Service.
Taxation of Shareholders
All dividends out of net investment income, together with distributions
of any net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net capital gains (i.e., the excess
of net long-term capital gains over net short-term capital losses) distributed
to shareholders will be taxable as such to the shareholders, whether or not
reinvested and regardless of the length of time a shareholder has owned his or
her shares. The maximum long-term capital gains rate for individuals is 28%.
The maximum long-term capital gains rate for corporate shareholders is the
same as the maximum tax rate for ordinary income.
Dividends received by corporate shareholders are eligible for a dividends
received deduction of 70% to the extent the Fund's income is derived from
qualified dividends received by the Fund from domestic corporations. Dividends
attributable to interest income, capital and currency gain net income, gain or
loss from Section 1256 contracts and from some other sources will not be
eligible for the dividends received deduction. Corporate shareholders should
consult their tax advisers regarding other requirements applicable to the
dividends received deduction.
Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, although
otherwise treated as a short-term capital loss, will be treated as a long-term
capital loss to the extent of any capital gain distributions received by the
shareholder on shares that are held for six months or less.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes" in the
Statement of Additional Information.
Withholding Taxes
Under the Internal Revenue Code, the Fund generally is required to
withhold and remit to the U.S. Treasury 31% of dividend, capital gain income
and redemption proceeds on the accounts of those shareholders who fail to
furnish their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in
the case of certain foreign shareholders). Dividends of net investment income
and short-term capital gains paid to a foreign shareholder will generally be
subject to a U.S. withholding rate of 30% (or lower treaty rate).
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<PAGE>
Dividends and Distributions
The Fund expects to pay semi-annual dividends of net investment income,
if any, and make annual distributions of any capital gains in excess of net
long-term capital losses. Dividends paid by the Fund with respect to each
class of shares, to the extent any dividends are paid, will be calculated in
the same manner, at the same time, on the same day and will be in the same
amount except that each class will bear its own distribution charges,
generally resulting in lower dividends for Class B and Class C shares.
Distributions of net capital gains, if any, will be paid in the same amount
for each class of shares. See "How the Fund Values its Shares."
Dividends and distributions will be paid in additional Fund shares based
on the NAV of each class on the record date, or such other date as the Board
of Directors may determine, unless the shareholder elects in writing not less
than five business days prior to the record date to receive such dividends and
distributions in cash. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. If you
hold shares through Prudential Securities, you should contact your financial
adviser to elect to receive dividends and distributions in cash.
Certain dividends declared by the Fund will be treated as received by
shareholders on December 31 of the year the dividends are declared. This rule
applies to the dividends declared by the Fund in October, November or December
of a calendar year, payable to shareholders of record on a date in any such
month, if such dividends are paid by January 31 of the following calendar
year.
When the Fund goes "ex-dividend," its NAV is reduced by the amount of the
dividend or distribution. If you buy shares just prior to the ex-dividend date
(which generally occurs four business days prior to the record date), the
price you pay will include the dividend or distribution and a portion of your
investment will be returned to you as a taxable distribution. You should,
therefore, consider the timing of dividends when making your purchases.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on February 21, 1990. The Fund is
authorized to issue two billion shares of common stock, $.001 par value per
share, divided into three classes, designated Class A, Class B and Class C,
each of which consists of one billion authorized shares. Each class of common
stock represents an interest in the same assets of the Fund and is identical
in all respects except that (i) each class bears different distribution
expenses, (ii) each class has exclusive voting rights with respect to its
distribution and service plan (except that the Fund has agreed with the SEC in
connection with the offering of a conversion feature on Class B shares to
submit any amendment of the Class A Plan to both Class A and Class B
shareholders), (iii) each class has a different exchange privilege and (iv)
only Class B shares have a conversion feature. See "How the Fund is
Managed--Distributor." Pursuant to an order from the SEC, the Fund is
permitted to issue multiple classes of common stock. Currently, the Fund is
offering three classes, designated Class A, Class B and Class C shares. In
accordance with the Fund's Articles of Incorporation, the Board of Directors
may authorize the creation of additional series of common stock and classes
within such series, with such preferences, privileges, limitations and voting
and dividend rights as the Board may determine.
The Board of Directors may increase or decrease the number of authorized
shares. Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide--How to Sell Your Shares." Each share of each class
of common stock is equal as to earnings, assets and voting privileges, except
as noted above, and each class bears the expenses related to the distribution
of its shares. Except for the conversion feature
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<PAGE>
applicable to the Class B shares, there are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of common stock
of the Fund is entitled to its portion of all of the Fund's assets after all
debts and expenses of the Fund have been paid. Since Class B and Class C
shares generally bear higher distribution expenses than Class A shares, the
liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders. The Fund's shares do not have cumulative voting
rights for the election of Directors.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless the election of Directors is required to be acted on by
the shareholders under the Investment Company Act. Shareholders have certain
rights, including the right to call a meeting upon a vote of 10% of the Fund's
outstanding shares for the purpose of voting on the removal of one or more
Directors or to transact any other business.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the
information set forth in the Registration Statement filed by the Fund with the
SEC under the Securities Act of 1933. Copies of the Registration Statement may
be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
You may purchase shares of the Fund through Prudential Securities, Prusec
or directly from the Fund, through its Transfer Agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), Attention: Investment Services,
P.O. Box 15020, New Brunswick, New Jersey 08906-5020. The minimum initial
investment for Class A and Class B shares is $1,000 per class and $5,000 for
Class C shares. The minimum subsequent investment is $100 for all classes. All
minimum investment requirements are waived for certain retirement and employee
savings plans and for custodial accounts for the benefit of minors. For
purchases made through the Automatic Savings Accumulation Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services" below.
The purchase price is the NAV next determined following receipt of an
order by the Transfer Agent or Prudential Securities plus a sales charge
which, at your option, may be imposed either (i) at the time of purchase
(Class A shares) or (ii) on a deferred basis (Class B or Class C shares). See
"Alternative Purchase Plan" below. See also "How the Fund Values its Shares."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders
who hold their shares through Prudential Securities will not receive stock
certificates.
The Fund reserves the right to reject any purchase order (including an
exchange) or to suspend or modify the continuous offering of its shares. See
"How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund.
The Distributor reserves the right to cancel any purchase order for which
payment has not been received by the fifth business day following the
investment.
Transactions in Fund shares may be subject to postage and handling
charges imposed by your dealer.
Purchase by Wire. For an initial purchase of shares of the Fund by wire,
the investor must first telephone PMFS at (800) 225-1852 (toll-free) to
receive an account number. The following information will be requested: your
name, address, tax identification number, class election, dividend
distribution election, amount being wired and wiring bank.
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<PAGE>
Instructions should then be given by you to your bank to transfer funds by
wire to State Street Bank and Trust Company (State Street), Boston,
Massachusetts, Custody and Shareholder Services Division, Attention:
Prudential Multi-Sector Fund, Inc., specifying on the wire the account number
assigned by PMFS and your name and identifying the sales charge alternative
(Class A, Class B or Class C shares).
If you arrange for receipt by State Street of Federal Funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Fund as
of that day.
In making a subsequent purchase order by wire, you should wire State
Street directly and should be sure that the wire specifies Prudential
Multi-Sector Fund, Inc., Class A, Class B or Class C shares and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders utilizing Federal Funds. The minimum amount which may be
invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
The Fund offers three classes of shares (Class A, Class B and Class C
shares) which allows you to choose the most beneficial sales charge structure
for your individual circumstances, given the amount of the purchase, the
length of time you expect to hold the shares and other relevant circumstances
(Alternative Purchase Plan).
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
------------------------------------- -------------------------- ----------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of 5% of .30 of 1% (Currently being Initial sales charge waived or reduced
the public offering price charged at a rate of for certain purchases
.25 of 1%)
Class B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six years
Class C Maximum CDSC of 1% of the lesser of 1% Shares do not convert to another class
the amount invested or the redemption
proceeds on redemptions made within
one year of purchase
The three classes of shares represent an interest in the same portfolio
of investments of the Fund and have the same rights, except that (i) each
class bears the separate expenses of its Rule 12b-1 distribution and service
plan, (ii) each class has exclusive voting rights with respect to its plan
(except as noted under the heading "General Information--Description of Common
Stock"), and (iii) only Class B shares have a conversion feature . The three
classes also have separate exchange privileges. See "How to Exchange Your
Shares" below. The income attributable to each class and the dividends payable
on the shares of each class will be reduced by the amount of the distribution
fee of each class. Class B and Class C shares bear the expenses of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund
will receive different compensation for selling Class A, Class B and Class C
shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C shares.
In selecting a purchase alternative, you should consider, among other
things, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
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<PAGE>
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 7 years
and do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to an initial sales charge of 5% and Class B shares are
subject to a CDSC of 5% which declines to zero over a 6 year period, you
should consider purchasing Class C shares over either Class A or Class B
shares.
If you intend to hold your investment for 7 years or more and do not
qualify for a reduced sales charge on Class A shares, since Class B shares
convert to Class A shares approximately 7 years after purchase and because
all of your money would be invested initially in the case of Class B shares,
you should consider purchasing Class B shares over either Class A or Class C
shares.
If you qualify for a reduced sales charge on Class A shares, it may be
more advantageous for you to purchase Class A shares over either Class B or
Class C shares regardless of how long you intend to hold your investment.
However, unlike Class B and Class C shares, you would not have all of your
money invested initially because the sales charge on Class A shares is
deducted at the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and
you purchase Class B or Class C shares, you would have to hold your investment
for more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed
the initial sales charge plus cumulative annual distribution-related fees on
Class A shares. This does not take into account the time value of money, which
further reduces the impact of the higher Class B or Class C
distribution-related fee on the investment, fluctuations in net asset value,
the effect of the return on the investment over this period of time or
redemptions during which the CDSC is applicable.
All purchases of $1 million or more either as part of a single investment
or under Rights of Accumulation or Letters of Intent, must be for Class A
shares. See "Reduction and Waiver of Initial Sales Charges" below.
Class A Shares
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested)
as shown in the following table:
Sales Charge as Sales Charge as Dealer Concession
Percentage of Percentage of as Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- ------------------ --------------- ---------------- ----------------
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
Selling dealers may be deemed to be underwriters, as that term is defined
in the Securities Act.
Reduction and Waiver of Initial Sales Charges. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money
22
<PAGE>
market funds other than those acquired pursuant to the exchange privilege) may
be aggregated to determine the applicable reduction. See "Reduction and Waiver
of Initial Sales Charges--Class A Shares" in the Statement of Additional
Information.
Class A shares may be purchased at NAV, without payment of an initial
sales charge, by pension, profit-sharing or other employee benefit plans
qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code (Benefit Plans), provided that the plan has existing
assets of at least $1 million invested in shares of Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the
exchange privilege) or 1,000 eligible employees or members. In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent and for
which the Transfer Agent does individual account record keeping (Direct
Account Benefit Plans) and Benefit Plans sponsored by PSI or its subsidiaries
(PSI or Subsidiary Prototype Benefit Plans), Class A shares may be purchased
at NAV by participants who are repaying loans made from such plans to the
participant. Additional information concerning the reduction and waiver of
initial sales charges is set forth in the Statement of Additional Information.
In addition, Class A shares may be purchased at NAV, through Prudential
Securities or the Transfer Agent, by the following persons: (a) Directors and
officers of the Fund and other Prudential Mutual Funds, (b) employees of
Prudential Securities and PMF and their subsidiaries and members of the
families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees and special agents
of Prudential and its subsidiaries and all persons who have retired directly
from active service with Prudential or one of its subsidiaries,(d) registered
representatives and employees of dealers who have entered into a selected
dealer agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer and (e) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares
of any open-end, non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or service
fee of .25 of 1% or less) on which no deferred sales load, fee or other charge
was imposed on redemption and (iii) the financial adviser served as the
client's broker on the previous purchases.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec that you are entitled to the reduction or
waiver of the sales charge. The reduction or waiver will be granted subject to
confirmation of your entitlement. No initial sales charges are imposed upon
Class A shares purchased upon the reinvestment of dividends and distributions.
See "Purchase and Redemption of Fund Shares--Reduction and Waiver of Initial
Sales Charges--Class A Shares" in the Statement of Additional Information.
Class B and Class C Shares
The offering price of Class B and Class C shares for investors choosing
one of the deferred sales charge alternatives is the NAV next determined
following receipt of an order by the Transfer Agent or Prudential Securities.
Although there is no sales charge imposed at the time of purchase, redemptions
of Class B shares and Class C may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
HOW TO SELL YOUR SHARES
You can redeem your shares of the Fund at any time for cash at the NAV
per share next determined after the redemption request is received in proper
form by the Transfer Agent or Prudential Securities. See "How the Fund Values
its Shares." In certain cases, however, redemption proceeds will be reduced by
the amount of any applicable contingent deferred sales charge, as described
below. See "Contingent Deferred Sales Charges."
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<PAGE>
If you hold shares of the Fund through Prudential Securities, you must
redeem your shares by contacting your Prudential Securities financial adviser.
If you hold shares in non-certificate form, a written request for redemption
signed by you exactly as the account is registered is required. If you hold
certificates, the certificates, signed in the name(s) shown on the face of the
certificates, must be received by the Transfer Agent in order to be redeemed,
which may delay receipt of the proceeds of the redemption. If redemption is
requested by a corporation, partnership, trust or fiduciary, written evidence
of authority acceptable to the Transfer Agent must be submitted before such
request will be accepted. All correspondence and documents concerning
redemptions should be sent to the Fund in care of its Transfer Agent,
Prudential Mutual Fund Services, Inc., Attention: Redemption Services, P.O.
Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid
to a person other than the record owner, (c) are to be sent to an address
other than the address on the Transfer Agent's records, or (d) are to be paid
to a corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Preferred
Services offices.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent of the certificate and/or
written request, except as indicated below. Such payment may be postponed or
the right of redemption suspended at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or (d) during any other period when
the SEC, by order, so permits; provided that applicable rules and regulations
of the SEC shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.
Payment for redemption of recently purchased shares will be delayed until
the Fund or its Transfer Agent has been advised that the purchase check has
been honored, up to 10 calendar days from the time of receipt of the purchase
check by the Transfer Agent. Such delay may be avoided by purchasing shares by
wire or by certified or official bank check.
Redemption in Kind. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the
investment portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the SEC. Securities will be readily marketable and the
redeemed securities will be valued in the same manner as a regular redemption.
See "How the Fund Values its Shares." If your shares are redeemed in kind, you
would incur transaction costs in converting the assets into cash. The Fund,
however, has elected to be governed by Rule 18f-1 under the Investment Company
Act, under which the Fund is obligated to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder.
Involuntary Redemption. In order to reduce expenses of the Fund, the
Board of Directors may redeem all of the shares of any shareholder, other than
a shareholder which is an IRA or other tax-deferred retirement plan, whose
account has a net asset value of less than $500 due to a redemption. The Fund
will give such shareholders 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No contingent deferred
sales charge will be imposed on any involuntary redemption.
30-day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 30 days after the
date of the redemption. No sales charge
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<PAGE>
will apply to such repurchases. You will receive pro rata credit for any
contingent deferred sales charge paid in connection with the redemption of
your shares. You must notify the Fund's Transfer Agent, either directly or
through Prudential Securities or Prusec, at the time the repurchase privilege
is exercised, that you are entitled to credit for the contingent deferred
sales charge previously paid. Exercise of the repurchase privilege will
generally not affect federal income tax treatment of any gain realized upon
redemption. If the redemption results in a loss, some or all of the loss,
depending on the amount reinvested, will not be allowed for federal income tax
purposes.
Contingent Deferred Sales Charges
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid
to you. The CDSC will be imposed on any redemption by you which reduces the
current value of your Class B or Class C shares to an amount which is lower
than the amount of all payments by you for shares during the preceding six
years, in the case of Class B shares, and one year, in the case of Class C
shares. A CDSC will be applied on the lesser of the original purchase price or
the current value of the shares being redeemed. Increases in the value of your
share or shares purchased through reinvestment of dividends or distributions
are not subject to a CDSC. The amount of any CDSC will be paid to and retained
by the Distributor. See "How the Fund is Managed--Distributor" and "Waiver of
the Contingent Deferred Sales Charges-Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
Contingent Deferred Sales
Charge as a Percentage of
Year Since Purchase Dollars Invested or
Payment Made Redemption Proceeds
------------------ -------------------------
First. . . . . . . . . . . . . 5.0%
Second . . . . . . . . . . . . 4.0%
Third. . . . . . . . . . . . . 3.0%
Fourth . . . . . . . . . . . . 2.0%
Fifth. . . . . . . . . . . . . 1.0%
Sixth. . . . . . . . . . . . . 1.0%
Seventh. . . . . . . . . . . . None
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value above the total
amount of payments for the purchase of Fund shares made during the preceding
six years; then of amounts representing the cost of shares held beyond the
applicable CDSC period; and finally, of amounts representing the cost of
shares held for the longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for
a cost of $1,000. Subsequently, you acquired 5 additional Class B shares
through dividend reinvestment. During the second year after the purchase you
decided to redeem $500 of your investment. Assuming at the time of the
redemption the net asset value had appreciated to $12 per share, the value of
your Class B shares would be $1,260 (105 shares at $12 per share). The CDSC
would not
25
<PAGE>
be applied to the value of the reinvested dividend shares and the amount which
represents appreciation ($260). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be charged at a rate of 4% (the applicable
rate in the second year after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
Waiver of the Contingent Deferred Sales Charges--Class B Shares. The CDSC
will be waived in the case of a redemption following the death or disability
of a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), or a trust at the time of death or
initial determination of disability, provided that the shares were purchased
prior to death or disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the
Internal Revenue Code from a tax-deferred retirement plan, an IRA or a Section
403(b) custodial account. These distributions include a lump-sum or other
distribution after retirement, or for an IRA or Section 403(b) custodial
account, after attaining age 59-1/2, a tax-free return of an excess
contribution or plan distributions following the death or disability of the
shareholder (provided that the shares were purchased prior to death or
disability). The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service. In the
case of Direct Account and PSI or Subsidiary Prototype Benefit Plans, the CDSC
will be waived on redemptions which represent borrowings from such plans.
Shares purchased with amounts used to repay a loan from such plans on which a
CDSC was not previously deducted will thereafter be subject to a CDSC without
regard to the time such amounts were previously invested. In the case of a
401(k) plan, the CDSC will also be waived upon the redemption of shares
purchased with amounts used to repay loans made from the account to the
participant and from which a CDSC was previously deducted.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to
waiver of the CDSC. The waiver will be granted subject to confirmation of your
entitlement.
A quantity discount may apply to redemptions of Class B shares purchased
prior to , 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to , 1994" in the Statement of
Additional Information.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. Conversions will
occur during the month following each calendar quarter and will be effected at
relative net asset value without the imposition of any additional sales
charge. It is currently anticipated that conversions will occur on the first
Friday of the month following each calendar quarter, or, if not a business
day, the next Friday of the month.
Since the Fund tracks amounts paid rather than the number of shares
bought on each purchase of Class B shares, the number of Class B shares
eligible to convert to Class A shares (excluding shares acquired through the
automatic reinvestment of dividends and other distributions) (the Eligible
Shares) will be determined on each conversion date in accordance with the
following formula: (i) the ratio of (a) the amounts paid for Class B shares
purchased at least [seven] years prior to the conversion date to (b) the total
amount paid for all Class B shares purchased and then held in your account
(ii) multiplied by the total number of Class B shares then in your account.
Each time any Eligible Shares in your account convert to Class A shares, all
shares or amounts representing Class B shares then in your account that were
acquired through the automatic reinvestment of dividends and other
distributions will convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible
Shares calculated
26
<PAGE>
as described above will generally be either more or less than the number of
shares actually purchased approximately [seven] years before such conversion
date. For example, if 100 shares were initially purchased at $10 per share
(for a total of $1,000) and a second purchase of 100 shares was subsequently
made at $11 per share (for a total of $1,100), 95.24 shares would convert
approximately [seven] years from the initial purchase (i.e., $1,000 divided by
$2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The Manager
reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to
shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus,
although the aggregate dollar value will be the same, you may receive fewer
Class A shares than Class B shares converted. See "How the Fund Values its
Shares."
For purposes of calculating the applicable holding period for
conversions, all payments for Class B shares during a month will be deemed to
have been made on the last day of the month, or for Class B shares acquired
through exchange or a series of exchanges, on the last day of the month in
which the original payment for purchases of such Class B shares was made. For
Class B shares previously exchanged for shares of a money market fund, the
time period during which such shares were held in the money market fund will
be excluded. For example, Class B shares held in a money market fund for one
year will not convert to Class A shares until approximately eight years from
purchase. For purposes of measuring the time period during which shares are
held in a money market fund, exchanges will be deemed to have been made on the
last day of the month. Class B shares acquired through exchange will convert
to Class A shares after expiration of the conversion period
applicable to the original purchase of such shares. It is currently
anticipated that the first conversion of Class B shares will occur in or about
January 1995. At that time all amounts representing Class B shares then
outstanding beyond the applicable conversion period will automatically convert
to Class A shares together with all shares or amounts representing Class B
shares acquired through the automatic reinvestment of dividends and
distributions then held in your account.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code
and (ii) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended,
Class B shares of the Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
As a shareholder of the Fund you have an exchange privilege (the Exchange
Privilege) with certain other Prudential Mutual Funds, including one or more
specified money market funds, subject to the minimum investment requirements
of such funds. Class A, Class B and Class C shares may be exchanged for Class
A, Class B and Class C shares, respectively, of another fund on the basis of
the relative NAV. Any applicable CDSC payable upon the redemption of shares
exchanged will be that imposed by the fund in which shares were initially
purchased and will be calculated from the first day of the month after the
initial purchase excluding the time the shares were held in a money market
fund. Class B and Class C shares may not be exchanged into money market funds
other than Prudential Special Money Market Fund. For purposes of calculating
the holding period applicable to the Class B conversion feature, the time
period during which Class B and Class C shares were held in a money market
fund will be excluded. See "Conversion Feature--Class B Shares" above. If your
investments in shares of Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) reach $1 million
and you then hold Class B and/or Class C shares of the Fund which are free of
CDSC, you will be so notified and offered the opportunity to exchange those
shares for Class A shares of the Fund without the imposition of any sales
charge. In the case of tax-exempt shareholders, if no response is received
within 60 days of the mailing of such notice, eligible Class B and/or
27
<PAGE>
Class C shares will be automatically exchanged for Class A shares. All other
shareholders must affirmatively elect to have their eligible Class B and/or
Class C shares exchanged for Class A shares. An exchange will be treated as a
redemption and purchase for tax purposes. See "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information.
In order to exchange shares by telephone, you must authorize the
telephone exchange privilege on your initial application form or by written
notice to the Transfer Agent and hold shares in non-certificate form.
Thereafter, you may call the Fund at (800) 225-1852 to execute a telephone
exchange of shares, weekdays, except holidays, between the hours of 8:00 A.M.
and 6:00 P.M., New York time. For your protection and to prevent fraudulent
exchanges, your telephone call will be recorded and you will be asked to
provide your personal identification number. A written confirmation of the
exchange transaction will be sent to you. Neither the Fund nor its agents will
be liable for any loss, liability or cost which results from acting upon
instructions reasonably believed to be genuine under the foregoing procedures.
All exchanges will be made on the basis of the relative NAV of the two funds
next determined after the request is received in good order. The Exchange
Privilege is available only in states where the exchange may legally be made.
If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser. If you hold
certificates, the certificates, signed in the name(s) shown on the face of the
certificates, must be returned in order for the shares to be exchanged. See
"How to Sell Your Shares" above.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange
of shares may be difficult to implement and you should make exchanges
by mail by writing to Prudential Mutual Fund Services, Inc., at the address
noted above.
The Exchange Privilege may be modified or terminated at any time on 60
days' notice to shareholders.
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder of the Fund, you
can take advantage of the following services and privileges:
. Automatic Reinvestment of Dividends and/or Distributions Without a
Sales Charge. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than five full business days prior to the record date to have subsequent
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through Prudential Securities, you should contact your financial
adviser.
. Automatic Savings Accumulation Plan (ASAP). Under ASAP, you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec registered
representative or the Transfer Agent directly.
. Tax Deferred Retirement Plans. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.
28
<PAGE>
. Systematic Withdrawal Plan. A systematic withdrawal plan is available
to shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges" above.
. Reports to Shareholders. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
is available upon request from the Fund.
. Shareholder Inquiries. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges
described above, see "Shareholder Investment Account" in the Statement of
Additional Information.
29
<PAGE>
APPENDIX
Description of Economic Sectors
The Fund will seek to achieve its investment objective by investing among
the following economic sectors:
Autos and Housing Sector--Companies engaged in the design, production and
sale of automobiles, automobile parts, tires and other rubber products,
building materials, mobile homes and related products, and in the design,
construction, renovation and refurbishing of residential dwellings. The value
of automobile industry securities is affected by foreign competition, consumer
confidence, consumer debt and installment loan rates. The housing construction
industry is affected by the level of consumer confidence, consumer debt,
mortgage rates and the inflation outlook.
Basic Industry Sector--Companies engaged in the research, development or
manufacture of products, processes or services relating to electrical
equipment, machinery, chemicals, containers, pollution control and
construction services, such as transformers, motors, turbines, hand tools,
earth-moving equipment and waste disposal services. The profitability of most
companies in this group may fluctuate significantly in response to capital
spending and general economic conditions. Since some of the materials and
processes used by these companies involve hazardous components, there are
risks associated with their production, handling and disposal. The risk of
product obsolescence also is present.
Business Services Sector--Companies providing office supplies such as
paper and pens, furnishings and computer equipment; advertising agencies; data
processing and other technical services; employment and temporary help
agencies; uniform supply and service companies; training companies;
engineering and construction companies; and other service providers to
businesses. Companies in this sector may be adversely affected by increases in
unemployment and economic slowdowns.
Consumer Goods and Services Sector--Companies engaged in providing
consumer goods and services such as the design, processing, production and
storage of packaged, canned, bottled and frozen foods, beverages and tobacco,
and the design, production and sale of home furnishings, textiles, appliances,
other household products, clothing, accessories, cosmetics and perfumes.
Certain of these companies are subject to government regulation affecting the
permissibility of using various food additives and production methods, which
regulations could affect company profitability. The success of food and
fashion-related products may be strongly affected by fads, marketing campaigns
and other factors affecting supply and demand.
Defense and Aerospace Sector--Companies engaged in the research,
manufacture or sale of products or services such as air transport, data
processing or computer-related services; communications systems; military
weapons and transportation; general aviation equipment, missiles, space launch
vehicles and spacecraft; units for guidance, propulsion and control of flight
vehicles; and airborne and ground-based equipment essential to the testing,
operation and maintenance of flight vehicles. Since these companies rely
largely on U.S. (and other) governmental demand for their products and
services, their financial conditions are heavily influenced by federal (and
other governmental) defense spending policies. Companies in this sector may be
affected by the success or failure of their products and government
investigations into defense contract procurement practices.
Energy Sector--Oil, gas, electricity and coal as well as nuclear,
geothermal, oil shale and solar energy companies. The business of these
companies may include production, generation, transmission, marketing, control
or measurement of energy or energy fuels; provision of component parts or
services to companies engaged in such activities; energy research or
experimentation; environmental activities related to the solution of energy
problems; and activities resulting from technological advances or research
discoveries in the energy field. The value of securities of these companies
varies based on the price and supply of energy fuels and may be affected by
events relating to international politics, energy conservation, the success of
exploration projects, environmental considerations and the tax and other
regulatory policies of various governments. Utilities involved in nuclear
power generation are particularly susceptible to regulatory and environmental
policies and have extremely high construction costs as well.
A-1
<PAGE>
Environmental Sector--Companies involved in environmental concerns of
every type, from pretreatment programs for air, noise and water pollution to
waste management, solid waste disposal and hazardous waste clean-up, including
asbestos removal. Products and services in this sector could quickly become
obsolete and since the processes used by these companies often are used in
hazardous situations, there are special risks involved.
Financial Services Sector--Commercial banks and savings and loan
associations; consumer and industrial finance companies; securities brokerage
companies; leasing companies; investment management companies; and firms in
all segments of the insurance field. These kinds of companies are subject to
extensive governmental regulations, some of which are currently being studied
by Congress. The profitability of these groups may fluctuate significantly as
a result of volatile interest rates, current concerns about the savings and
loan industry and the value of their assets and concerns about the viability
of certain securities brokerage companies and general economic conditions.
Health Care Sector--Companies engaged in the design, manufacture,
distribution or sale of products or services used in connection with health
care or medicine include pharmaceutical companies and providers of medical,
dental and optical products, hardware or services; companies involved in
biotechnology, medical diagnostic and biochemical research and development;
and companies involved in the operation of health care facilities. Many of
these companies are subject to government regulation, which could affect the
price and availability of their products and services. Products and services
in this sector could quickly become obsolete.
Leisure Sector--Companies engaged in the design, production or
distribution of goods or services in the leisure industry, such as television
and radio broadcasting or manufacture, motion pictures and photography,
recordings and musical instruments; publishing; sporting goods, camping and
recreational equipment; sports arenas; toys and games; amusement and theme
parks; travel-related services; hotels and motels; fast food and other
restaurants; and gaming casinos. Many products produced by companies in this
sector may quickly become obsolete. Companies engaged in broadcasting and
gambling are subject to government regulation.
Natural Resources Sector--Companies engaged in the research, development,
manufacture or marketing of products, processes or services related to the
agriculture, forest products, ferrous and non-ferrous metals, strategic
metals, hydrocarbons and steel industries, such as synthetic and natural
materials; paper; wood products; steel and cement. Certain companies in this
sector are subject to regulation by state and federal authorities which could
require alteration or cessation of production of a product, payment of fines
or cleaning of a disposal site. Since some of the materials and processes used
by these companies involve hazardous components, there are risks associated
with their production, handling and disposal. The risk of product obsolescence
is also present.
Precious Metals Sector--Companies engaged in exploration, mining,
processing or dealing in gold, platinum, silver, diamonds or other precious
metals and companies which invest in companies engaged in these activities. A
significant portion of this sector may be represented by securities of foreign
companies and investors should understand the special risks related thereto.
These securities also depend heavily on prices in metals, some of which may
experience extreme price volatility based on international economic and
political developments.
Public Utilities Sector--Companies deriving a substantial portion of
their revenues from the manufacture, production, generation, transmission,
distribution and sale of gas and electric energy, and companies engaged in the
communications field, such as telephone, telegraph, satellite and microwave
and the provision of other communication facilities to the public. The gas
and electric utilities industries are subject to various uncertainties,
including government regulation policies, the outcome of political issues
concerning the environment, prices of fuel for electric generation,
availability of natural gas and risks associated with the construction and
operation of nuclear power facilities.
A-2
<PAGE>
Retailing Sector--Companies engaged in the retail distribution of home
furnishings, food products, clothing, pharmaceuticals, leisure products and
other consumer goods and companies that provide services and supplies to these
companies. The value of securities in this sector will fluctuate based on
consumer spending patterns, which depend on inflation and interest rates,
level of consumer debt and seasonal shopping habits. The success or failure of
a particular company in this highly competitive sector will depend on the
company's ability to predict rapidly changing consumer tastes.
Technology Sector--Companies which have or are expected to develop
products, processes or services which will provide or will benefit
significantly from technological advances and improvements or future
automation trends in the office and factory, such as semiconductors; computers
and peripheral equipment; scientific instruments; computer software;
telecommunications; and electronic components, instruments and systems. These
companies are sensitive to foreign competition and import tariffs and many
products produced by these companies may quickly become obsolete.
Transportation Sector--Companies involved in the provision of
transportation of people and products, such as airlines, railroads and
trucking firms, transportation equipment and leasing companies. Revenues of
companies in this sector will be affected by fluctuations in fuel prices
resulting from domestic and international events, and government regulation of
fares.
A-3
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the
investment options available through our family of funds. For more information
on the Prudential Mutual Funds, including charges and expenses, contact your
Prudential Securities financial adviser or Prusec registered representative or
telephone the Fund at (800) 225-1852 for a free prospectus. Read the
prospectus carefully before you invest or send money.
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global Funds
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
Equity Funds
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible (R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
. Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
. Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
. Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
. Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
B-1
<PAGE>
No dealer, sales representative or any other
person has been authorized to give any information
or to make any representations, other than those
contained in this Prospectus, in connection with
the offer contained herein, and, if given or made,
such other information or representations must not
be relied upon as having been authorized by the
Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the
Distributor to sell or a solicitation of any offer
to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful
to make such offer in such jurisdiction.
- -------------------------------------------------
TABLE OF CONTENTS
Page
----
FUND HIGHLIGHTS . . . . . . . . . . . . . 2
FUND EXPENSES . . . . . . . . . . . . . . 4
FINANCIAL HIGHLIGHTS. . . . . . . . . . . 5
HOW THE FUND INVESTS. . . . . . . . . . . 6
Investment Objective and Policies. . . . 6
Hedging and Income Enhancement Strategies 9
Other Investments and Policies . . . . . 11
Investment Restrictions. . . . . . . . . 13
HOW THE FUND IS MANAGED . . . . . . . . . 14
Manager. . . . . . . . . . . . . . . . . 14
Distributor. . . . . . . . . . . . . . . 15
Portfolio Transactions . . . . . . . . . 16
Custodian and Transfer and Dividend Disbursing
Agent . . . . . . . . . . . . . . . . . 16
HOW THE FUND VALUES ITS SHARES. . . . . . 16
HOW THE FUND CALCULATES PERFORMANCE . . . 17
TAXES, DIVIDENDS AND DISTRIBUTIONS. . . . 17
GENERAL INFORMATION . . . . . . . . . . . 19
Description of Common Stock. . . . . . . 19
Additional Information . . . . . . . . . 20
SHAREHOLDER GUIDE . . . . . . . . . . . . 20
How to Buy Shares of the Fund. . . . . . 20
Alternative Purchase Plan. . . . . . . . 21
How to Sell Your Shares. . . . . . . . . 23
Conversion Feature-Class B Shares. . . . 26
How to Exchange Your Shares. . . . . . . 27
Shareholder Services . . . . . . . . . . 28
APPENDIX. . . . . . . . . . . . . . . . . A-1
THE PRUDENTIAL MUTUAL FUND FAMILY . . . . B-1
- -------------------------------------------------
115A 444010J
************************************************
CUSIP Nos.: Class A: 74435J108
Class B: 74435J207
Class C:
************************************************
CRC
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Additional Information
dated , 1994
Prudential Multi-Sector Fund, Inc. (the Fund) is an open-end,
non-diversified management investment company whose primary investment
objective is long-term growth of capital. The Fund seeks to achieve this
objective by focusing its investments in domestic and foreign securities,
primarily equity securities, of companies in the economic sectors described in
the Appendix to the Prospectus. The investment adviser expects to make
significant shifts in the Fund's investments among those sectors that the
investment adviser believes may benefit from economic, demographic or other
changes in the 1990's and into the 21st century. Current income is a secondary
objective. See "Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and
its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Fund's Prospectus, dated , 1994. A copy of
the Prospectus may be obtained from the Fund upon request.
TABLE OF CONTENTS
Cross-reference
to page in
Page Prospectus
---- -------------
General Information . . . . . . . . . . . . . . . . . B-2 19
Investment Objective and Policies . . . . . . . . . . B-2 6
Investment Restrictions . . . . . . . . . . . . . . . B-9 13
Directors and Officers. . . . . . . . . . . . . . . . B-11 14
Manager . . . . . . . . . . . . . . . . . . . . . . . B-12 14
Distributor . . . . . . . . . . . . . . . . . . . . . B-14 15
Portfolio Transactions and Brokerage. . . . . . . . . B-16 16
Purchase and Redemption of Fund Shares. . . . . . . . B-17 20
Shareholder Investment Account. . . . . . . . . . . . B-19 20
Net Asset Value . . . . . . . . . . . . . . . . . . . B-22 16
Performance Information . . . . . . . . . . . . . . . B-23 17
Dividends and Distributions . . . . . . . . . . . . . B-24 17
Taxes . . . . . . . . . . . . . . . . . . . . . . . . B-24 17
Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants. . . . . . . . . . . . . . . B-26 16
Financial Statements. . . . . . . . . . . . . . . . . B-27 --
Independent Auditors' Report. . . . . . . . . . . . . B-39 --
Description of Security Ratings . . . . . . . . . . . A-1 --
- -----------------------------------------------------------------------------
142B
<PAGE>
GENERAL INFORMATION
At a special meeting held on September 12, 1991, the shareholders of the
Fund approved an amendment to the Articles of Incorporation to change the
Fund's name from Prudential-Bache Multi-Sector Fund, Inc. to Prudential
Multi-Sector Fund, Inc.
INVESTMENT OBJECTIVE AND POLICIES
The primary investment objective of the Fund is long-term growth of
capital. The Fund seeks to achieve this objective by focusing its investments
in domestic and foreign securities, primarily equity securities, of companies
in the economic sectors described in the Appendix to the Prospectus. The
investment adviser expects to make significant shifts in the Fund's
investments among those sectors that the investment adviser believes may
benefit from economic, demographic or other changes in the 1990's and into the
21st century. Current income is a secondary objective.
Options on Equity Securities
The Fund may purchase and write (i.e., sell) call options and purchase
put options on equity securities traded on national securities exchanges or
that are listed on NASDAQ. It may also purchase and write (i.e., sell) options
and purchase put options traded in the over-the-counter market (OTC Options).
The Fund may write call options on stocks only if they are covered, and
such options must remain covered so long as the Fund is obligated as a writer.
A call option written by the Fund is "covered" if the Fund owns the security
underlying the option or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its Custodian) upon conversion
or exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds on a share-for-share basis a call on the same
security as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than
the exercise price of the call written if the difference is maintained by the
Fund in cash, Treasury Bills or other high grade, short-term debt obligations
in a segregated account with its Custodian. The premium paid by the purchaser
of an option will reflect, among other things, the relationship of the
exercise price to the market price and volatility of the underlying security,
the remaining term of the option, supply and demand and interest rates.
If the writer of an exchange-traded option wishes to terminate the
obligation, he or she may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position will be
cancelled by the clearing corporation. However, a writer may not effect a
closing purchase transaction after he or she has been notified of the exercise
of an option. Similarly, an investor who is the holder of an option may
liquidate his or her 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. To secure the obligation to
deliver the underlying security in the case of a call option, the writer of
the option (whether an exchange-traded option or a NASDAQ option) is required
to pledge for the benefit of the broker the underlying security or other
assets in accordance with the rules of The Options Clearing Corporation (OCC),
the Chicago Board of Trade and the Chicago Mercantile Exchange, institutions
which interpose themselves between buyers and sellers of options. Technically,
each of these institutions assumes the other side of every purchase and sale
transaction on an exchange and, by doing so, guarantees the transaction.
An exchange-traded option position may be closed out only on an exchange,
board of trade or other trading facility which provides a secondary market for
an option of the same series. Although the Fund will generally purchase or
write only those options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
other trading facility will exist for any particular option, or at any
particular time, and for some options no secondary market on an exchange or
otherwise may exist. In such event it might not be possible to effect closing
transactions in particular options, with the result that the Fund would have
to exercise its options in order to realize any profit and would incur
brokerage commissions upon the exercise of call options and upon the
subsequent disposition of underlying securities acquired through the exercise
of call options or upon the purchase of underlying securities for the exercise
of put options. If the Fund as a covered call option writer is unable to
effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it delivers
the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an 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 a clearing corporation may not at all times be
adequate to handle current trading
B-2
<PAGE>
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of
options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no
assurance that higher than anticipated trading activity or other unforeseen
events might not, at times, render certain of the facilities of any of the
clearing corporations inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution
of customers' orders. However, the OCC, based on forecasts provided by the
U.S. exchanges, believes that its facilities are adequate to handle the volume
of reasonably anticipated options transactions, and such exchanges have
advised such clearing corporation that they believe their facilities will also
be adequate to handle reasonably anticipated volume.
Exchange-traded options in the United States are issued by clearing
organizations affiliated with the exchange on which the option is listed
which, in effect, gives its guarantee to every exchange-traded option
transaction. In contrast, OTC options are contracts between the Fund and its
counterparty with no clearing organization guarantee. Thus when the Fund
purchases an OTC option, it relies on the dealer from which it has purchased
the OTC option to make or take delivery of the securities underlying the
option. Failure by the dealer to do so would result in the loss of the premium
paid by the Fund as well as the loss of the expected benefit of the
transaction. The Board of Directors will evaluate the creditworthiness of any
dealer from which the Fund proposes to purchase OTC options.
Exchange-traded options generally have a continuous liquid market while
OTC options may not. Consequently, the Fund will generally be able to realize
the value of an OTC option it has purchased only by exercising it or reselling
it to the dealer who issued it. Similarly, when the Fund writes an OTC option,
it generally will be able to close out the OTC option prior to its expiration
only by entering into a closing purchase transaction with the dealer to which
the Fund originally wrote 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 counterparty, 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.
Options on Stock Indices
Options on stock indices are similar to options on stock except that,
rather than the right to take or make delivery of stock at a specified price,
an option on a stock index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the stock
index upon which the option is based is greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the multiplier). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike stock
options, all settlements are in cash.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an
option and the current level of the underlying index. A multiplier of 100
means that a one-point difference will yield $100. Options on different
indices may have different multipliers.
Except as described below, the Fund will write call options on indices
only if on such date it holds a portfolio of securities at least equal to the
value of the index times the multiplier times the number of contracts. When
the Fund writes a call option on a broadly-based stock market index, the Fund
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, cash, cash equivalents or at least one "qualified
security" with a market value at the time the option is written of not less
than 100% of the current index value times the multiplier times the number of
contracts. The Fund will write call options on broadly-based stock market
indices only if at the time of writing it holds a diversified portfolio of
stocks.
If the Fund has written an option on an industry or market segment index,
it will so segregate or put into escrow with its Custodian, or pledge to a
broker as collateral for the option, at least ten "qualified securities,"
which are stocks of an issuer in such industry or market segment, with a
market value at the time the option is written of not less than 100% of the
current index value times the multiplier times the number of contracts. Such
stocks will include stocks which represent at least 50% of the weighting of
the industry or market segment index and will represent at least 50% of the
Fund's holdings in that industry or market segment.
B-3
<PAGE>
No individual security will represent more than 15% of the amount so
segregated, pledged or escrowed in the case of broadly-based stock market
index options or 25% of such amount in the case of industry or market segment
index options.
If at the close of business on any day the market value of such qualified
securities so segregated, escrowed or pledged falls below 100% of the current
index value times the multiplier times the number of contracts, the Fund will
segregate, escrow or pledge an amount in cash, Treasury bills or other high
grade short-term debt obligations equal in value to the difference. In
addition, when the Fund writes a call on an index which is in-the-money at the
time the call is written, the Fund will segregate with its Custodian or pledge
to the broker as collateral cash, U.S. Government or other high grade
short-term debt obligations equal in value to the amount by which the call is
in-the-money times the multiplier times the number of contracts. Any amount
segregated pursuant to the foregoing sentence may be applied to the Fund's
obligation to segregate additional amounts in the event that the market value
of the qualified securities falls below 100% of the current index value times
the multiplier times the number of contracts. A "qualified security" is an
equity security which is listed on a national securities exchange or listed on
NASDAQ against which the Fund has not written a stock call option and which
has not been hedged by the Fund by the sale of stock index futures. However,
if the Fund holds a call on the same index as the call written where the
exercise price of the call held is equal to or less than the exercise price of
the call written or greater than the exercise price of the call written if the
difference is maintained by the Fund in cash, Treasury bills or other high
grade short-term debt obligations in a segregated account with its Custodian,
it will not be subject to the requirements described in this paragraph.
Risks of Options on Stock Indices. Index prices may be distorted if
trading of certain securities included in the index is interrupted. Trading in
the index options also may be interrupted in certain circumstances, such as if
trading were halted in a substantial number of securities included in the
index. If this occurred, the Fund would not be able to close out options which
it had purchased or written and, if restrictions on exercise were imposed, may
be unable to exercise an option it holds, which could result in substantial
losses to the Fund. It is the Fund's policy to purchase or write options only
on indices which include a number of securities sufficient to minimize the
likelihood of a trading halt in the index.
Special Risks of Writing Calls on Stock Indices. Unless the Fund has
other liquid assets which are sufficient to satisfy the exercise of a call,
the Fund will be required to liquidate portfolio securities in order to
satisfy the exercise. Because an exercise must be settled within hours after
receiving the notice of exercise, if the Fund fails to anticipate an exercise,
it may have to borrow from a bank (in amounts not exceeding 20% of the value
of the Fund's total assets) pending settlement of the sale of securities in
its portfolio and would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market
may decline between the time the Fund has a call exercised against it, at a
price which is fixed as of the closing level of the index on the date of
exercise, and the time the Fund is able to sell securities in its portfolio.
As with stock options, the Fund will not learn that an index option has been
exercised until the day following the exercise date but, unlike a call on
stock where the Fund would be able to deliver the underlying securities in
settlement, the Fund may have to sell part of its portfolio in order to make
settlement in cash, and the price of such securities might decline before they
can be sold. This timing risk makes certain strategies involving more than one
option substantially more risky with index options than with stock options.
For example, even if an index call which the Fund has written is "covered" by
an index call held by the Fund with the same strike price, the Fund will bear
the risk that the level of the index may decline between the close of trading
on the date the exercise notice is filed with the clearing corporation and the
close of trading on the date the Fund exercises the call it holds or the time
the Fund sells the call, which in either case would occur no earlier than the
day following the day the exercise notice was filed.
Futures Contracts and Options Thereon
A futures contract is an agreement in which the writer (i.e., seller) of
the contract agrees to deliver to the buyer an amount of cash or securities
equal to a specific dollar amount times the difference between the value of a
specific fixed-income security or index at the close of the last trading day
of the contract and the price at which the agreement is made. No physical
delivery of the underlying securities is made. When the futures contract is
entered into, each party deposits with a broker or in a segregated custodial
account approximately 5% of the contract amount, called the "initial margin."
Subsequent payments to and from the broker, called "variation margin," will be
made on a daily basis as the price of the underlying security or index
fluctuates, making the long and short positions in the futures contracts more
or less valuable, a process known as "marking to market." In the case of
options on futures contracts, the holder of the option pays a premium and
receives the right, upon exercise of the option at a specified price during
the option period, to assume a position in the futures contract (a long
position if the option is a call and a short position if the option is a put).
If the option is exercised by the holder before the last trading day during
the option period, the option writer delivers the futures position, as well as
any balance in the writer's futures margin account. If it is exercised on the
last trading day, the option writer delivers to the option holder cash in an
amount equal to the difference between the option exercise price and the
closing level of the relevant security or index on the date the option
expires.
B-4
<PAGE>
The Fund intends to engage in futures contracts and options thereon as a
hedge against changes, resulting from market conditions, in the value of
securities which are held by the Fund or which the Fund intends to purchase,
in accordance with the rules and regulations of the Commodity Futures Trading
Commission (CFTC). The Fund also intends to engage in such transactions when
they are economically appropriate for the reduction of risks inherent in the
ongoing management of the Fund's portfolio. The Fund may write options on
futures contracts to realize through the receipt of premium income a greater
return than would be realized in the Fund's portfolio securities alone.
Risks of Transactions in Futures Contracts. There are several risks in
connection with the use of futures contracts as a hedging device. Due to the
imperfect correlation between the price of futures contracts and movements in
the price of the underlying securities, the price of a futures contract may
move more or less than the price of the securities being hedged. Therefore, a
correct forecast of interest rate or stock market trends by the investment
adviser may still not result in a successful hedging transaction.
Although the Fund will purchase or sell futures contracts only on
exchanges where there appears to be an adequate secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular contract or at any particular time. Accordingly, there can be no
assurance that it will be possible, at any particular time, to close a futures
position. In the event the Fund could not close a futures position and the
value of such position declined, the Fund would be required to continue to
make daily cash payments of variation margin. However, in the event futures
contracts have been used to hedge portfolio securities, such securities will
not be sold until the futures contracts can be terminated. In such
circumstances, an increase in the price of the securities, if any, may
partially or completely offset losses on the futures contract. However, there
is no guarantee that the price movements of the securities will, in fact,
correlate with the price movements in the futures contract and thus provide an
offset to losses on a futures contract.
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the
Investment Company Act), are exempt from the definition of "commodity pool
operator," subject to compliance with certain conditions. The exemption is
conditioned upon a requirement that all of the Fund's futures contracts or
options transactions constitute bona fide hedging transactions within the
meaning of the regulations of the CFTC. The Fund may also enter into futures
contracts or options thereon for nonhedging purposes if the aggregate initial
margin for such contracts and the premiums paid for such options do not exceed
5% of the liquidation value of the Fund's assets. The Fund will use index
futures and options on futures as described herein in a manner consistent with
this requirement.
Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's investment adviser to predict correctly movements in the
direction of interest rates and other factors affecting markets for
securities. 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 need 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.
The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be
reflected in the futures market.
Forward Foreign Currency Exchange Contracts
The Fund's dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward contracts 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. The Fund will not speculate in forward contracts. 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 a forward contract) of securities held in its portfolio
denominated or quoted in, or currently convertible into, such currency.
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 dividends or interest payments on a security
which 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 dividend or interest payment as
the case may be. By entering into a forward contract for a fixed amount of
dollars for the purchase or sale of the amount of foreign currency involved in
the underlying transactions, the Fund will be able to protect itself against a
possible loss resulting from an adverse
B-5
<PAGE>
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date on which the security is purchased
or sold, or on which the dividend or interest payment is declared, and the
date on which such payments are made or received.
Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of
some or all of the portfolio securities of the Fund denominated in such
foreign currency.
Foreign Government Securities
Foreign government securities in which the Fund may invest include debt
securities issued or guaranteed as to payment of principal and interest by
governments, quasi-governmental entities, government agencies, supranational
entities and other governmental entities (collectively, Government Entities)
of the countries specified below and denominated in the currencies of such
countries or in U.S. dollars, including debt securities of a Government Entity
in any such country denominated in the currency of another such country.
North America Pacific Europe
------------- ------- ------
Canada Australia Austria
Hong Kong Belgium
Japan Denmark
New Zealand Finland
Singapore France
Germany
Ireland
Italy
The Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
United Kingdom
A supranational entity is an entity constituted by the national
governments of several countries to promote economic development, such as the
World Bank (International Bank for Reconstruction and Development), the
European Investment Bank and the Asian Development Bank. Debt securities of
quasi-governmental entities are issued by entities owned by either a national,
state or equivalent government or are obligations of a political unit that is
not backed by the national government's full faith and credit and general
taxing powers. These include, among others, the Province of Ontario and the
City of Stockholm. Foreign government securities also include debt securities
denominated in European Currency Units of an issuer in one of the foregoing
countries (including supranational issuers). A European Currency Unit
represents specified amounts of the currencies of certain of the twelve member
states of the European Community.
The Fund will invest in foreign government securities rated "A" or better
by Standard & Poor's Corporation (S&P) or Moody's Investors Service, Inc.
(Moody's) or in non-rated securities of comparable quality in the opinion of
the investment adviser. The Fund will invest only in foreign currency
denominated government debt securities that are freely convertible into U.S.
dollars without legal restriction at the time of purchase.
Investment in foreign government securities involves additional risks and
considerations not typically associated with investing in U.S. Government
securities and domestic issuers. See "How the Fund Invests--Investment
Objective and Policies-- Foreign Government Securities" in the Prospectus.
Corporate Obligations
The Fund does not intend to have more than 5% of its net assets invested
in either asset-backed securities, collateralized mortgage obligations or real
estate mortgage investment conduits.
Asset-Backed Securities. Through the use of trusts and special purpose
subsidiaries, various types of assets, primarily automobile and credit card
receivables, are being securitized in pass-through structures similar to
mortgage pass-through
B-6
<PAGE>
structures or in a pay-through structure similar to the collateralized
mortgage structure. The Fund may invest in these and other types of
asset-backed securities which may be developed in the future. Asset-backed
securities present certain risks that are not presented by mortgage-backed
securities. Primarily, these securities do not have the benefit of the same
security interest in the related collateral. Credit card receivables are
generally unsecured. In connection with automobile receivables, the security
interests in the underlying automobiles are often not transferred when the
pool is created, with the resulting possibility that the collateral could be
resold. In general, these types of loans are of shorter duration than mortgage
loans and are less likely to have substantial prepayments.
Collateralized Mortgage Obligations (CMOs) and Real Estate Mortgage
Investment Conduits (REMICs). A CMO is a debt security that is backed by a
portfolio of mortgages or mortgage-backed securities. The issuer's obligation
to make interest and principal payments is secured by the underlying portfolio
of mortgages or mortgage-backed securities. CMOs generally are partitioned
into several classes with a ranked priority as to the time that principal
payments will be made with respect to each of the classes. The Fund may invest
only in privately-issued CMOs that are collateralized by mortgage-backed
securities issued or guaranteed by GNMA, FHLMC or FNMA and in CMOs issued by
FHLMC.
The Fund may also invest in REMICs. An issuer of REMICs may be a trust,
partnership, corporation, association, or a segregated pool of mortgages, or
may be an agency of the U.S. Government and, in each case, must qualify and
elect treatment as such under the Tax Reform Act of 1986. A REMIC must consist
of one or more classes of "regular interests," some of which may be adjustable
rate, and a single class of "residual interests." To qualify as a REMIC,
substantially all the assets of the entity must be in assets directly or
indirectly secured, principally by real property. The Fund does not intend to
invest in residual interests. REMICs are intended by the U.S. Congress
ultimately to become the exclusive vehicle for the issuance of multi-class
securities backed by real estate mortgages. If a trust or partnership that
issues CMOs does not elect or qualify for REMIC status, it will be taxed at
the entity level as a corporation.
Certain issuers of CMOs and REMICs, including CMOs that have elected to
be treated as REMICs, are not considered investment companies pursuant to a
rule recently adopted by the Securities and Exchange Commission (SEC) and t he
Fund may invest in securities of such issuers without the limitations imposed
by the Investment Company Act on acquiring interests in other investment
companies. In addition, in reliance on an earlier SEC interpretation, the
Fund's investments in certain other qualifying CMOs, which cannot and do not
rely on the rule, are also not subject to the limitation of the Investment
Company Act on acquiring interests in other investment companies. In order to
be able to rely on the SEC's interpretation, the CMOs must be unmanaged,
fixed-asset issuers that (a) invest primarily in mortgage-backed securities,
(b) do not issue redeemable securities, (c) operate under general exemptive
orders exempting them from all provisions of the Investment Company Act and
(d) are not registered or regulated under the Investment Company Act as
investment companies. To the extent that the Fund selects CMOs or REMICs that
do not meet the above requirements, the Fund may not invest more than 10% of
its assets in all such entities and may not acquire more than 3% of the voting
securities of any single such entity.
Money Market Instruments
The Fund may invest in high quality money market instruments, including:
1. Obligations denominated in U.S. dollars (including certificates of
deposit and bankers' acceptances) of (a) banks organized under the laws of the
United States or any state thereof (including foreign branches of such banks)
or (b) U.S. branches of foreign banks or (c) foreign banks and foreign
branches thereof; provided that such banks have, at the time of acquisition by
the Fund of such obligations, total assets of not less than $1 billion or its
equivalent. The term "certificates of deposit" includes both Eurodollar
certificates of deposit, for which there is generally a market, and Eurodollar
time deposits, for which there is generally not a market. "Eurodollars" are
U.S. dollars deposited in banks outside the United States.
2. Commercial paper, variable amount demand master notes, bills, notes
and other obligations issued by a U.S. company, a foreign company or a foreign
government, its agencies, instrumentalities or political subdivisions,
maturing in one year or less, denominated in U.S. dollars, and, at the date of
investment, rated at least "A-2" by S&P or "Prime-2" by Moody's, or, if not
rated, issued by an entity having an outstanding unsecured debt issue rated at
least "A" or "A-2" by S&P or "A" or "Prime-2" by Moody's. If such obligations
are guaranteed or supported by a letter of credit issued by a bank, the bank
(including a foreign bank) must meet the requirements set forth in paragraph 1
above. If such obligations are guaranteed or insured by an insurance company
or other non-bank entity, the insurance company or other non-bank entity must
represent a credit of high quality, as determined by the Fund's Board of
Directors. A description of security ratings is contained in the Appendix.
Risks of Investing in High Yield Securities
Fixed-Income securities are subject to the risk of an issuer's inability
to meet principal and interest payments on the obligations (credit risk) and
may also be subject to price volatility due to such factors as interest rate
sensitivity, market perception
B-7
<PAGE>
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated (i.e., high yield) securities are more likely to
react to developments affecting market and credit risk than are more highly
rated securities, which react primarily to movements in the general level of
interest rates. The investment adviser considers both credit risk and market
risk in making investment decisions for the Fund. 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
trading.
The amount of high yield securities outstanding proliferated in the
1980's in conjunction with the increase in merger and acquisition and
leveraged buyout activity. Under adverse economic conditions, there is a risk
that highly leveraged issuers may be unable to service their debt obligations
or to repay their obligations upon maturity. In addition, the secondary market
for high yield securities, which is concentrated in relatively few market
makers, may not be as liquid as the secondary market for more highly rated
securities. Under adverse market or economic conditions, the secondary market
for high yield securities could contract further, independent of any specific
adverse changes in the condition of a particular issuer. As a result, the
investment adviser could find it more difficult to sell these securities or
may be able to sell the securities only at prices lower than if such
securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may be less than the
prices used in calculating the Fund's net asset value.
Federal laws require the divestiture by federally insured savings and
loan associations of their investments in high yield bonds and limit the
deductibility of interest by certain corporate issuers of high yield bonds.
These laws could adversely affect the Fund's net asset value and investment
practices, the secondary market for high yield securities, the financial
condition of issuers of these securities and the value of outstanding high
yield securities.
Lower rated or unrated debt obligations also present risks based on
payment expectations. If an issuer calls the obligation for redemption, the
Fund may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. If the Fund experiences
unexpected net redemptions, it may be forced to sell its higher rated
securities, resulting in a decline in the overall credit quality of the Fund's
portfolio and increasing the exposure of the Fund to the risks of high yield
securities.
Repurchase Agreements
The Fund's repurchase agreements will be collateralized by U.S.
Government obligations. The Fund will enter into repurchase transactions only
with parties meeting creditworthiness standards approved by the Fund's Board
of Directors. The Fund's investment adviser will monitor the creditworthiness
of such parties, under the general supervision of the Board of Directors. In
the event of a default or bankruptcy by a seller, the Fund will promptly seek
to liquidate the collateral. To the extent that the proceeds from any sale of
such collateral upon a default in the obligation to repurchase are less than
the repurchase price, the Fund will suffer a loss.
The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. (PMF) pursuant to
an order of the SEC. On a daily basis, any uninvested cash balances of the
Fund may be aggregated with those of such investment companies and invested in
one or more repurchase agreements. Each fund participates in the income earned
or accrued in the joint account based on the percentage of its investment.
Short Sales Against-the-Box
In addition to short-selling as described in the Prospectus, the Fund may
make short sales of securities or maintain a short position, provided that at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable for, without payment
of any further consideration, such securities (a short sale against-the-box).
Short sales will be made primarily to defer realization of gain or loss for
federal tax purposes.
Lending of Portfolio Securities
In order to generate additional income, the Fund may lend its portfolio
securities in a proportion of up to 10% of its total assets to broker-dealers,
banks or other recognized institutional borrowers of securities, provided that
the borrower at all times maintains cash or equivalent collateral or secures
in favor of the Fund an irrevocable letter of credit equal in value to at
least 100% of the value of the securities loaned. During the time portfolio
securities are on loan, the borrower pays the Fund an amount equivalent to any
dividends or interest paid on such securities, and the Fund may invest the
cash collateral and earn additional income, or it may receive an agreed-upon
amount of interest income from the borrower who has delivered equivalent
collateral or secured a letter of credit. Loans are subject to termination at
the option of the Fund or the borrower. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent collateral
to the borrower or placing broker. The Fund does not have the right to vote
securities on loan, but would terminate the loan and regain the right to vote
if that were considered important with respect to the investment.
B-8
<PAGE>
Portfolio Turnover
Although the Fund does not intend to engage in substantial short-term
trading, it may sell portfolio securities without regard to the length of time
that they have been held in order to take advantage of new investment
opportunities or yield differentials, or because the Fund desires to preserve
gains or limit losses due to changing economic conditions or the financial
condition of the issuer. It is not anticipated that the Fund's portfolio
turnover rate will exceed 200%. A portfolio turnover rate of 200% may exceed
that of other investment companies with similar objectives. The portfolio
turnover rate is computed by dividing the lesser of the amount of the
securities purchased or securities sold (excluding securities whose maturities
at acquisition were one year or less) by the average monthly value of
securities owned during the year. A 100% turnover rate would occur, for
example, if all of the securities held in the Fund's portfolio were sold and
replaced within one year. However, when portfolio changes are deemed
appropriate due to market or other conditions, such turnover rate may be
greater than anticipated. A higher rate of turnover results in increased
transaction costs to the Fund. In addition, high portfolio turnover may result
in increased short-term capital gains which, when distributed to shareholders,
are treated as ordinary income. For the fiscal years ended April 30, 1992 and
April 30, 1993, the Fund's portfolio turnover rate was 147% and 209%,
respectively.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the outstanding voting securities of the Fund. A "majority of the
outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (i) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (ii) more than 50% of the outstanding voting
shares.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a
security on margin.
2. Make short sales of securities (other than short sales
against-the-box) or maintain a short position if, when added together, more
than 25% of the value of the Fund's net assets would be (i) deposited as
collateral for the obligation to replace securities borrowed to effect short
sales and (ii) allocated to segregated accounts in connection with short
sales.
3. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow up to 20% of the value of its total assets
(calculated when the loan is made) from banks and from entities other than
banks if so permitted pursuant to an order of the SEC for temporary,
extraordinary or emergency purposes or for the clearance of transactions and
to take advantage of investment opportunities. The Fund may pledge up to 20%
of the value of its total assets to secure such borrowings. For purposes of
this restriction, the purchase or sale of securities on a when-issued or
delayed delivery basis, forward foreign currency exchange contracts and
collateral and collateral arrangements relating thereto, and collateral
arrangements with respect to futures contracts and options thereon and with
respect to the writing of options and obligations of the Fund to Directors
pursuant to deferred compensation arrangements are not deemed to be a pledge
of assets or the issuance of a senior security.
4. Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result 25% or more of the value of
the Fund's total assets (determined at the time of investment) would be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry or group of industries.
5. Purchase any security if as a result the Fund would then hold more
than 10% of the outstanding voting securities of an issuer.
6. Purchase any security if as a result the Fund would then have more
than 5% of its total assets (determined at the time of investment) invested in
securities of companies (including predecessors) less than three years old,
provided that there is no limit on the Fund's ability to invest in the
securities of any U.S. Government agency or instrumentality, and in any
security guaranteed by such an agency or instrumentality.
7. Buy or sell real estate or interests in real estate, except that the
Fund may purchase and sell securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly
traded securities of real estate investment trusts. The Fund may not purchase
interests in real estate limited partnerships which are not readily
marketable.
8. Buy or sell commodities or commodity contracts. (For purposes of this
restriction, futures contracts and forward foreign currency exchange contracts
are not deemed to be commodities or commodity contracts.)
9. Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
B-9
<PAGE>
10. Make investments for the purpose of exercising control or management.
11. Invest in securities of other registered investment companies, except
by purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 10% of its total assets (determined at
the time of investment) would be invested in such securities, or except as
part of a merger, consolidation or other acquisition.
12. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.
13. Make loans, except through (i) repurchase agreements and (ii) loans
of portfolio securities (limited to 10% of the Fund's total assets).
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.
In order to comply with certain state "blue sky" restrictions, the Fund
will not as a matter of operating policy:
1. Purchase securities of companies which invest in real estate which are
not readily marketable.
2. Purchase interests in real estate limited partnerships which are not
traded on the New York Stock Exchange, the American Stock Exchange or the
NASDAQ National Market System.
3. Invest more than 15% of its average net assets in securities of
foreign issuers which are not listed on a recognized domestic or foreign
securities exchange.
4. Purchase warrants if as a result the Fund would then have more than 5%
of its net assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and investment in
warrants which are not listed on the New York Stock Exchange or American Stock
Exchange will be limited to 2% of the Fund's net assets (determined at the
time of investment). For the purpose of this limitation, warrants acquired in
units or attached to securities are deemed to be without value.
5. In addition to the requirements set forth at investment restriction
number 2 above, the Fund may not make short sales (except short sales
against-the-box) if the value of the securities of any one issuer in which the
Fund is short exceeds the lesser of 2% of the value of the Fund's net assets
or 2% of the securities of any class of any issuer.
6. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or Director of the Fund or the Fund's Manager or Subadviser owns
more than 1/2 of 1% of outstanding securities of such issuer, and such
officers and Directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
B-10
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
Position with Principal Occupations
Name and Address Fund During Past Five Years
- ---------------- ------------- ----------------------
<S> <C> <C>
Edward D. Beach Director President and Director of BMC Fund, Inc., a
c/o Prudential Mutual closed-end investment company; prior
Fund Management, Inc. thereto Vice Chairman of Broyhill Furniture
One Seaport Plaza Industries, Inc.; Certified Public
New York, NY Accountant; Secretary and Treasurer of
Broyhill Family Foundation, Inc.;
President, Treasurer and Director of First
Financial Fund, Inc. and The High Yield
Plus Fund, Inc.; Director of The Global
Government Plus Fund, Inc. and The Global
Yield Fund, Inc.
Donald D. Lennox Director Chairman (since February 1990) and Director
c/o Prudential Mutual (since April 1989) of International Imaging
Fund Management, Inc. Materials, Inc.; Retired Chairman, Chief
One Seaport Plaza Executive Officer and Director of Schlegel
New York, NY Corporation (industrial manufacturing)
(March 1987-February 1989); Director of
Gleason Corporation, Navistar International
Corporation, Personal Sound Technologies,
Inc., The Global Government Plus Fund, Inc.
and The High Yield Income Fund, Inc.
Douglas H. McCorkindale Director Vice Chairman, Gannett Co. Inc. (publishing
c/o Prudential Mutual and media) (since March 1984); Director,
Fund Management, Inc. Continental Airlines, Inc., Gannett Co.
One Seaport Plaza Inc., Rochester Telephone Corporation and
New York, NY The Global Government Plus Fund, Inc.
*Lawrence C. McQuade President and Vice Chairman of Prudential Mutual Fund
One Seaport Plaza Director Management, Inc. (PMF) (since 1988);
New York, NY Managing Director, Investment Banking,
Prudential Securities Incorporated
(Prudential Securities) (1988-1991);
Director of Quixote Corporation (since
February 1992) and BUNZL, PLC (since June
1991); formerly Director of Crazy Eddie
Inc. (1987-1990) and Kaiser Tech. Ltd. and
Kaiser Aluminum and Chemical Corp. (March
1987-November 1988); formerly Executive
Vice President and Director of W.R. Grace &
Co.; President and Director of The Global
Government Plus Fund, Inc., The Global
Yield Fund, Inc. and The High Yield Income
Fund, Inc.
Thomas T. Mooney Director President of the Greater Rochester Metro
c/o Prudential Mutual Chamber of Commerce; formerly Rochester
Fund Management, Inc. City Manager; Trustee of Center for
One Seaport Plaza Governmental Research, Inc.; Director of
New York, NY Blue Cross of Rochester, Monroe County
Water Authority, Rochester Jobs, Inc.,
Executive Service Corps of Rochester,
Monroe County Industrial Development
Corporation, Northeast Midwest Institute,
First Financial Fund, Inc., The Global
Government Plus Fund, Inc., The Global
Yield Fund, Inc. and The High Yield Plus
Fund, Inc.
*Richard A. Redeker Director President, Chief Executive Officer and
One Seaport Plaza Director (since October 1993), PMF;
New York, NY Executive Vice President, Director and
Member of the Operating Committee (since
October 1993), Prudential Securities;
Director (since October 1993) of Prudential
Securities Group, Inc.; formerly Senior
Executive Vice President and Director of
Kemper Financial Services, Inc. (September
1978--September 1993); Director of The
Global Yield Fund, Inc., The Global
Government Plus Fund, Inc. and The High
Yield Income Fund, Inc.
Louis A. Weil, III Director Publisher and Chief Executive Officer,
c/o Prudential Mutual Phoenix Newspapers Inc. (since August
Fund Management, Inc. 1991); Director of Central Newspapers, Inc.
One Seaport Plaza (since September 1991); prior thereto,
New York, NY Publisher of Time Magazine (May 1989-March
1991); formerly President, Publisher and
CEO of The Detroit News (February
1986-August 1989); formerly, member of the
Advisory Board, Chase Manhattan
Bank-Westchester; Director of The Global
Government Plus Fund, Inc.
</TABLE>
B-11
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name and Address Fund During Past Five Years
- ---------------- -------------- -------------------------
<S> <C> <C>
Robert F. Gunia Vice President Chief Administrative Officer (since July
One Seaport Plaza 1990), Director (since January 1989) and
New York, NY Executive Vice President, Treasurer and
Chief Financial Officer (since June
1987) of PMF; Senior Vice President
(since March 1987) of Prudential
Securities; Vice President and Director
(since May 1989) of The Asia Pacific
Fund, Inc.
S. Jane Rose Secretary Senior Vice President (since January
One Seaport Plaza 1991), Senior Counsel (since June 1987)
New York, NY and First Vice President (June
1987-December 1990) of PMF; Senior Vice
President and Senior Counsel of
Prudential Securities (since July 1992);
formerly Vice President and Associate
General Counsel of Prudential
Securities.
Susan C. Cote Treasurer and Principal Senior Vice President of PMF; Senior
One Seaport Plaza Financial and Accounting Vice President (since January 1992) and
New York, NY Officer Vice President (January 1986-December
1991) of Prudential Securities.
Marguerite E.H. Morrison Assistant Vice President and Associate General
One Seaport Plaza Secretary Counsel (since June 1991) of PMF; Vice
New York, NY President and Associate General Counsel
of Prudential
Securities.
- ---------
<FN>
* "Interested" Director, as defined in the Investment Company Act.
</FN>
</TABLE>
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities or Prudential Mutual Fund Distributors, Inc. (PMFD).
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
Pursuant to the Management Agreement with the Fund, the Manager pays
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.
The Fund pays each of its Directors who is not an affiliated person of
PMF annual compensation of $7,500 in addition to certain out-of-pocket
expenses. [The Chairman of the Audit Committee receives an additional $200 per
year.]
Directors may receive their Directors' fee pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Directors' fees which accrue interest at a rate equivalent
to the prevailing rate applicable to 90-day U.S. Treasury Bills at the
beginning of each calendar quarter or, pursuant to receipt of an SEC exemptive
order, at the daily rate of return of the Fund. Payment of the interest so
accrued is also deferred and accruals become payable at the option of the
Director. The Fund's obligation to make payments of deferred Directors' fees,
together with interest thereon, is a general obligation of the Fund.
As of March 31, 1994, the Directors and officers of the Fund, as a group,
owned beneficially less than 1% of the common stock of the Fund.
As of March 31, 1994, Prudential Securities was record holder of
2,821,814 Class A shares (or 67.5% of the outstanding Class A shares) and
6,828,466 Class B shares (or 70.4% of the outstanding Class B shares) of the
Fund. In the event of any meetings of shareholders, Prudential Securities will
forward, or cause the forwarding of, proxy materials to the beneficial owners
for which it is the record holder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF
or the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as
manager to all of the other investment companies that, together with the Fund,
comprise the Prudential Mutual Funds. See "How the Fund is Managed--Manager"
in the Prospectus. As of March 31, 1994, PMF managed and/or administered
open-end and closed-end management investment companies with assets of
approximately $[51] billion and, according to the Investment Company
Institute, as of December 31, 1993, the Prudential Mutual Funds were the 12th
largest family of mutual funds in the United States.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the
B-12
<PAGE>
Fund and the composition of the Fund's portfolio, including the purchase,
retention, disposition and loan of securities. In connection therewith, PMF is
obligated to keep certain books and records of the Fund. PMF also administers
the Fund's corporate affairs and, in connection therewith, furnishes the Fund
with office facilities, together with those ordinary clerical and bookkeeping
services which are not being furnished by State Street Bank and Trust Company
(the "Custodian"), the Fund's custodian, and Prudential Mutual Fund Services,
Inc. (PMFS or the Transfer Agent), the Fund's transfer and dividend disbursing
agent. The management services of PMF for the Fund are not exclusive under the
terms of the Management Agreement and PMF is free to, and does, render
management services to others.
For its services, PMF receives, pursuant to the Management Agreement, a
fee at an annual rate of .65 of 1% of the Fund's average daily net assets. The
fee is computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of the Fund (including the fees of
PMF, but excluding interest, taxes, brokerage commissions, distribution fees
and litigation and indemnification expenses and other extraordinary expenses
not incurred in the ordinary course of the Fund's business) for any fiscal
year exceed the lowest applicable annual expense limitation established and
enforced pursuant to the statutes or regulations of any jurisdiction in which
the Fund's shares are qualified for offer and sale, the compensation due to
PMF will be reduced by the amount of such excess. Reductions in excess of the
total compensation payable to PMF will be paid by PMF to the Fund. No such
reductions were required during the fiscal year ended April 30, 1993.
Currently, the Fund believes that the most restrictive expense limitation of
state securities commissions is 2 1/2% of a fund's average daily net assets up
to $30 million, 2% of the next $70 million of such assets and 1 1/2% of such
assets in excess of $100 million.
In connection with its management of the corporate affairs of the Fund,
PMF bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel
except the fees and expenses of Directors who are not affiliated persons of
PMF or the Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those assumed
by the Fund as described below; and
(c) the costs and expenses payable to The Prudential Investment
Corporation (PIC) pursuant to the subadvisory agreement between PMF and PIC
(the Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses: (a) the fees payable to the Manager,
(b) the fees and expenses of Directors who are not affiliated persons of the
Manager or the Fund's investment adviser, (c) the fees and certain expenses of
the Custodian and Transfer Agent, including the cost of providing records to
the Manager in connection with its obligation of maintaining required records
of the Fund and of pricing the Fund's shares, (d) the charges and expenses of
legal counsel and independent accountants for the Fund, (e) brokerage
commissions and any issue or transfer taxes chargeable to the Fund in
connection with its securities transactions, (f) all taxes and corporate fees
payable by the Fund to governmental agencies, (g) the fees of any trade
associations of which the Fund may be a member, (h) the cost of stock
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the SEC,
registering the Fund and qualifying its shares under state securities laws,
including the preparation and printing of the Fund's registration statements
and prospectuses for such purposes, (k) allocable communications expenses with
respect to investor services and all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing reports, proxy statements and
prospectuses to shareholders in the amount necessary for distribution to the
shareholders, (l) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any
error of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically
if assigned, and that it may be terminated without penalty by either party
upon not more than 60 days' nor less than 30 days' written notice. The
Management Agreement will continue in effect for a period of more than two
years from the date of execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act. The Management Agreement was last approved by the Board of
Directors of the Fund, including all of the Directors who are not parties to
the contract or interested persons of any such party as defined in the
Investment Company Act, on May 3, 1994, and by the shareholders of the Fund on
September 12, 1991.
For the fiscal years ended April 30, 1993 and April 30, 1992 and for the
period from June 29, 1990 (commencement of investment operations) through
April 30, 1991, PMF received a management fee of $948,752, $1,078,435 and
$759,307, respectively.
PMF has entered into the Subadvisory Agreement with PIC (the Subadviser),
a wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential). The Subadvisory Agreement provides that PIC will furnish
investment advisory ser-
B-13
<PAGE>
vices in connection with the management of the Fund. In connection therewith,
PIC is obligated to keep certain books and records of the Fund. PMF continues
to have responsibility for all investment advisory services pursuant to the
Management Agreement and supervises PIC's performance of such services. PIC is
reimbursed by PMF for the reasonable costs and expenses incurred by PIC in
furnishing those services.
The Subadvisory Agreement was approved by the shareholders of the Fund on
September 12, 1991 and was last approved by the Board of Directors, including
all of the Directors who are not interested persons of the Fund and who
have no direct or indirect interest in the Subadvisory Agreement, on May 3,
1994.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days', nor less than
30 days', written notice. The Subadvisory Agreement provides that it will
continue in effect for a period of more than two years from its execution only
so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act.
The Manager and the Subadviser are subsidiaries of Prudential which, as
of December 31, 1993, is one of largest financial isntitutions in the world
and the largest insurance company in North America. Prudential has been engaged
in the insurance business since 1875. In July 1993, Institutional Investor
ranked Prudential the third largest institutional money manager of the 300
largest money management organizations in the United States as of December 31,
1992.
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the
Fund. Prudential Securities, One Seaport Plaza, New York, New York 10292, acts
as the distributor of the Class B and Class C shares of the Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan,
the Class B Plan and the Class C Plan, collectively, the Plans) adopted by the
Fund under Rule 12b-1 under the Investment Company Act and separate
distribution agreements (the Distribution Agreements), PMFD and Prudential
Securities (collectively, the Distributor) incur the expenses of distributing
the Fund's Class A, Class B and Class C shares. See "How the Fund is
Managed--Distributor" in the Prospectus.
The Fund's Plans were approved by the shareholders of the Fund on
September 12, 1991. Pursuant to Rule 12b-1 under the Investment Company Act,
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), last approved the Plans on May 3, 1994.
On February 9, 1993, the Board of Directors, including a majority of the
Rule 12b-1 Directors, at a meeting called for the purpose of voting on each
Plan, approved modifications of the Fund's Class A and Class B Plans and
Distribution Agreements to conform them with recent amendments to the National
Association of Securities Dealers, Inc. (NASD) maximum sales charge rule
described below. As 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) may be
used as reimbursement for distribution-related expenses with respect to the
Class B shares (asset-based sales charge). These modifications became
effective on July 1, 1993. On May 4, 1993, the Board of Directors, including a
majority of the Rule 12b-1 Directors, at a meeting called for the purpose of
voting on each Plan, adopted a plan of distribution for the Class C shares of
the Fund and approved further amendments to the plans of distribution for the
Fund's Class A and Class B shares changing them from reimbursement type plans
to compensation type plans. The Plans were last approved by the Board of
Directors, including a majority of the Rule 12b-1 Directors, on May 3, 1994.
The Class A Plan, as amended, was approved by Class A and Class B
shareholders, and the Class B Plan, as amended, was approved by Class B
shareholders on , 1994. The Class C Plan was approved by the sole
shareholder of Class C shares on , 1994.
Class A Plan. For the fiscal year ended April 30, 1993, PMFD received
payments of $93,780 under the Class A Plan as reimbursement of expenses
related to the distribution of Class A shares. This amount was expended on
commission credits to Prudential Securities and Pruco Securities Corporation
(Prusec), an affiliated broker-dealer, for payments of commissions and account
servicing fees to financial advisers and others who sell Class A shares. For
the fiscal year ended April 30, 1993, PMFD also received approximately $54,000
in initial sales charges.
Class B Plan. For the fiscal year ended April 30, 1993, the Distributor
received $990,720 from the Fund under the Class B Plan and spent approximately
$373,200 in distributing the Class B shares of the Fund. It is estimated that
of the latter amount approximately 2.3% ($8,400) was spent on printing and
mailing prospectuses to other than current shareholders; 4.1%
B-14
<PAGE>
($15,400) was spent in commissions paid to or on account of financial advisers
of Prusec; 22.7% ($84,900) in interest and/or carrying charges; and 70.9%
($264,500) on the aggregate of (i) payments of commissions to financial
advisers (42.5% or $158,600) and (ii) an allocation of overhead and other
branch office distribution-related expenses (28.4% or $105,900). The term
"overhead and other branch office distribution-related expenses" represents
(a) the expenses of operating branch offices of Prudential Securities and
Prusec in connection with the sale of Fund shares, including lease costs, the
salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(b) the costs of client sales seminars, (c) expenses of mutual fund sales
coordinators to promote the sale of Fund shares, and (d) other incidental
expenses relating to branch promotion of Fund sales.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class B shares.
See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus. For the fiscal year ended April 30, 1993,
Prudential Securities received approximately $559,500 in contingent deferred
sales charges.
Class C Plan. Prudential Securities receives the proceeds of contingent
deferred sales charges paid by investors upon certain redemptions of Class C
shares. See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred
Sales Charges" in the Prospectus. Prior to the date of this Statement of
Additional Information, no distribution expenses were incurred under the Class
C Plan.
The Class A, Class B and Class C Plans continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Directors, including a majority vote of the Rule 12b-1
Directors, cast in person at a meeting called for the purpose of voting on
such continuance. The Plans may each be terminated at any time, without
penalty, by the vote of a majority of the Rule 12b-1 Directors or by the vote
of the holders of a majority of the outstanding shares of the applicable class
on not more than 30 days' written notice to any other party to the Plans. The
Plans may not be amended to increase materially the amounts to be spent for
the services described therein without approval by the shareholders of the
applicable class (by both Class A and Class B shareholders, voting separately,
in the case of material amendments to the Class A Plan), and all material
amendments are required to be approved by the Board of Directors in the manner
described above. Each Plan will automatically terminate in the event of its
assignment. The Fund will not be contractually obligated to pay expenses
incurred under any Plan if it is terminated or not continued.
Pursuant to each Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf of
each class of shares of the Fund by the Distributor. The report will include
an itemization of the distribution expenses and the purposes of such
expenditures. In addition, as long as the Plans remain in effect, the
selection and nomination of Rule 12b-1 Directors shall be committed to the
Rule 12b-1 Directors.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law
against certain liabilities under the Securities Act. Each Distribution
Agreement was last approved by the Board of Directors, including a majority of
the Rule 12b-1 Directors, on May 3, 1994.
NASD Maximum Sales Charge Rule. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred
sales charges and asset-based sales charges to 6.25% of total gross sales of
each class of shares. In the case of Class B shares, interest charges on
unreimbursed distribution expenses equal to the prime rate plus one percent
per annum may be added to the 6.25% limitation. Sales from the reinvestment of
dividends and distributions are not required to be 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 the total gross sales of any class, all sales
charges on shares of that class would be suspended.
B-15
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities,
options on securities and futures contracts for the Fund, the selection of
brokers, dealers and futures commission merchants to effect the transactions
and the negotiation of brokerage commissions, if any. For purposes of this
section, the term "Manager" includes the Subadviser. Purchases and sales of
securities or futures contracts on a securities exchange or board of trade are
effected through brokers or futures commission merchants who charge a commis-
sion for their services. Orders may be directed to any broker or futures
commission merchant, including, to the extent and in the manner permitted by
applicable law, Prudential Securities and its affiliates. Brokerage commis-
sions on U. S. securities, options and futures exchanges or boards of trade
are subject to negotiation between the Manager and the broker or futures
commission merchant. On foreign securities exchanges, commissions may be
fixed.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a
profit to the dealer. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On
occasion, certain money market instruments may be purchased directly from an
issuer, in which case no commissions or discounts are paid. The Fund will not
deal with Prudential Securities in any transaction in which Prudential
Securities acts as principal. Thus it will not deal in over-the-counter
securities with Prudential Securities acting as market maker, and it will not
execute a negotiated trade with Prudential Securities if execution involves
Prudential Securities' acting as principal with respect to any part of the
Fund's order.
In placing orders for portfolio securities or futures contracts of the
Fund, the Manager is required to give primary consideration to obtaining the
most favorable price and efficient execution. Within the framework of this
policy, the Manager will consider the research and investment services
provided by brokers, dealers or futures commission merchants who effect or are
parties to portfolio transactions of the Fund, the Manager or the Manager's
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include statistical
and economic data and research reports on particular companies and industries.
Such services are used by the Manager in connection with all of its investment
activities, and some of such services obtained in connection with the execu-
tion of transactions for the Fund may be used in managing other investment
accounts. Conversely, brokers, dealers or futures commission merchants
furnishing such services may be selected for the execution of transactions of
such other accounts, whose aggregate assets are far larger than the Fund, and
the services furnished by such brokers, dealers or futures commission mer-
chants may be used by the Manager in providing investment management for the
Fund. Commission rates are established pursuant to negotiations with the
broker, dealer or futures commission merchant based on the quality and
quantity of execution services provided by the broker, dealer or futures
commission merchant in the light of generally prevailing rates. The Manager's
policy is to pay higher commissions to brokers, other than Prudential Securi-
ties, for particular transactions than might be charged if a different broker
had been selected, on occasions when, in the Manager's opinion, this policy
furthers the objective of obtaining best price and execution. In addition, the
Manager is authorized to pay higher commissions on brokerage transactions for
the Fund to brokers, dealers or futures commission merchants other than
Prudential Securities in order to secure research and investment services
described above, subject to review by the Fund's Board of Directors from time
to time as to the extent and continuation of this practice. The allocation of
orders among brokers, dealers and futures commission merchants and the
commission rates paid are reviewed periodically by the Fund's Board of
Directors. Portfolio securities may not be purchased from any underwriting or
selling syndicate of which Prudential Securities (or any affiliate), during
the existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the SEC. This
limitation, in the opinion of the Fund, will not significantly affect the
Fund's ability to pursue its present investment objective. However, in the
future in other circumstances, the Fund may be at a disadvantage because of
this limitation in comparison to other funds with similar objectives but not
subject to such limitations.
Subject to the above considerations, the Manager may use Prudential
Securities as a broker or futures commission merchant for the Fund. In order
for Prudential Securities (or any affiliate) to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration
received by Prudential Securities (or any affiliate) must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers or futures commission merchants in connection with comparable
transactions involving similar securities or futures being purchased or sold
on a securities or commodities exchange during a comparable period of time.
This standard would allow Prudential Securities (or any affiliate) to receive
no more than the remuneration which would be expected to be received by an
unaffiliated broker or futures commission merchant in a commensurate
arm's-length transaction. Furthermore, the Board of Directors of the Fund,
including a majority of the Rule 12b-1 Directors, has adopted procedures which
are reasonably designed to provide that any commissions, fees or other
remuneration paid to Prudential Securities (or any affiliate) are consistent
with the foregoing standard. In accordance with Section 11(a) of the
Securities Exchange Act of 1934, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange for
the Fund unless the Fund has expressly authorized the retention of such
compensation. Prudential Securities must furnish to the Fund at least annually
a statement setting forth the total amount of all compensation retained by
B-16
<PAGE>
<PAGE>
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage and futures transactions with Prudential
Securities (or any affiliate) are also subject to such fiduciary standards as
may be imposed upon Prudential Securities (or such affiliate) by applicable
law.
Transactions in options by the Fund will be subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options are written or held on the same
or different exchanges or are written or held in one or more accounts or
through one or more brokers. Thus, the number of options which the Fund may
write or hold may be affected by options written or held by the Manager and
other investment advisory clients of the Manager. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
The table below sets forth information concerning the payment of
commissions by the Fund, including the commissions paid to Prudential
Securities, for the two-year period ended April 30, 1993.
Year ended Year ended
April 30, April 30,
1993 1992
---------- ----------
Total brokerage commissions paid by the Fund. . . $641,156 $507,037
Total brokerage commissions paid to Prudential
Securities and its foreign affiliates. . . . . . $ 84,496 $155,200
Percentage of total brokerage commissions paid
to Prudential Securities and its foreign
affiliates . . . . . . . . . . . . . . . . . . . 13.2% 30.6%
The Fund effected approximately 20% of the total dollar amount of its
transactions involving the payment of commissions through Prudential
Securities during the fiscal year ended April 30, 1993.
Of the total brokerage commissions paid during that period, $543,572 (or
84.78%) were paid to firms which provide research, statistical or other
services to PIC.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next
determined net asset value per share plus a sales charge which, at the
election of the investor, may be imposed either (i) at the time of purchase
(Class A shares) or (ii) on a deferred basis (Class B or Class C shares). See
"Shareholder Guide--How to Buy Shares of the Fund" in the Prospectus.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except
that the Fund has agreed with the SEC in connection with the offering of a
conversion feature on Class B shares to submit any amendment of the Class A
distribution and service plan to both Class A and Class B shareholders) and
(iii) only Class B shares have a conversion feature. See "Distributor." Each
class also has separate exchange privileges. See "Shareholder Investment
Account--Exchange Privilege."
Specimen Price Make-up
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 5% and Class
B* and Class C* shares are sold at net asset value. Using the Fund's net asset
value at April 30, 1994, the maximum offering price of the Fund's shares is as
follows:
Class A
Net asset value and redemption price per Class A share . . . [$
Maximum sales charge (5% of offering price). . . . . . . . .
--------
Offering price to public . . . . . . . . . . . . . . . . . . $
========
Class B
Net asset value, offering price and redemption price to
public per Class B share* . . . . . . . . . . . . . . . . . $
========
Class C
Net asset value, offering price and redemption price to
public per Class C share* . . . . . . . . . . . . . . . . . $ ]
========
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
B-17
<PAGE>
<PAGE>
Reduction and Waiver of Initial Sales Charges--Class A Shares
Combined Purchase and Cumulative Purchase Privilege. If an investor or an
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases. See the table of breakpoints under "Share-
holder Guide--Alternative Purchase Plan" in the Prospectus.
An eligible group of related Fund investors includes any combination of
the following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group
that holds 25% or more of the outstanding voting securities of a
corporation will be deemed to control the corporation, and a
partnership will be deemed to be controlled by each of its general
partners);
(e) a trust created by the individual, the beneficiaries of which are
the individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act
account created by the individual or the individual's spouse; and
(g) one or more employee benefits 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 employ-
er).
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.
Rights of Accumulation. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of
related investors, as described above under "Combined Purchase and Cumulative
Purchase Privilege," may aggregate the value of their existing holdings of
shares of the Fund and shares of other Prudential Mutual Funds (excluding
money market funds other than those acquired pursuant to the exchange privi-
lege) to determine the reduced sales charge. However, the value of shares held
directly with the Transfer Agent and through Prudential Securities will not be
aggregated to determine the reduced sales charge. All shares must be held
either directly with the Transfer Agent or through Prudential Securities. The
value of existing holdings for purposes of determining the reduced sales
charge is calculated using the maximum offering price (net asset value plus
maximum sales charge) as of the previous business day. See "How the Fund
Values its Shares" in the Prospectus. The Distributor 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.
Letter of Intent. Reduced sales charges are available to investors (or an
eligible group of related investors) who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of shares of the
Fund and shares of other Prudential Mutual Funds. All shares of the Fund and
shares of other Prudential Mutual Funds (excluding money market funds other
than those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
and through Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the
Transfer Agent or through Prudential Securities. The Distributor must be
notified at the time of purchase that the investor is entitled to a reduced
sales charge. The reduced sales charge will be granted subject to confirmation
of the investor's holdings. Letters of Intent are not available to individual
participants in retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment
goal to be achieved by any number of investments over a thirteen-month period.
Each investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter of Intent will be held by the Transfer Agent in the name of the
purchaser. The effective date of a Letter of Intent may be back-dated up to 90
days, in order that any investments made during this 90-day period, valued at
the purchaser's cost, can be applied to the fulfillment of the Letter of
Intent goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser is required to
pay the difference between the sales charge otherwise applicable to the
purchases made during this period and the sales charge actually paid. Such
payment may
B-18
<PAGE>
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain such difference. If the goal is
exceeded in an amount which qualifies for a lower sales charge, a price
adjustment is made by refunding to the purchaser the amount of excess sales
charge, if any, paid during the thirteen-month period. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.
Quantity Discount--Class B Shares Purchased Prior to , 1994
The CDSC is reduced on redemptions of Class B shares of the Fund
purchased prior to , 1994 if immediately after a purchase of such shares,
the aggregate cost of all Class B shares of the Fund owned by you in a single
account exceeded $500,000. For example, if you purchased $100,000 of Class B
shares of the Fund and the following year purchase an additional $450,000 of
Class B shares with the result that the aggregate cost of your Class B shares
of the Fund following the second purchase was $550,000, the quantity discount
would be available for the second purchase of $450,000 but not for the first
purchase of $100,000. The quantity discount will be imposed at the following
rates depending on whether the aggregate value exceeded $500,000 or $1
million:
Contingent Deferred Sales Charge
as a Percentage of Dollars Invested
or Redemption Proceeds
Year Since Purchase ------------------------------------------
Payment Made $500,001 to $1 million Over $1 million
-----------------------------------------------------------------------
First . . . . . . . . . . . . . . . . 3.0% 2.0%
Second. . . . . . . . . . . . . . . . 2.0% 1.0%
Third . . . . . . . . . . . . . . . . 1.0% 0%
Fourth and thereafter . . . . . . . . 0% 0%
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
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. The Fund makes available to the
shareholders the following privileges and plans.
Automatic Reinvestment of Dividends and/or Distributions
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund. An
investor may direct the Transfer Agent in writing not less than five full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payment will be made directly to the dealer. Any
shareholder who receives a cash payment representing a dividend or
distribution may reinvest such distribution at net asset value by returning
the check or the proceeds to the Transfer Agent within 30 days after the
payment date. The investment will be made at the net asset value per share
next determined after receipt of the check or proceeds by the Transfer Agent.
Such shareholder will receive credit for any contingent deferred sales charge
paid in connection with the amount of proceeds being reinvested.
Exchange Privilege
The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to
the minimum investment requirements of such funds. Shares of such other
Prudential Mutual Funds may also be exchanged for shares of the Fund. All
exchanges are made on the basis of relative net asset value next determined
after receipt of an order in proper form. An exchange will be treated as a
redemption and purchase for tax purposes. Shares may be exchanged for shares
of another fund only if shares of such fund may legally be sold under applica-
ble state laws. For retirement and group plans having a limited menu of
Prudential Mutual Funds, the exchange privilege is available for those funds
eligible for investment in the particular program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
Class A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Intermediate Term Series) and shares of the money
market funds
B-19
<PAGE>
specified below. No fee or sales load will be imposed upon the exchange.
Shareholders of money market funds who acquired such shares upon exchange of
Class A shares may use the Exchange Privilege only to acquire Class A shares
of the Prudential Mutual Funds participating in the Exchange Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund
Class B and Class C. Shareholders of the Fund may exchange their Class B
and Class C shares for Class B and Class C shares, respectively, of certain
other Prudential Mutual Funds and shares of Prudential Special Money Market
Fund. No CDSC will be payable upon such exchange, but a CDSC may be payable
upon the redemption of the Class B and Class C shares acquired as a result of
an exchange. The applicable sales charge will be that imposed by the fund in
which shares were initially purchased and the purchase date will be deemed to
be the first day of the month after the initial purchase, rather than the date
of the exchange.
Class B and Class C shares of the Fund may also be exchanged for shares
of Prudential Special Money Market Fund without imposition of any CDSC at the
time of exchange. Upon subsequent redemption from such money market fund or
after re-exchange into the Fund, such shares will be subject to the CDSC
calculated 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 transferred first. [In measuring the time
period shares are held in a money market fund and "tolled" for purposes of
calculating the CDSC holding period, exchanges are deemed to have been made on
the last day of the month.] Thus, if shares are exchanged into the Fund from a
money market fund during the month (and are held in the Fund at the end of
month), the entire month will be included in the CDSC holding period. Con-
versely, if shares are exchanged into a money market fund prior to the last
day of the month (and are held in the money market fund on the last day of the
month), the entire month will be excluded from the CDSC holding period.
At any time after acquiring shares of other funds participating in the
Class B or Class C Exchange Privilege, a shareholder may again exchange
those shares (and any reinvested dividends and distributions) for Class B or
Class C shares of the Fund, respectively, without subjecting such shares to
any CDSC. Shares of any fund participating in the Class B and Class C Exchange
Privilege that were acquired through reinvestment of dividends or
distributions may be exchanged for Class B or Class C shares of other funds,
respectively, without being subject to any CDSC.
Additional details about the Exchange Privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on 60 days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating
to such fund's shares.
Dollar Cost Averaging
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more
shares when the price is low and fewer shares when the price is high. The
average cost per share is lower than it would be if a constant number of
shares were bought at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement,
to save for a major expenditure, such as the purchase of a home, or to finance
a college education. The cost of a year's education at a four-year college
today averages around $14,000 at a private college and around $4,800 at a
public university. Assuming these costs increase at a rate of 7% a year, as
has been
B-20
<PAGE>
projected, for the freshman class of 2007, the cost of four years at a private
college could reach $163,000 and $97,000 at a public university.1
The following chart shows how much you would need in monthly investments
to achieve specified lump sums to finance your investment goals.2
Period of
Monthly investments: $100,000 $150,000 $200,000 $250,000
-------------------- -------- -------- -------- --------
25 Years . . . . . . . . . . . $ 110 $ 165 $ 220 $ 275
20 Years . . . . . . . . . . . 176 264 352 440
15 Years . . . . . . . . . . . 296 444 592 740
10 Years . . . . . . . . . . . 555 833 1,110 1,388
5 Years. . . . . . . . . . . . 1,371 2,057 2,742 3,428
See "Automatic Savings Accumulation Plan."
- -----------
1 Source information concerning the costs of education at public
universities is available from the College Board Annual Survey of
Colleges, 1992. Information about the costs of private colleges is from
the Digest of Education Statistics, 1992; the National Center for
Education Statistics; and the U.S. Department of Education. Average costs
for private institutions include tuition, fees, room and board.
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 Savings Accumulation Plan (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account
or Prudential Securities account (including a Command Account) to be debited
to invest specified dollar amounts in shares of the Fund. The investor's bank
must be a member of the Automatic Clearing House System. Stock certificates
are not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
Systematic Withdrawal Plan
A systematic withdrawal plan is available to shareholders through
Prudential Securities or the Transfer Agent. Such withdrawal plan provides for
monthly or quarterly checks in any amount, except as provided below, up to the
value of the shares in the shareholder's account. Withdrawals of Class B or
Class C shares may be subject to a CDSC. See "Shareholder Guide--How to Sell
Your Shares--Contingent Deferred Sales Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000
minimum account value applies, (ii) withdrawals may not be for less than $100
and (iii) the shareholder must elect to have all dividends and/or
distributions automatically reinvested in additional full and fractional
shares at net asset value on shares held under this plan. See "Shareholder
Investment Account-Automatic Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may
be terminated at any time, and the Distributor reserves the right to initiate
a fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.
Withdrawal payments should not be considered as dividends, yield or
income. If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must generally be recognized for federal income tax
purposes. In addition, withdrawals made concurrently with purchases of
additional shares are inadvisable because of the sales charge applicable to
(i) the purchase of Class A shares and (ii) the withdrawal of Class B and
Class C shares. Each shareholder should consult his or her own tax adviser
with regard to the tax consequences of the systematic withdrawal plan,
particularly if used in connection with a retirement plan.
Tax-Deferred Retirement Plans
Various qualified retirement plans, including a 401(k) plan, self-directed
individual retirement accounts and "tax-deferred accounts" under Section
403(b)(7) of the Internal Revenue Code are available through the Distributor.
These plans are for use by
B-21
<PAGE>
both self-employed individuals and corporate employers. These plans permit
either self-direction of accounts by participants, or a pooled account
arrangement. Information regarding the establishment of these plans, the
administration, custodial fees and other details is available from Prudential
Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
Tax-Deferred Retirement Accounts
Individual Retirement Accounts. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account
until the earnings are withdrawn. The following chart represents a comparison
of the earnings in a personal savings account with those in an IRA, assuming a
$2,000 annual contribution, an 8% rate of return and a 31% federal income tax
bracket and shows how much more retirement income can accumulate within an IRA
as opposed to a taxable individual savings account.
Tax-Deferred Compounding 1
Contributions Personal
Made Over: Savings IRA
------------- -------- --------
10 years $ 27,198 $ 31,291
15 years 47,363 58,649
20 years 73,743 98,846
25 years 108,254 157,909
30 years 153,401 244,692
- ------------
1 The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings
in the IRA account will be subject to tax when withdrawn from the account.
NET ASSET VALUE
The net asset value per share is the net worth of the Fund (assets,
including securities at value, minus liabilities) divided by the number of
shares outstanding. Net asset value is calculated separately for each class.
The value of securities, other than options listed on national securities
exchanges, is based on the last sale prices on national securities exchanges
as of the close of the New York Stock Exchange (which is currently 4:00 P.M.,
or later for certain trading, New York time), or, in the absence of recorded
sales, at the average of readily available closing bid and asked prices on
such exchanges or over-the-counter. If no quotations are available, securities
will be valued at fair value as determined in good faith by the Board of
Directors. Options on stocks and stock indices traded on national securities
exchanges are valued as of the close of options trading on such exchanges
(which is currently 4:10 P.M., New York time), and stock index futures and
options thereon, which are traded on commodities exchanges or boards of trade,
are valued at their last sale price as of the close of such commodities
exchanges (which is currently 4:15 P.M., New York time) or, if there was no
sale on the applicable securities exchange, commodities exchange or board of
trade on such day, at the average of quoted bid and asked prices as of the
close of such exchange or board of trade. Short-term investments which mature
in 60 days or less are valued at amortized cost, if their original maturity
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity if their original maturity when acquired by the Fund was more than 60
days, unless this is determined not to represent fair value by the Board of
Directors. Securities or other assets for which reliable market quotations are
not readily available are valued by the Manager in good faith at fair value in
accordance with procedures adopted by the Fund's Board of Directors on the
basis of the following factors: cost of the security, transactions in compara-
ble securities, relationships among various securities and such other factors
as may be determined by the Manager to materially affect the value of the
security.
Because the New York Stock Exchange or the national securities exchanges
on which stock options are traded have adopted different trading hours on
either a permanent or temporary basis, the Board of Directors of the Fund may
reconsider the time at which net asset value is computed. In addition, the
Fund may compute its net asset value as of any time permitted pursuant to any
exemption, order or statement of the SEC or its staff.
The net asset value of Class B and Class C shares will generally be lower
than the net asset value of Class A shares as a result of the larger
distribution-related fee to which to Class B and Class C shares are subject.
It is expected, however, that the net asset value per share of each class will
tend to converge immediately after the recording of dividends which will
differ by approximately the amount of the distribution expense accrual
differential among the classes.
B-22
<PAGE>
PERFORMANCE INFORMATION
Average Annual Total Return. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See "How the Fund Calcu-
lates Performance" in the Prospectus.
Average annual total return is computed according to the following
formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value at the end of the 1, 5 or
10 year periods (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of
the 1, 5 or 10 year periods.
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal
or state income taxes that may be payable upon redemption.
The average annual total return for Class A shares for the one
year and since inception periods ended April 30, 1993 was 9.01% and 8.50%,
respectively. The average annual total return for Class B shares for the one
year and since inception periods ended on April 30, 1993 was 9.13%
and 8.81%, respectively. During these periods, no Class C shares were
outstanding.
Aggregate Total Return. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B
and Class C shares. See "How the Fund Calculates Performance" in the Prospec-
tus.
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 $1000.
ERV = Ending Redeemable Value at the end of the 1, 5 or
10 year periods (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of
the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The aggregate total return for Class A shares for the one year
and since inception periods ended on April 30, 1993 was 15.06% and 33.12%,
respectively. The aggregate total return for Class B shares for the one year
and since inception periods ended on April 30, 1993 was 14.13% and 30.17%,
respectively. During these periods, no Class C shares were outstanding.
Yield. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B and
Class C shares. This yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
( a-b )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 period ended April 30, 1994 were % and
% for the Class A and Class B shares, respectively. During this period, no
Class C shares were outstanding.
B-23
<PAGE>
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of inflation.1
CHART
1 Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1993
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Common stock returns are based on the Standard & Poor's 500
Stock Index, a market-weighted, unmanaged index of 500 common stocks in a
variety of industry sectors. It is a commonly used indicator of broad stock
price movements. This chart is for illustrative purposes only, and is not
intended to represent the performance of any particular investment or fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to pay dividends of net investment income semi-annually.
Net capital gains, if any, will be distributed at least annually. In
determining amounts of capital gains to be distributed, any capital loss
carryforwards from prior years will offset capital gains. Dividends and
distributions will be paid in additional Fund shares based on the net asset
value at the close of business on the record date, unless the shareholder
elects in writing not less than five full business days prior to the record
date to receive such distributions in cash.
The per share dividends on Class B and Class C shares will be lower than
the per share dividends on Class A shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions of capital gains, if any, will be in the same amount for
Class A, Class B and Class C shares. See "Net Asset Value."
TAXES
The Fund has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code. This
relieves the Fund (but not its shareholders) from paying federal income tax on
income which is distributed to shareholders, and permits net capital gains of
the Fund (i.e., the excess of net long-term capital gains over net short-term
capital losses) to be treated as long-term capital gains of the shareholders,
regardless of how long shareholders have held their shares in the Fund.
Qualification as a regulated investment company under the Internal
Revenue Code requires, among other things, that (a) at least 90% of the Fund's
annual gross income, without offset for losses from the sale or other
disposition of securities, be derived from interest, dividends, payments with
respect to securities loans, and gains from the sale or other disposition of
securities 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 derives less than 30% of its gross
income from gains (without offset for losses) from the sale or other
disposition of securities, options thereon, futures contracts, options
thereon, forward contracts and foreign currencies held for less than three
months (except for foreign currencies directly related to the Fund's business
of investing in foreign securities), and (c) the Fund must diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the market value of the Fund's assets is represented by cash,
B-24
<PAGE>
U.S. Government securities and other securities limited in respect of any one
issuer to an amount not greater than 5% 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). In addition, in order not to be subject to
federal income tax, the Fund must distribute to its shareholders at least 90%
of its net investment income and short-term capital gains in each year. In
addition, dividends declared in October, November and December payable to
shareholders of record on a specified date in October, November and December
and paid in the following January will be treated as having been paid by the
Fund and received by each shareholder in such prior year. Under this rule,
therefore, a shareholder may be taxed in one year on dividends or
distributions actually received in January of the following year.
The Fund is required under the Internal Revenue Code 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 any undistributed ordinary income and undistributed capital gain net
income from the prior year of 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 purpose of this excise tax, income
on which the Fund pays income tax is treated as distributed.
Gains or losses on sales of securities by the Fund will be 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 a call
thereon or makes a short sale against-the-box. Other gains or losses on the
sale of securities will be short-term capital gains or losses. If an option
written by the Fund lapses or is terminated through a closing transaction,
such as a repurchase by the Fund of the option from its holder, the Fund will
realize a short-term capital gain or loss, depending on whether the premium
income is greater or less than the amount paid by the Fund in the closing
transaction. If securities are sold by the Fund pursuant to the exercise of a
call option written by it, the Fund will add the premium received to the sale
price of the securities delivered in determining the amount of gain or loss on
the sale. If securities are purchased by the Fund pursuant to the exercise of
a put option written by it, the Fund will subtract the premium received from
its cost basis in the securities purchased. Certain transactions of the Fund
may be subject to wash sale, short sale and straddle provisions of the
Internal Revenue Code. In addition, debt securities acquired by the Fund may
be subject to original issue discount and market discount rules.
Special rules will apply to most options on stock indices, futures
contracts and options thereon, and forward foreign currency exchange contracts
in which the Fund may invest. See "Investment Objective and Policies." These
investments will generally constitute "Section 1256 contracts" and will be
required to be "marked to market" for federal income tax purposes at the end
of the Fund's taxable year; that is, treated as having been sold at market
value. Except with respect to forward foreign currency exchange contracts, 60%
of any gain or loss recognized on such "deemed sales" and on actual disposi-
tions will be treated as long-term capital gain or loss, and the remainder
will be treated as short-term capital gain or loss. The Fund's ability to
invest in forward foreign currency exchange contracts, options on equity
securities and on stock indices, futures contracts and options thereon may be
affected by the 30% limitation on gains derived from securities held less than
three months, discussed above.
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
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 or losses, referred to under the Internal
Revenue 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, as was the case prior to 1987. If
Section 988 losses exceed other investment company taxable income during a
taxable year, the Fund would not be able to make any taxable ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her shares.
Any loss realized on a sale, redemption or exchange of shares of the Fund
by a shareholder will be disallowed to the extent the shares are replaced
within a 61-day period (beginning 30 days before the disposition of shares).
Shares purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes
of calculating gain or loss realized upon a sale or exchange of shares of the
Fund.
Any dividends or distributions paid shortly after a purchase by an
investor may have the effect of reducing the per share net asset value of the
investor's shares by the per share amount of the dividends or distributions.
Furthermore, such dividends or
B-25
<PAGE>
distributions, although in effect a return of capital, are subject to federal
income taxes. Prior to purchasing shares of the Fund, therefore, the investor
should carefully consider the impact of dividends or capital gains
distributions which are expected to be or have been announced.
Dividends and distributions may also be subject to state and local taxes.
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 is not known.
Each shareholder will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes, if any, paid by the Fund will
"pass through" for that year and, if so, such notification will designate (a)
the shareholder's portion of the foreign taxes paid by the Fund and (b) the
portion of the dividend which represents income derived from foreign sources.
The Fund does not expect to meet the requirements necessary to "pass through"
foreign taxes.
CUSTODIAN, TRANSFER AND DIVIDEND
DISBURSING AGENT AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Fund. Subcustodians
provide custodial services for the Fund's foreign assets held outside the
United States. See "How the Fund is Managed--Custodian and Transfer and
Dividend Disbursing Agent" in the Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the
Fund. It is a wholly-owned subsidiary of PMF. PMFS provides customary transfer
agency services to the Fund, including the handling of shareholder communica-
tions, the processing of shareholder transactions, the maintenance of share-
holder account records, payment of dividends and distributions, and related
functions. For these services, PMFS receives an annual fee per shareholder
account, a new account set-up fee for each manually-established account and a
monthly inactive zero balance account fee per shareholder account. PMFS is
also reimbursed for its out-of-pocket expenses, including, but not limited to,
postage, stationery, printing, allocable communications expenses and other
costs. For the fiscal year ended April 30, 1993, the Fund incurred fees of
approximately $218,000 for such services.
Deloitte & Touche, One World Trade Center, New York, New York 10048,
serves as the Fund's independent accountants and in that capacity audits the
Fund's annual financial statements.
B-26
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC. Portfolio of Investments
April 30, 1993
Value
Shares Description (Note 1)
LONG-TERM INVESTMENTS--98.1%
COMMON STOCKS--89.0%
Auto & Housing Sector--7.7%
27,800 Durakon Industries, Inc.*.... $ 514,300
21,600 Ethan Allen Interiors,
Inc.*...................... 429,300
45,000 Ford Motor Co................ 2,463,750
60,000 General Motors Corp.......... 2,460,000
30,000 Owens Corning Fiberglass*.... 1,196,250
60,000 Ryland Group, Inc............ 1,147,500
250,000 Suzuki Motor Co., Ltd.
(Japan).................... 2,297,504
------------
10,508,604
------------
Business Services Sector--0.3%
20,100 Nu-Kote Holdings, Inc.*...... 389,438
------------
Basic Industry Sector--10.6%
67,000 Champion Int'l. Corp......... 2,227,750
20,000 Imperial Chemical Ind.
(ADR)...................... 1,650,000
30,000 International Paper Co....... 1,972,500
45,000 Johnson Controls, Inc........ 2,182,500
20,000 Monsanto Co.................. 1,082,500
120,000 Praxair, Inc................. 1,890,000
50,000 Raychem Corp................. 2,062,500
30,000 Temple Inland, Inc........... 1,350,000
------------
14,417,750
------------
Consumer Goods & Services Sector--1.2%
20,000 ITT Corp..................... 1,640,000
------------
Energy Sector--13.2%
30,000 Anadarko Petroleum Corp...... 1,207,500
35,000 Anderson Exploration*
(Canada)................... 618,860
100,000 Atcor Resources, Ltd.*
(Canada)................... 381,139
30,000 Burlington Resources, Inc.... 1,470,000
65,000 Cabre Exploration, Ltd.*
(Canada)................... 804,519
80,000 Canadian Natural Resources,
Ltd.* (Canada)............. 1,618,859
70,000 Cimarron Petroleum, Ltd.*
(Canada)................... 460,707
175,000 Discovery West Corp.*
(Canada)................... 790,766
32,800 Gerrity Oil & Gas Corp.*..... 524,800
96,000 Oryx Energy Co............... 2,160,000
125,000 Talisman Energy, Inc.*
(Canada)................... 2,431,238
33,200 Tarragon Oil & Gas, Ltd.*
(Canada)................... $ 580,511
125,000 TransCanada Pipelines, Ltd.
(Canada)................... 1,854,126
20,000 Union Texas Petroleum,
Inc........................ 480,000
136,200 USX-Delhi Group.............. 2,604,825
------------
17,987,850
------------
Financial Services Sector--29.3%
40,000 AmSouth Bancorp.............. 1,280,000
47,700 Bank of Boston Corp.......... 1,079,213
35,000 Bank of New York, Inc........ 1,881,250
20,700 BayBanks, Inc................ 895,275
20,000 Canadian Imperial Bank
(Canada)................... 461,690
53,800 Central Bancshares of the
South, Inc................. 1,277,750
40,000 Comerica, Inc................ 1,210,000
68,500 Community First Bankshares,
Inc........................ 950,438
92,500 Constellation Bancorp*....... 751,563
20,000 First Amarillo Bancorp*...... 335,000
60,000 First Eastern Corp.*......... 1,035,000
51,000 First Interstate Bank
Corp....................... 2,805,000
60,000 First of America Bank
Corp....................... 2,302,500
150,000 Hibernia Corp.*.............. 1,087,500
70,000 Horace Mann Educators
Corp....................... 1,960,000
15,000 Integra Financial Corp....... 660,000
20,000 Kemper Corp.................. 767,500
30,000 Mercantile Bancorp, Inc...... 1,492,500
115,000 Metropolitan Financial
Corp....................... 1,998,125
45,000 Midlantic Corp.*............. 922,500
24,000 Morgan (J.P.) & Co., Inc..... 1,614,000
50,000 Royal Bank of Canada
(Canada)................... 1,110,020
95,000 The Equitable Co............. 1,805,000
6,100 TIG Holdings, Inc.*.......... 149,450
75,000 Toronto-Dominion Bank
(Canada)................... 1,075,638
55,000 U.S. Bancorp................. 1,357,813
39,000 UJB Financial Corp........... 965,250
75,000 Union Planters Corp.......... 1,968,750
75,000 Washington Mutual Savings
Bank....................... 2,193,750
24,100 West One Bancorp............. 1,195,963
40,000 Whitney Holding Corp......... 1,365,000
------------
39,953,438
------------
B-27 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC. (Cont'd)
Value
Shares Description (Note 1)
Health Care Sector--9.8%
12,000 Astra AB (Sweden)............ $ 1,113,233
155,000 FHP International Corp.*..... 3,816,875
20,000 Foundation Health Corp.*..... 572,500
35,000 Galen Health Care, Inc.*..... 415,625
35,000 Humana, Inc.................. 323,750
10,000 Medtronic, Inc............... 653,750
20,000 Oxford Health Plans, Inc.*... 980,000
40,400 Physicians Corp. of America,
Inc.*...................... 828,200
64,600 Physicians Health*........... 968,999
50,000 Ramsay-HMO, Inc.*............ 1,412,500
40,000 United Healthcare Corp....... 2,160,000
5,000 Wellpoint Health Networks,
Inc.*...................... 126,250
------------
13,371,682
------------
Retailing Sector--0.9%
30,000 Bombay Co., Inc.*............ 1,237,500
------------
Technology Sector--6.6%
31,100 Anthem Electronics, Inc.*.... 1,006,862
60,000 Ceridian Corp.*.............. 885,000
75,000 Ericsson (L.M.) Telephone Co.
(ADR)...................... 2,742,188
25,000 First Financial Mgmt.
Corp....................... 962,500
40,000 Motorola, Inc................ 2,920,000
15,000 Xilinx, Inc.*................ 476,250
------------
8,992,800
------------
Transportation Sector--9.4%
100,000 Canadian Pacific, Ltd........ 1,675,000
10,000 CSX Corp..................... 721,250
90,000 Kansas City Southern
Industries, Inc............ 2,857,500
55,000 Illinois Central Corp........ 1,505,625
70,000 Ryder System, Inc............ 1,942,500
120,000 Santa-Fe Pacific Corp........ 1,905,000
10,000 Union Pacific Corp........... 616,250
75,000 USAir Group, Inc.*........... $ 1,575,000
------------
12,798,125
------------
Total common stocks
(cost $106,182,594)........ 121,297,187
------------
CONVERTIBLE PREFERRED STOCKS--7.0%
Auto & Housing Sector--2.2%
25,000 Chrysler Corp.*.............. 2,987,500
------------
Natural Resources Sector--1.6%
40,000 Amax, Inc.................... 2,240,000
------------
Transportation Sector--3.2%
40,000 AMR Corp.*................... 2,130,000
20,000 UAL Corp.*................... 2,260,000
------------
4,390,000
------------
Total preferred stocks
(cost $8,777,000).......... 9,617,500
------------
Principal
Amount
(000)
- --------
CONVERTIBLE BONDS--2.1%
Energy Sector--0.5%
Baker Hughes, Inc.*
$1,116 Zero coupon, 5/5/08.......... 672,390
Business Services Sector--0.8%
Office Depot, Inc.*
2,000 Zero coupon, 12/11/07........ 1,032,500
Health Care Sector--0.8%
Vencor, Inc.
1,200 6.00%, 10/1/02............... 1,134,000
------------
Total convertible bonds
(cost $2,859,842).......... 2,838,890
------------
Total long-term investments
(cost $117,819,436)........ 133,753,577
------------
B-28 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC. (Cont'd)
Principal
Amount Value
(000) Description (Note 1)
SHORT-TERM INVESTMENTS--4.3%
GOVERNMENT ISSUES--1.1%
U.S.Treasury Bills,
$1,500# 2.89%, 5/6/93
(cost $1,499,398)............ $ 1,499,398
------------
REPURCHASE AGREEMENT--3.2%
Joint Repurchase Agreement
Account
4,357 2.95%, 5/3/93, (Note 5)
(cost $4,357,000)............ 4,357,000
------------
Total short-term investments
(cost $5,856,398)............ 5,856,398
------------
Total Investments--102.4%
(cost $123,675,834; Note
4)......................... 139,609,975
COMMON STOCKS SOLD SHORT*--(0.2%)
Shares
- --------
Health Care Sector
60,000 Health Images, Inc.
(proceeds $523,347)........ (292,500)
------------
Total investments, net of
short
sales--102.2%.............. 139,317,475
Liabilities in excess of
other
assets--(2.2%)............. (3,006,805)
------------
Net Assets--100%............. $136,310,670
============
- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
# Pledged as collateral on short sale.
B-29 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
April 30,
Assets 1993
------------
<S> <C>
Investments, at value (cost $123,675,834)................................................. $139,609,975
Foreign currency, at value (cost $4,831).................................................. 4,841
Cash...................................................................................... 7,336
Deposits with brokers for investments sold short.......................................... 523,347
Dividends and interest receivable......................................................... 303,423
Receivable for investments sold........................................................... 240,499
Receivable for Fund shares sold........................................................... 213,054
Deferred expenses and other assets........................................................ 103,191
------------
Total assets.......................................................................... 141,005,666
------------
Liabilities
Payable for investments purchased......................................................... 3,066,090
Payable for Fund shares reacquired........................................................ 663,259
Investments sold short, at value (proceeds $523,347)...................................... 292,500
Accrued expenses and other liabilities.................................................... 287,005
Forward contracts-net amount payable to counterparties.................................... 228,643
Due to Distributors....................................................................... 84,056
Due to Manager............................................................................ 73,443
------------
Total liabilities..................................................................... 4,694,996
------------
Net Assets................................................................................ $136,310,670
============
Net assets were comprised of:
Common stock, at par.................................................................... $ 10,355
Paid-in capital in excess of par........................................................ 114,368,538
------------
114,378,893
Undistributed net investment income..................................................... 578,288
Accumulated net realized capital and currency gains..................................... 5,419,434
Net unrealized appreciation on investments and foreign currencies....................... 15,934,055
------------
Net assets, April 30, 1993.............................................................. $136,310,670
============
Class A:
Net asset value and redemption price per share ($43,389,650 / 3,288,742
shares of common stock issued and outstanding)........................................ $13.19
Maximum sales charge (5.25% of offering price).......................................... .73
------------
Maximum offering price to public........................................................ $13.92
============
Class B:
Net asset value, offering and redemption price per share ($92,921,020 / 7,066,535
shares of common stock issued and outstanding)........................................ $13.15
============
</TABLE>
See Notes to Financial Statements.
B-30
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Operations
Year Ended
April 30,
Net Investment Income 1993
-----------
Income
Dividends (net of foreign withholding
taxes of $61,025).................. $ 2,647,155
Interest............................. 2,795,792
-----------
Total income....................... 5,442,947
-----------
Expenses
Management fee....................... 948,752
Distribution fee--Class A............ 93,780
Distribution fee--Class B............ 990,720
Transfer agent's fees and expenses... 231,000
Custodian's fees and expenses........ 126,000
Reports to shareholders.............. 60,000
Registration fees.................... 58,000
Amortization of deferred organization
expenses........................... 45,000
Directors' fees...................... 45,000
Audit fee............................ 30,000
Legal fees........................... 22,000
Miscellaneous expense................ 13,373
-----------
Total expenses..................... 2,663,625
-----------
Net investment income.................. 2,779,322
-----------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Security transactions................ 11,129,785
Short sale transactions.............. (1,153,766)
Written options transactions......... (77,143)
Financial futures contracts.......... 239,960
Foreign currency transactions........ 1,457,148
-----------
11,595,984
-----------
Net change in net unrealized appreciation on:
Securities........................... 4,606,955
Short sale transactions.............. 230,847
Foreign currency transactions........ (230,933)
-----------
4,606,869
-----------
Net gain on investments................ 16,202,853
-----------
Net Increase in Net Assets
Resulting from Operations.............. $18,982,175
===========
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Changes in Net Assets
Year Ended April 30,
Increase (Decrease) ------------------------------
in Net Assets 1993 1992
------------- -------------
Operations
Net investment income... $ 2,779,322 $ 2,171,662
Net realized gain on
investment and foreign
currency
transactions.......... 11,595,984 16,052,619
Net change in unrealized
appreciation on
investments........... 4,606,869 (9,028,639)
------------- -------------
Net increase in net
assets resulting from
operations............ 18,982,175 9,195,642
------------- -------------
Net equalization debits... (245,681) (29,451)
------------- -------------
Dividends and
distributions (Note 1)
Dividends from net
investment income
Class A............... (1,037,706) (1,398,867)
Class B............... (1,396,681) (1,832,957)
------------- -------------
(2,434,387) (3,231,824)
------------- -------------
Distributions from net
capital and currency
gains
Class A............... (2,957,844) (96,733)
Class B............... (6,314,531) (168,908)
------------- -------------
(9,272,375) (265,641)
------------- -------------
Fund share transactions
(Note 6)
Net proceeds from Fund
shares subscribed..... 21,369,671 45,930,468
Net asset value of Fund
shares issued in
reinvestment of
dividends and
distributions......... 10,984,287 3,271,463
Cost of Fund shares
reacquired............ (63,974,340) (52,591,755)
------------- -------------
Net decrease in net
assets from Fund share
transactions.......... (31,620,382) (3,389,824)
------------- -------------
Total increase
(decrease)................ (24,590,650) 2,278,902
Net Assets
Beginning of year......... 160,901,320 158,622,418
------------- -------------
End of year............... $ 136,310,670 $ 160,901,320
============= =============
See Notes to Financial Statements. See Notes to Financial Statements.
B-31
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Notes to Financial Statements
Prudential Multi-Sector Fund, Inc. (the "Fund"), is registered under the
Investment Company Act of 1940 as a non-diversified, open-end management
investment company. The Fund was incorporated in Maryland on February 21, 1990
and had no operations until May 11, 1990 when 4,398 shares each of Class A and
Class B common stock were sold for $100,000 to Prudential Mutual Fund
Management, Inc. ("PMF"). Investment operations commenced June 29, 1990. The
Fund's investment objective is long-term growth of capital by primarily
investing in equity securities of companies in various economic sectors.
Note 1. Accounting The following is a summary
Policies of significant accounting
policies followed by the Fund in the preparation
of its financial statements.
Securities Valuation: Investments, including options, traded on a national
securities exchange and NASDAQ national market equity securities are valued at
the last reported sales price on the primary exchange on which they are traded.
Securities traded in the over-the-counter market (including securities listed
on exchanges whose primary market is believed to be over-the-counter) and
listed securities for which no sales were reported on that date are valued at
the mean between the last reported bid and asked prices. Stock options traded
on national securities exchanges are valued at the closing prices on such
exchanges. 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 Fund's Board of Directors.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or
less are valued at amortized cost.
In connection with transactions in repurchase agreements, 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. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults, and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of securities held at the end of the fiscal year.
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 portfolio securities sold during the fiscal year. Accordingly, these
realized foreign currency gains (losses) are included in the reported net
realized gains on security transactions.
Net realized gains on foreign currency transactions of $1,457,148 represents
net foreign exchange gains from sales and maturities of short-term securities,
holding of foreign currencies, currency gains or losses realized between the
trade and settlement dates of security transactions, and the difference between
the amounts of dividends and foreign taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid. Net currency gains
and losses from valuing foreign currency denominated assets and liabilities at
year end exchange rates are reflected as a component of net unrealized
appreciation on investments and foreign currencies.
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 level of governmental
supervision and regulation of foreign securities markets and the possibility
of political or economic instability.
Forward Currency Contracts: The Fund enters into forward currency contracts in
order to hedge its exposure to changes in currency exchange rates on its
portfolio
B-32
<PAGE>
holdings. A forward contract is a commitment to purchase or sell a foreign
currency at a future date (usually the security transaction settlement date) at
a negotiated forward rate. In the event that a security fails to settle within
the normal settlement period, the forward currency contract is renegotiated at
a new rate. The gain or loss arising from the difference between the settlement
value of the original and renegotiated forward contracts is isolated and is
included in net realized losses from foreign currency transactions. Risks may
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
Short Sales: The Fund may sell a security it does not own in anticipation of a
decline in the market value of that security (short sale). When the Fund makes
a short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow the particular security and may be obligated to pay
over any payments received on such borrowed securities. A gain, limited to the
price at which the Fund sold the security short, or a loss, unlimited in
magnitude, will be recognized upon the termination of a short sale if the
market price at termination is less than or greater than, respectively, the
proceeds originally received.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This is known as
the "initial margin". Subsequent payments, known as "variation margin", are
made or received by the Fund each day, depending on the daily fluctuations in
the value of the underlying security. Such variation margin is recorded for
financial statement purposes on a daily basis as unrealized gain or loss until
the contracts expire or are closed, at which time the gain or loss is
reclassified to realized gain or loss. The Fund invests in financial futures
contracts solely for the purpose of hedging its existing portfolio securities
or securities the Fund intends to purchase against fluctuations in value
caused by changes in prevailing market conditions. Should market conditions
move unexpectedly, the Fund may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. The use of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts, interest rates and the underlying hedged assets.
There were no financial futures contracts outstanding at April 30, 1993.
Option Writing: When the Fund writes an option, an amount equal to the premium
received by the Fund is recorded as a liability and is subsequently adjusted to
the current market value of the option written. Premiums received from writing
options which expire unexercised are treated by the Fund on the expiration date
as realized gains from securities or currencies based upon the type of option
written. The difference between the premium and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium received is less than the amount paid for
the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security or currency in determining whether the Fund has realized a gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities or currencies purchased by the Fund. The Fund as writer of an option
may have no control over whether the underlying securities may be sold (call)
or purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the security underlying the written option. There were
no written options outstanding at April 30, 1993.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Net
investment income, other than distribution fees, and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Dividends and Distributions: Dividends from net investment income are declared
and paid semi-annually. The Fund will distribute net capital gains, if any, at
least annually. Dividends and distributions are recorded on the ex-dividend
date.
B-33
<PAGE>
Taxes: It is the Fund's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable net income to its shareholders. Therefore, no federal income tax
provision is required.
Withholding taxes on foreign dividends have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules and rates.
Deferred Organizational Expenses: Approximately $225,000 of expenses were
incurred in connection with the organization and initial registration of the
Fund. This amount is being amortized over a period of 60 months from the date
investment operations commenced.
Note 2. Agreements The Fund has a management
agreement with PMF. Pursuant to this agreement,
PMF has responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PMF has entered into a subadvisory
agreement with The Prudential Investment Corporation ("PIC"). PIC furnishes
investment advisory services in connection with the management of the Fund. PMF
pays for the services of PIC, the cost of compensation of officers of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund
bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .65 of 1% of the Fund's average daily net assets.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. ("PMFD"), who acts as the distributor of the Class A
shares of the Fund, and Prudential Securities Incorporated ("PSI"), who acts
as distributor of the Class B shares of the Fund (collectively the
"Distributors"). To reimburse the Distributors for their expenses incurred in
distributing the Fund's Class A and Class B shares, the Fund, pursuant to plans
of distribution, pays the Distributors a reimbursement, accrued daily and
payable monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its
distribution-related expenses with respect to the Class A shares at an annual
rate of up to .30 of 1% of the average daily net assets of the Class A shares.
Such expenses under the Class A plan were .20 of 1% of the average daily net
assets of the Class A shares for the fiscal year ended April 30, 1993. PMFD
pays various broker-dealers including PSI & Pruco Securities Corporation
("Prusec"), affiliated broker-dealers, for account servicing fees and other
expenses incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to 1% of the average daily net assets of the Class B shares.
The Class B distribution expenses include commission credits for payments of
commissions and account servicing fees to financial advisers and an allocation
for overhead and other distribution-related expenses, interest and/or carrying
charges, the cost of printing and mailing prospectuses to potential investors
and of advertising incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and service fees incurred
through the receipt of reimbursement payments from the Fund under the plans and
the receipt of initial sales charges (Class A only) and contingent deferred
sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $54,000 in
front-end sales charges resulting from sales of Class A shares during the
fiscal year ended April 30, 1993. From these fees, PMFD paid such sales
charges to dealers (PSI and Prusec) which in turn paid commissions to
salespersons and incurred other distribution costs.
With respect to the Class B Plan, at any given time the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total reimbursement made by the Fund
pursuant to the Class B Plan. For the fiscal year ended April 30, 1993, PSI
advised the Fund that it received approximately $559,500 in contingent deferred
sales charges imposed upon redemptions by certain shareholders. PSI, as
distributor, has also advised the Fund that at April 30, 1993, the amount of
distribution expenses incurred by PSI and not yet reimbursed by the Fund or
recovered through contingent deferred sales charges approximated $1,719,000.
This amount may be recovered through future payments under the Class B Plan or
contingent deferred sales charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
B-34
<PAGE>
Note 3. Other Prudential Mutual Fund
Transactions Services, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the fiscal year ended April 30, 1993, the Fund incurred fees of approximately
$218,000 for the services of PMFS. As of April 30, 1993, approximately $16,000
of such fees were due to PMFS. Transfer agent fees and expenses in the
Statement of Operations include certain out-of-pocket expenses paid to
non-affiliates.
For the fiscal year ended April 30, 1993, PSI earned approximately $84,500
in brokerage commissions from portfolio transactions executed on behalf of the
Fund.
Note 4. Portfolio Purchases and sales of
Securities investment securities, other
than short-term investments, for the fiscal year
ended April 30, 1993 aggregated $272,383,924 and $280,311,454, respectively.
The cost basis of investments for federal income tax purposes was
substantially the same as for financial reporting purposes and, accordingly,
as of April 30, 1993, net unrealized appreciation of investments, including
short- term investments, for federal income tax purposes was $15,934,141
(gross unrealized appreciation--$17,858,579, gross unrealized
depreciation--$1,924,438).
Transactions in options written during the fiscal year ended April 30, 1993
were as follows:
Number of Premiums
Contracts Received
--------- --------
Options written.................... 1,280 $754,289
Options exercised.................. (3) (816)
Options expired.................... (490) (200,403)
Options closed..................... (787) (553,070)
--------- --------
Options outstanding at April 30,
1993............................. 0 0
========= ========
At April 30, 1993, the Fund had outstanding a forward currency contract to
sell foreign currency as follows:
Value at
Foreign Currency Settlement Date Current Appreciation/
Sell Contract Receivable Value (Depreciation)
- ---------------------- ---------------- ---------- ---------------
British Pounds
expiring 6/11/93 $ 357,425 $ 390,865 $ (33,440)
Swedish Krona
expiring 5/10/93 3,618,039 3,813,242 (195,203)
---------- ---------- ---------
$3,975,464 $4,204,107 $(228,643)
========== ========== =========
Note 5. Joint The Fund, along with other
Repurchase affiliated registered invest-
Agreement Account ment companies, transfers
uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. At April 30, 1993, the Fund had a 0.4% undivided interest in the
repurchase agreements in the joint account. The undivided interest for the Fund
represented $4,357,000 in principal amount. As of such date, each repurchase
agreement in the joint account and the collateral therefor was as follows:
B-35
<PAGE>
Barclays de Zoete Wedd Securities, Inc., 2.97%, dated 4/30/93, in the
principal amount of $75,000,000, repurchase price $75,018,562, due 5/3/93,
collateralized by $17,515,000 U.S. Treasury Notes, 7.75%, due 11/15/93;
$36,000,000 U.S. Treasury Notes, 8.75%, due 8/15/00; and $13,000,000 U.S.
Treasury Notes, 7.50%, due 5/15/02; aggregate value including accrued
interest--$76,522,132.
Bear Stearns & Company, Inc., 2.95%, dated 4/30/93, in the principal amount
of $340,000,000, repurchase price $340,083,583, due 5/3/93, collateralized by
$25,280,000 U.S. Treasury Notes, 7.875%, due 6/30/96; $36,000,000 U.S. Treasury
Notes, 8.50%, due 2/15/00; $89,702,000 U.S. Treasury Bonds, 10.75%, due
2/15/03; $128,000,000 U.S. Treasury Notes, 8.75%, due 8/15/00; aggregate value
including accrued interest--$346,898,130.
First Boston Corp., 2.95%, dated 4/30/93, in the principal amount of
$214,000,000, repurchase price $214,052,608, due 5/3/93, collateralized by
$195,455,000 U.S. Treasury Bonds, 7.625%, due 11/15/22; value including accrued
interest--$218,861,679.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 2.90%, dated 4/30/93, in the
principal amount of $66,000,000, repurchase price $66,015,950, due 5/3/93,
collateralized by $67,275,000 U.S. Treasury Notes, 5.125%, due 4/30/98; value
including accrued interest--$67,410,657.
Morgan (J.P.) Securities, Inc., 2.97%, dated 4/30/93, in the principal amount
of $325,000,000, repurchase price $325,080,437, due 5/3/93, collateralized by
$100,000,000 U.S. Treasury Bonds, 10.375%, due 11/15/12; $100,000,000 U.S.
Treasury Bonds, 10.75%, due 5/15/03; $49,970,000 U.S. Treasury Notes, 7.75%,
due 11/15/93; aggregate value including accrued interest--$332,510,405.
Note 6. Capital The Fund offers both Class A
and Class B shares. Class A shares are sold with
a front-end sales charge of up to 5.25%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Both classes of shares have equal
rights as to earnings, assets and voting privileges except that each class
bears different distribution expenses and has exclusive voting rights with
respect to its distribution plan.
There are 2 billion shares of common stock, $.001 par value per share,
divided into two classes, designated Class A and B common stock, each of which
consists of 1 billion authorized shares.
Transactions in shares of common stock were as follows:
Class A Shares Amount
- ----------------------------- ---------------- ------------
Year ended April 30, 1993:
Shares sold.................. 938,716 $ 11,757,387
Shares issued in reinvestment
of dividends and
distributions.............. 313,201 3,776,474
Shares reacquired............ (2,169,604) (26,909,889)
---------- ------------
Net decrease in shares
outstanding................ (917,687) $(11,376,028)
========== ============
Year ended April 30, 1992:
Shares sold.................. 911,252 $ 11,201,512
Shares issued in reinvestment
of dividends and
distributions.............. 116,519 1,402,349
Shares reacquired............ (1,703,964) (21,012,925)
---------- ------------
Net decrease in shares
outstanding................ (676,193) $ (8,409,064)
========== ============
B-36
<PAGE>
Class B Shares Amount
- ----------------------------- ---------------- ------------
Year ended April 30, 1993:
Shares sold.................. 775,060 $ 9,612,284
Shares issued in reinvestment
of dividends and
distributions.............. 597,615 7,207,813
Shares reacquired............ (2,992,163) (37,064,451)
---------- ------------
Net decrease in shares
outstanding................ (1,619,488) $(20,244,354)
========== ============
Year ended April 30, 1992:
Shares sold.................. 2,839,936 $ 34,728,956
Shares issued in reinvestment
of dividends and
distributions.............. 155,499 1,869,114
Shares reacquired............ (2,561,650) (31,578,830)
---------- ------------
Net increase in shares
outstanding................ 433,785 $ 5,019,240
========== ============
B-37
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
------------------------------------- ---------------------------------
June 29, June 29,
1990(D) Year Ended April 1990(D)
Year Ended April 30, Through 30, Through
--------------------- April 30, ------------------ April 30,
PER SHARE OPERATING PERFORMANCE: 1993 1992 1991 1993 1992 1991
---------- ------- ------------ ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 12.51 $ 12.10 $ 11.37 $ 12.47 $ 12.06 $ 11.37
--------- ------- -------- ------- -------- --------
Income from investment operations:
Net investment income................................ .30 .23 .40 .19 .13 .32
Net realized and unrealized gains on investment
transactions....................................... 1.47 .50 .59 1.47 .51 .59
--------- ------- -------- ------- -------- --------
Total from investment operations................... 1.77 .73 .99 1.66 .64 .91
--------- ------- -------- ------- -------- --------
Less distributions:
Dividends from net investment income................. (.30) (.30) (.26) (.19) (.21) (.22)
Distributions from net realized capital and currency
gains.............................................. (.79) (.02) -- (.79) (.02) --
--------- ------- -------- ------- -------- --------
Total distributions................................ (1.09) (.32) (.26) (.98) (.23) (.22)
--------- ------- -------- ------- -------- --------
Net asset value, end of period....................... $ 13.19 $ 12.51 $ 12.10 $ 13.15 $ 12.47 $ 12.06
========= ======= ======== ======= ======== ========
TOTAL RETURN#........................................ 15.14% 6.16% 17.64%* 14.13% 5.39% 16.14%*
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...................... $ 43,390 $52,625 $ 59,085 $92,921 $108,276 $ 99,537
Average net assets (000)............................. $ 46,890 $57,403 $ 55,545 $99,072 $108,510 $ 82,890
Ratios to average net assets:
Expenses, including distribution fees.............. 1.28% 1.29% 1.35%* 2.08% 2.09% 2.15%*
Expenses, excluding distribution fees.............. 1.08% 1.09% 1.15%* 1.08% 1.09% 1.15%*
Net investment income.............................. 2.44% 1.83% 4.28%* 1.64% 1.03% 3.39%*
Portfolio turnover rate.............................. 209% 147% 253% 209% 147% 253%
</TABLE>
- ---------------
* Annualized.
(D) Commencement of investment operations.
# Total return does not consider the effects of sales loads.
See Notes to Financial Statements.
B-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Prudential Multi-Sector Fund
We have audited the accompanying statement of assets and liabilities of
Prudential Multi-Sector Fund, Inc., including the portfolio of investments, as
of April 30, 1993, the related statements of operations for the year then ended
and of changes in net assets for each of the two years in the period ended April
30, 1993 and the financial highlights for each of the two years in the period
ended April 30, 1993 and the period June 29, 1990 (commencement of investment
operations) to April 30, 1991. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
April 30, 1993, by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential
Multi-Sector Fund, Inc. at April 30, 1993, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
Deloitte & Touche
New York, New York
June 15, 1993
FEDERAL INCOME TAX INFORMATION
As required by the Internal Revenue Code, we wish to advise you as to the
federal tax status of dividends paid by the Fund during its fiscal year ended
April 30, 1993. During the fiscal year ended April 30, 1993, the Fund paid
dividends of $.295 per share and $.19 per share for Class A and Class B shares,
respectively, from net investment income and $.785 per share for Class A and
Class B shares from net currency gains, all of which is taxable as ordinary
income. Further, we wish to advise you that 88.97% of the ordinary income
dividends paid in the fiscal year ended April 30, 1993 qualified for the
corporate dividends received deduction available to corporate taxpayers.
Shortly after the close of the calendar year ending December 31, 1993, you
will be advised again as to the federal tax status of the dividends and
distributions you will receive in calendar 1993.
B-39
<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 edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protec-
tive elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured.) Interest
payments and principal security appear adequate for the present, but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment charac-
teristics and in fact have speculative characteristics as well.
Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year.
P-1: Issues rated Prime-1 or P-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
P-2: Issues rated Prime-2 or P-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations.
STANDARD & POOR'S CORPORATION
Bond Ratings
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher-rated categories.
Commercial Paper Ratings
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. A "+" designation is
applied to those issues rated A-1 which possess an overwhelming degree of
safety.
A-2: Capacity for timely payment on issues with the designation A-2 is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
A-1
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) Financial statements included in the Prospectus constituting Part A
of this Registration Statement:
Financial Highlights.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at April 30, 1993.
Statement of Assets and Liabilities at April 30, 1993.
Statement of Operations for the year ended April 30, 1993.
Statement of Changes in Net Assets for the years ended April 30,
1993 and April 30, 1992.
Notes to Financial Statements.
Financial Highlights.
Independent Auditors' Report.
(b) Exhibits:
1. (a) Articles of Incorporation of the Registrant, incorporated by
reference to Exhibit No. 1 to Registration Statement on Form N-1A
filed on February 23, 1990 (File No. 33-33477).
(b) Articles of Amendment to Articles of Incorporation of Registrant.
Incorporated by reference to Exhibit No.1(b) to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A filed on
April 30, 1990(File No. 33-33477).
(c) Articles of Amendment and Restatement to Articles of Incorporation
of the Registrant. Incorporated by reference to Exhibit No. 1(c) to
Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1 Afiled on May 21, 1990 (File No. 33-33477).
(d) Articles of Amendment of Articles of Incorporation. Incorporated by
reference to Exhibit No. 1(d) to Post-Effective Amendment No. 3 to
the Registration Statement on Form N-1A filed on June 30, 1992(File
No. 33-33477).
(e) Form of Amended and Restated Articles of Incorporation.*
2. By-Laws of the Registrant. Incorporated by reference to Exhibit No.
2 to the Registration Statement on Form N-1A filed on February 23,
1990 (File No. 33-33477).
4. (a) Specimen certificate for Class A shares of common stock, $.001
par value, of the Registrant. Incorporated by reference to Exhibit
4(a) to Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A filed on November 30, 1990 (File No. 33-33477).
(b) Specimen certificate for Class B shares of common stock, $.001
par value, of the Registrant. Incorporated by reference to Exhibit
4(b) to Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A filed on November 30, 1990 (File No. 33-33477).
-----------
*Filed herewith.
C-1
<PAGE>
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc. Incorporated by reference to Exhibit
5(a) to Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A filed on November 30, 1990 (File No. 33-33477).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation. Incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No. 1 to
the Registration Statement on Form N-1A filed on November 30, 1990
(File No. 33-33477).
6. (a) Distribution Agreement between the Registrant and Prudential
Mutual Fund Distributors, Inc. Incorporated by reference to Exhibit
No. 5(a) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on November 30, 1990 (File No.
33-33477).
(b) Distribution Agreement between the Registrant and
Prudential-Bache Securities Inc. Incorporated by reference to
Exhibit No. 6(b) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on November 30, 1990 (File
No. 33-33477).
(c) Form of Restated Distribution and Service Agreement for Class A
shares.*
(d) Form of Restated Distribution and Service Agreement for Class B
shares.*
(e) Form of Restated Distribution and Service Agreement for Class C
shares.*
8. Custodian Contract between the Registrant and State Street Bank and
Trust Company. Incorporated by reference to Exhibit No. 8 to
Post-Effective Amendment No. 1 to the Registration Statement on Form
N-1A filed on November 30, 1990 (File No. 33-33477).
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. Incorporated by reference to
Exhibit No. 9 to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on November 30, 1990 (File No.
33-33477).
10. (a) Opinion of Counsel. Incorporated by reference to Exhibit No. 10
to Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A filed on May 21, 1990 (File No. 33-33477).
(b) Opinion of Counsel. Incorporated by reference to Exhibit 10(b)
to Post-Effective Amendment No. 4 to the Registration Statement on
Form N-1A filed on June 30, 1993 (File No. 33-33477).
11. Consent of Independent Accountants.*
13. Purchase Agreement. Incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A filed on May 21, 1990 (File No. 33-33477).
15. (a) Plan of Distribution pursuant to Rule 12b-1 for Class A shares.
Incorporated by reference to Exhibit No. 15(a)to Post-Effective
Amendment No. 1 to the Registration Statement on Form N-1A filed on
November 30, 1990(File No. 33-33477).
(b) Plan of Distribution pursuant to Rule 12b-1 for Class B shares.
Incorporated by reference to Exhibit No. 15(b)to Post-Effective
Amendment No. 1 to the Registration Statement on Form N-1A filed on
November 30, 1990(File No. 33-33477).
(c) Form of Distribution and Service Plan for Class A shares.*
(d) Form of Distribution and Service Plan for Class B shares.*
(e) Form of Distribution and Service Plan for Class C shares.*
16. (a) Schedule of Computation of Performance Quotations (Class A
Shares). Incorporated by reference to Exhibit No. 16(a) to
Post-Effective Amendment No. 1 to the Registration Statement on Form
N-1A filed on November 30, 1990 (File No. 33-33477).
(b) Schedule of Computation of Performance Quotations (Class B
Shares). Incorporated by reference to Exhibit No. 16(b) to
Post-Effective Amendment No. 1 to the Registration Statement on Form
N-1A filed on November 30, 1990 (File No. 33-33477).
------------
*Filed herewith.
C-2
<PAGE>
Other Exhibits
Powers of Attorney for
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Lawrence C. McQuade
Thomas T. Mooney
Louis A. Weil, III
Executed copies filed under Other Exhibits to Pre-Effective Amendment No. 2 to
the Registration Statement on Form N-1A(File No. 33-33477) filed on May 21,
1990.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of March 31, 1994 there were 1,550 and 1,960 record holders of Class A
and Class B shares, respectively, of common stock, $.001 par value per share,
of the Registrant.
Item 27. Indemnification.
As permitted by Section 17(h) and (i) of the Investment Company Act of
1940 (the 1940 Act) and pursuant to Article VII of the Fund's By-Laws (Exhibit
2 to the Registration Statement), officers, directors, employees and agents of
the Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against liabili-
ties in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of each Distribution Agreement (Exhibits 6(a)
and 6(b) to the Registration Statement), each Distributor of the Registrant
may be indemnified against liabilities which it may incur, except liabilities
arising from bad faith, gross negligence, willful misfeasance or reckless
disregard of duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (Securities Act) may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1940 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed
by the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers
and directors against liabilities, and certain costs of defending claims
against such officers and directors, to the extent such officers and directors
are not found to have committed conduct constituting willful misfeasance, bad
faith, gross negligence or reckless disregard in the performance of their
duties. The insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain
circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund Manage-
ment, Inc. (PMF) and The Prudential Investment Corporation (PIC), respective-
ly, to liabilities arising from willful misfeasance, bad faith or gross
negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
C-3
<PAGE>
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consis-
tent with Release No. 11330 of the Securities and Exchange Commission under
the 1940 Act so long as the interpretation of Section 17(h) and 17(i) of such
Act remain in effect and are consistently applied.
Item 28. Business and other Connections of Investment Adviser.
(i) Prudential Mutual Fund Management, Inc. (PMF)
See "How the Fund is Managed--Manager" in the Prospectus constituting
Part A of this Registration Statement and "Manager" in the Statement of
Additional Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed in October 1993).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
Brendan D. Doyle Executive Vice Executive Vice President and
President and Director of Marketing, PMF
Director of Mar-
keting
John D. Brookmeyer, Director Senior Vice President, The
Jr. Prudential Insurance Company
Two Gateway Center of America (Prudential);
Newark, NJ 07102 Senior Vice President, PIC
Susan C. Cote Senior Vice Senior Vice President, PMF; Senior
President Vice President, Prudential Securi-
ties
Fred A. Fiandaca Executive Vice Executive Vice President, Chief
Raritan Plaza One President, Chief Operating Officer and Director,
Edison, NJ 08847 Operating Officer PMF; Chairman, Chief Operating
and Director Officer and Director, Prudential
Mutual Fund Services, Inc.
Stephen P. Fisher Senior Vice Senior Vice President, PMF; Senior
President Vice President, Prudential Securi-
ties
Frank W. Giordano Executive Vice Executive Vice President, General
President, General Counsel and Secretary, PMF; Senior
Counsel and Sec- Vice President, Prudential Securi-
retary ties
Robert F. Gunia Executive Vice Executive Vice President, Chief
President, Chief Chief Financial and Administrative
Financial Officer, Treasurer and Director, PMF;
and Administrative Senior Vice President, Prudential
Officer, Treasurer Securities
and Director
Eugene B. Heimberg Director Senior Vice President, Prudential;
Prudential Plaza Director and Chief Investment
Newark, NJ 07101 Officer, PIC
Lawrence C. McQuade Vice Chairman Vice Chairman, PMF
Leland B. Paton Director Executive Vice President and Di-
rector, Prudential Securities;
Director, Prudential Securities
Group, Inc. (PSG)
C-4
<PAGE>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
Richard A. Redeker President, Chief President, Chief Executive Officer
Executive Officer and Director, PMF; Executive Vice
and Director President, Director and Member of
Operating Committee, Prudential
Securities; Director, PSG
S. Jane Rose Senior Vice Senior Vice President, Senior
President, Counsel and Assistant Secretary,
Senior Counsel PMF; Senior Vice President and
and Assistant Senior Counsel, Prudential Securi-
Secretary ties
Donald G. Southwell Director Senior Vice President, Prudential;
213 Washington Director, PSG
Street
Newark, NJ 07102
(ii) Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Subadviser" in the Prospectus constituting
Part A of this Registration Statement and "Subadviser" in the Statement of
Additional Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person is Prudential Plaza, Newark, NJ 07102.
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------------------
Martin A. Berkowitz Senior Vice Vice President, Prudential; Senior Vice
President, Chief President, and Chief Financial and
Financial and Compliance Officer, PIC;
Compliance Officer
William M. Bethke Senior Vice Senior Vice President, Prudential;
Two Gateway Center President Senior Vice President, PIC
Newark, NJ 07102
John D. Brookmeyer, Senior Vice Senior Vice President, Prudential;
Jr. President Senior Vice President, PIC
Two Gateway Center
Newark, NJ 07102
Eugene B. Heimberg President, Senior Vice President, Prudential;
Director and President, Director and Chief In-
Chief Investment vestment Officer, PIC
Officer
Garnett L. Keith, Director Vice Chairman and Director, Pru-
Jr. dential; Director, PIC
Harry E. Knapp, Jr. Vice President Vice President, Prudential; Vice
Four Gateway Center President, PIC
Newark, NJ 07102
William P. Link Senior Vice Executive Vice President, Pruden-
Four Gateway Center President tial; Senior Vice President, PIC
Newark, NJ 07102
Robert E. Riley Executive Vice Executive Vice President, Pruden-
800 Boylston Avenue President tial; Executive Vice President,
Boston, MA 02199 PIC; Director, PSG
C-5
<PAGE>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------------------
James W. Stevens Executive Vice Executive Vice President, Pruden-
Four Gateway Center President tial; Executive Vice President,
Newark, NJ 07102 PIC; Director, PSG
Robert C. Winters Director Chairman of the Board and Chief
Executive Officer, Prudential;
Director, PIC; Chairman of the
Board, PSG
Claude J. Zinngrabe, Executive Vice Vice President, Prudential; Execu-
Jr. President tive Vice President, PIC
Item 29. Principal Underwriters.
(a)(i) Prudential Securities Incorporated
Prudential Securities Incorporated is distributor for Prudential
Government Securities Trust (Intermediate Term Series), The Target Portfolio
Trust and for Class B shares of Prudential Adjustable Rate Securities Fund,
Inc., The BlackRock Government Income Trust, Prudential Allocation Fund,
Prudential California Municipal Fund (California Series and California Income
Series), Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Global Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential
Global Natural Resources Fund, Inc., Prudential GNMA Fund, Inc., Prudential
Government Income Fund, Inc., Prudential Growth Fund, Inc., Prudential Growth
Opportunity Fund, Inc., Prudential High Yield Fund, Inc., Prudential
IncomeVertible (R) Fund, Inc., Prudential Intermediate Global Income Fund, Inc.,
Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund (except Connecticut Money Market Series, Massachusetts
Money Market Series, New York Money Market Series, New Jersey Money Market
Series and Florida Series), Prudential National Municipals Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Short-Term Global Income
Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential U.S.
Government Fund, Prudential Utility Fund, Inc., Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund) and The
BlackRock Government Income Trust. Prudential Securities is also a depositor
for the following unit investment trusts:
The Corporate Income Fund
Corporate Investment Trust Fund
Equity Income Fund
Government Securities Income Fund
International Bond Fund
Municipal Investment Trust
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(ii) Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series and Class A Shares
of the California Series and California Income Series), Prudential Government
Securities Trust (Money Market Series and U.S. Treasury Money Market Series),
Prudential-Bache MoneyMart Assets (d/b/a Prudential MoneyMart Assets),
Prudential Municipal Series Fund (Connecticut Money Market Series, Massachu-
setts Money Market Series, New York Money Market Series, New Jersey Money
Market Series), Prudential Institutional Liquidity Portfolio, Inc.,
Prudential-Bache Special Money Market Fund, Inc. (d/b/a Prudential Special
Money Market Fund), Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Pruden-
tial Tax-Free Money Fund), and for Class A shares of Prudential Adjustable
Rate Securities Fund, Inc., Prudential Allocation Fund, The BlackRock Govern-
ment Income Trust, Prudential Equity Fund, Inc., Prudential Equity Income
Fund, Prudential Global Fund, Inc., Prudential Global Genesis Fund, Inc.,
Prudential Global Natural Resources Fund, Inc., Prudential GNMA Fund, Inc.,
Prudential Government Income Fund, Inc., Prudential Growth Fund, Inc.,
Prudential Growth Opportunity Fund, Inc., Prudential High Yield Fund, Inc,
Prudential IncomeVertible (R) Fund, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond
Fund, Prudential Municipal Series Fund (Arizona Series, Florida Series,
Georgia Series, Maryland
C-6
<PAGE>
Series, Massachusetts Series, Michigan Series, Minnesota Series, New Jersey
Series, North Carolina Series, Ohio Series and Pennsylvania Series),
Prudential National Municipals Fund, Inc., Prudential Pacific Growth Fund,
Inc., Prudential Short-Term Global Income Fund, Inc., Prudential Structured
Maturity Fund, Inc., Prudential U.S. Government Fund and Prudential Utility
Fund, Inc., Global Utility Fund, Inc,. and Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund) and The BlackRock Government Income
Trust.
(b)(i) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below.
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ----------------- ------------------------------------- ----------------
Alan D. Hogan . . Executive Vice President, Chief
Administrative Officer and
Director None
Howard A. Knight Executive Vice President, Director,
Corporate Strategy and
New Business Development None
George A. Murray Executive Vice President
and Director None
John P. Murray . Executive Vice President
and Director of Risk
Management None
Leland B. Paton . Executive Vice President
and Director None
Richard A. Redeker Director Director
Hardwick Simmons Chief Executive Officer, President
and Director None
Lee Spencer . . . Interim General Counsel None
(b)(ii) Information concerning the officers and directors of Prudential
Mutual Fund Distributors, Inc. is set forth below.
Joanne Accurso-Soto Vice President None
Dennis Annarumma Vice President, Assistant
Treasurer and Assistant
Comptroller None
Phyllis J. Berman Vice President None
Fred A. Fiandaca President, Chief Executive
Raritan Plaza One Officer and Director None
Edison, NJ 08847
Stephen P. Fisher Vice President None
Frank W. Giordano Executive Vice President, General
Counsel, Secretary and Director None
Robert F. Gunia . Executive Vice President,
Treasurer, Director and
Comptroller Vice President
Andrew J. Varley Vice President None
Anita L. Whelan . Vice President and Assistant
Secretary None
- ------------
(1) The address of each person named is One Seaport Plaza, New York, NY
10292 unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated
person of the Registrant.
C-7
<PAGE>
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential
Plaza, 745 Broad Street, Newark, New Jersey, the Registrant, One Seaport
Plaza, New York, New York, and Prudential Mutual Fund Services, Inc., Raritan
Plaza One, Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6),
(7), (9), (10) and (11) and 31a-1(f) will be kept at Three Gateway Center,
documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport
Plaza and the remaining accounts, books and other documents required by such
other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services, Inc.
Item 31. Management Services
Other than as set forth under the captions "How the Fund is
Managed--Manager" and "How the Fund is Managed--Distributor" in the Prospectus
and the captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service
contract.
Item 32. Undertakings
The Registrant undertakes to furnish to each person to whom a Prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of New York, and State of
New York, on the 6th day of May, 1994.
PRUDENTIAL MULTI-SECTOR FUND, INC.
By: /s/ Lawrence C. McQuade
-------------------------------------
(Lawrence C. McQuade, President)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
Signature Title Date
- ----------------------- ------------------ ---------
/s/ SUSAN C. COTE Treasurer and Principal May 6, 1994
- ----------------------------- Financial and Accounting
Susan C. Cote Officer
/s/ EDWARD D. BEACH Director May 6, 1994
- -----------------------------
Edward D. Beach
/s/ DONALD D. LENNOX Director May 6, 1994
- -----------------------------
Donald D. Lennox
/s/ DOUGLAS H. MCCORKINDALE Director May 6, 1994
- -----------------------------
Douglas H. McCorkindale
/s/ LAWRENCE C. MCQUADE Director May 6, 1994
- -----------------------------
Lawrence C. McQuade
/s/ THOMAS T. MOONEY Director May 6, 1994
- -----------------------------
Thomas T. Mooney
/s/ RICHARD A. REDEKER Director May 6, 1994
- -----------------------------
Richard A. Redeker
/s/ LOUIS A. WEIL, III Director May 6, 1994
- -----------------------------
Louis A. Weil, III
<PAGE>
EXHIBIT INDEX
Exhibits Description Page No.
-------- ----------- --------
1. (a) Articles of Incorporation of the Registrant, incorporated
by reference to Exhibit No. 1 to Registration Statement on
Form N-1A filed on February 23, 1990 (File No. 33-33477).
(b) Articles of Amendment to Articles of Incorporation of
Registrant. Incorporated by reference to Exhibit No.1(b) to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A filed on April 30, 1990 (File No. 33-33477).
(c) Articles of Amendment and Restatement to Articles of
Incorporation of the Registrant. Incorporated by reference to
Exhibit No. 1(c) to Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on May 21, 1990
(File No. 33-33477).
(d) Articles of Amendment of Articles of Incorporation.
Incorporated by reference to Exhibit No. 1(d) to
Post-Effective Amendment No. 3 to the Registration Statement
on Form N-1A filed on June 30, 1992 (File No. 33-33477).
(e) Form of Amended and Restated Articles of Incorporation.*
2. By-Laws of the Registrant. Incorporated by reference to
Exhibit No. 2 to the Registration Statement on Form N-1A
filed on February 23, 1990 (File No. 33-33477).
4. (a) Specimen certificate for Class A shares of common stock,
$.001 par value, of the Registrant. Incorporated by reference
to Exhibit 4(a) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on November 30,
1990 (File No. 33-33477).
(b) Specimen certificate for Class B shares of common stock,
$.001 par value, of the Registrant. Incorporated by reference
to Exhibit 4(b) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on November 30,
1990 (File No. 33-33477).
5. (a) Management Agreement between the Registrant and
Prudential Mutual Fund Management, Inc. Incorporated by
reference to Exhibit 5(a) to Post-Effective Amendment No. 1
to the Registration Statement on Form N-1A filed on November
30, 1990 (File No. 33-33477).
(b) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation.
Incorporated by reference to Exhibit No. 5(b) to
Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A filed on November 30, 1990 (File No. 33-33477).
6. (a) Amended and Restated Distribution Agreement with respect
to Class A shares between the Registrant and Prudential Mutual
Fund Distributors, Inc.*
(b) Amended and Restated Distribution Agreement with respect
to Class B shares between the Registrant and Prudential
Securities Incorporated.*
(c) Form of Distribution Agreement for Class A shares.*
(d) Form of Distribution Agreement for Class B shares.*
(e) Form of Distribution Agreement for Class C shares.*
8. Custodian Contract between the Registrant and State Street
Bank and Trust Company. Incorporated by reference to Exhibit
No. 8 to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on November 30, 1990 (File No.
33-33477).
9. Transfer Agency and Service Agreement between the Registrant
and Prudential Mutual Fund Services, Inc. Incorporated by
reference to Exhibit No. 9 to Post-Effective Amendment No. 1
to the Registration Statement on Form N-1A filed on November
30, 1990 (File No. 33-33477).
-----------
*Filed herewith.
<PAGE>
EXHIBIT INDEX--Continued
Exhibits Description Page No.
-------- ----------- --------
10. (a) Opinion of Counsel. Incorporated by reference to Exhibit
No. 10 to Pre-Effective Amendment No. 2 to the Registration
Statement on Form N-1A filed on May 21, 1990 (File No.
33-33477).
(b) Opinion of Counsel. Incorporated by reference to Exhibit
10(b) to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A filed on June 30, 1993 (File No.
33-33477).
11. Consent of Independent Accountants.*
13. Purchase Agreement. Incorporated by reference to Exhibit No.
13 to Pre-Effective Amendment No. 2 to the Registration
Statement on Form N-1A filed on May 21, 1990 (File No.
33-33477).
15. (a) Distribution and Service Plan with respect to Class A
shares between the Registrant and Prudential Mutual
Fund Distributors, Inc.*
(b) Distribution and Service Plan with respect to Class B
shares between the Registrant and Prudential Securities
Incorporated.*
(c) Form of Distribution and Service Plan for Class A
shares.*
(d) Form of Distribution and Service Plan for Class B
shares.*
(e) Form of Distribution and Service Plan for Class C
shares.*
16. (a) Schedule of Computation of Performance Quotations (Class
A Shares). Incorporated by reference to Exhibit No. 16 (a) to
Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A filed on November 30, 1990 (File No. 33-33477).
(b) Schedule of Computation of Performance Quotations (Class B
Shares). Incorporated by reference to Exhibit No.16(b) to
Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A filed on November 30, 1990 (File No. 33-33477).
------------
*Filed herewith.
Other Exhibits
Powers of Attorney for
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Lawrence C. McQuade
Thomas T. Mooney
Louis A. Weil, III
Executed copies filed under Other Exhibits to Pre-Effective Amendment
No. 2 to the Registration Statement on Form N-1A (File No. 33-33477)
filed on May 21, 1990.
Exhibit 1(e)
PRUDENTIAL MULTI-SECTOR FUND, INC.
ARTICLES OF RESTATEMENT
PRUDENTIAL MULTI-SECTOR FUND, INC., a Maryland corporation, having its
principal office in the city of Baltimore (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland, that:
FIRST: The charter of the Corporation is restated as follows:
ARTICLE I.
The name of the corporation (hereinafter called the "Corporation") is
Prudential Multi-Sector Fund, Inc.
ARTICLE II.
Purposes
The purpose for which the Corporation is formed is to act as an open-end
investment company of the management type registered as such with the
Securities and Exchange Commission pursuant to the Investment Company Act of
1940, as amended (the "Investment Company Act"), and to exercise and generally
to enjoy all of the powers, rights and privileges granted to, or conferred
upon, corporations by the General Laws of the State of Maryland now or
hereinafter in force.
ARTICLE III.
Address in Maryland
The post office address of the place at which the principal office of the
Corporation in the State of Maryland is located is c/o CT Corporation System,
32 South Street, Baltimore, Maryland 21202 said resident agent South Street,
Baltimore, Maryland 21202.
<PAGE>
The name of the Corporation's resident agent is The Corporation Trust
Incorporated, and its post office address is 32 South Street, Baltimore,
Maryland 21202. Said resident agent is a corporation of the State of Maryland.
ARTICLE IV.
Common Stock
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is 2,000,000,000 shares of the par
value of $.001 per share and of the aggregate par value of $2,000,000 to be
divided initially into three classes, consisting of 666,666,666-2/3 shares of
Class A Common Stock, 666,666,666-2/3 shares of Class B Common Stock and
666,666,666-2/3 shares of Class C Common Stock.
(a) Each share of Class A, Class B and Class C Common Stock of the
Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation and other rights except that (i)
expenses related to the distribution of each class of shares shall be
borne solely by such class; (ii) the bearing of such expenses solely by
shares of each class shall be appropriately reflected (in the manner
determined by the board of Directors) in the net asset value, dividends,
distribution and liquidation rights of the shares of such class; (iii)
the Class A Common Stock shall be subject to a front-end sales load and a
Rule 12b-1 distribution fee as determined by the Board of Directors from
time to time; (iv) the Class B Common Stock shall be subject to a
contingent deferred sales charge and a Rule 12b-1 distribution fee as
determined by the Board of Directors from time to time; and (v) the Class
C Common Stock shall be subject to a contingent deferred sales charge and
a Rule 12b-1 distribution fee as determined by the Board of Directors
from time to time. All shares of each particular class shall represent an
equal proportionate interest in that class, and each share of any
particular class shall be equal to each other share of that class.
2
<PAGE>
(b) Each share of the Class B Common Stock of the Corporation shall
be converted automatically, and without any action or choice on the part
of the holder thereof, into shares (including fractions thereof) of the
Class A Common Stock of the Corporation (computed in the manner
hereinafter described), at the applicable net asset value of each Class,
at the time of the calculation of the net asset value of such Class B
Common Stock at such times, which may vary between shares originally
issued for cash and shares acquired through the automatic reinvestment of
dividends and distributions with respect to Class B Common Stock, (each
"Conversion Date") determined by the Board of Directors in accordance
with applicable laws, rules, regulations and interpretations of the
Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. and pursuant to such procedures as may be
established from time to time by the Board of Directors and disclosed in
the Corporation's then current prospectus for such Class A and Class B
Common Stock.
(c) The number of shares of the Class A Common Stock of the
Corporation into which a share of the Class B Common Stock is converted
pursuant to Paragraph (1)(b) hereof shall equal the number (including for
this purpose fractions of a share) obtained by dividing the net asset
value per share of the Class B Common Stock for purposes of sales and
redemptions thereof at the time of the calculation of the net asset value
on the Conversion Date by the net asset value per share of Class A Common
Stock for purposes of sales and redemptions thereof at the time of the
calculation of the net asset value on the Conversion Date.
(d) On the Conversion Date, the shares of the Class B Common Stock
of the Corporation converted into shares of the Class A Common Stock will
cease to accrue dividends and will no longer be outstanding and the
rights of the holders thereof will cease (except the right to receive
declared but unpaid dividends to the Conversion Date).
(e) The Board of Directors shall have full power and authority to
adopt such other terms and conditions concerning the conversion of shares
of the Class B Common
3
<PAGE>
Stock to shares of the Class A Common Stock as they
deem appropriate; provided such terms and conditions are not inconsistent
with the terms contained in this Section 1 and subject to any
restrictions or requirements under the Investment Company Act of 1940 and
the rules, regulations and interpretations thereof promulgated or issued
by the Securities and Exchange Commission, any conditions or limitations
contained in an order issued by the Securities and Exchange Commission
applicable to the Corporation, or any restrictions or requirements under
the Internal Revenue Code of 1986, as amended, and the rules, regulations
and interpretations promulgated or issued thereunder.
Section 2. The Board of Directors may, in its discretion, classify and
reclassify any unissued shares of the capital stock of the Corporation into
one or more additional or other classes or series by setting or changing in
any one or more respects the designations, conversion or other rights,
restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares and pursuant to such classification or
reclassification to increase or decrease the number of authorized shares of
any existing class or series. If designated by the Board of Directors,
particular classes or series of capital stock may relate to separate
portfolios of investments.
Section 3. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, the holders of each class and series of capital stock of the
Corporation shall be entitled to dividends and distributions in such amounts
and at such times as may be determined by the Board of Directors, and the
dividends and distributions paid with respect to the various classes or series
of capital stock may vary among such classes or series. Expenses related to
the distribution of, and other identified expenses that should properly be
allocated to, the shares of a particular class or series of capital stock may
be charged to and borne solely by such class or series and the bearing of
expenses solely by a class or series may be appropriately reflected (in a
manner determined by the Board of Directors) and cause differences in the net
asset value attributable to, and the
4
<PAGE>
dividend, redemption and liquidation rights of, the shares of each such
class or series of capital stock.
Section 4. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to one
vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of
all classes and series shall vote together as a single class; provided,
however, that (a) as to any matter with respect to which a separate vote of
any class or series is required by the Investment Company Act, and in effect
from time to time, or any rules, regulations or orders issued thereunder, or
by the Maryland General Corporation Law, such requirement as to a separate
vote by that class or series shall apply in lieu of a general vote of all
classes and series as described above; (b) in the event that the separate vote
requirements referred to in (a) above apply with respect to one or more
classes or series, then subject to paragraph (c) below, the shares of all
other classes and series not entitled to a separate vote shall vote together
as a single class; and (c) as to any matter which in the judgment of the Board
of Directors (which shall be conclusive) does not affect the interest of a
particular class of series, such class or series shall not be entitled to any
vote and only the holders of shares of the one or more affected classes and
series shall be entitled to vote.
Section 5. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, holders of shares of
capital stock of the Corporation shall be entitled, after payment or provision
for payment of the debts and other liabilities of the Corporation (as such
liabilities may affect one or more of the classes of shares of capital stock
of the Corporation), to share ratably in the remaining net assets of the
Corporation; provided, however, that in the event the capital stock of the
Corporation shall be classified or reclassified into series, holders of any
shares of capital
5
<PAGE>
stock within such series shall be entitled to share ratably out of assets
belonging to such series pursuant to the provisions of Section 7(c) of this
Article IV.
Section 6. Each share of any class of the capital stock of the Corporation,
and in the event the capital stock of the Corporation shall be classified or
reclassified into series, each share of any class of capital stock of the
Corporation within such series shall be subject to the following provisions:
(a) The net asset value of each outstanding share of capital stock
of the Corporation (or of a class or series, in the event the capital
stock of the Corporation shall be so classified or reclassified into
series), subject to subsection (b) of this Section 6, shall be the
quotient obtained by dividing the value of the net assets of the
Corporation (or the net assets of the Corporation attributable or
belonging to that class or series as designated by the Board of Directors
pursuant to Articles Supplementary) by the total number of outstanding
shares of capital stock of the Corporation (or of such class or series,
in the event the capital stock of the Corporation shall be classified or
reclassified into series). Subject to subsection (b) of this Section 6,
the value of the net assets of the Corporation (or of such class or
series, in the event the capital stock of the Corporation shall be
classified or reclassified into series) shall be determined pursuant to
the procedures or methods (which procedures or methods, in the event the
capital stock of the Corporation shall be classified or reclassified into
series, may differ from class to class or from series to series)
prescribed or approved by the Board of Directors in its discretion, and
shall be determined at the time or times (which time or times may, in the
event the capital stock of the Corporation shall be classified into
classes or series, differ from series to series) prescribed or approved
by the Board of Directors in its discretion. In addition, subject to
subsection (b) of this Section 6, the Board of Directors, in its
discretion, may suspend the daily determination of net asset value of any
share of any series or class of capital stock of the Corporation.
6
<PAGE>
(b) The net asset value of each share of the capital stock of the
Corporation or any class or series thereof shall be determined in
accordance with any applicable provision of the Investment Company Act,
any applicable rule, regulation or order of the Securities and Exchange
Commission thereunder, and any applicable rule or regulation made or
adopted by any securities association registered under the Securities
Exchange Act of 1934.
(c) All shares now or hereafter authorized shall be subject to
redemption and redeemable at the option of the stockholder pursuant to
the applicable provisions of the Investment Company Act and laws of the
State of Maryland, including any applicable rules and regulations
thereunder. Each holder of a share of any class or series, upon request
to the Corporation (if such holder's shares are certificated, such
request being accompanied by surrender of the appropriate stock
certificate or certificates in proper form for transfer), shall be
entitled to require the Corporation to redeem all or any part of such
shares outstanding in the name of such holder of the books of the
Corporation (or as represented by share certificates surrendered to the
Corporation by such redeeming holder) at a redemption price per share
determined in accordance with subsection (a) of this Section 6.
(d) Notwithstanding subsection (c) of this Section 6, the Board of
Directors of the Corporation may suspend the right of the holders of
shares of any or all classes or series of capital stock to require the
Corporation to redeem such shares or may suspend any purchase of such
shares:
(i) for any period (A) during which the New York Stock
Exchange is closed, other than customary weekend and holiday
closings, or (B) during which trading on the New York Stock Exchange
is restricted;
(ii) for any period during which an emergency, as defined by
the rules of the Securities and Exchange Commission or any successor
thereto, exists as a result of which (A) disposal by the Corporation
of securities owned by it and
7
<PAGE>
belonging to the affected series of
capital stock (or the Corporation, if the shares of capital stock of
the Corporation have not been classified or reclassified into
series) is not reasonably practicable, or (B) it is not reasonably
practicable for the Corporation fairly to determine the value of the
net assets of the affected series of capital stock; or
(iii) for such other periods as the Securities and Exchange
Commission or any successor thereto may by order permit for the
protection of the holders of shares of capital stock of the
Corporation.
(e) All shares of the capital stock of the Corporation now or
hereafter authorized shall be subject to redemption and redeemable at the
option of the Corporation. The Board of Directors may by resolution from
time to time authorize the Corporation to require the redemption of all
or any part of the outstanding shares of any class or series upon the
sending of written notice thereof to each holder whose shares are to be
redeemed and upon such terms and conditions as the Board of Directors, in
its discretion, shall deem advisable, out of funds legally available
therefor, at the net asset value per share of that class or series
determined in accordance with subsections (a) and (b) of this Section 6
and take all other steps deemed necessary or advisable in connection
therewith.
(f) The Board of Directors may by resolution from time to time
authorize the purchase by the Corporation, either directly or through an
agent, of shares of any class or series of the capital stock of the
Corporation upon such terms and conditions and for such consideration as
the Board of Directors, in its discretion, shall deem advisable out of
funds legally available therefor at prices per share not in excess of the
net asset value per share of that class or series determined in
accordance with subsections (a) and (b) of this Section 6 and to take all
other steps deemed necessary or advisable in connection therewith.
8
<PAGE>
(g) Except as otherwise permitted by the Investment Company Act,
payment of the redemption price of shares of any class or series of the
capital stock of the Corporation surrendered to the Corporation for
redemption pursuant to the provisions of subsection (c) of this Section 6
or for purchase by the Corporation pursuant to the provisions of
subsection (e) or (f) of this Section 6 shall be made by the Corporation
within seven days after surrender of such shares to the Corporation for
such purpose. Any such payment may be made in whole or in part in
portfolio securities or in cash, as the Board of Directors, in its
discretion, shall deem advisable, and no stockholder shall have the
right, other than as determined by the Board of Directors, to have his or
her shares redeemed in portfolio securities.
(h) In the absence of any specification as to the purposes for
which shares are redeemed or repurchased by the Corporation, all shares
so redeemed or repurchased shall be deemed to be acquired for retirement
in the sense contemplated by the laws of the State of Maryland. Shares of
any class or series retired by repurchase or redemption shall thereafter
have the status of authorized but unissued shares of such class or
series.
Section 7. In the event the Board of Directors shall authorize the
classification or reclassification of shares into classes or series, the Board
of Directors may (but shall not be obligated to) provide that each class or
series shall have the following powers, preferences and voting or other
special rights, and the qualifications, restrictions and limitations thereof
shall be as follows:
(a) All consideration received by the Corporation for the issue or
sale of shares of capital stock of each series, together with all income,
earnings, profits, and proceeds received thereon, including any proceeds
derived from the sale, exchange or liquidation thereof, and any funds or
payments derived from any reinvestment of such proceeds in whatever form
the same may be, shall irrevocably belong to the series with respect to
which such assets, payments or funds were received by the Corporation for
all purposes, subject only to the rights of creditors, and shall be so
handled upon the books
9
<PAGE>
of account of the Corporation. Such assets,
payments and funds, including any proceeds derived from the sale,
exchange or liquidation thereof, and any assets derived from any
reinvestment of such proceeds in whatever form the same may be, are
herein referred to as "assets belonging to" such series.
(b) The Board of Directors may from time to time declare and pay
dividends or distributions, in additional shares of capital stock of such
series or in cash, on any or all series of capital stock, the amount of
such dividends and the means of payment being wholly in the discretion of
the Board of Directors.
(i) Dividends or distributions on shares of any series shall
be paid only out of earned surplus or other lawfully available
assets belonging to such series.
(ii) Inasmuch as one goal of the Corporation is to qualify as a
"regulated investment company" under the Internal Revenue Code of
1986, as amended, or any successor or comparable statute thereto,
and Regulations promulgated thereunder, and inasmuch as the
computation of net income and gains for federal income tax purposes
may vary from the computation thereof on the books of the
Corporation, the Board of Directors shall have the power, in its
discretion, to distribute in any fiscal year as dividends, including
dividends designated in whole or in part as capital gains
distributions, amounts sufficient, in the opinion of the Board of
Directors, to enable the Corporation to qualify as a regulated
investment company and to avoid liability for the Corporation for
federal income tax in respect of that year. In furtherance, and not
in limitation of the foregoing, in the event that a series has a net
capital loss for a fiscal year, and to the extent that the net
capital loss offsets net capital gains from such series, the amount
to be deemed available for distribution to that series with the net
capital gain may be reduced by the amount offset.
10
<PAGE>
(c) In the event of the liquidation or dissolution of the
Corporation, holders of shares of capital stock of each series shall be
entitled to receive, as a series, out of the assets of the Corporation
available for distribution to such holders, but other than general assets
not belonging to any particular series, the assets belonging to such
series; and the assets so distributable to the holders of shares of
capital stock of any series shall be distributed, subject to the
provisions of subsection (d) of this Section 7, among such stockholders
in proportion to the number of shares of such series held by them and
recorded on the books of the Corporation. In the event that there are any
general assets not belonging to any particular series and available for
distribution, such distribution shall be made to the holders of all
series in proportion to the net asset value of the respective series
determined in accordance with the charter of the Corporation.
(d) The assets belonging to any series shall be charged with the
liabilities in respect to such series, and shall also be charged with its
share of the general liabilities of the Corporation, in proportion to the
asset value of the respective series determined in accordance with the
charter of the Corporation. The determination of the Board of Directors
shall be conclusive as to the amount of liabilities, including accrued
expenses and reserves, as to the allocation of the same as to a given
series, and as to whether the same or general assets of the Corporation
are allocable to one or more classes.
Section 8. Any fractional shares shall carry proportionately all the
rights of a whole share, excepting any right to receive a certificate
evidencing such fractional share, but including, without limitation, the right
to vote and the right to receive dividends.
Section 9. No holder of shares of Common Stock of the Corporation shall,
as such holder, have any pre-emptive right to purchase or subscribe for any
shares of the Common Stock of the Corporation of any class or series which it
may issue or sell (whether out of the number of shares authorized by the
Articles of Incorporation, or out of any shares of the Common Stock of the
Corporation acquired by it after the issue thereof, or otherwise).
11
<PAGE>
Section 10. All persons who shall acquire any shares of capital stock of
the Corporation shall acquire the same subject to the provisions of the
charter and By-Laws of the Corporation.
Section 11. Notwithstanding any provisions of law requiring action to be
taken or authorized by the affirmative vote of the holders of a designated
proportion greater than a majority of the outstanding shares of all classes or
series or of the outstanding shares of a particular class or classes or
series, as the case may be, such action shall be valid and effective if taken
or authorized by the affirmative vote of the holders of a majority of the
total number of shares of all classes or series or of the total number of
shares of such class or classes or series, as the case may be, entitled to
vote thereupon pursuant to the provisions of these Articles of Incorporation.
ARTICLE V.
Directors
The initial number of directors of the Corporation shall be three, and
the names of those who shall act as such until the first meeting of
stockholders and until their successors are duly elected and qualify are as
follows:
J. Hamilton Crawford, Jr.
S. Jane Rose
Ronald Amblard
The By-Laws of the Corporation may fix the number of directors at no less than
three and may authorize the Board of Directors, by the vote of a majority of
the entire Board of Directors, to increase or decrease the number of directors
within a limit specified in the By-Laws (provided that, if there are no shares
outstanding, the number of directors may be less than three but increase in
the number of directors. Unless otherwise provided by the By-Laws of the
Corporation, the directors of the Corporation need not be stockholders.
12
<PAGE>
The By-Laws of the Corporation may divide the directors of the
Corporation into classes and prescribe the tenure of office of the several
classes; but no class shall be elected for a period shorter than one year or
for a period longer than five years, and the term of office of at least one
class shall expire each year.
ARTICLE VI.
Indemnification and Limitation of
Liability of Directors and Officers
Section 1. The Corporation shall indemnify to the fullest extent
permitted by law (including the Investment Company Act), as currently in
effect or as the same may hereafter be amended, any person made or threatened
to be made a party to any action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that such person or
such person's testator or intestate is or was a director or officer of the
Corporation or serves or served at the request of the Corporation any other
enterprise as a director or officer. To the fullest extent permitted by law
(including the Investment Company Act), as currently in effect or as the same
may hereafter be amended, expenses incurred by any such person in defending
any such action, suit or proceeding shall be paid or reimbursed by the
Corporation promptly upon receipt by it of an undertaking of such person to
repay such expenses if it shall ultimately be determined that such person is
not entitled to be indemnified by the Corporation. The rights provided to any
person by this Article V shall be enforceable against the Corporation by such
person who shall be presumed to have relied upon it in serving or continuing
to serve as a director or officer as provided above. No amendment of this
Article VI shall impair the rights of any person arising at any time with
respect to events occurring prior to such amendment. For purposes of this
Article VI, the term "Corporation" shall include any predecessor of the
Corporation and any constituent corporation (including any constituent of a
constituent) absorbed by the Corporation in a consolidation or merger; the
term "other enterprise" shall include any corporation, partnership, joint
venture, trust or employee benefit plan; service "at the request of
13
<PAGE>
the Corporation" shall include service as a director or officer of the
Corporation which imposes duties on, or involves services by, such director or
officer with respect to an employee benefit plan, its participants or
beneficiaries; any excise taxes assessed on a person with respect to an
employee benefit plan shall be deemed to be indemnifiable expenses; and action
by a person with respect to any employee benefit plan which such person
reasonably believes to be in the interest of the participants and
beneficiaries of such plan shall be deemed to be action not opposed to the
best interests of the Corporation.
Section 2. A director or officer of the Corporation shall not be liable
to the Corporation or its stockholders for monetary damages as a director or
officer, except to the extent such exemption from liability or limitation
thereof is not permitted bylaw (including the Investment Company Act) as
currently in effect or as the same may hereafter be amended. No amendment,
modification or repeal of this Article VI shall adversely affect any right or
protection of a director or officer that exists at the time of such amendment,
modification or repeal.
ARTICLE VII.
Miscellaneous
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and for creating,
defining, limiting and regulating the powers of the Corporation, the directors
and the stockholders.
Section 1. The Board of Directors shall have the management and control of
the property, business and affairs of the Corporation and is hereby vested
with all the powers possessed by the Corporation itself so far as is not
inconsistent with law or these Articles of Incorporation. In furtherance and
without limitation of the foregoing provisions, it is expressly declared that,
subject to these Articles of Incorporation, the Board of Directors shall have
power:
(a) To make, alter, amend or repeal from time to time the By-Laws
of the Corporation except as such power may otherwise be limited in the
By-Laws.
14
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(b) To issue shares of any class or series of the capital stock of
the Corporation.
(c) To authorize the purchase of shares of any class or series in
the open market or otherwise, at prices not in excess of their net asset
value for shares of that class, series or class within such series
determined in accordance with subsections (a) and (b) of Section 6 of
Article IV hereof, provided that the Corporation has assets legally
available for such purpose, and to pay for such shares in cash,
securities or other assets then held or owned by the Corporation.
(d) To declare and pay dividends and distributions from funds
legally available therefor on shares of such class or series, in such
amounts, if any, and in such manner (including declaration by means of a
formula or other similar method of determination whether or not the
amount of the dividend or distribution so declared can be calculated at
the time of such declaration) and to the holders of record as of such
date, as the Board of Directors may determine.
(e) To take any and all action necessary or appropriate to maintain
a constant net asset value per share for shares of any class, series or
class within such series.
Section 2. Any determination made in good faith and, so far as accounting
matters are involved, in accordance with generally accepted accounting
principles applied by or pursuant to the direction of the Board of Directors
or as otherwise required or permitted by the Securities and Exchange
Commission, shall be final and conclusive, and shall be binding upon the
Corporation and all holders of shares, past, present and future, of each class
or series, and shares are issued and sold on the condition and undertaking,
evidenced by acceptance of certificates for such shares by, or confirmation of
such shares being held for the account of, any stockholder, that any and all
such determinations shall be binding as aforesaid.
Nothing in this section 2 shall be construed to protect any director or
officer of the Corporation against liability to the Corporation or its
stockholders to which such director or
15
<PAGE>
officer would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Section 3. The directors of the Corporation may receive compensation for
their services, subject, however, to such limitations with respect thereto as
may be determined from time to time by the holders of shares of capital stock
of the Corporation.
Section 4. Except as required by law, the holders of shares of capital
stock of the Corporation shall have only such right to inspect the records,
documents, accounts and books of the Corporation as may be granted by the
Board of Directors of the Corporation.
Section 5. Any vote of the holders of shares of capital stock of the
Corporation authorizing liquidation of the Corporation or proceedings for its
dissolution may authorize the Board of Directors to determine, as provided
herein, or if provision is not made herein, in accordance with generally
accepted accounting principles, which assets are the assets belonging to the
Corporation or any series thereof available for distribution to the holders of
the Corporation or any series thereof (pursuant to the provisions of Section 7
of Article IV hereof) and may divide, or authorize the Board of Directors to
divide, such assets among the stockholders of the shares of capital stock of
the Corporation or any series thereof in such manner as to ensure that each
such holder receives an amount from the proceeds of such liquidation or
dissolution that such holder is entitled to, as determined pursuant to the
provisions of Sections 3 and 7 of Article IV hereof.
ARTICLE VIII.
Amendments
The Corporation reserves the right from time to time to amend, alter or
repeal any of the provisions of these Articles of Incorporation (including any
amendment that changes the terms of any of the outstanding shares by
classification, reclassification or otherwise), and to add or insert any other
provisions that may, under the statutes of the State of Maryland at the time
in force, be lawfully contained in articles of incorporation, and all rights
at any time conferred upon the
16
<PAGE>
stockholders of the Corporation by these Articles of Incorporation are
subject to the provisions of this Article VIII."
SECOND: The provisions set forth in these Articles of Restatement
constitute all of the provisions of the charter of the Corporation as hereby
amended and currently in effect. These Articles do not amend the charter of
the Corporation.
THIRD: The restatement of the charter of the Corporation has been
approved by the affirmative vote of a majority of the Directors at a meeting
duly called and held on _________, 1994. The Corporation has seven Directors,
Edward D. Beach, Donald D. Lennox, Douglas H. McCorkindale, Lawrence C.
McQuade, Thomas T. Mooney II, Richard A. Redeker and Louis A. Weil, III,
currently in office.
IN WITNESS WHEREOF, the Articles of Restatement have been executed
on behalf of Prudential Multi-Sector Fund, Inc. this ____ day of
_____________, 1994.
PRUDENTIAL MULTI-SECTOR
FUND, INC.
By:
---------------------------------
Lawrence C. McQuade
President
Attest
- ---------------------------------
17
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The undersigned, President of Prudential Multi-Sector Fund, Inc.,
who executed on behalf of said Corporation the foregoing Articles of
Restatement, of which this certificate is made a part, hereby acknowledges
that these Articles of Restatement are the act of the Corporation and affirms
that to the best of his knowledge, information and belief all matters and
facts set forth therein relating to the authorization and approval of the
Articles of Restatement are true in all material respects and that this
statement is made under the penalties of perjury.
----------------------------------------
Lawrence C. McQuade
President
18
Exhibit 6(a)
PRUDENTIAL MULTI-SECTOR FUND, INC.
Amended and Restated
Distribution Agreement
(Class A Shares)
Agreement, dated as of June 1, 1990, and amended and restated as of July
1, 1993, between Prudential Multi-Sector Fund, Inc. a Maryland Corporation (the
Fund) and Prudential Mutual Fund Distributors, Inc., a Delaware Corporation (the
Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a [diversified,] open-end,
management investment company and it is in the interest of the Fund to offer its
Class A shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class A
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class A shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant
to Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments
by the Fund to the Distributor with respect to the distribution of Class A
shares of the Fund and the maintenance of Class A shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class A shares of the Fund to sell Class A shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class A shares of the Fund to the Distributor on the terms and conditions set
forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the Fund to act
as principal underwriter and distributor of the Fund's Class A shares, except
that:
2.1 The exclusive rights granted to the Distributor to purchase Class A
shares from the Fund shall not apply to Class A shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class A shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class A shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean the
Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class A Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund the Class
A shares needed, but not more than the Class A shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class A shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which the
Distributor shall pay for the Class A shares so purchased from the Fund shall be
the net asset value, determined as set forth in the Prospectus.
3.2 The Class A shares are to be resold by the Distributor or selected
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its Class A
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale of its Class A
shares if a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class A shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class A shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class A shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class A Shares by the Fund
4.1 Any of the outstanding Class A shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class A shares so
tendered in accordance with its Articles of Incorporation as amended from time
to time, and in accordance with the applicable provisions of the Prospectus. The
price to be paid to redeem or repurchase the Class A shares shall be equal to
the net asset value determined as set forth in the Prospectus. All payments by
the Fund hereunder shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh calendar day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of Class A
shares shall be paid by the Fund to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions of the
Prospectus.
4.3 Redemption of Class A shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
3
<PAGE>
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of Class A shares as
provided herein, the Fund agrees to sell its Class A shares so long as it has
Class A shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class A shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Board of Directors and the shareholders, all necessary action to
fix the number of authorized Class A shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Class A shares as the Distributor reasonably
may expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class A shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class A shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
A shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class A shares of the Fund, but shall not be obligated to sell any
specific number of Class A shares. Sales of the Class A shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class A shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Class A shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Class A shares only to such selected dealers as
are members in good standing of the NASD. Class A shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any portion of any
front-end sales charge which is imposed on sales of Class A shares and not
reallocated to selected dealers as set forth in the Prospectus, subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of the Plan.
Section 8. Reimbursement of the Distributor under the Plan
8.1 The Fund shall reimburse the Distributor for costs incurred by it in
performing its duties under the Distribution and Service Plan and this Agreement
including amounts paid on a reimbursement basis to Prudential Securities
5
<PAGE>
Incorporated (Prudential Securities) and Pruco Securities Corporation (Prusec),
affiliates of the Distributor, under the selected dealer agreements between the
Distributor and Prudential Securities and Prusec, respectively, amounts paid to
other securities dealers or financial institutions under selected dealer
agreements between the Distributor and such dealers and institutions and amounts
paid for personal service and/or the maintenance of shareholder accounts.
Amounts reimbursable under the Plan shall be accrued daily and paid monthly or
at such other intervals as the Board of Directors may determine but shall not be
paid at a rate that exceeds .30 of 1%, which amount includes a service fee of up
to .25 of 1%, per annum of the average daily net assets of the Class A shares of
the Fund. Payment of the distribution and service fee shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions and account
servicing fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions which have dealer
agreements with the Distributor. So long as the Plan (or any amendment thereto)
is in effect, at the request of the Board of Directors or any agent or
representative of the Fund, the Distributor shall provide such additional
information as may reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such activities.
8.3 Costs of the Distributor subject to reimbursement hereunder are
costs of performing distribution activities with respect to the Class A shares
of the Fund and may include, among others:
(a) amounts paid to Prudential Securities in reimbursement of costs
incurred by Prudential Securities in performing services under a
selected dealer agreement between Prudential Securities and the
Distributor for sale of Class A shares of the Fund, including
sales commissions and trailer commissions paid to, or on account
of, account executives and indirect and overhead costs associated
with distribution activities, including central office and branch
expenses;
(b) amounts paid to Prusec in reimbursement of costs incurred by
Prusec in performing services under a selected dealer agreement
between Prusec and the Distributor for sale of Class A shares of
6
<PAGE>
the Fund, including sales commissions and trailer commissions
paid to, or on account of, agents and indirect and overhead costs
associated with distribution activities;
(c) sales commissions and trailer commissions paid to, or on account
of, broker-dealers and financial institutions (other than
Prudential Securities and Prusec) which have entered into
selected dealer agreements with the Distributor with respect to
Class A shares of the Fund;
(d) amounts paid to, or an account of, account executives of
Prudential Securities, Prusec, or of other broker-dealers or
financial institutions for personal service and/or the
maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund
Prospectuses, and periodic financial reports and sales literature
to persons other than current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (a) and (b) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class A shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class A shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
7
<PAGE>
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class A shares, so long as the
Plan is in effect.
9.2 If the Plan is terminated or discontinued, the costs previously
incurred by the Distributor in performing the duties set forth in Section 6
hereof shall be borne by the Distributor and will not be subject to
reimbursement by the Fund.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the Distributor, its
officers and directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its officers,
directors or any such controlling person may incur under the Securities Act, or
under common law or otherwise, arising out of or based upon any untrue statement
of a material fact contained in the Registration Statement or Prospectus or
arising out of or based upon any alleged omission to state a material fact
required to be stated in either thereof or necessary to make the statements in
either thereof not misleading, except insofar as such claims, demands,
liabilities or expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
director, trustee or controlling person unless a court of competent jurisdiction
shall determine in a final decision on the merits, that the person to be
indemnified was not liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations under this Agreement (disabling conduct), or, in
the absence of such a decision, a reasonable determination, based upon a review
of the facts, that the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of directors or trustees who
are neither "interested persons" of the Fund as defined in Section 2(a)(19) of
the Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors and any such controlling person as
aforesaid is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or directors, or any
such controlling person, such notification to be given by letter or telegram
8
<PAGE>
addressed to the Fund at its principal business office. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issue and
sale of any Class A shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund, its
officers and Directors and any person who controls the Fund, if any, within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its officers and
Directors or any such controlling person may incur under the Securities Act or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or be based upon
any alleged untrue statement of a material fact contained in information
furnished in writing by the Distributor to the Fund for use in the Registration
Statement or Prospectus or shall arise out of or be based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or Prospectus or necessary to make
such information not misleading. The Distributor's agreement to indemnify the
Fund, its officers and Directors and any such controlling person as aforesaid,
is expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and Directors or any such
controlling person, such notification being given to the Distributor at its
principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the Rule 12b-1 Directors or by vote of a majority
of the outstanding voting securities of the Class A shares of the Fund, or by
the Distributor, on sixty (60) days' written notice to the other party. This
9
<PAGE>
Agreement shall automatically terminate in the event of its assignment.
11.3 The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class A shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Directors cast in
person at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: /s/ Robert F. Gunia
-----------------------------
Robert F. Gunia
Executive Vice President
Prudential Multi-Sector
Fund, Inc.
By: /s/ Lawrence C. McQuade
-----------------------------
Lawrence C. McQuade
President
10
Exhibit 6(b)
PRUDENTIAL MULTI-SECTOR FUND, INC.
Amended and Restated
Distribution Agreement
(Class B Shares)
Agreement, dated as of June 1, 1990 and amended and restated as of July
1, 1993, between Prudential Multi-Sector Fund, Inc., a Maryland Corporation (the
Fund) and Prudential Securities Incorporated, a Delaware Corporation (the
Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class B shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class B
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class B shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant
to Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments
by the Fund to the Distributor with respect to the distribution of Class B
shares of the Fund and the maintenance of Class B shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class B shares of the Fund to sell Class B shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class B shares of the Fund to the Distributor on the terms and conditions set
forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class B shares,
except that:
2.1 The exclusive rights granted to the Distributor to purchase Class B
shares from the Fund shall not apply to Class B shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class B shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class B shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean the
Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class B Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund the Class
B shares needed, but not more than the Class B shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class B shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which the
Distributor shall pay for the Class B shares so purchased from the Fund shall be
the net asset value, determined as set forth in the Prospectus.
3.2 The Class B shares are to be resold by the Distributor or selected
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its Class B
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale of its Class B
shares if a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class B shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class B shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class B shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class B Shares by the Fund
4.1 Any of the outstanding Class B shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class B
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class B shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
3
<PAGE>
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of Class B shares as
provided herein, the Fund agrees to sell its Class B shares so long as it has
Class B shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class B shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class B shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class B shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class B shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class B shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
B shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and
4
<PAGE>
activities as may be required by the Fund in connection with such
qualifications.
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class B shares of the Fund, but shall not be obligated to sell any
specific number of Class B shares. Sales of the Class B shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class B shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Class B shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Class B shares only to such selected dealers as
are members in good standing of the NASD. Class B shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any contingent deferred
sales charge which is imposed with respect to repurchases and redemptions of
Class B shares as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
5
<PAGE>
Section 8. Reimbursement of the Distributor under the Plan
8.1 The Fund shall reimburse the Distributor for all costs incurred by
it in performing its duties under the Distribution and Service Plan and this
Agreement including amounts paid on a reimbursement basis to Pruco Securities
Corporation (Prusec), an affiliate of the Distributor, under the selected dealer
agreement between the Distributor and Prusec, amounts paid to other securities
dealers or financial institutions under selected dealer agreements between the
Distributor and such dealers and institutions and amounts paid for personal
service and/or the maintenance of shareholder accounts. Reimbursement shall only
be made to the extent that payments by investors pursuant to Section 7 hereof
are not sufficient to cover such costs. Amounts reimbursable under the Plan
shall be accrued daily and paid monthly or at such other intervals as the Board
of Directors may determine but shall not be paid at a rate that exceeds the
annual distribution and service fee of 1% (including an asset-based sales charge
of up to .75 of 1% and a service fee of up to .25 of 1%) per annum of the
average daily net assets of the Class B shares of the Fund. Amounts reimbursable
under the Plan that are not paid because they exceed .75 of 1% per annum of the
average daily net assets of the Class B shares (Carry Forward Amounts) shall be
carried forward and paid by the Fund as permitted within such payment limitation
so long as the Plan, including any amendments thereto, is in effect, subject to
the limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer commissions) and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor. So long
as the Plan (or any amendment thereto) is in effect, at the request of the Board
of Directors or any agent or representative of the Fund, the Distributor shall
provide such additional information as may reasonably be requested concerning
the activities of the Distributor hereunder and the costs incurred in performing
such activities.
8.3 Costs of the Distributor subject to reimbursement hereunder are all
costs of performing distribution activities with respect to the Class B shares
of the Fund and include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
6
<PAGE>
(b) indirect and overhead costs of the Distributor associated with
performance of distribution activities, including central office
and branch expenses;
(c) amounts paid to Prusec in reimbursement of all costs incurred by
Prusec in performing services under a selected dealer agreement
between Prusec and the Distributor for sale of Class B shares of
the Fund, including sales commissions and trailer commissions
paid to, or on account of, agents and indirect and overhead costs
associated with distribution activities;
(d) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other than
Prusec) which have entered into selected dealer agreements with
the Distributor with respect to Class B shares of the Fund;
(e) amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial institutions
for personal service and/or the maintenance of shareholder
accounts;
(f) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund
Prospectuses, and periodic financial reports and sales literature
to persons other than current shareholders of the Fund;
(g) to the extent permitted by applicable law, interest on
unreimbursed Carry Forward Amounts as defined in Section 8.1 at a
rate equal to that paid by Prudential Securities for bank
borrowings as such rate may vary from day to day, not to exceed
that permitted under Article III, Section 26, of the NASD Rules
of Fair Practice; and
(h) to the extent permitted by applicable law, unreimbursed
distribution expenses incurred with respect to the sale of Class
B shares that have been exchanged into the Fund.
7
<PAGE>
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class B shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class B shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class B shares, so long as the
Plan is in effect.
9.2 Although the Fund is not liable for unreimbursed distribution
expenses, in the event of termination of the Plan, the Board of Directors of the
Fund may consider the appropriateness of having the Class B shares of the Fund
reimburse the Distributor for the then outstanding balance of all unreimbursed
distribution expenses plus interest thereon to the extent permitted by
applicable law from the date of this Agreement.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the Distributor, its
officers and Directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its officers,
Directors or any such controlling person may incur under the Securities Act, or
under common law or otherwise, arising out of or based upon any untrue statement
of a material fact contained in the Registration Statement or Prospectus or
8
<PAGE>
arising out of or based upon any alleged omission to state a material fact
required to be stated in either thereof or necessary to make the statements in
either thereof not misleading, except insofar as such claims, demands,
liabilities or expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
Director or controlling person unless a court of competent jurisdiction shall
determine in a final decision on the merits, that the person to be indemnified
was not liable by reason of willful misfeasance, bad faith or gross negligence
in the performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class B shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund, its
officers and Directors and any person who controls the Fund, if any, within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its officers and
Directors or any such controlling person may incur under the Securities Act or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or be based upon
any alleged untrue statement of a material fact contained in information
furnished in writing by the Distributor to the Fund for use in the Registration
Statement or Prospectus or shall arise out of or be based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or Prospectus or necessary to make
9
<PAGE>
such information not misleading. The Distributor's agreement to indemnify the
Fund, its officers and Directors and any such controlling person as aforesaid,
is expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and Directors or any such
controlling person, such notification to be given to the Distributor in writing
at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the Rule 12b-1 Directors or by vote of a majority
of the outstanding voting securities of the Class B shares of the Fund, or by
the Distributor, on sixty (60) days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment.
11.3 The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class B shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
10
<PAGE>
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities
Incorporated
By: /s/ Robert F. Gunia
---------------------------
Robert F. Gunia
Senior Vice President
Prudential Multi-Sector
Fund, Inc.
By: /s/ Lawrence C. McQuade
---------------------------
Lawrence C. McQuade
President
11
Exhibit 6(c)
PRUDENTIAL _________ FUND
Form of
Distribution Agreement
(Class A Shares)
Agreement made as of _____________199_, between
Prudential ________ Fund [a Maryland Corporation/Massachusetts
Business Trust] (the Fund) and Prudential Mutual Fund
Distributors, Inc., a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment
Company Act of 1940, as amended (the Investment Company Act), as
a diversified, open-end, management investment company and it is
in the interest of the Fund to offer its Class A shares for sale
continuously;
WHEREAS, the Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, and is
engaged in the business of selling shares of registered
investment companies either directly or through other broker-
dealers;
WHEREAS, the Fund and the Distributor wish to enter
into an agreement with each other, with respect to the continuous
offering of the Fund's Class A shares from and after the date
hereof in order to promote the growth of the Fund and facilitate
the distribution of its Class A shares; and
WHEREAS, upon approval by the Class A shareholders of
the Fund it is contemplated that the Fund will adopt a plan of
distribution pursuant to Rule 12b-1 under the Investment Company
Act (the Plan) authorizing payments by the Fund to the
Distributor with respect to the distribution of Class A shares of
the Fund and the maintenance of Class A shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the
principal underwriter and distributor of the Class A shares of
the Fund to sell Class A shares to the public and the Distributor
hereby accepts such appointment and agrees to act hereunder. The
Fund hereby agrees during the term of this Agreement to sell
Class A shares of the Fund to the Distributor on the terms and
conditions set forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative
of the Fund to act as principal underwriter and distributor of
the Fund's Class A shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class A shares from the Fund shall not apply to Class A
shares of the Fund issued in connection with the merger or
consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding
shares of any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class A
shares issued by the Fund pursuant to reinvestment of dividends
or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class A
shares issued by the Fund pursuant to the reinstatement privilege
afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases
made through the Fund's transfer and dividend disbursing agent in
the manner set forth in the currently effective Prospectus of the
Fund. The term "Prospectus" shall mean the Prospectus and
Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement
of Additional Information may be amended or supplemented from
time to time, and the term "Registration Statement" shall mean
the Registration Statement filed by the Fund with the Securities
and Exchange Commission and effective under the Securities Act of
1933, as amended (Securities Act), and the Investment Company
Act, as such Registration Statement is amended from time to time.
Section 3. Purchase of Class A Shares from the Fund
3.1 The Distributor shall have the right to buy from
the Fund the Class A shares needed, but not more than the Class A
shares needed (except for clerical errors in transmission) to
fill unconditional orders for Class A shares placed with the
Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The
price which the Distributor shall pay for the Class A shares so
purchased from the Fund shall be the net asset value, determined
as set forth in the Prospectus.
3.2 The Class A shares are to be resold by the
Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the
Prospectus.
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<PAGE>
3.3 The Fund shall have the right to suspend the sale
of its Class A shares at times when redemption is suspended
pursuant to the conditions in Section 4.3 hereof or at such other
times as may be determined by the Board of Directors. The Fund
shall also have the right to suspend the sale of its Class A
shares if a banking moratorium shall have been declared by
federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class A shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class A shares. The Fund
(or its agent) will confirm orders upon their receipt, will make
appropriate book entries and upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts for
such Class A shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York
Clearing House funds or federal funds. The Distributor agrees to
cause such payment and such instructions to be delivered promptly
to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class A Shares by the
Fund
4.1 Any of the outstanding Class A shares may be
tendered for redemption at any time, and the Fund agrees to
repurchase or redeem the Class A shares so tendered in accordance
with its Articles of Incorporation as amended from time to time,
and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the
Class A shares shall be equal to the net asset value determined
as set forth in the Prospectus. All payments by the Fund
hereunder shall be made in the manner set forth in Section 4.2
below.
4.2 The Fund shall pay the total amount of the
redemption price as defined in the above paragraph pursuant to
the instructions of the Distributor on or before the seventh
calendar day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of
Class A shares shall be paid by the Fund to or for the account of
the redeeming shareholder, in each case in accordance with
applicable provisions of the Prospectus.
4.3 Redemption of Class A shares or payment may be
suspended at times when the New York Stock Exchange is closed for
other than customary weekends and holidays, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange
Commission, by order,
3
<PAGE>
so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of
Class A shares as provided herein, the Fund agrees to sell its
Class A shares so long as it has Class A shares available.
5.2 The Fund shall furnish the Distributor copies of
all information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class A shares, and this shall include one
certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
such number of copies of its Prospectus and annual and interim
reports as the Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but
subject to the necessary approval of the Board of Directors and
the shareholders, all necessary action to fix the number of
authorized Class A shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there
will be available for sale such number of Class A shares as the
Distributor reasonably may expect to sell. The Fund agrees to
file from time to time such amendments, reports and other
documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration
Statement, or necessary in order that there will be no omission
to state a material fact in the Registration Statement which
omission would make the statements therein misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class
A shares for sales under the securities laws of such states as
the Distributor and the Fund may approve; provided that the Fund
shall not be required to amend its Articles of Incorporation or
By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its
Class A shares in any state from the terms set forth in its
Registration Statement, to qualify as a foreign corporation in
any state or to consent to service of process in any state other
than with respect to claims arising out of the offering of its
Class A shares. Any such qualification may be withheld,
terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 9.1 hereof, the expense of
qualification and maintenance of qualification shall be borne by
the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and
effort to effect sales of Class A shares of the Fund, but shall
not be obligated to sell any specific number of Class A shares.
Sales of the Class A shares shall be on the terms described in
the Prospectus. The Distributor may enter into like arrangements
with other investment companies. The Distributor shall
compensate the selected dealers as set forth in the Prospectus.
6.2 In selling the Class A shares, the Distributor
shall use its best efforts in all respects duly to conform with
the requirements of all federal and state laws relating to the
sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to
give any information or to make any representations, other than
those contained in the Registration Statement or Prospectus and
any sales literature approved by appropriate officers of the
Fund.
6.3 The Distributor shall adopt and follow procedures
for the confirmation of sales to investors and selected dealers,
the collection of amounts payable by investors and selected
dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements
of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified
securities dealers and other financial institutions of its choice
for the sale of Class A shares, provided that the Fund shall
approve the forms of such agreements. Within the United States,
the Distributor shall offer and sell Class A shares only to such
selected dealers as are members in good standing of the NASD.
Class A shares sold to selected dealers shall be for resale by
such dealers only at the offering price determined as set forth
in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any
portion of any front-end sales charge which is imposed on sales
of Class A shares and not reallocated to selected dealers as set
forth in the Prospectus, subject to the limitations of Article
III, Section 26 of the NASD Rules of Fair Practice. Payment of
these amounts to the Distributor is not contingent upon the
adoption or continuation of the Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as
compensation for services under the Distribution and Service Plan
and this Agreement a fee of .30 of 1% (including an asset-based
sales charge of .05 of 1% and a service fee of .25 of 1%) per
annum
5
<PAGE>
of the average daily net assets of the Class A shares of the Fund.
Amounts payable under the Plan shall be accrued daily and paid
monthly or at such other intervals as Directors/Trustees may
determine. Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
8.2 So long as the Plan or any amendment thereto is in
effect, the Distributor shall inform the Board of Directors of
the commissions and account servicing fees to be paid by the
Distributor to account executives of the Distributor and to
broker-dealers and financial institutions which have dealer
agreements with the Distributor. So long as the Plan (or any
amendment thereto) is in effect, at the request of the Board of
Directors or any agent or representative of the Fund, the
Distributor shall provide such additional information as may
reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such
activities.
8.3 Expenses of distribution with respect to the Class
A shares of the Fund include, among others:
(a) amounts paid to Prudential Securities for
performing services under a selected dealer
agreement between Prudential Securities and
the Distributor for sale of Class A shares of
the Fund, including sales commissions and
trailer commissions paid to, or on account
of, account executives and indirect and
overhead costs associated with distribution
activities, including central office and
branch expenses;
(b) amounts paid to Prusec for performing
services under a selected dealer agreement
between Prusec and the Distributor for sale
of Class A shares of the Fund, including
sales commissions and trailer commissions
paid to, or on account of, agents and
indirect and overhead costs associated with
distribution activities;
(c) sales commissions and trailer commissions
paid to, or on account of, broker-dealers and
financial institutions (other than Prudential
Securities and Prusec) which have entered
into selected dealer agreements with the
Distributor with respect to Class A shares of
the Fund.
(d) amounts paid to, or an account of, account
executives of Prudential Securities, Prusec,
6
<PAGE>
or of other broker-dealers or financial
institutions for personal service and/or the
maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
Prospectuses, and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (a)
and (b) of the foregoing sentence include (i) lease expenses,
(ii) salaries and benefits of personnel including operations and
sales support personnel, (iii) utility expenses, (iv)
communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general
overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class A shares, including fees and
disbursements of its counsel and auditors, in connection with the
preparation and filing of any required Registration Statements
and/or Prospectuses under the Investment Company Act or the
Securities Act, and preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not
limited to the expense of setting in type any such Registration
Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of
qualification of the Class A shares for sale, and, if necessary
or advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Fund and the
Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification
therein until the Fund decides to discontinue such qualification
pursuant to Section 5.4 hereof. As set forth in Section 8 above,
the Fund shall also bear the expenses it assumes pursuant to the
Plan with respect to Class A shares, so long as the Plan is in
effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and directors and any person who
controls the Distributor within the meaning of Section 15 of the
Securities Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling
person may incur under the Securities Act, or under common law or
7
<PAGE>
otherwise, arising out of or based upon any untrue statement of a
material fact contained in the Registration Statement or
Prospectus or arising out of or based upon any alleged omission
to state a material fact required to be stated in either thereof
or necessary to make the statements in either thereof not
misleading, except insofar as such claims, demands, liabilities
or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission
made in reliance upon and in conformity with information
furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any
such officer, director, trustee or controlling person unless a
court of competent jurisdiction shall determine in a final
decision on the merits, that the person to be indemnified was not
liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of directors or
trustees who are neither "interested persons" of the Fund as
defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in
a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors or trustees and any such
controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the
Distributor, its officers or directors or trustees, or any such
controlling person, such notification to be given by letter or
telegram addressed to the Fund at its principal business office.
The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issue and
sale of any Class A shares.
10.2 The Distributor agrees to indemnify, defend and
hold the Fund, its officers and Directors and any person who
controls the Fund, if any, within the meaning of Section 15 of
the Securities Act, free and harmless from and against any and
all claims, demands, liabilities and expenses (including the cost
of investigating or defending against such claims, demands or
liabilities and any counsel fees incurred in connection
therewith) which the Fund, its officers and Directors or any such
controlling person may incur under the Securities Act or under
common law or otherwise, but only to the extent that such
liability or expense incurred by the Fund, its Directors or
officers or such controlling person resulting from such claims or
demands shall arise out of or be based upon any alleged untrue
statement of a material fact contained in information furnished
in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be
based upon any alleged omission to state
8
<PAGE>
a material fact in connection with such information required to
be stated in the Registration Statement or Prospectus or
necessary to make such information not misleading. The
Distributor's agreement to indemnify the Fund, its officers and
Directors and any such controlling person as aforesaid, is
expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and
Directors or any such controlling person, such notification being
given to the Distributor at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the
date first above written and shall remain in force for two years
from the date hereof and thereafter, but only so long as such
continuance is specifically approved at least annually by (a) the
Board of Directors of the Fund, or by the vote of a majority of
the outstanding voting securities of the Class A shares of the
Fund, and (b) by the vote of a majority of those Directors who
are not parties to this Agreement or interested persons of any
such parties and who have no direct or indirect financial
interest in this Agreement or in the operation of the Fund's Plan
or in any agreement related thereto (Rule 12b-1 Directors), cast
in person at a meeting called for the purpose of voting upon such
approval.
11.2 This Agreement may be terminated at any time,
without the payment of any penalty, by a majority of the Rule
12b-1 Directors or by vote of a majority of the outstanding
voting securities of the Class A shares of the Fund, or by the
Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event
of its assignment.
11.3 The terms "affiliated person," "assignment,"
"interested person" and "vote of a majority of the outstanding
voting securities", when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if
such amendment is specifically approved by (a) the Board of
Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of the Rule 12b-1 Directors
cast in person at a meeting called for the purpose of voting on
such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the
9
<PAGE>
Investment Company Act. To the extent that the applicable law of
the State of New York, or any of the provisions herein, conflict
with the applicable provisions of the Investment Company Act, the
latter shall control.
*[Section 14. Liabilities of the Fund
The name "Prudential ___________ Trust" is the
designation of the Trustees under a Declaration of Trust dated
______, 19__ and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any
claims against the Fund, and neither the Trustees, officers,
agents of shareholders assume any personal liability for
obligations entered into on behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: ________________________
_______________________
(Title)
Prudential______________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
10
Exhibit 6(d)
PRUDENTIAL ___________ FUND
Form of
Distribution Agreement
(Class B Shares)
Agreement made as of ______ __, 199_, between
Prudential ________ Fund, [a Maryland Corporation/Massachusetts
Business Trust] (the Fund) and Prudential Securities
Incorporated, a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment
Company Act of 1940, as amended (the Investment Company Act), as
a diversified, open-end, management investment company and it is
in the interest of the Fund to offer its Class B shares for sale
continuously;
WHEREAS, the Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, and is
engaged in the business of selling shares of registered
investment companies either directly or through other broker-
dealers;
WHEREAS, the Fund and the Distributor wish to enter
into an agreement with each other, with respect to the continuous
offering of the Fund's Class B shares from and after the date
hereof in order to promote the growth of the Fund and facilitate
the distribution of its Class B shares; and
WHEREAS, the Fund has adopted a distribution and
service plan pursuant to Rule 12b-1 under the Investment Company
Act (the Plan) authorizing payments by the Fund to the
Distributor with respect to the distribution of Class B shares of
the Fund and the maintenance of Class B shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the
principal underwriter and distributor of the Class B shares of
the Fund to sell Class B shares to the public and the Distributor
hereby accepts such appointment and agrees to act hereunder. The
Fund hereby agrees during the term of this Agreement to sell
Class B shares of the Fund to the Distributor on the terms and
conditions set forth below.
1
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative
of the Fund to act as principal underwriter and distributor of
the Fund's Class B shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class B shares from the Fund shall not apply to Class B
shares of the Fund issued in connection with the merger or
consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding
shares of any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class B
shares issued by the Fund pursuant to reinvestment of dividends
or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class B
shares issued by the Fund pursuant to the reinstatement privilege
afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases
made through the Fund's transfer and dividend disbursing agent in
the manner set forth in the currently effective Prospectus of the
Fund. The term "Prospectus" shall mean the Prospectus and
Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement
of Additional Information may be amended or supplemented from
time to time, and the term "Registration Statement" shall mean
the Registration Statement filed by the Fund with the Securities
and Exchange Commission and effective under the Securities Act of
1933, as amended (the Securities Act), and the Investment Company
Act, as such Registration Statement is amended from time to time.
Section 3. Purchase of Class B Shares from the Fund
3.1 The Distributor shall have the right to buy from
the Fund the Class B shares needed, but not more than the Class B
shares needed (except for clerical errors in transmission) to
fill unconditional orders for Class B shares placed with the
Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The
price which the Distributor shall pay for the Class B shares so
purchased from the Fund shall be the net asset value, determined
as set forth in the Prospectus.
3.2 The Class B shares are to be resold by the
Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the
Prospectus.
3.3 The Fund shall have the right to suspend the sale of
its Class B shares at times when redemption is suspended pursuant
2
<PAGE>
to the conditions in Section 4.3 hereof or at such other times as
may be determined by the Board of Directors. The Fund shall also
have the right to suspend the sale of its Class B shares if a
banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class B shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class B shares. The Fund
(or its agent) will confirm orders upon their receipt, will make
appropriate book entries and upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts for
such Class B shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York
Clearing House funds or federal funds. The Distributor agrees to
cause such payment and such instructions to be delivered promptly
to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class B Shares by the
Fund
4.1 Any of the outstanding Class B shares may be
tendered for redemption at any time, and the Fund agrees to
repurchase or redeem the Class B shares so tendered in accordance
with its Articles of Incorporation as amended from time to time,
and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the
Class B shares shall be equal to the net asset value determined
as set forth in the Prospectus. All payments by the Fund
hereunder shall be made in the manner set forth in Section 4.2
below.
4.2 The Fund shall pay the total amount of the
redemption price as defined in the above paragraph pursuant to
the instructions of the Distributor on or before the seventh day
subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (a) any applicable
contingent deferred sales charge shall be paid to the Distributor
and (b) the balance shall be paid to or for the account of the
redeeming shareholder, in each case in accordance with applicable
provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be
suspended at times when the New York Stock Exchange is closed for
other than customary weekends and holidays, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange
Commission, by order,
3
<PAGE>
so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of
Class B shares as provided herein, the Fund agrees to sell its
Class B shares so long as it has Class B shares available.
5.2 The Fund shall furnish the Distributor copies of
all information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class B shares, and this shall include one
certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
such number of copies of its Prospectus and annual and interim
reports as the Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but
subject to the necessary approval of the Board of Directors and
the shareholders, all necessary action to fix the number of
authorized Class B shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there
will be available for sale such number of Class B shares as the
Distributor reasonably may expect to sell. The Fund agrees to
file from time to time such amendments, reports and other
documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration
Statement, or necessary in order that there will be no omission
to state a material fact in the Registration Statement which
omission would make the statements therein misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class
B shares for sales under the securities laws of such states as
the Distributor and the Fund may approve; provided that the Fund
shall not be required to amend its Articles of Incorporation or
By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its
Class B shares in any state from the terms set forth in its
Registration Statement, to qualify as a foreign corporation in
any state or to consent to service of process in any state other
than with respect to claims arising out of the offering of its
Class B shares. Any such qualification may be withheld,
terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 9.1 hereof, the expense of
qualification and maintenance of qualification shall be borne by
the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and
effort to effect sales of Class B shares of the Fund, but shall
not be obligated to sell any specific number of Class B shares.
Sales of the Class B shares shall be on the terms described in
the Prospectus. The Distributor may enter into like arrangements
with other investment companies. The Distributor shall
compensate the selected dealers as set forth in the Prospectus.
6.2 In selling the Class B shares, the Distributor
shall use its best efforts in all respects duly to conform with
the requirements of all federal and state laws relating to the
sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to
give any information or to make any representations, other than
those contained in the Registration Statement or Prospectus and
any sales literature approved by appropriate officers of the
Fund.
6.3 The Distributor shall adopt and follow procedures
for the confirmation of sales to investors and selected dealers,
the collection of amounts payable by investors and selected
dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements
of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified
securities dealers and other financial institutions of its choice
for the sale of Class B shares, provided that the Fund shall
approve the forms of such agreements. Within the United States,
the Distributor shall offer and sell Class B shares only to such
selected dealers as are members in good standing of the NASD.
Class B shares sold to selected dealers shall be for resale by
such dealers only at the offering price determined as set forth
in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any
contingent deferred sales charge which is imposed with respect to
repurchases and redemptions of Class B shares as set forth in the
Prospectus, subject to the limitations of Article III, Section 26
of the NASD Rules of Fair Practice. Payment of these amounts to
the Distributor is not contingent upon the adoption or
continuation of the Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as
compensation for services under the Distribution and Service Plan
and this Agreement a fee of 1% (including an asset-based sales
charge of .75 of 1% and a service fee of .25 of 1%) per annum of
5
<PAGE>
the average daily net assets of the Class B shares of the Fund.
Amounts payable under the Plan shall be accrued daily and paid
monthly or at such other intervals as Directors/Trustees may
determine. Amounts payable under the Plan shall be subject to
the limitations of Article III, Section 26 of the NASD Rules of
Fair Practice.
8.2 So long as the Plan or any amendment thereto is in
effect, the Distributor shall inform the Board of Directors of
the commissions (including trailer commissions) and account
servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the
Distributor. So long as the Plan (or any amendment thereto) is
in effect, at the request of the Board of Directors or any agent
or representative of the Fund, the Distributor shall provide such
additional information as may reasonably be requested concerning
the activities of the Distributor hereunder and the costs
incurred in performing such activities.
8.3 Expenses of distribution with respect to the Class
B shares of the Fund include, among others:
(a) sales commissions (including trailer
commissions) paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the
Distributor associated with performance of
distribution activities, including central
office and branch expenses;
(c) amounts paid to Prusec for performing
services under a selected dealer agreement
between Prusec and the Distributor for sale
of Class B shares of the Fund, including
sales commissions and trailer commissions
paid to, or on account of, agents and
indirect and overhead costs associated with
distribution activities;
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prusec) which have entered into
selected dealer agreements with the
Distributor with respect to Class B shares of
the Fund;
(e) amounts paid to, or an account of, account
executives of the Distributor or of other
broker-dealers or financial institutions for
6
<PAGE>
personal service and/or the maintenance of
shareholder accounts; and
(f) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
Prospectuses, and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (b)
and (c) of the foregoing sentence include (i) lease expenses,
(ii) salaries and benefits of personnel including operations and
sales support personnel, (iii) utility expenses, (iv)
communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general
overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class B shares, including fees and
disbursements of its counsel and auditors, in connection with the
preparation and filing of any required Registration Statements
and/or Prospectuses under the Investment Company Act or the
Securities Act, and preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not
limited to the expense of setting in type any such Registration
Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of
qualification of the Class B shares for sale, and, if necessary
or advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Fund and the
Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification
therein until the Fund decides to discontinue such qualification
pursuant to Section 5.4 hereof. As set forth in Section 8 above,
the Fund shall also bear the expenses it assumes pursuant to the
Plan with respect to Class B shares, so long as the Plan is in
effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and Directors and any person who
controls the Distributor within the meaning of Section 15 of the
Securities Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the
Distributor, its officers, Directors or any such controlling
person may incur under the Securities Act, or under common law or
otherwise, arising out of or based upon any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus
or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary
to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out
of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to
the benefit of any such officer, Director or controlling person
unless a court of competent jurisdiction shall determine in a final
decision on the merits, that the person to be indemnified was not
liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of Directors who
are neither "interested persons" of the Fund as defined in Section
2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its
officers and Directors and any such controlling person as aforesaid
is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or
Directors, or any such controlling person, such notification to be
given in writing addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or Directors in connection with the issue and sale of
any Class B shares.
10.2 The Distributor agrees to indemnify, defend and hold
the Fund, its officers and Directors and any person who controls
the Fund, if any, within the meaning of Section 15 of the
Securities Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or
liabilities and any counsel fees incurred in connection therewith)
which the Fund, its officers and Directors or any such controlling
person may incur under the Securities Act or under common law or
otherwise, but only to the extent that such liability or expense
incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or
be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Distributor to
the Fund for use in the Registration Statement or Prospectus or
shall arise out of or be based upon any alleged omission to state a
material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to
8
<PAGE>
make such information not misleading. The Distributor's agreement
to indemnify the Fund, its officers and Directors and any such
controlling person as aforesaid, is expressly conditioned upon the
Distributor's being promptly notified of any action brought against
the Fund, its officers and Directors or any such controlling
person, such notification to be given to the Distributor in writing
at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the
date first above written and shall remain in force for two years
from the date hereof and thereafter, but only so long as such
continuance is specifically approved at least annually by (a) the
Board of Directors of the Fund, or by the vote of a majority of
the outstanding voting securities of the Class B shares of the
Fund, and (b) by the vote of a majority of those Directors who
are not parties to this Agreement or interested persons of any
such parties and who have no direct or indirect financial
interest in this Agreement or in the operation of the Fund's Plan
or in any agreement related thereto (Rule 12b-1 Directors), cast
in person at a meeting called for the purpose of voting upon such
approval.
11.2 This Agreement may be terminated at any time,
without the payment of any penalty, by a majority of the Rule
12b-1 Directors or by vote of a majority of the outstanding
voting securities of the Class B shares of the Fund, or by the
Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event
of its assignment.
11.3 The terms "affiliated person," "assignment,"
"interested person" and "vote of a majority of the outstanding
voting securities," when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if
such amendment is specifically approved by (a) the Board of
Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of the Rule 12b-1 Board of
Directors cast in person at a meeting called for the purpose of
voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of
the State of New York, or any of the provisions herein, conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the
latter shall control.
*[Section 14. Liabilities of the Fund
The name "Prudential ___________ Trust" is the
designation of the Trustees under a Declaration of Trust dated
______, 19__ and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any
claims against the Fund, and neither the Trustees, officers,
agents of shareholders assume any personal liability for
obligations entered into on behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year above written.
Prudential Securities
Incorporated
By: ________________________
________________________
(Title)
Prudential ________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
10
Exhibit 6(e)
PRUDENTIAL ___________ FUND
Form of
Distribution Agreement
(Class C Shares)
Agreement made as of ______ __, 199_, between Prudential ________ Fund,
[a Maryland Corporation/Massachusetts Business Trust] (the Fund) and Prudential
Securities Incorporated, a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class C shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class C
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class C shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant
to Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments
by the Fund to the Distributor with respect to the distribution of Class C
shares of the Fund and the maintenance of Class C shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class C shares of the Fund to sell Class C shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class C shares of the Fund to the Distributor on the terms and conditions set
forth below.
1
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the Fund to act
as principal underwriter and distributor of the Fund's Class C shares, except
that:
2.1 The exclusive rights granted to the Distributor to purchase Class C
shares from the Fund shall not apply to Class C shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class C shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class C shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean the
Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class C Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund the Class
C shares needed, but not more than the Class C shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class C shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which the
Distributor shall pay for the Class C shares so purchased from the Fund shall be
the net asset value, determined as set forth in the Prospectus.
3.2 The Class C shares are to be resold by the Distributor or selected
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of its Class C
shares at times when redemption is suspended pursuant to the conditions
2
<PAGE>
in Section 4.3 hereof or at such other times as may be determined by the Board
of Directors. The Fund shall also have the right to suspend the sale of its
Class C shares if a banking moratorium shall have been declared by federal or
New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class C shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class C shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class C shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class C Shares by the Fund
4.1 Any of the outstanding Class C shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class C shares so
tendered in accordance with its Articles of Incorporation as amended from time
to time, and in accordance with the applicable provisions of the Prospectus. The
price to be paid to redeem or repurchase the Class C shares shall be equal to
the net asset value determined as set forth in the Prospectus. All payments by
the Fund hereunder shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class C shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class C shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
3
<PAGE>
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of Class C shares as
provided herein, the Fund agrees to sell its Class C shares so long as it has
Class C shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class C shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Board of Directors and the shareholders, all necessary action to
fix the number of authorized Class C shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Class C shares as the Distributor reasonably
may expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class C shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class C shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
C shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class C shares of the Fund, but shall not be obligated to sell any
specific number of Class C shares. Sales of the Class C shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class C shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Class C shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Class C shares only to such selected dealers as
are members in good standing of the NASD. Class C shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any contingent deferred
sales charge which is imposed with respect to repurchases and redemptions of
Class C shares as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as compensation for services
under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales charge of .75 of 1% and a service fee of .25 of
5
<PAGE>
1%) per annum of the average daily net assets of the Class C shares of the Fund.
Amounts payable under the Plan shall be accrued daily and paid monthly or at
such other intervals as Directors/Trustees may determine. Amounts payable under
the Plan shall be subject to the limitations of Article III, Section 26 of the
NASD Rules of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer commissions) and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor. So long
as the Plan (or any amendment thereto) is in effect, at the request of the Board
of Directors or any agent or representative of the Fund, the Distributor shall
provide such additional information as may reasonably be requested concerning
the activities of the Distributor hereunder and the costs incurred in performing
such activities.
8.3 Expenses of distribution with respect to the Class C shares of the
Fund include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of distribution activities, including central office
and branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of
Class C shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, agents and
indirect and overhead costs associated with distribution
activities;
(d) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other
than Prusec) which have entered into selected dealer agreements
with the Distributor with respect to Class C shares of the Fund;
(e) amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial institutions
6
<PAGE>
for personal service and/or the maintenance of shareholder
accounts; and
(f) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund
Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class C shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class C shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class C shares, so long as the
Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the Distributor, its
officers and Directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its officers,
Directors or any such controlling person may incur under the Securities Act,
or under common law or otherwise, arising out of or based upon
7
<PAGE>
any untrue statement of a material fact contained in the Registration
Statement or Prospectus or arising out of or based upon any alleged omission to
state a material fact required to be stated in either thereof or necessary to
make the statements in either thereof not misleading, except insofar as such
claims, demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by the
Distributor to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to the benefit
of any such officer, Director or controlling person unless a court of competent
jurisdiction shall determine in a final decision on the merits, that the person
to be indemnified was not liable by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations under this Agreement (disabling conduct), or, in
the absence of such a decision, a reasonable determination, based upon a review
of the facts, that the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of Directors who are neither
"interested persons" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and Directors and any such controlling person as
aforesaid is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or Directors, or any
such controlling person, such notification to be given in writing addressed to
the Fund at its principal business office. The Fund agrees promptly to notify
the Distributor of the commencement of any litigation or proceedings against it
or any of its officers or Directors in connection with the issue and sale of any
Class C shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund, its
officers and Directors and any person who controls the Fund, if any, within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its officers and
Directors or any such controlling person may incur under the Securities Act or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or be based upon
any alleged untrue statement of a material fact contained in information
furnished in writing by the Distributor to the Fund for use in the Registration
Statement or Prospectus or shall arise out of or be based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or Prospectus or necessary
8
<PAGE>
to make such information not misleading. The Distributor's agreement to
indemnify the Fund, its officers and Directors and any such controlling person
as aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class C shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment
of any penalty, by a majority of the Rule 12b-1 Directors or by vote of a
majority of the outstanding voting securities of the Class C shares of the Fund,
or by the Distributor, on sixty (60) days' written notice to the other party.
This Agreement shall automatically terminate in the event of its assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class C shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
9
<PAGE>
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
*[Section 14. Liabilities of the Fund
The name "Prudential ___________ Trust" is the designation of the
Trustees under a Declaration of Trust dated ______, 19__ and all persons dealing
with the Fund must look solely to the property of the Fund for the enforcement
of any claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities
Incorporated
By: ________________________
________________________
(Title)
Prudential ________Fund
By: ________________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
10
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 5 to Registration
Statement No. 33-33477 of Prudential Multi-Sector Fund, Inc. of our report
dated June 15, 1993, appearing in the Statement of Additional Information,
which is a part of such Registration Statement, and to the references to us
under the headings "Financial Highlights" in the Prospectus, which is a part
of such Registration Statement, and "Custodian, Transfer and Shareholder
Servicing Agent and Independent Accountants" in the Statement of Additional
Information.
/s/ Deloitte & Touche
Deloitte & Touche
New York, New York
April 29, 1994
Exhibit 15(a)
PRUDENTIAL MULTI-SECTOR FUND, INC.
Distribution and Service Plan
(Class A Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Multi-Sector Fund, Inc. (the Fund)
and by Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will employ the Distributor to distribute
Class A shares issued by the Fund (Class A shares). Under the Distribution
Agreement, the Distributor will be entitled to receive payments from investors
of front-end sales charges with respect to the sale of Class A shares. Under the
Plan, the Fund intends to reimburse the Distributor for costs incurred by the
Distributor in distributing Class A shares of the Fund and to pay the
Distributor a service fee for the maintenance of Class A shareholder accounts.
A majority of the Board of Directors or Trustees of the Fund, including
a majority of those Directors or Trustees who are not "interested persons" of
the Fund (as defined in the Investment Company Act) and who have no direct or
<PAGE>
indirect financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors or Trustees), have determined by votes
cast in person at a meeting called for the purpose of voting on this Plan that
there is a reasonable likelihood that adoption of this Plan will benefit the
Fund and its shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) are primarily intended to result in the
sale of Class A shares of the Fund within the meaning of paragraph (a)(2) of
Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A shares of
the Fund and to service shareholder accounts using all of the facilities of the
distribution networks of Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities Corporation (Prusec), including sales personnel
and branch office and central support systems, and also using such other
2
<PAGE>
qualified broker-dealers and financial institutions as the Distributor may
select. Services provided and activities undertaken to distribute Class A shares
of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall reimburse the Distributor for costs incurred by it in
providing personal service and/or maintaining shareholder accounts at a rate not
to exceed .25 of 1% per annum of the average daily net assets of the Class A
shares (service fee). The Fund shall calculate and accrue daily amounts
reimbursable by the Class A shares of the Fund hereunder and shall pay such
amounts monthly or at such other intervals as the Board of Directors or Trustees
may determine. Costs of the Distributor subject to reimbursement hereunder
include account servicing fees and indirect and overhead costs associated with
providing personal service and/or maintaining shareholder accounts.
3. Payment for Distribution Activities
The Fund shall reimburse the Distributor for costs incurred by it in
performing Distribution Activities at a rate which, together with the service
fee (described in Section 2 hereof), shall not exceed .30 of 1% per annum of the
average daily net assets of the Class A shares of the Fund. The Fund shall
calculate and accrue daily amounts reimbursable by the Class A shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Directors or Trustees may determine.
3
<PAGE>
Amounts paid to the Distributor by the Class A shares of the Fund will
not be used to pay the distribution expenses incurred with respect to the Class
B shares of the Fund except that distribution expenses attributable to the Fund
as a whole will be allocated to the Class A shares according to the ratio of the
sales of Class A shares to the total sales of the Fund's shares over the Fund's
fiscal year or such other allocation method approved by the Board of Directors
or Trustees. The allocation of distribution expenses among Classes will be
subject to the review of the Board of Directors or Trustees. Payments hereunder
will be applied to distribution expenses in the order in which they are
incurred, unless otherwise determined by the Board of Directors or Trustees.
Costs of the Distributor subject to reimbursement hereunder are costs of
performing Distribution Activities and may include, among others:
(a) amounts paid to Prudential Securities in reimbursement of costs
incurred by Prudential Securities in performing services under a
selected dealer agreement between Prudential Securities and the
Distributor for sale of Class A shares of the Fund, including
sales commissions and trailer commissions paid to, or on account
of, account executives and indirect and overhead costs
associated with Distribution Activities, including central
office and branch expenses;
(b) amounts paid to Prusec in reimbursement of costs incurred by
Prusec in performing services under a selected dealer agreement
between Prusec and the Distributor for sale of Class A shares of
the Fund, including sales commissions and trailer commissions
paid to, or on account of, agents and indirect and overhead
costs associated with Distribution Activities;
4
<PAGE>
(c) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than
current shareholders of the Fund; and
(d) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other
than Prudential Securities and Prusec) which have entered into
selected dealer agreements with the Distributor with respect to
shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of
Directors or Trustees of the Fund for review, at least quarterly, a written
report specifying in reasonable detail the amounts expended for Distribution
Activities (including payment of the service fee) and the purposes for which
such expenditures were made in compliance with the requirements of Rule 12b-1.
The Distributor will provide to the Board of Directors or Trustees of the Fund
such additional information as the Board or Trustees shall from time to time
reasonably request, including information about Distribution Activities
undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees of the
Fund of the commissions and account servicing fees to be paid by the Distributor
to account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor.
5
<PAGE>
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities
of the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors or Trustees of the Fund and a majority of the
Rule 12b-1 Directors or Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors or Trustees, or by vote of a majority of the outstanding
voting securities (as defined in the Investment Company Act) of the Class A
shares of the Fund.
7. Amendments
The Plan may not be amended to change the distribution expenses to be
paid as provided for in Section 3 hereof so as to increase materially the
amounts payable under this Plan unless such amendment shall be approved by the
vote of a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class A shares of the Fund. All material
6
<PAGE>
amendments of the Plan, including the addition or deletion of categories of
expenditures which are reimbursable hereunder, shall be approved by a majority
of the Board of Directors or the Trustees of the Fund and a majority of the Rule
12b-1 Directors or Trustees by votes cast in person at a meeting called for the
purpose of voting on the Plan.
8. Non-interested Directors or Trustees
While the Plan is in effect, the selection and nomination of the
Directors or Trustees who are not "interested persons" of the Fund
(non-interested Directors or Trustees) shall be committed to the discretion of
the non-interested Directors or Trustees.
9. Records
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated as of June 1, 1990 and amended and restated as of July 1, 1993.
7
Exhibit 15(b)
PRUDENTIAL MULTI-SECTOR FUND, INC.
Distribution and Service Plan
(Class B Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Multi-Secotr Fund, Inc. (the Fund)
and by Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will continue to employ the Distributor to
distribute Class B shares issued by the Fund (Class B shares). Under the
Distribution Agreement, the Distributor will be entitled to receive payments
from investors of contingent deferred sales charges imposed with respect to
certain repurchases and redemptions of Class B shares. Under the Plan, the Fund
wishes to reimburse the Distributor for costs incurred by the Distributor in
distributing Class B shares of the Fund and to pay the Distributor a service fee
for the maintenance of Class B shareholder accounts. A majority of the Board of
Directors or Trustees of the Fund including a majority who are not "interested
persons" of the Fund (as defined in the Investment Company Act) and who have no
<PAGE>
direct or indirect financial interest in the operation of this Plan or any
agreements related to it (the Rule 12b-1 Directors or Trustees), have determined
by votes cast in person at a meeting called for the purpose of voting on this
Plan that there is a reasonable likelihood that adoption of this Plan will
benefit the Fund and its shareholders. Expenditures under this Plan by the Fund
for Distribution Activities (defined below) are primarily intended to result in
the sale of Class B shares of the Fund within the meaning of paragraph (a)(2) of
Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B shares of
the Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
2
<PAGE>
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class B shares of the Fund are referred to
herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall reimburse the Distributor for costs incurred by it in
providing personal service and/or maintaining shareholder accounts at a rate not
to exceed .25 of 1% per annum of the average daily net assets of the Class B
shares (service fee). The Fund shall calculate and accrue daily amounts
reimbursable by the Class B shares of the Fund hereunder and shall pay such
amounts monthly or at such other intervals as the Board of Directors or Trustees
may determine. Costs of the Distributor subject to reimbursement hereunder
include account servicing fees and indirect and overhead costs associated with
providing personal service and/or maintaining shareholder accounts.
3. Payment for Distribution Activities
The Fund shall reimburse the Distributor at a rate which, together with
the service fee (described in Section 2 hereof), shall not exceed 1% per annum
of the average daily net assets of the Class B shares of the Fund for costs
incurred by it in performing Distribution Activities. The Fund shall calculate
and accrue daily amounts reimbursable by the Class B shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors or Trustees may determine. Proceeds from contingent deferred
sales charges will be applied to reduce the costs incurred in performing
3
<PAGE>
Distribution Activities. The Fund shall carry forward amounts reimbursable that
are not paid because they exceed .75 of 1% per annum of the average daily net
assets of the Class B shares of the Fund (Carry Forward Amounts) and shall pay
such amounts within the .75 of 1% per annum payment rate limitation so long as
this Plan, including any amendments hereto, is in effect, subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
Although the Fund is not liable for unreimbursed distribution expenses, in the
event of termination or discontinuation of the Plan, the Board of Directors or
Trustees may consider the appropriateness of having the Class B shares of the
Fund reimburse the Distributor for the then outstanding Carry Forward Amounts
plus interest thereon to the extent permitted by applicable law or regulation
from the effective date of the Plan.
Amounts paid to the Distributor by the Class B shares of the Fund will
not be used to pay the distribution expenses incurred with respect to the Class
A shares of the Fund except that distribution expenses attributable to the Fund
as a whole will be allocated to the Class B shares according to the ratio of the
sale of Class B shares to the total sales of the Fund's shares over the Fund's
fiscal year or such other allocation method approved by the Board of Directors
or Trustees. The allocation of distribution expenses among Classes will be
subject to the review of the Board of Directors or Trustees. Payments hereunder
will be applied to distribution expenses in the order in which they are
incurred, unless otherwise determined by the Board of Directors or Trustees.
4
<PAGE>
Costs of the Distributor subject to reimbursement hereunder are all
costs of performing Distribution Activities and include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of distribution activities including central office
and branch expenses;
(c) amounts paid to Prusec in reimbursement of all costs incurred by
Prusec in performing services under a selected dealer agreement
between Prusec and the Distributor for sale of Class B shares of
the Fund, including sales commissions and trailer commissions
paid to, or on account of, agents and indirect and overhead costs
associated with distribution activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than
current shareholders of the Fund;
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions
(other than Prusec) which have entered into selected dealer
agreements with the Distributor with respect to shares of the
Fund;
(f) to the extent permitted by law, interest on unreimbursed Carry
Forward Amounts as defined in Section 3 at a rate equal to that
paid by Prudential Securities for bank borrowings as such rate
may vary from day to day, not to exceed that permitted under
Article III, Section 26, of the NASD Rules of Fair Practice; and
5
<PAGE>
(g) unreimbursed distribution expenses incurred with respect to the
sale of Class B shares which have been exchanged into the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of
Directors or Trustees of the Fund for review, at least quarterly, a written
report specifying in reasonable detail the amounts expended for Distribution
Activities (including payment of the service fee) and the purposes for which
such expenditures were made in compliance with the requirements of Rule 12b-1.
The Distributor will provide to the Board of Directors or Trustees of the Fund
such additional information as they shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees of the
Fund of the commissions and account servicing fees to be paid by the Distributor
to account executives of the Distributor and to broker-dealers and other
financial institutions which have selected dealer agreements with the
Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class B shares of the Fund, the Plan shall, unless earlier
terminated in accordance with its terms, continue in full force and effect
6
<PAGE>
thereafter for so long as such continuance is specifically approved at
least annually by a majority of the Board of Directors or Trustees of the Fund
and a majority of the Rule 12b-1 Directors or Trustees by votes cast in person
at a meeting called for the purpose of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors or Trustees, or by vote of a majority of the outstanding
voting securities (as defined in the Investment Company Act) of the Class B
shares of the Fund.
7. Amendments
The Plan may not be amended to change the distribution expenses to be
paid as provided for in Section 3 hereof so as to increase materially the
amounts payable under this Plan unless such amendment shall be approved by the
vote of a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class B shares of the Fund. All material
amendments of the Plan, including the addition or deletion of categories of
expenditures which are reimbursable hereunder, shall be approved by a majority
of the Board of Directors or Trustees of the Fund and a majority of the Rule
12b-1 Directors or Trustees by votes cast in person at a meeting called for the
purpose of voting on the Plan.
8. Non-interested Directors or Trustees
While the Plan is in effect, the selection and nomination of the
Directors or Trustees who are not "interested persons" of the
7
<PAGE>
Fund (non-interested Directors or Trustees) shall be committed to the
discretion of the non-interested Directors or Trustees.
9. Records
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated as of June 1, 1990, and
amended and restated as of July 1, 1993
8
Exhibit 15(c)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(Class A Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below
which is designed to conform to the requirements of Rule 12b-1
under the Investment Company Act of 1940 (the Investment Company
Act) and Article III, Section 26 of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. (NASD) has
been adopted by Prudential __________ Fund (the Fund) and by
Prudential Mutual Fund Distributors, Inc., the Fund's distributor
(the Distributor).
The Fund has entered into a distribution agreement pursuant
to which the Fund will employ the Distributor to distribute Class
A shares issued by the Fund (Class A shares). Under the Plan, the
Fund intends to pay to the Distributor, as compensation for its
services, a distribution and service fee with respect to Class A
shares.
A majority of the Board of Directors or Trustees of the
Fund, including a majority of those Directors or Trustees who are
not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it (the Rule 12b-1 Directors or Trustees),
have determined by votes cast in person at a meeting called for
the purpose of voting on this Plan that there is a reasonable
<PAGE>
likelihood that adoption of this Plan will benefit the Fund and
its shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) are primarily intended to
result in the sale of Class A shares of the Fund within the
meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the
Investment Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their
account executives to provide distribution assistance to their
customers who are investors in the Fund, to defray the costs and
expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other
promotional and distribution activities and to provide for the
servicing and maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A
shares of the Fund and to service shareholder accounts using all
of the facilities of the distribution networks of Prudential
Securities Incorporated (Prudential Securities) and Pruco
Securities Corporation (Prusec), including sales personnel and
branch office and central support systems, and also using such
other qualified broker-dealers and financial institutions as the
Distributor may select. Services provided and activities
undertaken to distribute Class A shares of the Fund are referred
to herein as "Distribution Activities."
3
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for
providing personal service and/or maintaining shareholder
accounts a service fee of .25 of 1% per annum of the average
daily net assets of the Class A shares (service fee). The Fund
shall calculate and accrue daily amounts payable by the Class A
shares of the Fund hereunder and shall pay such amounts monthly
or at such other intervals as the Board of Directors/Trustees may
determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for
its services a distribution fee, together with the service fee
(described in Section 2 hereof), of .30 of 1% per annum of the
average daily net assets of the Class A shares of the Fund for
the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares
of the Fund hereunder and shall pay such amounts monthly or at
such other intervals as the Board of Directors/Trustees may
determine. Amounts payable under the Plan shall be subject to
the limitations of Article III, Section 26 of the NASD Rules of
Fair Practice.
Amounts paid to the Distributor by the Class A shares of the
Fund will not be used to pay the distribution expenses incurred
with respect to any other class of shares of the Fund except that
distribution expenses attributable to the Fund as a whole will be
allocated to the Class A shares according to the ratio of the
sales of Class A shares to the total sales of the Fund's shares
4
<PAGE>
over the Fund's fiscal year or such other allocation method
approved by the Board of Directors or Trustees. The allocation
of distribution expenses among classes will be subject to the
review of the Board of Directors or Trustees.
The Distributor shall spend such amounts as it deems
appropriate on Distribution Activities which include, among
others:
(a) amounts paid to Prudential Securities for
performing services under a selected dealer
agreement between Prudential Securities and
the Distributor for sale of Class A shares of
the Fund, including sales commissions and
trailer commissions paid to, or on account
of, account executives and indirect and
overhead costs associated with Distribution
Activities, including central office and
branch expenses;
(b) amounts paid to Prusec for performing
services under a selected dealer agreement
between Prusec and the Distributor for sale
of Class A shares of the Fund, including
sales commissions and trailer commissions
paid to, or on account of, agents and
indirect and overhead costs associated with
Distribution Activities;
(c) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
prospectuses, statements of additional
information and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund; and
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prudential Securities and Prusec)
which have entered into selected dealer
agreements with the Distributor with respect
to shares of the Fund.
5
<PAGE>
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors or Trustees of the Fund for review, at least
quarterly, a written report specifying in reasonable detail the
amounts expended for Distribution Activities (including payment
of the service fee) and the purposes for which such expenditures
were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of
the Fund such additional information as the Board or Trustees
shall from time to time reasonably request, including information
about Distribution Activities undertaken or to be undertaken by
the Distributor.
The Distributor will inform the Board of Directors or
Trustees of the Fund of the commissions and account servicing
fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions
which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by
a vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of
the Fund.
If approved by a vote of a majority of the outstanding
voting securities of the Class A shares of the Fund, the Plan
shall, unless earlier terminated in accordance with its terms,
continue in full force and effect thereafter for so long as such
continuance is specifically approved at least annually by a
6
<PAGE>
majority of the Board of Directors or Trustees of the Fund and a
majority of the Rule 12b-1 Directors or Trustees by votes cast in
person at a meeting called for the purpose of voting on the
continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors or Trustees, or by vote of a
majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class A shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service
and distribution fees to be paid as provided for in Sections 2
and 3 hereof so as to increase materially the amounts payable
under this Plan unless such amendment shall be approved by the
vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of
the Fund. All material amendments of the Plan shall be approved
by a majority of the Board of Directors or the Trustees of the
Fund and a majority of the Rule 12b-1 Directors or Trustees by
votes cast in person at a meeting called for the purpose of
voting on the Plan.
8. Rule 12b-1 Directors or Trustees
While the Plan is in effect, the selection and nomination of
the Rule 12b-1 Directors or Trustees shall be committed to the
discretion of the Rule 12b-1 Directors or Trustees.
7
<PAGE>
9. Records
The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Section 4 hereof, for
a period of not less than six years from the date of
effectiveness of the Plan, such agreements or reports, and for at
least the first two years in an easily accessible place.
*[10. Enforcement of Claims.
The name "Prudential ___________ Trust" is the designation
of the Trustees under a Declaration of Trust dated ______, 19__
and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against
the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations
entered into on behalf of the Fund.]
Dated:
8
Exhibit 15(d)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(Class B Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth
below which is designed to conform to the requirements of Rule
12b-1 under the Investment Company Act of 1940 (the Investment
Company Act) and Article III, Section 26 of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
(NASD) has been adopted by Prudential __________ Fund, (the Fund)
and by Prudential Securities Incorporated (Prudential
Securities), the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement
pursuant to which the Fund will continue to employ the
Distributor to distribute Class B shares issued by the Fund
(Class B shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and
service fee with respect to Class B shares.
A majority of the Board of Directors or Trustees of the Fund
including a majority who are not "interested persons" of the Fund
(as defined in the Investment Company Act) and who have no direct
or indirect financial interest in the operation of this Plan or any
agreements related to it (the Rule 12b-1 Directors or Trustees),
have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
<PAGE>
shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) are primarily intended to
result in the sale of Class B shares of the Fund within the meaning
of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their
account executives to provide distribution assistance to their
customers who are investors in the Fund, to defray the costs and
expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other
promotional and distribution activities and to provide for the
servicing and maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B
shares of the Fund and to service shareholder accounts using all
of the facilities of the Prudential Securities distribution
network including sales personnel and branch office and central
support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services
provided and activities undertaken to distribute Class B shares
of the Fund are referred to herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for
providing personal service and/or maintaining shareholder
accounts a service fee of .25 of 1% per annum of the average
daily net assets of the Class B shares (service fee). The Fund
shall calculate and accrue daily amounts payable by the Class B
shares of the Fund hereunder and shall pay such amounts monthly
or at such other intervals as the Board of Directors/Trustees may
determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for
its services a distribution fee of .75 of 1% per annum of the
average daily net assets of the Class B shares of the Fund for
the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class B shares
of the Fund hereunder and shall pay such amounts monthly or at
such other intervals as the Board of Directors/Trustees may
determine. Amounts payable under the Plan shall be subject to
the limitations of Article III, Section 26 of the NASD Rules of
Fair Practice.
Amounts paid to the Distributor by the Class B shares of the
Fund will not be used to pay the distribution expenses incurred
with respect to any other class of shares of the Fund except that
distribution expenses attributable to the Fund as a whole will be
allocated to the Class B shares according to the ratio of the sale
of Class B shares to the total sales of the Fund's shares over the
Fund's fiscal year or such other allocation method approved by the
Board of Directors or Trustees. The allocation of distribution
3
<PAGE>
expenses among classes will be subject to the review of the Board
of Directors or Trustees.
The Distributor shall spend such amounts as it deems
appropriate on Distribution Activities which include, among
others:
(a) sales commissions (including trailer commissions)
paid to, or on account of, account executives of the
Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of Distribution Activities
including central office and branch expenses;
(c) amounts paid to Prusec for performing services
under a selected dealer agreement between Prusec and
the Distributor for sale of Class B shares of the Fund,
including sales commissions and trailer commissions
paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through
any available medium, including the cost of printing
and mailing Fund prospectuses, statements of additional
information and periodic financial reports and sales
literature to persons other than current shareholders
of the Fund; and
(e) sales commissions (including trailer commissions)
paid to, or on account of, broker-dealers and other
financial institutions (other than Prusec) which have
entered into selected dealer agreements with the
Distributor with respect to shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors or Trustees of the Fund for review, at least
quarterly, a written report specifying in reasonable detail the
amounts expended for Distribution Activities (including payment
of the service fee) and the purposes for which such expenditures
were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of
4
<PAGE>
the Fund such additional information as they shall from time to
time reasonably request, including information about Distribution
Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors or
Trustees of the Fund of the commissions and account servicing
fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the
Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by
a vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of
the Fund.
If approved by a vote of a majority of the outstanding
voting securities of the Class B shares of the Fund, the Plan
shall, unless earlier terminated in accordance with its terms,
continue in full force and effect thereafter for so long as such
continuance is specifically approved at least annually by a
majority of the Board of Directors or Trustees of the Fund and a
majority of the Rule 12b-1 Directors or Trustees by votes cast in
person at a meeting called for the purpose of voting on the
continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Directors or Trustees, or by vote of a majority
of the outstanding voting securities (as defined in the Investment
5
<PAGE>
Company Act) of the Class B shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service
and distribution fees to be paid as provided for in Sections 2
and 3 hereof so as to increase materially the amounts payable
under this Plan unless such amendment shall be approved by the
vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of
the Fund. All material amendments of the Plan shall be approved
by a majority of the Board of Directors or Trustees of the Fund
and a majority of the Rule 12b-1 Directors or Trustees by votes
cast in person at a meeting called for the purpose of voting on
the Plan.
8. Rule 12b-1 Directors or Trustees
While the Plan is in effect, the selection and nomination of
the Rule 12b-1 Directors or Trustees shall be committed to the
discretion of the Rule 12b-1 Directors or Trustees.
9. Records
The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Section 4 hereof, for
a period of not less than six years from the date of
effectiveness of the Plan, such agreements or reports, and for at
least the first two years in an easily accessible place.
*[10. Enforcement of Claims.
The name "Prudential ___________ Trust" is the designation of
the Trustees under a Declaration of Trust dated ______, 19__ and
all persons dealing with the Fund must look solely to the property
6
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of the Fund for the enforcement of any claims against the Fund, and
neither the Trustees, officers, agents of shareholders assume any
personal liability for obligations entered into on behalf of the
Fund.]
Dated:
7
Exhibit 15(e)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(Class C Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential __________ Fund, (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will continue to employ the Distributor to distribute Class C shares issued
by the Fund (Class C shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class C shares.
A majority of the Board of Directors or Trustees of the Fund including a
majority who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors or Trustees), have determined by votes cast in person at a meeting
called for the purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
<PAGE>
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
C shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class C shares of
the Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class C shares of the Fund are referred to
herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/Trustees may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Article III, Section 26 of the NASD Rules
of Fair Practice.
Amounts paid to the Distributor by the Class C shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
3
<PAGE>
Directors or Trustees. The allocation of distribution expenses among classes
will be subject to the review of the Board of Directors or Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office
and branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of
Class C shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, agents and
indirect and overhead costs associated with Distribution
Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than
current shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions
(other than Prusec) which have entered into selected dealer
agreements with the Distributor with respect to shares of the
Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of
Directors or Trustees of the Fund for review, at least quarterly, a written
report specifying in reasonable detail the amounts expended for Distribution
Activities (including payment of the service fee) and the purposes for which
such expenditures were made in compliance with the requirements of Rule 12b-1.
4
<PAGE>
The Distributor will provide to the Board of Directors or Trustees of the Fund
such additional information as they shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees of the
Fund of the commissions and account servicing fees to be paid by the Distributor
to account executives of the Distributor and to broker-dealers and other
financial institutions which have selected dealer agreements with the
Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
5
<PAGE>
If approved by a vote of a majority of the outstanding voting securities
of the Class C shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors or Trustees of the Fund and a majority of the
Rule 12b-1 Directors or Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors or Trustees, or by vote of a majority of the outstanding
voting securities (as defined in the Investment Company Act) of the Class C
shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class C shares of the Fund.
All material amendments of the Plan shall be approved by a majority of the Board
of Directors or Trustees of the Fund and a majority of the Rule 12b-1 Directors
or Trustees by votes cast in person at a meeting called for the purpose of
voting on the Plan.
8. Rule 12b-1 Directors or Trustees
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors or Trustees shall be committed to the discretion of the Rule
12b-1 Directors or Trustees.
9. Records
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
*[10. Enforcement of Claims.
The name "Prudential ___________ Trust" is the designation of the
Trustees under a Declaration of Trust dated ______, 19__ and all persons dealing
with the Fund must look solely to the property of the Fund for the enforcement
6
<PAGE>
of any claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
Dated:
7
