As filed with the Securities and Exchange Commission on March 31, 1995
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No.
(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)
Registrant's Telephone Number, including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service)
Approximate date of proposed public offering:
As soon as practicable after the effective
date of the Registration Statement.
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to Section
8(a), may determine.
No filing fee is required because, 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, pursuant
to a registration statement on Form N-1A (File No. 33-33477). Pursuant to Rule
429 under the Securities Act of 1933, the Proxy Statement/Prospectus relates to
shares previously registered on Form N-1A (File No. 33-33477).
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<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 481(a) under the Securities Act of 1933)
<TABLE>
<CAPTION>
N-14 Item No. Prospectus/Proxy
and Caption Statement Caption
------------- -----------------
Part A
<S> <C> <C>
Item 1. Beginning of Registration Statement and
Outside Front Cover Page of Prospectus Cover Page
Item 2. Beginning and Outside Back Cover Page of Prospectus Table of Contents
Item 3. Synopsis Information and Risk Factors Synopsis; Principal Risk Factors
Item 4. Information about the Transaction Synopsis; The Proposed Transaction
Item 5. Information about the Registrant Additional Information about
Multi-Sector Fund
Item 6. Information about the Company Being Acquired Additional Information about
Strategist Fund
Item 7. Voting Information Voting Information
Item 8. Interest of Certain Persons and Experts Not Applicable
Item 9. Additional Information Required for Reoffering
by Persons Deemed to be Underwriters Not Applicable
Part B Statement of Additional
Information Caption
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. Additional Information about the Registrant Statement of Additional Information
of Prudential Multi-Sector Fund, Inc.
dated August 1, 1994; Semi-Annual
Report to Shareholders of Prudential
Multi-Sector Fund, Inc. for the six
months ended October 31, 1994.
Item 13. Additional Information about the Company Being Acquired Not Applicable
Item 14. Financial Statements Statement of Additional Information
of Prudential Multi-Sector
Fund, Inc. dated August 1, 1994; Semi-
Annual Report to shareholders of Pru-
dential Multi-Sector Fund, Inc. for the
six months ended October 31, 1994;
Annual Report to shareholders of Pru-
dential Strategist Fund, Inc. for the
fiscal year ended February 28, 1995;
pro forma financial statements
included in the Statement of Additional
Information of Prudential Multi-Sector
Fund, Inc. dated April , 1995 relating
to the acquisition of assets of Prudential
Strategist Fund, Inc. by Prudential Multi-
Sector Fund, Inc. in exchange for shares
of Prudential Multi-Sector Fund, Inc.
Part C
Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this
Registration Statement.
</TABLE>
<PAGE>
PRELIMINARY COPY
For the Information of the Securities and Exchange Commission Only
PRUDENTIAL STRATEGIST FUND, INC.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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To our Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of Prudential
Strategist Fund, Inc. (Strategist Fund) will be held at 3:00 p.m. on June 9,
1995, at 199 Water Street, New York, N.Y. 10292, for the following purposes:
1. To approve an Agreement and Plan of Reorganization and Liquidation
whereby all of the assets of Strategist Fund will be transferred to Prudential
Multi-Sector Fund, Inc. (Multi-Sector Fund) in exchange for shares of
Multi-Sector Fund, and the liabilities of Strategist Fund, if any, will be
assumed by Multi-Sector Fund.
2. To consider and act upon any other business as may properly come before
the Meeting or any adjournment thereof.
Only shares of common stock of Strategist Fund of record at the close of
business on April 7, 1995, are entitled to notice of and to vote at this Meeting
or any adjournment thereof.
S. Jane Rose
Secretary
Dated: April , 1995
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WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. IN ORDER TO
AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK YOUR COOPERATION
IN MAILING IN YOUR PROXY PROMPTLY.
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<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
PROSPECTUS
and
PRUDENTIAL STRATEGIST FUND, INC.
PROXY STATEMENT
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(800) 225-1852
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Prudential Strategist Fund, Inc. (Strategist Fund) is an open-end,
diversified management investment company. Prudential Multi-Sector Fund, Inc.
(Multi-Sector Fund) is an open-end, non-diversified management investment
company. Both Strategist Fund and Multi-Sector Fund (collectively, the Funds)
are managed by Prudential Mutual Fund Management, Inc. (PMF or the Manager) and
have the same office address. The investment objective of Strategist Fund is to
seek a high total return (capital appreciation plus dividend and interest
income) consistent with reasonable risk. The primary investment objective of
Multi-Sector Fund is long-term growth of capital.
This Prospectus and Proxy Statement is being furnished to shareholders of
Strategist Fund in connection with a proposed Agreement and Plan of
Reorganization and Liquidation (the Plan), whereby Multi-Sector Fund will
acquire all of the assets of Strategist Fund and assume all of the liabilities,
if any, of Strategist Fund. If the Plan is approved by Strategist Fund's
shareholders, all such shareholders will be issued shares of Multi-Sector Fund
in place of the shares of Strategist Fund held by them, and Strategist Fund will
be liquidated. Shareholders of Multi-Sector Fund are not being asked to vote on
the Plan.
This Prospectus and Proxy Statement sets forth concisely information about
the Funds that prospective investors should know before investing. This
Prospectus and Proxy Statement is accompanied by the Prospectus of Multi-Sector
Fund, dated August 1, 1994, including a January 6, 1995 Supplement thereto,
which Prospectus is incorporated by reference herein and the Annual Report to
Shareholders of Strategist Fund for the fiscal year ended February 28, 1995. The
Prospectus of Strategist Fund, dated August 1, 1994, including January 6, 1995
and March 17, 1995 Supplements thereto, and the Statement of Additional
Information of Multi-Sector Fund, dated August 1, 1994, including a November 1,
1994 Supplement thereto, have been filed with the Securities and Exchange
Commission (SEC), are incorporated herein by reference and are available without
charge upon written request to Prudential Mutual Fund Services, Inc., Raritan
Plaza One, Edison, New Jersey 08837 or by calling the toll-free number shown
above. Additional information, contained in a Statement of Additional
Information, dated April , 1995, forming a part of Multi-Sector Fund's
Registration Statement on Form N-14, has been filed with the SEC, is
incorporated herein by reference and is available without charge upon request to
the address or telephone number shown above.
This Prospectus and Proxy Statement will first be mailed to shareholders on
or about April , 1995.
Investors are advised to read and retain this Prospectus and Proxy Statement
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
ACCURRACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus and Proxy Statement is April , 1995.
1
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
PRUDENTIAL STRATEGIST FUND, INC.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
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PROXY STATEMENT AND PROSPECTUS DATED APRIL , 1995
----------------
VOTING INFORMATION
This Proxy Statement is furnished by the Directors of Prudential Strategist
Fund, Inc. (Strategist Fund), in connection with their solicitation of Proxies
for use at a Special Meeting of Shareholders of Strategist Fund (the Meeting) to
be held at 3:00 P.M., on June 9, 1995 at 199 Water Street, New York, New York
10292, Strategist Fund's principal executive office. The purpose of the Meeting
is to approve or disapprove an Agreement and Plan of Reorganization and
Liquidation (Plan) whereby all of the assets of Strategist Fund will be acquired
by, and the liabilities of Strategist Fund, if any, will be assumed by,
Prudential Multi-Sector Fund, Inc. (Multi-Sector Fund) and such other business
as may properly come before the Meeting or any adjournment thereof. The Plan is
attached to this Proxy Statement and Prospectus as Appendix B. The transactions
contemplated by the Plan are set forth herein and in summary provide that
Multi-Sector Fund will acquire the assets in exchange solely for shares of
common stock of Multi-Sector Fund and assume the liabilities of Strategist Fund.
If the accompanying form of Proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the Proxy. However, if no instructions are specified, shares
will be voted for the proposal. A Proxy may be revoked at any time prior to the
time it is voted by written notice to the Secretary of Strategist Fund or by
attendance at the Meeting. If sufficient votes to approve the proposed items are
not received, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of a majority of those shares present at the
Meeting or represented by proxy. When voting on a proposed adjournment, the
persons named as proxies will vote for the proposed adjournment all shares that
they are entitled to vote with respect to each item, unless directed to
disapprove the item, in which case such shares will be voted against the
proposed adjournment. Any questions as to an adjournment of the Meeting will be
voted on by the persons named in the enclosed Proxy in the same manner that the
Proxies are instructed to be voted. In the event that the Meeting is adjourned,
the same procedures will apply at a later Meeting date.
If a Proxy that is properly executed and returned, accompanied by
instructions to withhold authority to vote, represents a broker "non-vote" (that
is, a Proxy from a broker or nominee indicating that such person has not
received instructions from the beneficial owner or other person entitled to vote
shares on a particular matter with respect to which the broker or nominee does
not have discretionary power), the shares represented thereby will be considered
not to be present at the Meeting for purposes of determining the existence of a
quorum for the transaction of business and be deemed not cast with respect to
such proposal. If no instructions are received by the broker or nominee from the
shareholder with reference to routine matters, the shares represented thereby
may be considered for purposes of determining the existence of a quorum for the
transaction of business and will be deemed cast with respect to such proposal.
Also, a properly executed and returned Proxy marked with an abstention will be
considered present at the Meeting for purposes of determining the existence of a
quorum for the transaction of business. However, abstentions and broker
"non-votes" do not constitute a vote "for" or "against" the matter, but have the
effect of a negative vote on matters which require approval by a requisite
percentage of the outstanding shares.
2
<PAGE>
The close of business on April 7, 1995 has been fixed as the record date for
the determination of shareholders entitled to notice of, and to vote at, the
Meeting. On that date, Strategist Fund had Class A shares, Class B shares and
Class C shares outstanding and entitled to vote.
Each share of Strategist Fund will be entitled to one vote at the Meeting.
It is expected that the Notice of Special Meeting, Proxy Statement and
Prospectus and form of Proxy will be mailed to shareholders on or about April ,
1995.
As of April 7, 1995, the following shareholders owned beneficially 5% or
more of Strategist Fund's outstanding Class A, Class B or Class C shares:
[to come]
The expenses of reorganization and solicitation will be borne by Strategist
Fund and Multi-Sector Fund in proportion to their respective assets and will
include reimbursement of brokerage firms and others for expenses in forwarding
proxy solicitation material to shareholders. The Directors of Strategist Fund
have retained Shareholder Communications Corporation, a proxy solicitation firm,
to assist in the solicitation of proxies for the Meeting. The expenses of
solicitation are not expected to exceed $48,000. The solicitation of proxies
will be largely by mail but may include telephonic, telegraphic or oral
communication by regular employees of Prudential Securities Incorporated
(Prudential Securities) and its affiliates, including Prudential Mutual Fund
Management, Inc. This cost, including specified expenses, also will be borne by
Strategist Fund and Multi-Sector Fund in proportion to their respective assets.
Approval of the Plan requires the affirmative vote of a majority of shares
of Strategist Fund outstanding and entitled to vote. Approval of the Plan by the
shareholders of Multi-Sector Fund is not required and the Plan is not being
submitted for their approval.
SYNOPSIS
The following synopsis is a summary of certain information contained
elsewhere in this Proxy Statement and Prospectus and the Plan and is qualified
by reference to the more complete information contained herein as well as in the
Strategist Fund Prospectus and the enclosed Multi-Sector Fund Prospectus.
Shareholders should read the entire Proxy Statement and Prospectus carefully.
The Proposed Reorganization and Liquidation
The Directors of Strategist Fund and Multi-Sector Fund have approved the
Plan, which provides for the transfer of all of the assets of Strategist Fund in
exchange solely for shares of common stock of Multi-Sector Fund and the
assumption by Multi-Sector Fund of the liabilities, if any, of Strategist Fund.
Following shareholder approval, if obtained, and the exchange, Class A, Class B
and Class C shares of Multi-Sector Fund will be distributed to Class A, Class B
and Class C shareholders, respectively, of Strategist Fund, and Strategist Fund
will be liquidated. The reorganization will become effective as soon as
practicable after the Meeting. Each Strategist Fund Class A, Class B and Class C
shareholder will receive the number of full and fractional Class A, Class B and
Class C shares of Multi-Sector Fund equal in value (rounded to the third decimal
place) to such shareholder's Class A, Class B and Class C shares of Strategist
Fund as of the closing date.
For the reasons set forth below under "--Reasons for the Proposed
Reorganization and Liquidation," the Directors of Strategist Fund and
Multi-Sector Fund, including those Directors who are not "interested persons"
(Independent
3
<PAGE>
Directors) as that term is defined in the Investment Company Act of 1940, as
amended (Investment Company Act), have concluded that the reorganization would
be in the best interests of the shareholders of Strategist Fund and Multi-Sector
Fund and that the interests of shareholders of each Fund will not be diluted as
a result of the proposed transaction. Accordingly, the Directors of each Fund
recommend approval of the Plan.
Reasons for the Proposed Reorganization and Liquidation
There are a number of similarities between the Funds that led to
consideration of the Plan. Each Fund is an open-end investment company organized
as a Maryland corporation. Each Fund invests primarily in domestic and foreign
equity securities. Greg A. Smith, the portfolio manager of Strategist Fund,
makes asset allocation recommendations to Prudential Investment Corporation
(PIC), Multi-Sector Fund's Subadviser, pursuant to a consulting agreement
between PIC and Greg A. Smith Asset Management Corporation, Strategist Fund's
Subadviser. Each Fund is managed by Prudential Mutual Fund Management, Inc. (PMF
or the Manager).
In addition, the Directors of each Fund believe that the reorganization may
achieve certain economies of scale that Strategist Fund alone cannot realize
because of its diminishing size, and that Multi-Sector Fund would realize the
benefits of a larger asset base in exchange for shares of its common stock. The
combination of the two Funds would eliminate certain duplicate expenses, such as
Directors' fees and those incurred in connection with separate audits and the
preparation of separate financial statements for each Fund.
There are a number of major differences between the Funds. First, although
similar, the investment objective of each Fund is different. Strategist Fund's
investment objective is to seek a high total return (capital appreciation plus
dividend and interest income) consistent with reasonable risk. Multi-Sector
Fund's primary investment objective is long-term growth of capital. Second,
their management fees are different. The management fee for Multi-Sector Fund is
charged at an annual rate of .65 of 1% of the Fund's average daily net assets.
The management fee for Strategist Fund is charged at an annual rate of .625 of
1% of the first $500 million of average daily net assets, .55 of 1% of the next
$500 million of average daily net assets and .50 of 1% thereafter of that Fund's
average daily net assets. However, upon consummation of the proposed
transaction, PMF intends to waive a portion of its management fee so that
Multi-Sector Fund will pay a management fee at the same annual rate as
Strategist Fund. See "Fees and Expenses--Management Fees" below. Third, the
credit quality of the debt instruments in which the Funds may invest differs.
Strategist Fund may only invest in bonds which are securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, foreign
government securities or in obligations of banks or corporations rated A (upper
medium grade) or better by Standard & Poor's Ratings Group (S&P) or Moody's
Investors Service Inc. (Moody's). Multi-Sector Fund may 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 or in non-rated fixed-income securities of comparable quality.
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
or lower by S&P or Ba or lower by Moody's, commonly known as "junk bonds", are
generally considered to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. Multi-Sector Fund may
also invest in unrated fixed-income securities which, in the opinion of its
investment adviser, are of a quality comparable to rated securities in which
Multi-Sector Fund may invest. See "Principal Risk Factors--High Yield
Securities" below. Fourth, Strategist Fund is a diversified management
investment company and Multi-Sector Fund is a non-diversified management
investment company. A non-diversified investment company is not restricted in
the amount of assets it can invest in securities of one issuer, whereas a
diversified investment company, with respect to 75% of its total assets, may
invest no more than 5% of its total assets in securities of one issuer. See
"Principal Risk Factors--Multi-Sector Fund Is a Non-Diversified Investment
Company" below.
Strategist Fund commenced investment operations in March 1983 as
Prudential-Bache Research Fund, Inc. Despite numerous attempts to refine
Strategist Fund's investment strategy, Strategist Fund has, in the market
environment of the past several years, been unable to attract sufficient new
assets to offset redemptions, which has resulted in increased expense ratios. As
of February 28, 1995, Strategist Fund had approximately $165 million in total
4
<PAGE>
net assets which represents a 21% decline from total net assets of approximately
$209 million at February 28, 1994 and a 63% decline from total net assets of
approximately $446 million at February 29, 1988. As of February 28, 1995,
Multi-Sector Fund had total net assets of approximately $247 million, which
represents a 28% increase in total net assets from April 30, 1994. The ratios of
total expenses to average net assets for the Class A, Class B and Class C shares
of Strategist Fund for the fiscal year ended February 28, 1995 were 1.53%, 2.24%
and 2.31%, respectively, whereas the ratios of total expenses to average net
assets for Class A and Class B shares of Strategist Fund for the fiscal year
ended February 28, 1994 were 1.34% and 2.13%, respectively. The expense ratios
for Strategist Fund's shares will increase even further if the number of
outstanding shares, and therefore total net assets under management, continue to
diminish, which the Manager expects will occur if the Plan is not approved. See
"Fees and Expenses--Expense Ratios" below.
The recent investment performance of Multi-Sector Fund has been superior to
that of Strategist Fund. The following table, derived from the "Financial
Highlights" of each Fund, reflects their respective total returns on Class A, B
and C shares for the periods indicated:
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------------------------------ ------------------------------------------------ -----------
Year ended February 28/29, Year ended February 28/29,
------------------------------------------------ ------------------------------------------------ August 1,
1994**
through
February 28,
1995 1994 1993 1992 1991 1995 1994 1993 1992 1991 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Strategist
Fund* ...... (4.96)% 8.81% 3.74% 13.76% 6.74% (5.70)% 8.02% 2.91% 12.80% 6.03% 1.59%
----- ---- ---- ----- ---- ----- ---- ---- ----- ---- ----
Year ended April 30, Year ended April 30,
---------------------- ----------------------
Six Months June 29, Six Months June 29, August 1,
Ended 1990*** Ended 1990*** 1994**
October 31, through October 31, through through
1994 April 30, 1994 April 30, October 31,
(unaudited) 1994 1993 1992 1991 (unaudited) 1994 1993 1992 1991 1994
----------- ---- ---- ---- ---- ----------- ---- ---- ---- ---- ----
Multi-
Sector
Fund* ...... 11.41% 14.16% 15.14% 6.16% 17.64% 10.55% 13.22% 14.13% 5.39% 16.14% 5.38%
----- ----- ----- ---- ----- ----- ----- ----- ---- ----- ----
*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.
**Commencement of offering of Class C shares.
***Commencement of investment operations.
</TABLE>
The proposed transaction would give Multi-Sector Fund the opportunity to
increase its assets and acquire securities consistent with its investment
objective and policies in exchange for the issuance of shares of common stock of
Multi-Sector Fund.
The Directors of Strategist Fund have determined that approval of the Plan
would be in the best interests of Strategist Fund and its shareholders for the
reasons discussed above. See "The Proposed Transaction--Reasons for the
Reorganization and Liquidation" below.
Structure of Multi-Sector Fund and Strategist Fund
Multi-Sector Fund is authorized to issue two billion shares and Strategist
Fund is authorized to issue 500 million shares of common stock in each case
divided into three classes, designated Class A, Class B and Class C common
stock. Each class of common stock of each Fund represents an interest in the
same assets of that 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
each Fund has agreed with the Securities and Exchange Commission (SEC), in
connection with the conversion feature on Class B shares, to submit any
amendment of the
5
<PAGE>
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. The distribution systems for Class A, Class B and Class C shares of
each Fund are identical. Each Fund has received an order from the SEC permitting
the issuance and sale of multiple classes of common stock. Currently, each Fund
is offering three classes, designated Class A, Class B and Class C shares.
Pursuant to each Fund's Articles of Incorporation, each Fund's 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 that Fund's Board of Directors may determine.
The Board of Directors of each Fund may increase or decrease the number of
authorized shares of their respective Fund without approval by the shareholders.
Shares of each 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 each Fund under certain circumstances. Each share of
each class of common stock of each Fund is equal as to earnings, assets and
voting privileges, except as noted above, and each class bears the expenses of
each Fund related to the distribution of its shares. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of common
stock of each Fund is entitled to its portion of all of that Fund's assets after
all debt and expenses of that 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. Neither Fund's shares have cumulative voting
rights for the election of Directors.
Investment Objectives and Policies
The primary investment objective of Multi-Sector Fund is long-term growth of
capital. Multi-Sector 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 under "Description of Economic
Sectors" in Appendix A to the Multi-Sector Fund Prospectus. The investment
adviser expects to make significant shifts in Multi-Sector 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 these
objectives will be achieved. Multi-Sector 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 or in non-rated fixed-income securities of comparable quality.
Multi-Sector 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. Multi-Sector Fund may also engage in various hedging and
income enhancement strategies, including the purchase and sale of derivatives,
the purchase and sale of put and call options and related short-term trading.
See "Principal Risk Factors--Hedging and Income Enhancement Activities" below.
Strategist Fund's investment objective is to seek high total return (capital
appreciation plus dividend and interest income) consistent with reasonable risk.
Strategist Fund seeks to achieve this objective by allocating its assets among
equity securities, fixed-income securities and cash, based on an evaluation of
current market and economic conditions by Greg A. Smith Asset Management
Corporation (GSAM), Strategist Fund's Subadviser. There can be no assurance that
such objective will be achieved. Strategist Fund may also engage in various
hedging and income enhancement strategies, including the purchase and sale of
derivatives, the purchase and sale of put and call options and related
short-term trading.
Fees and Expenses
Management Fees. PMF, the Manager of each Fund and a wholly-owned subsidiary
of The Prudential Insurance Company of America (Prudential), is compensated,
pursuant to a management agreement with Strategist Fund, at an annual rate of
.625 of 1% of the first $500 million of the average daily net assets of
Strategist Fund, .55 of
6
<PAGE>
1% of the next $500 million of the average daily net assets of Stragist Fund,
and .50 of 1% thereafter of the average daily net assets of Strategist Fund and,
pursuant to a management agreement with Multi-Sector Fund, at an annual rate of
.65 of 1% of the average daily net assets of Multi-Sector Fund. For the fiscal
year ended February 28, 1995, Strategist Fund paid PMF management fees of .625
of 1% of Strategist Fund's average daily net assets. For the fiscal year ended
April 30, 1994, and the six-month period ended October 31, 1994, Multi-Sector
Fund paid PMF management fees of .65 of 1% of Multi-Sector Fund's average daily
net assets.
Under Subadvisory Agreements between PMF and GSAM with respect to Strategist
Fund and between PMF and PIC with respect to Multi-Sector Fund, the Subadvisers
provide investment advisory services for the management of the respective Funds.
Pursuant to the Strategist Fund Subadvisory Agreement between PMF and GSAM, PMF
compensates GSAM for its services thereunder at an annual rate of .375 of 1% of
Strategist Fund's average daily net assets up to $500 million, .35 of 1% of the
Fund's average daily net assets between $500 million and $1 billion and .30 of
1% of the average daily net assets in excess of $1 billion. The Multi-Sector
Fund Subadvisory Agreement provides that PMF will reimburse PIC for its
reasonable costs and expenses in providing subadvisory services. PMF continues
to have responsibility for all investment advisory services pursuant to the
Management Agreements for both Funds and supervises the subadvisers' performance
of their services.
Effective upon the consummation of Multi-Sector Fund's acquisition of the
assets and assumption of the liabilities, if any, of Strategist Fund, PMF has
voluntarily agreed to waive a portion of its management fee so that Multi-Sector
will pay a management fee at an annual rate of .625 of 1% of the first $500
million of the average daily net assets of Multi-Sector Fund, .55 of 1% of the
next $500 million of the average daily net assets of Multi-Sector Fund, and .50
of 1% thereafter of average daily net assets of Multi-Sector Fund. Fee waivers
and expense subsidies, however, may be terminated at any time without notice.
Distribution Fees. Prudential Mutual Fund Distributors (PMFD), a
wholly-owned subsidiary of PMF, serves as the distributor of the Class A shares
for both Funds. Prudential Securities Incorproated (Prudential Securities), a
wholly-owned subsidiary of Prudential, serves as the distributor of Class B and
Class C shares for both Funds.
Under separate Distribution and Service Plans adopted by each Fund (the
Class A Plan, Class B Plan, and Class C Plan, collectively, the Plans) pursuant
to Rule 12b-1 of the Investment Company Act, and under separate distribution
agreements, PMFD incurs the expenses of distributing the Class A shares for each
Fund and Prudential Securities incurs the expenses of distributing the Class B
and Class C shares for each Fund. These expenses include (i) commissions and
account servicing fees, (ii) advertising expenses, (iii) the cost of printing
and mailing prospectuses, and (iv) indirect and overhead costs associated with
the sale of each Fund's shares.
Under the Class A Plans, each Fund may pay PMFD for distribution expenses at
an annual rate of up to .30 of 1% of the average daily net assets of the Class A
shares. PMFD has advised the Funds that distribution fees under the Class A
Plans will not exceed .25 of 1% of the average daily net assets of the Class A
shares for the fiscal year ending February 28, 1996 for Strategist Fund and the
fiscal year ending April 30, 1996 for Multi-Sector Fund. For the fiscal year
ended February 28, 1995, PMFD received $29,580 under Strategist Fund's Class A
Plan and $ in initial sales charges from sales of Strategist Fund's
Class A shares. For the fiscal year ended April 30, 1994 and the six-month
period ended October 31, 1994, PMFD received $108,720 and $67,498, respectively,
under Multi-Sector Fund's Class A Plan and $229,600 and $60,100, respectively,
in initial sales charges from sales of Multi-Sector Fund's Class A shares.
Under the Class B and Class C Plans, each Fund shall pay Prudential
Securities for distribution expenses at an annual rate of 1% of the average
daily net assets of the Class B and Class C shares, respectively consisting, in
each case, of an asset-based sales charge of .75 of 1% of the average daily net
assets of the Fund's Class B and Class C shares and a service fee of .25 of 1%
of the average daily net assets of the Fund's Class B and Class C shares. For
the fiscal year ended February 28, 1995, Prudential Securities received
$1,669,441 under Strategist Fund's Class B Plan and approximately $ in
contingent deferred sales charges from redemptions of Strategist Fund's Class B
7
<PAGE>
shares. For the period August 1, 1994 (commencement of operations of Class C
shares) through February 28, 1995, Prudential Securities received $247 under
Strategist Fund's Class C Plan and approximately $ in contingent deferred sales
charges from redemptions of Strategist Fund's Class C shares.
For the fiscal year ended April 30, 1994, and the six-month period ended
October 31, 1994, Prudential Securities received $1,089,811 and $679,410,
respectively, from Multi-Sector Fund's Class B Plan and approximately $283,400
and $170,500, respectively, in contingent deferred sales charges from
redemptions of Multi-Sector Fund's Class B shares. For the period August 1, 1994
(commencement of operations of Class C shares) through October 31, 1994,
Prudential Securities received $581 under Multi-Sector Fund's Class C Plan.
For the fiscal year ended February 28, 1995 for Strategist Fund and the
six-month period ended October 31, 1994 for Multi-Sector Fund, each Fund paid
distribution expenses of .25%, 1.00% and 1.00% (annualized) of the average daily
net assets of its Class A, Class B and Class C shares, respectively. The Funds
record all payments made under the Plans as expenses in the calculation of net
investment income. Prior to August 1, 1994, the Class A and Class B Plans of
each Fund operated as "reimbursement type" plans and, in the case of Class B,
provided for the reimbursement of distribution expenses incurred in current and
prior years. See "Distributor" in the Statement of Additonal Information.
Other Expenses. Each Fund also pays certain other expenses in connection
with its operation, including accounting, custodian, legal, audit, transfer
agency and registration expenses. Although the basis for calculating these fees
and expenses is the same for each Fund, the per share effect on shareholder
returns is affected by the relative size of each Fund. Combining the Funds will
eliminate duplication of certain expenses. For example, only one annual audit of
the combined Fund will be required rather than one audit of each Fund as
currently required.
Expense Ratios. For its fiscal year ended February 28, 1995, total expenses
stated as a percentage of average net assets of the Strategist Fund were 1.53%,
2.24% and 2.31% (annualized) for Class A, Class B and Class C shares,
respectively. For the fiscal year ended April 30, 1994, total expenses stated as
a percentage of average net assets of Multi-Sector Fund were 1.30% and 2.08% for
Class A and Class B shares, respectively, and for the six-month period ended
October 31, 1994 (unaudited), total expenses stated as a percentage of average
net assets of Multi-Sector Fund were 1.37%, 2.12% and 2.04% (in each case
annualized) for the Class A, Class B and Class C shares, respectively.
Following the reorganization, the actual expense ratios of Multi-Sector Fund
are expected to be more favorable than those for the fiscal year ended April 30,
1994 and the period ended October 31, 1994. Set forth below is a comparison of
each Fund's operating expenses for, in the case of Strategist Fund, the fiscal
year ended February 28, 1995 and, in the case of Multi-Sector Fund, the
six-month period ended October 31, 1994. The ratios are also shown on a pro
forma (estimated) combined basis, giving effect to the reorganization.
<TABLE>
<CAPTION>
Annual Fund
Operating Expenses (as a
percentage of
average net assets) Strategist Fund Multi-Sector Fund Pro Forma Combined
------------------------- ------------------------- -------------------------
Class A Class B Class C(D) Class A Class B Class C(D) Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees ..... .625% .625% .625% .650% .650% .650% .625% .625% .625%
12b-1 Fees ........... .250 1.000 1.000 .250 1.000 1.000 .250 1.000 1.000
Other Expenses ....... .615 .615 .615 .470 .470 .470 .400 .400 .400
---- ----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses ........... 1.49% 2.240% 2.240% 1.370% 2.120% 2.120% 1.275% 2.025% 2.025%
==== ===== ===== ===== ===== ===== ===== ===== =====
<FN>
(D) Class C shares commenced investment operations on August 1, 1994. The ratios are based upon restated information
for the period August 1, 1994 through February 28, 1995 and October 31, 1994 (in each case annualized) for
Strategist Fund and Multi-Sector Fund, respectively.
</FN>
</TABLE>
Purchases and Redemptions
Purchases of shares of Multi-Sector Fund and Strategist Fund are made
through Prudential Securities, Prusec or directly from the respective Fund,
through their transfer agent, Prudential Mutual Fund Services, Inc. (PMFS or the
8
<PAGE>
Transfer Agent) at the net asset value per share next determined after receipt
of a 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).
The minimum initial investment for Class A and Class B shares of each Fund
is $1,000 per class and $5,000 for Class C shares and the minimum subsequent
investment is $100 for all classes. Class A shares of each Fund are sold with an
initial sales charge of up to 5.00% of the offering price. Class B shares of
each Fund are sold without an initial sales charge but are subject to a
contingent deferred sales charge (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 distribution related expenses) approximately seven years after
purchase. Class C shares of each Fund are sold without an initial sales charge
and, for one year after purchase, are subject to a 1% contingent deferred sales
charge 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.
Shares of each Fund may be redeemed at any time at the net asset value next
determined after Prudential Securities or the Transfer Agent receives the sell
order. As indicated above, the proceeds of redemptions of Class B and Class C
shares may be subject to a contingent deferred sales charge. For purposes of
determining any applicable contingent deferred sales charges, the time period
that Strategist Fund shareholders would be credited in calculating the
contingent deferred sales charge for Strategist Fund will be credited to
Strategist Fund shareholders who become Multi-Sector Fund shareholders pursuant
to the Plan.
Exchange Privileges
The exchange privileges available to shareholders of Multi-Sector Fund are
identical to the exchange privileges of shareholders of Strategist Fund.
Shareholders of both Strategist Fund and Multi-Sector Fund have an 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 of each Fund may be exchanged
for Class A, Class B and Class C shares, respectively, of another fund on the
basis of relative net asset value. Any applicable contingent deferred sales
charge payable upon the redemption of shares exchanged will be calculated from
the first day of the month after the initial purchase excluding the time shares
were held in a money market fund. Class B and Class C shares of either Fund may
not be exchanged into money market funds other than Prudential Special Money
Market Fund. For purposes of calculating the holding period applicable to the
Class B conversion feature, the time period during which Class B shares were
held in a money market fund will be excluded. If a shareholder's investment in
shares of Prudential Mutual Funds (excluding money market funds other than those
acquired pursuant to the exchange privilege) reaches $1 million and Class B
and/or Class C shares of either Fund that are free of a contingent deferred
sales charge are held by such shareholder, such shareholder will be offered the
opportunity to exchange those shares for Class A shares of either Fund without
the imposition of any sales charge. In the case of tax-exempt shareholders, if
no response is received within 60 days of the mailing of such notice, eligible
Class B and/or Class C shares will automatically be 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.
Dividends and Distributions
Each Fund expects to pay dividends of net investment income, if any,
semi-annually and make distributions at least annually of any net capital gains.
Shareholders of both Funds receive dividends and other distributions in
additional shares of the Fund unless they elect to receive them in cash. A
Strategist Fund shareholder's election with
9
<PAGE>
respect to reinvestment in Strategist Fund will be automatically applied with
respect to Multi-Sector Fund shares he or she receives pursuant to the
reorganization.
Federal Tax Consequences of Proposed Reorganization
Prior to the consummation of the reorganization, the Fund shall have
received an opinion of Sullivan & Cromwell to the effect that the proposed
reorganization will constitute a tax-free reorganization within the meaning of
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the
Internal Revenue Code). Accordingly, no gain or loss will be recognized to
either Fund upon the transfer of assets and assumption of liabilities, if any,
or to shareholders of Strategist Fund upon their receipt of shares of
Multi-Sector Fund. The tax basis for the shares of Multi-Sector Fund received by
Strategist Fund shareholders will be the same as their tax basis for the shares
of Strategist Fund to be constructively surrendered in exchange thereof. In
addition, the holding period of the shares of Multi-Sector Fund to be received
pursuant to the reorganization will include the period during which the shares
of Strategist Fund to be constructively surrendered in exchange therefor were
held, provided the latter shares were held as capital assets by the shareholders
on the date of the exchange. See "The Proposed Transaction-Tax Considerations."
Dissenters' Rights of Appraisal
There are no appraisal rights under Maryland law for shareholders of an
open-end investment company registered under the Investment Company Act if the
value placed on the shareholder's stock that is the subject of the transaction
is its net asset value. Because the shares of Strategist Fund to be exchanged
for shares of Multi-Sector Fund will be valued at their net asset value,
shareholders of Strategist Fund will have no appraisal rights under Maryland law
and will be bound by the terms of the Plan, if approved. Any shareholder of
Strategist Fund may, however, redeem his shares at net asset value prior to the
date of the reorganization, subject to any applicable sales charges. See
"Shareholder Guide-How to Sell Your Shares" in Strategist Fund's Prospectus.
PRINCIPAL RISK FACTORS
Multi-Sector Fund Is A Non-Diversified Investment Company
Multi-Sector Fund has registered as a "non-diversified" investment company.
As a non-diversified investment company, more than 5% of Multi-Sector Fund's
total assets may be invested in the securities of one issuer. As a result of
such non-diversified status, Multi-Sector 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, such as Strategist Fund.
Strategist Fund, a diversified investment company, cannot invest, with respect
to 75% of its total assets, more than 5% of its total assets in the securities
of a single issuer.
High Yield Securities
Multi-Sector Fund may 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 or in non-rated
fixed-income securities of comparable quality. Subsequent to its purchase by
Multi-Sector 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 Multi-Sector 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 or lower by S&P or Ba or lower by Moody's commonly known as "junk
bonds", are generally considered to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal. A description of
security ratings is contained in Appendix B to Multi-Sector Fund's Prospectus.
Multi-Sector Fund may also invest in
10
<PAGE>
unrated fixed-income securities which, in the opinion of its investment adviser,
are of a quality comparable to rated securities in which Multi-Sector Fund may
invest.
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.
Strategist Fund may only invest in bonds which are securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, foreign
government securities or in obligations of banks or corporations rated A (upper
medium grade) or better by S&P or Moody's. These securities are perceived to be
of lower risk than the high-yield securities invested in by Multi-Sector Fund.
Foreign Investments
Multi-Sector Fund may invest in securities of foreign companies and
countries, which involve 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 impositon 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 Multi-Sector Fund to obtain or enforce
a judgment against the issuer of such securities. There is no limitation on the
amount of Multi-Sector Fund's assets that may be invested in foreign securities.
Strategist Fund may also invest in securities of foreign companies and countries
and thus is subject to the same risks as Multi-Sector Fund described above.
Hedging and Income Enhancement Activities
Multi-Sector Fund may also engage in various portfolio strategies, including
the purchase and sale of derivatives, 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 options thereon.
Participation in the options or futures markets involves investment risks
and transaction costs to which Multi-Sector 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 market are inaccurate, the
adverse consequences to Multi-Sector Fund may leave Multi-Sector 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 options and stock index futures 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 Multi-Sector 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 Multi-Sector Fund to sell a portfolio security at a
disadvantageous time, due to the need for Multi-Sector Fund to maintain "cover"
or to segregate securities in connection with hedging transactions.
11
<PAGE>
Strategist Fund may also engage in various portfolio strategies, including
the purchase and sale of derivatives. These strategies include the purchase and
writing (i.e., sale) of put and call options on stocks, stock indices, debt
securities and foreign currencies, the use of forward foreign currency exchange
contracts and the purchase and sale of stock index futures and options thereon.
Strategist Fund's participation in the options and futures markets subjects
Strategist Fund to certain of the same risks as described above for Multi-Sector
Fund.
THE PROPOSED TRANSACTION
Agreement and Plan of Reorganization and Liquidation
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Plan. Significant provisions of the Plan are
summarized below; however, this summary is qualified in its entirety by
reference to the Plan, a copy of which is attached as Appendix B to this Proxy
Statement and Prospectus.
The Plan contemplates (i) Multi-Sector Fund acquiring all of the assets of
Strategist Fund in exchange solely for Class A, Class B and Class C shares of
common stock of Multi-Sector Fund and the assumption by Multi-Sector Fund of
Strategist Fund's liabilities, if any, as of the Closing Date (hereafter
defined) and (ii) the constructive distribution on the date of the exchange, on
or about June 23, 1995 (the "Closing Date") of such Class A, Class B and Class C
shares of Multi-Sector Fund to the Class A, Class B and Class C shareholders of
Strategist Fund, as provided for by the Plan.
The assets of Strategist Fund to be acquired by Multi-Sector Fund shall
include without limitation all cash, cash equivalents, securities, receivables
and other property owned by Strategist Fund. Multi-Sector Fund will assume from
Strategist Fund all debts, liabilities, obligations and duties of Strategist
Fund of whatever kind or nature, if any; provided, however, that Strategist Fund
will utilize its best efforts, to the extent practicable, to discharge all of
its known debts, liabilities, obligations and duties prior to the Closing Date.
Multi-Sector Fund will deliver to Strategist Fund Class A, Class B and Class C
shares of common stock in Multi-Sector Fund, which Strategist Fund will then
distribute to its Class A, Class B and Class C shareholders, respectively.
The value of Strategist Fund assets to be acquired and liabilities to be
assumed by Multi-Sector Fund and the net asset value of a share of Multi-Sector
Fund will be determined as of 4:15 P.M. on the Closing Date. Securities and
other assets and liabilities for which market quotations are not readily
available will be valued at fair value as determined in good faith by or under
the direction of the Directors of Multi-Sector Fund.
As soon as practicable after the Closing Date, Strategist Fund will
liquidate and distribute pro rata to its shareholders of record the shares of
Multi-Sector Fund received by Strategist Fund in exchange for such shareholders'
interest in Strategist Fund evidenced by their shares of common stock of
Strategist Fund. Such liquidation and distribution will be accomplished by
opening accounts on the books of Multi-Sector Fund in the names of Strategist
Fund shareholders and by transferring thereto the shares of Multi-Sector Fund
previously credited to the account of Strategist Fund on those books. Each
shareholder account shall represent the respective pro rata number of
Multi-Sector Fund shares due to such Strategist Fund shareholder. Fractional
shares of Multi-Sector Fund will be rounded to the third decimal place.
Accordingly, every participating shareholder of Strategist Fund will own
Class A, Class B and Class C shares of Multi-Sector Fund immediately after the
reorganization that, except for rounding, will be equal to the value of that
shareholder's Class A, Class B or Class C shares of Strategist Fund immediately
prior to the reorganization. Moreover, because shares of Multi-Sector Fund will
be issued at net asset value in exchange for net assets of Strategist Fund that,
except for rounding, will equal the aggregate value of those shares, the net
asset value per share of Multi-Sector Fund will be unchanged. Thus, the
reorganization will not result in a dilution of the value of any shareholder
account. However, the reorganization will substantially reduce the percentage of
ownership of Strategist Fund shareholders below such shareholder's current
percentage of ownership of Strategist Fund because, while such shareholder will
12
<PAGE>
have the same dollar amount invested initially in Multi-Sector Fund that he had
invested in Strategist Fund, his investment will represent a smaller percentage
of the combined net assets of Multi-Sector Fund and Strategist Fund.
Any transfer taxes payable upon issuance of shares of Multi-Sector Fund in a
name other than that of the registered holder of the shares on the books of
Strategist Fund as of that time shall be paid by the person to whom such shares
are to be issued as a condition of such transfer. Any reporting responsibility
of Strategist Fund will continue to be the responsibility of Strategist Fund up
to and including the Closing Date and such later date on which Strategist Fund
is liquidated.
On the effective date of the reorganization, the name of Multi-Sector Fund
will be unchanged.
The consummation of the proposed transaction is subject to a number of
conditions set forth in the Plan, some of which may be waived by the Directors
of the Funds. The Plan may be terminated and the proposed transaction abandoned
at any time, before or after approval by the shareholders of Strategist Fund,
prior to the Closing Date. In addition, the Plan may be amended in any mutually
agreeable manner, except that no amendment may be made subsequent to the meeting
of shareholders of Strategist Fund that would detrimentally affect the value of
Multi-Sector Fund shares to be distributed.
Reasons for the Reorganization and Liquidation
The Directors of Strategist Fund, including a majority of the Independent
Directors, have determined that the interests of the shareholders of Strategist
Fund will not be diluted as a result of the proposed transaction and that the
proposed transaction is in the best interests of the shareholders of Strategist
Fund. In addition, the Directors of Multi-Sector Fund, including a majority of
the Independent Directors, have determined that the interests of the
shareholders of Multi-Sector Fund will not be diluted as a result of the
proposed transaction and that the proposed transaction is in the best interests
of shareholders of Multi-Sector Fund.
The reasons for the proposed transactions are described above under
"Synopsis-Reasons for the Proposed Reorganization and Liquidation." The
Directors of both Funds based their decision to approve the Plan on an inquiry
into a number of factors, including the following:
(1) the relative past growth in assets and investment performance and future
prospects of the Funds;
(2) the effect of the proposed transaction on the expense ratios of each
Fund;
(3) the costs of the reorganization, which will be paid for by each Fund in
proportion to their respective asset levels;
(4) the tax-free nature of the reorganization to the Funds and their
shareholders;
(5) the potential benefits to PMF, PMFD and Prudential Securities. See
"Synopsis--Fees and Expenses" above;
(6) the compatibility of the investment objectives, policies and
restrictions of the Funds; and
(7) other options to the reorganization, including a continuance of
Strategist Fund in its present form, a change of Manager or investment
objective or a liquidation of Strategist Fund with the distribution of the cash
proceeds to Strategist Fund shareholders.
If the Plan is not approved by Strategist Fund shareholders, Strategist Fund
Directors may consider other appropriate action, such as the liquidation of
Strategist Fund or a merger or other business combination with an investment
company other than Multi-Sector Fund.
Description of Securities to be Issued
Multi-Sector Fund shares represent shares of common stock with $.001 par
value. Class A, Class B and Class C shares of Multi-Sector Fund will be issued
to Strategist Fund shareholders on the Closing Date. Each share represents
13
<PAGE>
an equal and proportionate interest in Multi-Sector Fund with each other share
of the same class. Multi-Sector Fund's authorized capital consists of
2,000,000,000 shares of common stock. Shares entitle their holders to one vote
per full share and fractional votes for fractional shares held. Each share of
Multi-Sector Fund has equal voting, dividend and liquidation rights with other
shares, except that each class has exclusive voting rights with respect to its
distribution plan, except as noted under "Synopsis-Structure of Multi-Sector
Fund and Strategist Fund" above.
Tax Considerations
Strategist Fund has received an opinion from Sullivan & Cromwell to the
effect that (1) the proposed transaction described above will constitute a
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code; (2) no gain or loss will be recognized by shareholders of
Strategist Fund upon liquidation of that Fund and the distribution of shares of
Multi-Sector Fund constructively in exchange for their shares of Strategist Fund
(Internal Revenue Code Section 354(a)(1)); (3) no gain or loss will be
recognized by Strategist Fund upon the transfer of its assets to Multi-Sector
Fund in exchange solely for shares of Multi-Sector Fund and the assumption by
Multi-Sector Fund of Strategist Fund's liabilities, if any, and the subsequent
distribution of those shares to its shareholders in liquidation thereof
(Internal Revenue Code Sections 361(a) and 357(a)); (4) no gain or loss will be
recognized by Multi-Sector Fund upon the receipt of such assets in exchange
solely for Multi-Sector Fund shares and its assumption of Strategist Fund's
liabilities, if any (Internal Revenue Code Section 1032(a)); (5) Multi-Sector
Fund's basis for the assets received pursuant to the reorganization will be the
same as the basis thereof in the hands of Strategist Fund immediately before the
reorganization, and the holding period of those assets in the hands of
Multi-Sector Fund will include the holding period thereof in Strategist Fund
hands (Internal Revenue Code Sections 362(b) and 1223(b)); (6) Strategist Fund
shareholders' basis for the shares of Multi-Sector Fund to be received by them
pursuant to the reorganization will be the same as their basis for the shares of
Strategist Fund to be constructively surrendered in exchange thereof (Internal
Revenue Code Section 358(a)(1)); and (7) the holding period of the shares of
Multi-Sector Fund to be received by the shareholders of Strategist Fund pursuant
to the reorganization will include the period during which the shares of
Strategist Fund to be constructively surrendered in exchange therefor were held,
provided the latter shares were held as capital assets by the shareholders on
the date of the exchange (Internal Revenue Code Section 1223(1)).
Certain Comparative Information About the Funds
Each Fund is a Maryland corporation and the rights of its shareholders are
governed by its Articles of Incorporation, By-Laws and the Maryland General
Corporation Law.
Capitalization. Strategist Fund has issued shares of common stock, par value
$.01 per share. Its Articles of Incorporation authorize Strategist Fund to issue
500,000,000 shares of common stock divided into three classes, consisting of
166,666,666 authorized Class A shares, 166,666,666 authorized Class B shares and
166,666,668 authorized Class C shares. Multi-Sector Fund has issued shares of
common stock, par value $.001 per share. Its Articles of Incorporation authorize
Multi-Sector Fund to issue 2,000,000,000 shares of common stock, divided into
three classes, also designated Class A, Class B and Class C, each of which
consists of 666,666,666-2/3 authorized shares. The Board of Directors of each
Fund may authorize an increase in the number of authorized shares and may
reclassify unissued shares to authorize additional classes of stock having terms
and rights determined by its Board of Directors, all without shareholder
approval.
Shareholder Meetings and Voting Rights. Generally, neither Fund is required
to hold annual meetings of its shareholders. Each Fund is required to call a
meeting of shareholders for the purpose of voting upon the question of removal
of a Director when requested in writing to do so by the holders of at least 10%
of the Fund's outstanding shares. In addition, each Fund is required to call a
meeting of shareholders for the purpose of electing Directors if, at any time,
less than a majority of the Directors holding office at the time were elected by
shareholders.
14
<PAGE>
Shareholders of each Fund are entitled to one vote for each share on all
matters submitted to a vote of its shareholders under Maryland law. Approval of
certain matters, such as an amendment to the charter, a merger, consolidation or
transfer of all or substantially all assets, dissolution and removal of a
director, requires the affirmative vote of a majority of the votes entitled to
be cast. A plurality of votes cast is required to elect directors. Other matters
require the approval of the affirmative vote of a majority of the votes cast at
a meeting at which a quorum is present.
Each Fund's By-Laws provide that a majority of the outstanding shares shall
constitute a quorum for the transaction of business at a shareholders' meeting.
Matters requiring a larger vote by law or under the organizational documents for
each Fund are not affected by such quorum requirements.
Shareholder Liability. Under Maryland law, shareholders have no personal
liability as such for either Fund's acts or obligations.
Liability and Indemnification of Directors. Under the Funds' Articles of
Incorporation and Maryland law, a director or officer of the Fund is not liable
to the Fund or its shareholders for monetary damages for breach of fiduciary
duty as a director or officer except to the extent such exemption from liability
or limitation thereof is not permitted by law, including the Investment Company
Act.
Under the Investment Company Act, a Director may not be protected against
liability to the Fund and its security holders to which he would otherwise be
subject as a result of his willful misfeasance, bad faith or gross negligence in
the performance of his duties, or by reason of reckless disregard of his
obligations and duties. The staff of the SEC interprets the Investment Company
Act to require additional limits on indemnification of directors and officers.
Pro Forma Capitalization and Ratios
The following table shows the capitalization of each Fund as of February 28,
1995 and the pro forma combined capitalization of both Funds as if the
reorganization had occured on that date.
<TABLE>
<CAPTION>
Strategist Fund Multi-Sector Fund Pro Forma Combined
-------------------------------- --------------------------------- --------------------------------------
Class A Class B Class C Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets ..... $124,873,417 $39,597,330 $63,274 $70,820,606 $173,207,754 $3,041,928 $195,694,023 $212,805,084 $3,105,202
Net Asset Value
per share .... $13.65 $13.43 $13.43 $12.64 $12.51 $12.51 $12.64 $12.51 $12.51
Shares
Outstanding .. 9,148,848 2,948,183 4,713 5,602,759 13,846,411 243,172 15,482,122 17,010,798 248,218
</TABLE>
The following table shows the ratio of expenses to average net assets and
the ratio of net investment income to average net assets of Strategist Fund for
the fiscal year ended February 28, 1995 and of Multi-Sector Fund for the
six-month period ended October 31, 1994 (annualized). The ratios are also shown
on a pro forma combined basis, assuming the reorganization occurred on or about
June 23, 1995.
<TABLE>
<CAPTION>
Strategist Fund Multi-Sector Fund Pro Forma Combined
------------------------- ---------------------------- -------------------------
Class A Class B Class C(D) Class A Class B Class C(D) Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of expenses to average net
assets ...................... 1.53% 2.24% 2.31% 1.37% 2.12% 2.12% 1.28% 2.03% 2.03
Ratio of net investment income to
average net assets ............ 1.63% (.05)% .20% .45% (.36)% (.36)% .45% (.36)% (.36)%
(D) Class C shares commenced investment operations on August 1, 1994. The ratios
are based upon restated information for the period August 1, 1994 through
February 28, 1995 and October 31, 1994 (in each case annualized) for Strategist
Fund and Multi-Sector Fund, respectively.
</TABLE>
15
<PAGE>
INFORMATION ABOUT MULTI-SECTOR FUND
Financial Information
Financial Highlights
(Unaudited)
The following financial highlights contain selected data for a Class A,
Class B and Class C share of common stock outstanding, total return, ratios to
average net assets and other supplemented data for the period presented.
<TABLE>
<CAPTION>
Class A Class B Class C
---------------- ---------------- ----------------
Six Months Six Months August 1, 1994@
Ended Ended through
October 31, 1994 October 31, 1994 October 31, 1994
---------------- ---------------- ----------------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C>
Net asset value, beginning of period .. $ 13.21 $ 13.16 $ 13.74
--------- -------- --------
Income from investment operations:
Net investment income (loss) .......... .03 (.02) (.01)
Net realized and unrealized gain on
investments and foreign currency
transactions ........................ 1.32 1.31 .72
--------- -------- --------
Total from investment operations ...... 1.35 1.29 .71
--------- -------- --------
Less distributions:
Dividends from net investment income - - -
Distributions from net capital and
currency gains ...................... (.76) (.76) (.76)
--------- -------- --------
Total distributions ................... (.76) (.76) (.76)
--------- -------- --------
Net asset value, end of period ........ $ 13.80 $ 13.69 $ 13.69
========= ======== ========
TOTAL RETURN:# 11.41% 10.55% 5.38%
RATIOS/SUPPLEMENT DATA:
Net assets, end of period (000) ....... $ 59,097 $158,317 $ 666
Average net assets (000) .............. $ 53,558 $134,774 $ 236
Ratios to average net assets##
Expenses, including distribution fees 1.37%* 2.12%* 2.04%*
Expenses, excluding distribution fees 1.12%* 1.12%* 1.04%*
Net investment income (loss) ........ .45%* (.36)%* (.57)%*
Portfolio turnover .................... 42% 42% 42%
<FN>
------------
*Annualized.
@Commencement of offering of Class C shares.
#Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total return for periods of less than a full year are not
annualized.
##Because of the event referred to in @ and the timing of such, the ratios for
Class C shares are not necessarily comparable to that of Class A or B shares
and are not necessarily indicative of future ratios.
</FN>
</TABLE>
16
<PAGE>
For additional condensed financial information for Multi-Sector Fund, see
"Financial Highlights" in the Multi-Sector Fund Prospectus.
General
For a discussion of the organization, classification and sub-classification
of Multi-Sector Fund, see "General Information" and "Fund Highlights" in the
Multi-Sector Fund Prospectus.
Investment Objective and Policies
For a discussion of Multi-Sector Fund's investment objective and policies
and risk factors associated with an investment in Multi-Sector Fund, see "How
the Fund Invests" in the Multi-Sector Fund Prospectus.
Directors
For a discussion of the responsibilities of Multi-Sector Fund's Board of
Directors, see "How the Fund is Managed" in the Multi-Sector Fund Prospectus.
Manager and Portfolio Manager
For a discussion of Multi-Sector Fund's investment adviser, subadviser and
portfolio manager, see "How the Fund is Managed" in the Multi-Sector Fund
Prospectus.
Performance
For a discussion of Multi-Sector Fund's performance during the fiscal year
ended April 30, 1994, see Appendix A hereto.
Multi-Sector Fund's Shares
For a discussion of Multi-Sector Fund's Class A, Class B and Class C shares,
including voting rights, exchange rights and the conversion feature of Class B
shares, and how the shares may be purchased and redeemed, see "Shareholder
Guide" and "How the Fund is Managed" in the Multi-Sector Fund Prospectus.
Net Asset Value
For a discussion of how the offering price of Multi-Sector Fund's Class A,
Class B and Class C shares is determined, see "How the Fund Values its Shares"
in the Multi-Sector Fund Prospectus.
Taxes, Dividends and Distributions
For a discussion of Multi-Sector Fund's policy with respect to dividends and
distributions and the tax consequences of an investment in Class A, Class B or
Class C shares, see "Taxes, Dividends and Distributions" in the Multi-Sector
Fund Prospectus.
Other Considerations
Multi-Sector Fund is subject to the informational requirements of the
Investment Company Act and in accordance therewith files reports and other
information with the Securities and Exchange Commission. Proxy material, reports
and other information filed by Multi-Sector Fund can be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices in New
York (7 World Trade Center, Suite 1300, New York, New York 10048) and Chicago
(Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511). Copies of such material can be obtained at prescribed rates from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
17
<PAGE>
INFORMATION ABOUT STRATEGIST FUND
Financial Information
For condensed financial information for Strategist Fund, see "Financial
Highlights" in the Strategist Fund Prospectus and the Strategist Fund Annual
Report to Shareholders for the fiscal year ended February 28, 1995.
General
For a discussion of the organization, classification and sub-classification
of Strategist Fund, see "General Information" and "Fund Highlights" in the
Strategist Fund Prospectus.
Investment Objective and Policies
For a discussion of Strategist's investment objective and policies and risk
factors associated with an investment in Strategist Fund, see "How the Fund
Invests" in the Strategist Fund Prospectus.
Directors
For a discussion of the responsibilities of Strategist Fund's Board of
Directors, see "How the Fund is Managed" in the Strategist Fund Prospectus.
Manager and Portfolio Manager
For a discussion of Strategist Fund's investment adviser, subadviser and
portfolio manager, see "How the Fund is Managed" in the Strategist Fund
Prospectus.
Performance
For a discussion of Strategist Fund's performance during the fiscal year
ended February 28, 1995, see the Strategist Fund Annual Report to Shareholders
for the fiscal year ended February 28, 1995 which accompanies this Prospectus
and Proxy Statement.
Strategist Fund's Shares
For a discussion of Strategist Fund's Class A, Class B and Class C shares,
including voting rights, exchange rights and the conversion feature of Class B
shares, and how the shares may be purchased and redeemed, see "Shareholder
Guide" and "How the Fund is Managed" in the Strategist Fund Prospectus.
Net Asset Value
For a discussion of how the offering price of Strategist Fund's Class A,
Class B and Class C shares is determined, see "How the Fund Values its Shares"
in the Strategist Fund Prospectus.
Taxes, Dividends and Distributions
For a discussion of Strategist Fund's policy with respect to dividends and
distributions and the tax consequences of an investment in Class A, Class B or
Class C shares, see "Taxes, Dividends and Distributions" in the Strategist Fund
Prospectus.
Additional Information
Additional information concerning Strategist Fund is herein incorporated by
reference from Strategist Fund's current Prospectus dated August 1, 1994
including January 6, 1995 and March 17, 1995 Supplements thereto, and
18
<PAGE>
Strategist Fund's Annual Report to Shareholders for the fiscal year ended
February 28, 1995. Copies of Strategist Fund's Prospectus and the Annual Report
are available without charge upon oral or written request from Strategist Fund.
To obtain Strategist Fund's Prospectus and Annual Report, call (800) 225-1852 or
write to Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison, New
Jersey 08837.
Reports and other information filed by Strategist Fund can be inspected and
copied at the public reference facilities maintained by the Securities and
Exchange Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the SEC's regional offices in New York (7 World Trade Center, Suite 1300,
New York, New York 10048, and Chicago (Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661-2511). Copies of such material can also
be obtained at prescribed rates from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549.
OTHER MATTERS
No business other than as set forth herein is expected to come before the
Meeting, but should any other matter requiring a vote of shareholders of
Strategist Fund arise, including any question as to an adjournment of the
Meeting, the persons named in the enclosed Proxy will vote thereon according to
their best judgment in the interests of Strategist Fund, taking into account all
relevant circumstances.
SHAREHOLDERS' PROPOSALS
A Strategist Fund shareholder proposal intended to be presented at any
subsequent meeting of the shareholders of Strategist Fund must be received by
Strategist Fund a reasonable time before the Directors' solicitation relating to
such meeting is made in order to be included in Strategist Fund's proxy
statement and form of proxy relating to that meeting. In the event that the Plan
is approved at this meeting, it is not expected that there will be any future
shareholder meetings of Strategist Fund.
It is the present intent of the Directors of Strategist Fund and
Multi-Sector Fund not to hold annual meetings of shareholders unless the
election of Directors is required under the Investment Company Act.
S. Jane Rose
Secretary
Dated: April , 1995
19
<PAGE>
APPENDIX A
Performance Overview
LETTER TO
SHAREHOLDERS
-----------------------------
May 24, 1994
Dear Shareholder:
Over the past year ended April 30, 1994, the Prudential Multi-Sector Fund
shifted its concentration to stocks that should benefit from an improving global
economy. While the fund felt rising interest rate pressure, this global strategy
produced returns that outperformed the Standard & Poor's 500 and the Lipper
capital appreciation fund average.
As of April 30, 1994, the Fund had a net asset value of $13.21 per Class A
share and $13.16 per Class B share. Shareholders also received dividends and
distributions totaling $1.80 per Class A and $1.69 per Class B share.
Global Recovery Begins
Greg Smith, Chief Investment Strategist for Prudential Securities is a
consultant to the Fund and recommends sector allocations. Despite market
volatility in the first four months of 1994. Greg maintained a positive outlook
for the world's stock markets throughout the past year. Last year, Continental
Europe started to follow the economic turnaround in the U.S., U.K and Australia.
Cautiously optimistic in light of recent U.S. interest rate hikes, Greg believes
the global recovery along with the growing trend toward corporate efficiency
should support higher stock prices worldwide.
Accordingly, the portfolio was heavily weighted in "cyclical" stocks (i.e.,
sectors expected to grow as the economy recovers). These include basic industry
(chemical companies, paper producers), energy, transportation (airlines and
railroads) and automotive manufacturers.
At the end of April, approximately one-third of the portfolio was invested
in foreign companies that should benefit from economic growth in Europe. These
holdings tend to be multinational corporations, though most of their business is
concentrated in Europe. During the Fund's fiscal year, we favored companies that
underwent substantial restructuring during the recent European downturn and are
now positioned to take advantage of increased consumer demand.
Chemical Reactions
We expect well-positioned chemical companies to profit from the global
economic turnaround. In this area we own the Dutch company Akzo, one of our
largest holdings at the end of April (1.8% of the portfolio), the British firm
Imperial Chemical (1.5% of the portfolio) and the German company BASF (1.1%
A-1
<PAGE>
of the portfolio). All three companies significantly redesigned their operations
and restructured labor relations in an effort to cut costs and increase
productivity.
Energy Surge
During the fiscal year, we favored energy companies that have greater
exposure to natural gas and less dependence on oil production. We believe
natural gas prices should continue to remain firm as demand outstrips supply,
despite weakness in worldwide oil prices. For example, we expect Talisman Energy
(1.5% of the portfolio) to benefit from its natural gas fields in Western
Canada.
Driving to Europe
Rising U.S. interest rates may have put a cap on stock prices of U.S. auto
makers. In reaction, we have reduced our holdings in U.S. car companies such as
Ford Motor and General Motors, while shifting to positions in foreign automotive
firms such as Fiat (1.1% of the portfolio). Fiat is also restructuring to cut
costs and redesigned its labor agreements to become more competitive.
Outlook
Despite recent setbacks to the U.S. stock market brought on by rising
interest rates, we believe the U.S. economy should continue its slow yet steady
growth. However, the markets may remain uncertain as investors wait to see what
the longer term impact of higher rates will be.
In the interim, European economic recovery presents some attractive
opportunities, especially in the cyclical sector.
As always, it is a pleasure to have you as a Prudential Multi-Sector Fund
shareholder and to take the opportunity to report our activities to you.
Sincerely,
Lawrence C. McQuade
President
Gregory Goldberg
Portfolio Manager
MANAGEMENT UPDATE
We are pleased to announce
that in February 1994, Gregory
Goldberg a Vice President of
Prudential Investment Advisors,
took over as portfolio manager
of the Prudential Multi-Sector
Fund. Greg was previously a
portfolio Manager of institu-
tional balanced portfolios at
Daiwa International Capital
Management. Before that, he was
employed by Industrial Bank of
Japan.
A-2
<PAGE>
[CHART]
Past performance is not predictive of future performance and an investor's
shares, when redeemed, may be worth more or less than their original cost.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in Prudential Multi-Sector Fund (Class A and Class
B) with a similar investment in the Standard & Poor's Index (S&P 500) by
portraying the initial account values on June 29, 1990 for Class 'A and Class B
shares and subsequent account values at the end of each fiscal year (April 30),
as measured on a quarterly basis, beginning in 1990. For purposes of the graphs
and, unless otherwise indicated, the accompanying tables, it has been assumed
that (a) the maximum sales charge was deducted from the iniital $10,000
investment in Class A shares; (b) the maximum applicable contingent deferred
sales charge was deducted from the value of the investment in Class B shares
assuming full redemption on April 30, 1994; (c) all rrecurring fees (including
management fees) were deducted; and (d) all dividends and distributions were
reinvested.
The S&P 500 is a capital-weighted index, representing the aggregate market value
of the common equity of 500 stocks primarily traded on the New York Stock
Exchange. The S&P 500 is an unmanaged index and includes the reinvestment of all
dividends, but does not reflect the payment of transaction costs and advisory
fees associated with an investment in the Fund. The securities which comprise
the S&P 500 may differ substantially from the securities in the Fund's
portfolio. The S&P 500 is not the only index which may be used to characterize
performance of multiple sector equity funds and other indexes may portray
different comparative performance.
A-3
<PAGE>
APPENDIX B
Agreement and Plan of Reorganization and Liquidation
Agreement and Plan of Reorganization and Liquidation (Agreement) made as of
the th day of , 1995, by and between Prudential Strategist Fund,
Inc. (Strategist Fund) and Prudential Multi-Sector Fund, Inc. (Multi-Sector
Fund) (collectively, the Funds and each individually, a Fund). Each of the Funds
is a corporation organized under the laws of the State of Maryland and maintains
its principal place of business at One Seaport Plaza, New York, New York
10292. Shares of each Fund are divided into three classes, designated Class A,
Class B and Class C.
This Agreement is intended to be, and is adopted as, a plan of
reorganization pursuant to Section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended (Internal Revenue Code). The reorganization will comprise the
transfer of substantially all of the assets of Strategist Fund, in exchange
solely for shares of common stock of Multi-Sector Fund, Class A shares for Class
A shares, Class B shares for Class B shares and Class C shares for Class C
shares, and Multi-Sector Fund's assumption of Strategist Fund's liabilities, if
any, incurred in the ordinary course of business and the constructive
distribution, after the Closing Date hereinafter referred to, of such shares of
Multi-Sector Fund to the shareholders of Strategist Fund in liquidation of
Strategist Fund as provided herein, all upon the terms and conditions as
hereinafter set forth.
In consideration of the premises and of the covenants and agreements set
forth herein, the parties covenant and agree as follows:
1. Transfer of Assets of Strategist Fund in Exchange for Shares of Multi-Sector
Fund and Assumption of Liabilities, if any, and Liquidation of Strategist
Fund
1.1 Subject to the terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, Strategist Fund agrees to sell,
assign, transfer and deliver its assets, as set forth in paragraph 1.2, to
Multi-Sector Fund, and Multi-Sector Fund agrees (a) to issue and deliver to
Strategist Fund in exchange therefor (i) the number of shares of Class A Common
Stock in Multi-Sector Fund determined by dividing the net asset value of
Strategist Fund allocable to shares of Class A Common Stock (computed in the
manner and as of the time and date set forth in paragraph 2.2) by the net asset
value allocable to a share of Multi-Sector Class A Common Stock (computed in the
manner and as of the time and date set forth in paragraph 2.2); (ii) the number
of shares of Class B Common Stock in Multi-Sector Fund determined by dividing
the net asset value of Strategist Fund allocable to shares of Class B Common
Stock (computed in the manner and as of the time and date set forth in paragraph
2.2) by the net asset value allocable to a share of Multi-Sector Class B Common
Stock (computed in the manner and as of the time and date set forth in paragraph
2.2); and (iii) the number of shares of Class C Common Stock in Multi-Sector
Fund determined by dividing the net asset value of Strategist Fund allocable to
shares of Class C Common Stock (computed in the manner and as of the time and
date set forth in paragraph 2.2) by the net asset value allocable to a share of
Multi-Sector Class C Common Stock (computed in the manner and as of the time and
date set forth in paragraph 2.2); and (b) to assume all of Strategist Fund's
liabilities, if any, as set forth in paragraph 1.3. Such transactions shall take
place at the closing provided for in paragraph 3 (Closing).
1.2 The assets of Strategist Fund to be acquired by Multi-Sector Fund shall
include without limitation all cash, cash equivalents, securities, receivables
(including interest and dividends receivable) and other property of any kind
owned by Strategist Fund and any deferred or prepaid expenses shown as assets on
the books of Strategist Fund on the closing date provided in paragraph 3
(Closing Date). Multi-Sector Fund has no plan or intent to sell or otherwise
dispose of any assets of Strategist Fund.
1.3 Except as otherwise provided herein, Multi-Sector Fund will assume from
Strategist Fund all debts, liabilities, obligations and duties of Strategist
Fund of whatever kind or nature, whether absolute, accrued, contingent or
B-1
<PAGE>
otherwise, whether or not determinable as of the Closing Date and whether or not
specifically referred to in this Agreement; provided, however, that Strategist
Fund agrees to utilize its best efforts to discharge all of its known debts,
liabilities, obligations and duties prior to the Closing Date.
1.4 On or immediately prior to the Closing Date, Strategist Fund will declare
and pay to its shareholders of record dividends and/or other distributions so
that it will have distributed substantially all (and in any event not less than
ninety-eight percent) of its investment company taxable income (computed without
regard to any deduction for dividends paid), net tax-exempt interest income, if
any, and realized net capital gains, if any, for all taxable years through its
liquidation.
1.5 On a date (Liquidation Date), as soon after the Closing Date as is
conveniently practicable, Strategist Fund will file Articles of Dissolution with
the State Department of Assessment and Taxation of the State of Maryland and
distribute pro rata to its Class A, Class B and Class C shareholders of record,
determined as of the close of business on the Closing Date, the Class A, Class B
and Class C shares of Multi-Sector Fund, respectively, received by Strategist
Fund pursuant to paragraph 1.1 in exchange for their interest in Strategist
Fund. Such distribution will be accomplished by opening accounts on the books of
Multi-Sector Fund in the names of Strategist Fund shareholders and transferring
thereto the shares credited to the account of Strategist Fund on the books of
Multi-Sector Fund. Each account opened shall be credited with the respective pro
rata number of Multi-Sector Fund Class A, Class B and Class C shares due each
Strategist Fund Class A, Class B and Class C shareholder, respectively.
Fractional shares of Multi-Sector Fund shall be rounded to the third decimal
place.
1.6 Multi-Sector Fund shall not issue certificates representing its shares in
connection with such exchange. With respect to any Strategist Fund shareholder
holding Strategist Fund stock certificates as of the Closing Date, until
Multi-Sector Fund is notified by the Strategist Fund transfer agent that such
shareholder has surrendered his or her outstanding Strategist Fund stock
certificates or, in the event of lost, stolen or destroyed stock certificates,
posted adequate bond or submitted a lost certificate form, as the case may be,
Multi-Sector Fund will not permit such shareholder to (1) receive dividends or
other distributions on Multi-Sector Fund shares in cash (although such dividends
and distributions shall be credited to the account of such shareholder
established on Multi-Sector Fund's books pursuant to paragraph 1.5, as provided
in the next sentence), (2) exchange Multi-Sector Fund shares credited to such
shareholder's account for shares of other Prudential Mutual Funds, or (3) pledge
or redeem such shares. In the event that a shareholder is not permitted to
receive dividends or other distributions on Multi-Sector Fund shares in cash as
provided in the preceding sentence, Multi-Sector Fund shall pay such dividends
or other distributions in additional Multi-Sector Fund shares, notwithstanding
any election such shareholder shall have made previously with respect to the
payment of dividends or other distributions on shares of Strategist Fund.
Strategist Fund will, at its expense, request its shareholders to surrender
their outstanding Strategist Fund stock certificates, post adequate bond or
submit a lost certificate form, as the case may be.
1.7 Ownership of Multi-Sector Fund shares will be shown on the books of the
Multi-Sector Fund's transfer agent. Shares of Multi-Sector Fund will be issued
in the manner described in Multi-Sector Fund's then-current prospectus and
statement of additional information.
1.8 Any transfer taxes payable upon issuance of shares of Multi-Sector Fund in a
name other than the registered holder of the shares on the books of Strategist
Fund as of that time shall be paid by the person to whom such shares are to be
issued as a condition to the registration of such transfer.
1.9 Any reporting responsibility with the Securities and Exchange Commission or
any state securities commission of Strategist Fund is and shall remain the
responsibility of Strategist Fund up to and including the Liquidation Date.
1.10 All books and records of Strategist Fund, including all books and records
required to be maintained under the Investment Company Act of 1940 (Investment
Company Act) and the rules and regulations thereunder, shall be available to
Multi-Sector Fund from and after the Closing Date and shall be turned over to
Multi-Sector Fund on or prior to the Liquidation Date.
B-2
<PAGE>
2. Valuation
2.1 The value of Strategist Fund's assets and liabilities to be acquired and
assumed, respectively, by Multi-Sector Fund shall be the net asset value
computed as of 4:15 p.m. on the Closing Date (such time and date being
hereinafter called the Valuation Time), using the valuation procedures set
forth in Strategist Fund's then-current prospectus and statement of additional
information.
2.2 The net asset value of a share of Multi-Sector Fund shall be the net asset
value per such share computed on a class-by-class basis as of the Valuation
Time, using the valuation procedures set forth in Multi-Sector Fund's
then-current prospectus and statement of additional information.
2.3 The number of Multi-Sector Fund shares to be issued (including fractional
shares, if any) in exchange for Strategist Fund's net assets shall be calculated
as set forth in paragraph 1.1.
2.4 All computations of net asset value shall be made by or under the direction
of Prudential Mutual Fund Management, Inc. (PMF) in accordance with its regular
practice as manager of the Funds.
3. Closing and Closing Date
3.1 The Closing Date shall be June , 1995 or such later date as the parties may
agree in writing. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the close of business on the Closing Date unless
otherwise provided. The Closing shall be at the office of Multi-Sector Fund or
at such other place as the parties may agree.
3.2 State Street Bank and Trust Company (State Street), as custodian for
Strategist Fund, shall deliver to Multi-Sector Fund at the Closing a certificate
of an authorized officer of State Street stating that (a) Strategist Fund's
portfolio securities, cash and any other assets have been transferred in proper
form to Multi-Sector Fund on the Closing Date and (b) all necessary taxes, if
any, have been paid, or provision for payment has been made, in conjunction with
the transfer of portfolio securities.
3.3 In the event that immediately prior to the Valuation Time (a) the New York
Stock Exchange (NYSE) or other primary exchange is closed to trading or trading
thereon is restricted or (b) trading or the reporting of trading on the NYSE or
other primary exchange or elsewhere is disrupted so that accurate appraisal of
the value of the net assets of Strategist Fund and of the net asset value per
share of Multi-Sector Fund is impracticable, the Closing Date shall be postponed
until the first business day after the date when such trading shall have been
fully resumed and such reporting shall have been restored.
3.4 Strategist Fund shall deliver to Multi-Sector Fund on or prior to the
Liquidation Date the names and addresses of its shareholders and the number of
outstanding shares owned by each such shareholder, all as of the close of
business on the Closing Date, certified by the Secretary or Assistant Secretary
of Strategist Fund. Multi-Sector Fund shall issue and deliver to Strategist Fund
at the Closing a confirmation or other evidence satisfactory to Strategist Fund
that shares of Multi-Sector Fund have been or will be credited to Strategist
Fund's account on the books of Multi-Sector Fund. At the Closing each party
shall deliver to the other such bills of sale, checks, assignments, share
certificates, receipts and other documents as such other party or its counsel
may reasonably request to effect the transactions contemplated by this
Agreement.
4. Representations and Warranties
4.1 Strategist Fund represents and warrants as follows:
4.1.1 Strategist Fund is a corporation duly organized and validly existing
under the laws of the State of Maryland;
B-3
<PAGE>
4.1.2 Strategist Fund is an open-end management investment company duly
registered under the Investment Company Act, and such registration is
in full force and effect;
4.1.3 Strategist Fund is not, and the execution, delivery and performance
of this Agreement will not result, in violation of any provision of
the Articles of Incorporation or By-Laws of Strategist Fund or of any
material agreement, indenture, instrument, contract, lease or other
undertaking to which Strategist Fund is a party or by which
Strategist Fund is bound;
4.1.4 All material contracts or other commitments of Strategist Fund except
this Agreement will be terminated on or prior to the Closing Date
without Strategist Fund or Multi-Sector Fund incurring any liability
or penalty with respect thereto;
4.1.5 No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or
to its knowledge threatened against Strategist Fund or any of its
properties or assets. Strategist Fund knows of no facts that might
form the basis for the institution of such proceedings, and
Strategist Fund is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that
materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
4.1.6 The Portfolio of Investments, Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets, and
Financial Highlights of Strategist Fund at February 28, 1995 and for
the year then ended (copies of which have been furnished to
Multi-Sector Fund) have been audited by Price Waterhouse LLP,
independent accountants, in accordance with generally accepted
auditing standards. Such financial statements are prepared in
accordance with generally accepted accounting principles and present
fairly, in all material respects, the financial condition, results of
operations, changes in net assets and financial highlights of
Strategist Fund as of and for the period ended on such date, and
there are no material known liabilities of Strategist Fund
(contingent or otherwise) not disclosed therein;
4.1.7 Since February 28, 1995, there has not been any material adverse
change in Strategist Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of
business, or any incurrence by Strategist Fund of indebtedness
maturing more than one year from the date such indebtedness was
incurred, except as otherwise disclosed to and accepted by
Multi-Sector Fund. For the purposes of this paragraph 4.1.7, a
decline in net asset value, net asset value per share or change in
the number of shares outstanding shall not constitute a material
adverse change;
4.1.8 At the date hereof and at the Closing Date, all federal and other tax
returns and reports of Strategist Fund required by law to have been
filed on or before such dates shall have been timely filed, and all
federal and other taxes shown as due on said returns and reports
shall have been paid insofar as due, or provision shall have been
made for the payment thereof, and, to the best of Strategist Fund's
knowledge, all federal or other taxes required to be shown on any
such return or report have been shown on such return or report, no
such return is currently under audit and no assessment has been
asserted with respect to such returns;
4.1.9 For each past taxable year since it commenced operations, Strategist
Fund has met the requirements of Subchapter M of the Internal Revenue
Code for qualification and treatment as a regulated investment
company and intends to meet those requirements for the current
taxable year; and, for each past calendar year since it commenced
operations, Strategist Fund has made such distributions as are
necessary to avoid the imposition of federal excise tax or has paid
or provided for the payment of any excise tax imposed;
4.1.10 All issued and outstanding shares of Strategist Fund are, and at the
Closing Date will be, duly and validly authorized, issued and
outstanding, fully paid and non-assessable. All issued and
outstanding shares of Strategist Fund will, at the time of the
Closing, be held in the name of the persons and in the amounts set
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forth in the list of shareholders submitted to Multi-Sector Fund in
accordance with the provisions of paragraph 3.4. Strategist Fund does
not have outstanding any options, warrants or other rights to
subscribe for or purchase any of its shares, nor is there outstanding
any security convertible into any of its shares, except for the Class
B shares which have the conversion feature described in Strategist
Fund's Prospectus dated August 1, 1994;
4.1.11 At the Closing Date, Strategist Fund will have good and marketable
title to its assets to be transferred to Multi-Sector Fund pursuant
to paragraph 1.1, and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens,
claims, charges or other encumbrances, and, upon delivery and payment
for such assets, Multi-Sector Fund will acquire good and marketable
title thereto;
4.1.12 The execution, delivery and performance of this Agreement has been
duly authorized by the Board of Directors of Strategist Fund and by
all necessary corporate action, other than shareholder approval, on
the part of Strategist Fund, and this Agreement constitutes a valid
and binding obligation of Strategist Fund, subject to shareholder
approval;
4.1.13 The information furnished and to be furnished by Strategist Fund for
use in applications for orders, registration statements, proxy
materials and other documents that may be necessary in connection
with the transactions contemplated hereby is and shall be accurate
and complete in all material respects and is in compliance and shall
comply in all material respects with applicable federal securities
and other laws and regulations; and
4.1.14 On the effective date of the registration statement filed with the
Securities and Exchange Commission (SEC) by Multi-Sector Fund on Form
N-14 relating to the shares of Multi-Sector Fund issuable hereunder,
and any supplement or amendment thereto (Registration Statement), at
the time of the meeting of the shareholders of Strategist Fund and on
the Closing Date, the Proxy Statement of Strategist Fund, the
Prospectus of Multi-Sector Fund and the Statements of Additional
Information of both Funds to be included in the Registration
Statement (collectively, Proxy Statement) (i) will comply in all
material respects with the provisions and regulations of the
Securities Act of 1933 (1933 Act), Securities Exchange Act of 1934
(1934 Act) and the Investment Company Act and the rules and
regulations thereunder and (ii) will not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein in light of the circumstances under which they were
made or necessary to make the statements therein not misleading;
provided, however, that the representations and warranties in this
paragraph 4.1.14 shall not apply to statements in or omissions from
the Proxy Statement and Registration Statement made in reliance upon
and in conformity with information furnished by Multi-Sector Fund for
use therein.
4.2 Multi-Sector Fund represents and warrants as follows:
4.2.1 Multi-Sector Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland;
4.2.2 Multi-Sector Fund is an open-end management investment company duly
registered under the Investment Company Act, and such registration is
in full force and effect;
4.2.3 Multi-Sector Fund is not, and the execution, delivery and performance
of this Agreement will not result, in violation of any provision of
the Articles of Incorporation or By-Laws of Multi-Sector Fund or of
any material agreement, indenture, instrument, contract, lease or
other undertaking to which Multi-Sector Fund is a party or by which
Multi-Sector Fund is bound;
4.2.4 No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or
threatened against Multi-Sector Fund or any of its properties or
assets, except as previously disclosed in writing to Strategist Fund.
Multi-Sector Fund knows of no facts that
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might form the basis for the institution of such proceedings, and
Multi-Sector Fund is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body that
materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
4.2.5 The Portfolio of Investments, Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets, and
Financial Highlights of Multi-Sector Fund at April 30, 1994 and for
the fiscal year then ended (copies of which have been furnished to
Strategist Fund) have been audited by Deloitte & Touche LLP,
independent auditors, in accordance with generally accepted auditing
standards. Such financial statements are prepared in accordance with
generally accepted accounting principles and present fairly, in all
material respects, the financial condition, results of operations,
changes in net assets and financial highlights of Multi-Sector Fund
as of and for the period ended on such date, and there are no
material known liabilities of Multi-Sector Fund (contingent or
otherwise) not disclosed therein;
4.2.6 Since April 30, 1994, there has not been any material adverse change
in Multi-Sector Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of
business, or any incurrence by Multi-Sector Fund of indebtedness
maturing more than one year from the date such indebtedness was
incurred, except as otherwise disclosed to and accepted by Strategist
Fund. For the purposes of this paragraph 4.2.6, a decline in net
asset value per share or a decrease in the number of shares
outstanding shall not constitute a material adverse change;
4.2.7 At the date hereof and at the Closing Date, all federal and other tax
returns and reports of Multi-Sector Fund required by law to have been
filed on or before such dates shall have been filed, and all federal
and other taxes shown as due on said returns and reports shall have
been paid insofar as due, or provision shall have been made for the
payment thereof, and, to the best of Multi-Sector Fund's knowledge,
all federal or other taxes required to be shown on any such return or
report are shown on such return or report, no such return is
currently under audit and no assessment has been asserted with
respect to such returns;
4.2.8 For each past taxable year since it commenced operations,
Multi-Sector Fund has met the requirements of Subchapter M of the
Internal Revenue Code for qualification and treatment as a regulated
investment company and intends to meet those requirements for the
current taxable year; and, for each past calendar year since it
commenced operations, Multi-Sector Fund has made such distributions
as are necessary to avoid the imposition of federal excise tax or
has paid or provided for the payment of any excise tax imposed;
4.2.9 All issued and outstanding shares of Multi-Sector Fund are, and at
the Closing Date will be, duly and validly authorized, issued and
outstanding, fully paid and non-assessable. Except as contemplated by
this Agreement, Multi-Sector Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of
its shares nor is there outstanding any security convertible into any
of its shares, except for the Class B shares which have the
conversion feature described in Multi-Sector Fund's Prospectus dated
August 1, 1994;
4.2.10 The execution, delivery and performance of this Agreement has been
duly authorized by the Board of Directors of Multi-Sector Fund and by
all necessary corporate action on the part of Multi-Sector Fund, and
this Agreement constitutes a valid and binding obligation of
Multi-Sector Fund;
4.2.11 The shares of Multi-Sector Fund to be issued and delivered to
Strategist Fund pursuant to this Agreement will, at the Closing Date,
have been duly authorized and, when issued and delivered as provided
in this Agreement, will be duly and validly issued and outstanding
shares of Multi-Sector Fund, fully paid and non-assessable;
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4.2.12 The information furnished and to be furnished by Multi-Sector Fund
for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection
with the transactions contemplated hereby is and shall be accurate
and complete in all material respects and is and shall comply in all
material respects with applicable federal securities and other laws
and regulations; and
4.2.13 On the effective date of the Registration Statement, at the time of
the meeting of the shareholders of Strategist Fund and on the Closing
Date, the Proxy Statement and the Registration Statement (i) will
comply in all material respects with the provisions of the 1933 Act,
the 1934 Act and the Investment Company Act and the rules and
regulations under such Acts, (ii) will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading and (iii) with respect to the Registration
Statement, at the time it becomes effective, it will not contain an
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this paragraph
4.2.13 shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information furnished by Strategist Fund for use
therein.
5. Covenants of Multi-Sector Fund and Strategist Fund
5.1 Strategist Fund and Multi-Sector Fund each covenants to operate its
respective business in the ordinary course between the date hereof and the
Closing Date, it being understood that the ordinary course of business will
include declaring and paying customary dividends and other distributions and
such changes in operations as are contemplated by the normal operations of the
Funds, except as may otherwise be required by paragraph 1.4 hereof.
5.2 Strategist Fund covenants to call a shareholders' meeting to consider and
act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated hereby (including the determinations
of its Board of Directors as set forth in Rule 17a-8(a) under the Investment
Company Act).
5.3 Strategist Fund covenants that Multi-Sector Fund shares to be received by
Strategist Fund in accordance herewith are not being acquired for the purpose of
making any distribution thereof other than in accordance with the terms of this
Agreement.
5.4 Strategist Fund covenants that it will assist Multi-Sector Fund in obtaining
such information as Multi-Sector Fund reasonably requests concerning the
beneficial ownership of Strategist Fund's shares.
5.5 Subject to the provisions of this Agreement, each Fund will take, or cause
to be taken, all action, and will do, or cause to be done, all things,
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
5.6 Strategist Fund covenants to prepare the Proxy Statement in compliance with
the 1934 Act, the Investment Company Act and the rules and regulations under
each Act.
5.7 Strategist Fund covenants that it will, from time to time, as and when
requested by Multi-Sector Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as Multi-Sector Fund may deem necessary or
desirable in order to vest in and confirm to Multi-Sector Fund title to and
possession of all the assets of Strategist Fund to be sold, assigned,
transferred and delivered hereunder and otherwise to carry out the intent and
purpose of this Agreement.
5.8 Multi-Sector Fund covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the Investment Company
Act (including the determinations of its Board of Directors as set forth in Rule
17a-8(a) thereunder) and such of the state Blue Sky or securities laws as it may
deem appropriate in order to continue its operations after the Closing Date.
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5.9 Multi-Sector Fund covenants that it will, from time to time, as and when
requested by Strategist Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take and cause to
be taken such further action, as Strategist Fund may deem necessary or desirable
in order to (i) vest in and confirm to Strategist Fund title to and possession
of all the shares of Multi-Sector Fund to be transferred to Strategist Fund
pursuant to this Agreement and (ii) assume all of Strategist Fund's liabilities
in accordance with this Agreement.
6. Conditions Precedent to Obligations of Strategist Fund
The obligations of Strategist Fund to consummate the transactions provided
for herein shall be subject to the performance by Multi-Sector Fund of all the
obligations to be performed by it hereunder on or before the Closing Date and
the following further conditions:
6.1 All representations and warranties of Multi-Sector Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 Multi-Sector Fund shall have delivered to Strategist Fund on the Closing
Date a certificate executed in its name by the President or a Vice President of
Multi-Sector Fund, in form and substance satisfactory to Strategist Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of Multi-Sector Fund in this Agreement are true and correct at and as
of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as Strategist Fund
shall reasonably request.
6.3 Strategist Fund shall have received on the Closing Date a favorable opinion
from Gardner, Carton & Douglas, counsel to Multi-Sector Fund, dated as of the
Closing Date, to the effect that:
6.3.1 Multi-Sector Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland with power under its
Articles of Incorporation to own all of its properties and assets
and, to the knowledge of such counsel, to carry on its business as
presently conducted;
6.3.2 This Agreement has been duly authorized, executed and delivered by
Multi-Sector Fund and, assuming due authorization, execution and
delivery of the Agreement by Strategist Fund, is a valid and binding
obligation of Multi-Sector Fund enforceable in accordance with its
terms, except to the extent that enforcement thereof may be limited
by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles
(regardless of whether enforcement is sought in a proceeding at law
or in equity), and further subject to the qualifications set forth in
the next succeeding sentence. Such counsel may state that they
express no opinion as to the validity or enforceability of any
provision regarding choice of New York Law to govern this Agreement;
6.3.3 The shares of Multi-Sector Fund to be distributed to Strategist Fund
shareholders under this Agreement, assuming their due authorization
and delivery as contemplated by this Agreement, will be validly
issued and outstanding and fully paid and non-assessable, and no
shareholder of Multi-Sector Fund has any pre-emptive right to
subscribe therefor or purchase such shares;
6.3.4 The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, (i)
conflict with Multi-Sector Fund's Articles of Incorporation or
By-Laws or (ii) result in a default or a breach of (a) the Management
Agreement dated June 1, 1990 between Multi-Sector Fund and Prudential
Mutual Fund Management, Inc., (b) the Custodian Contract dated May
17, 1990 between Multi-Sector Fund and State Street Bank and Trust
Company, (c) the Distribution Agreement (Class A shares) dated August
1, 1994 between Multi-Sector Fund and Prudential Mutual Fund
Distributors, Inc., (d) the Distribution Agreement (Class B shares)
dated August 1, 1994 between
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Multi-Sector Fund and Prudential Securities, (e) the Distribution
Agreement (Class C shares) dated August 1, 1994 between Multi-Sector
Fund and Prudential Securities and (f) the Transfer Agency and
Service Agreement dated June 1, 1990; provided, however, that such
counsel may state that they express no opinion in their opinion
pursuant to this paragraph 6.3.4 with respect to federal or state
securities laws, other antifraud laws and fraudulent transfer laws;
provided further that insofar as performance by Multi-Sector Fund of
its obligations under this Agreement is concerned, such counsel may
state that they express no opinion as to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights;
6.3.5 To the knowledge of such counsel, no consent, approval,
authorization, filing or order of any court or governmental authority
is required for the consummation by Multi-Sector Fund of the
transactions contemplated herein, except such as have been obtained
under the 1933 Act, the 1934 Act and the Investment Company Act and
such as may be required under state Blue Sky or securities laws;
6.3.6 Multi-Sector Fund has been registered with the SEC as an investment
company, and, to the knowledge of such counsel, no order has been
issued or proceeding instituted to suspend such registration; and
6.3.7 To the knowledge of such counsel, (a) no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or threatened against Multi-Sector Fund or
any of its properties or assets, and (b) Multi-Sector Fund is not a
party to or subject to the provision of any order, decree or judgment
of any court or governmental body, which materially and adversely
affects its business, except as otherwise disclosed.
7. Conditions Precedent to Obligations of Multi-Sector Fund
The obligations of Multi-Sector Fund to complete the transactions provided
for herein shall be subject to the performance by Strategist Fund of all the
obligations to be performed by it hereunder on or before the Closing Date and
the following further conditions:
7.1 All representations and warranties of Strategist Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2 Strategist Fund shall have delivered to Multi-Sector Fund on the Closing
Date a statement of its assets and liabilities, which statement shall be
prepared in accordance with generally accepted accounting principles
consistently applied, together with a list of its portfolio securities showing
the adjusted tax bases of such securities by lot, as of the Closing Date,
certified by the Treasurer of Strategist Fund.
7.3 Strategist Fund shall have delivered to Multi-Sector Fund on the Closing
Date a certificate executed in its name by the President or a Vice President of
Strategist Fund, in form and substance satisfactory to Multi-Sector Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of Strategist Fund made in this Agreement are true and correct at and
as of the Closing Date except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as Multi-Sector
Fund shall reasonably request.
7.4 On or immediately prior to the Closing Date, Strategist Fund shall have
declared and paid to its shareholders of record one or more dividends and/or
other distributions so that it will have distributed substantially all (and in
any event not less than ninety-eight percent) of its investment company taxable
income (computed without regard to any deduction for dividends paid), net
tax-exempt interest income, if any, and realized net capital gain, if any, for
all taxable years through its liquidation.
7.5 Multi-Sector Fund shall have received on the Closing Date a favorable
opinion from Sullivan & Cromwell, counsel to Strategist Fund, dated as of the
Closing Date, to the effect that:
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7.5.1 Strategist Fund has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Maryland;
7.5.2 This Agreement has been duly authorized, executed and delivered by
Strategist Fund and constitutes a valid and legally binding
obligation of Strategist Fund enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles;
7.5.3 The execution and delivery of the Agreement did not, and the
performance by Strategist Fund of its obligations hereunder will not,
(i) violate Strategist Fund's Articles of Incorporation or By-Laws or
(ii) result in a default or a breach of the Management Agreement,
dated January 22, 1990 and amended as of October 24, 1991, between
Strategist Fund and Prudential Mutual Fund Management, Inc., the
Custodian Agreement, dated July 25, 1990, between Strategist Fund and
State Street Bank and Trust Company, the Distribution Agreement
(Class A shares), dated August 1, 1994, between Strategist Fund and
Prudential Mutual Fund Distributors, Inc., the Distribution Agreement
(Class B shares), dated August 1, 1994, between Strategist Fund and
Prudential Securities Incorporated, the Distribution Agreement (Class
C shares), dated August 1, 1994, between Strategist Fund and
Prudential Securities Incorporated and the Transfer Agency and
Service Agreement, dated January 1, 1988 and amended as of January 1,
1989 and January 1, 1990, between Strategist Fund and Prudential
Mutual Fund Services, Inc.; provided, however, that such counsel may
state that they express no opinion in their opinion pursuant to this
paragraph 7.5.3 with respect to federal or state securities laws,
other antifraud laws and fraudulent transfer laws; provided further
that insofar as performance by Strategist Fund of its obligations
under this Agreement is concerned, such counsel may state that they
express no opinion as to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles;
7.5.4 All regulatory consents, authorizations and approvals required to be
obtained by Strategist Fund under the federal laws of the United
States, the laws of the State of New York and the General Corporation
Law of the State of Maryland for the consummation of the transactions
contemplated by this Agreement have been obtained;
7.5.5 Such counsel knows of no litigation or any governmental proceeding
instituted or threatened against Strategist Fund that would be
required to be disclosed in the Registration Statement and is not so
disclosed; and
7.5.6 Strategist Fund has been registered with the SEC as an investment
company, and, to the knowledge of such counsel, no order has been
issued or proceeding instituted to suspend such registration.
8. Further Conditions Precedent to Obligations of Multi-Sector Fund and
Strategist Fund
The obligations of each Fund hereunder are subject to the further conditions
that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of (a) the Board of Directors of the Strategist
Fund and Multi-Sector Fund, as to the determinations set forth in Rule 17a-8(a)
under the Investment Company Act, (b) the Board of Directors of Multi-Sector
Fund as to the assumption by the Multi-Sector Fund of the liabilities of
Strategist Fund and (c) the holders of the outstanding shares of Strategist Fund
in accordance with the provisions of Strategist Fund's Articles of
Incorporation, and certified copies of the resolutions evidencing such approvals
shall have been delivered to Multi-Sector Fund and Strategist Fund.
8.2 Any proposed change to Multi-Sector Fund's operations that may be approved
by the Board of Directors of Multi-Sector Fund subsequent to the date of this
Agreement but in connection with and as a condition to implementing
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the transactions contemplated by this Agreement, for which the approval of
Multi-Sector Fund shareholders is required pursuant to the Investment Company
Act or otherwise, shall have been approved by the requisite vote of the holders
of the outstanding shares of Multi-Sector Fund in accordance with the Investment
Company Act and the provisions of the General Corporation Law of the State of
Maryland, and certified copies of the resolution evidencing such approval shall
have been delivered to Strategist Fund.
8.3 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein.
8.4 All consents of other parties and all consents, orders and permits of
federal, state and local regulatory authorities (including those of the SEC and
of state Blue Sky or securities authorities, including "no-action" positions of
such authorities) deemed necessary by Multi-Sector Fund or Strategist Fund to
permit consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of Multi-Sector Fund or Strategist Fund, provided
that either party hereto may for itself waive any part of this condition.
8.5 The Registration Statement shall have become effective under the 1933 Act,
and no stop orders suspending the effectiveness thereof shall have been issued,
and to the best knowledge of the parties hereto, no investigation or proceeding
under the 1933 Act for that purpose shall have been instituted or be pending,
threatened or contemplated.
8.6 Strategist Fund and Multi-Sector Fund shall have received on or before the
Closing Date an opinion of Sullivan & Cromwell satisfactory to Strategist Fund
and to Multi-Sector Fund, substantially to the effect that for federal income
tax purposes:
8.6.1 The acquisition by Multi-Sector Fund of the assets of Strategist Fund
in exchange solely for voting shares of Multi-Sector Fund and the
assumption by Multi-Sector Fund of Strategist Fund's liabilities, if
any, followed by the distribution of Multi-Sector Fund's voting
shares by Strategist Fund pro rata to its shareholders, pursuant to
its liquidation and constructively in exchange for their Strategist
Fund shares, will constitute a reorganization within the meaning of
Section 368(a)(1)(C) of the Internal Revenue Code, and Strategist
Fund and Multi-Sector Fund each will be "a party to a reorganization"
within the meaning of Section 368(b) of the Internal Revenue Code;
8.6.2 Strategist Fund's shareholders will recognize no gain or loss upon
the constructive exchange of all of their shares of Strategist Fund
solely for shares of Multi-Sector Fund in complete liquidation of
Strategist Fund;
8.6.3 No gain or loss will be recognized to Strategist Fund upon the
transfer of its assets to Multi-Sector Fund in exchange solely for
shares of Multi-Sector Fund and the assumption by Multi-Sector Fund
of Strategist Fund's liabilities, if any, and the subsequent
distribution of those shares to Strategist Fund shareholders in
complete liquidation of Strategist Fund;
8.6.4 No gain or loss will be recognized to Multi-Sector Fund upon the
acquisition of Strategist Fund's assets in exchange solely for shares
of Multi-Sector Fund and the assumption of Strategist Fund's
liabilities, if any;
8.6.5 Multi-Sector Fund's basis for those assets will be the same as the
basis thereof when held by Strategist Fund immediately before the
transfer, and the holding period of such assets acquired by
Multi-Sector Fund will include the holding period thereof when held
by Strategist Fund;
8.6.6 The Strategist Fund shareholders' basis for the shares of
Multi-Sector Fund to be received by them pursuant to the
reorganization will be the same as their basis for the shares of
Strategist Fund to be constructively surrendered in exchange thereof;
and
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8.6.7 The holding period of Multi-Sector Fund shares to be received by
Strategist Fund shareholders will include the period during which
Strategist Fund shares to be constructively surrendered in exchange
therefor were held; provided such Strategist Fund shares were held as
capital assets by those shareholders on the date of the exchange.
9. Finder's Fees and Expenses
9.1 Each Fund represents and warrants to the other that there are no finder's
fees payable in connection with the transactions provided for herein.
9.2 The expenses incurred in connection with the entering into and carrying out
of the provisions of this Agreement shall be allocated to the Funds pro rata in
a fair and equitable manner in proportion to their respective assets.
10. Entire Agreement; Survival of Warranties
10.1 This Agreement constitutes the entire agreement between the Funds.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated hereunder.
11. Termination
Either Fund may at its option terminate this Agreement at or prior to the
Closing Date because of:
11.1 A material breach by the other of any representation, warranty or covenant
contained herein to be performed at or prior to the Closing Date; or
11.2 A condition herein expressed to be precedent to the obligations of either
party not having been met and it reasonably appearing that it will not or cannot
be met; or
11.3 A mutual written agreement of Strategist Fund and Multi-Sector Fund.
In the event of any such termination, there shall be no liability for
damages on the part of either Fund (other than the liability of the Funds to pay
their allocated expenses pursuant to paragraph 9.2) or any Director or officer
of Multi-Sector Fund or Strategist Fund.
12. Amendment
This Agreement may be amended, modified or supplemented only in writing by
the parties; provided, however, that following the shareholders' meeting called
by Strategist Fund pursuant to paragraph 5.2, no such amendment may have the
effect of changing the provisions for determining the number of shares of
Multi-Sector Fund to be distributed to Strategist Fund shareholders under this
Agreement to the detriment of such shareholders without their further approval.
13. Notices
Any notice, report, demand or other communication required or permitted by
any provision of this Agreement shall be in writing and shall be given by hand
delivery, or prepaid certified mail or overnight service addressed to Prudential
Mutual Fund Management, Inc., One Seaport Plaza, New York, New York 10292,
Attention: S. Jane Rose.
14. Headings; Counterparts; Governing Law; Assignment
14.1 The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
B-12
<PAGE>
14.2 This Agreement may be executed in any number of counterparts, each of which
will be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
14.4 This Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns, and no assignment or transfer hereof or of
any rights or obligations hereunder shall be made by either party without the
written consent of the other party. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person, firm or
corporation other than the parties and their respective successors and assigns
any rights or remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by the President or Vice President of each Fund.
Prudential Strategist Fund, Inc.
By___________________________________________
President/Vice President
Prudential Multi-Sector Fund, Inc.
By___________________________________________
President/Vice President
B-13
<PAGE>
TABLE OF CONTENTS
Page
VOTING INFORMATION ......................................................... 2
SYNOPSIS ................................................................... 3
The Proposed Reorganization and Liquidation ............................ 3
Reasons for the Proposed Reorganization and Liquidation ................ 4
Structure of Multi-Sector Fund and Strategist Fund ..................... 5
Investment Objectives and Policies ..................................... 6
Fees and Expenses ...................................................... 6
Management Fees ...................................................... 6
Distribution Fees .................................................... 7
Other Expenses ....................................................... 7
Expense Ratios ....................................................... 8
Purchases and Redemptions .............................................. 8
Exchange Privileges .................................................... 9
Dividends and Distributions ............................................ 9
Federal Tax Consequences of Proposed Reorganization .................... 9
Dissenters' Rights of Appraisal ........................................ 10
PRINCIPAL RISK FACTORS ..................................................... 10
Multi-Sector Fund is a Non-Diversified Investment Company .............. 10
High Yield Securities .................................................. 10
Foreign Investments .................................................... 10
Hedging and Income Enhancement Activities .............................. 11
THE PROPOSED TRANSACTION ................................................... 11
Agreement and Plan of Reorganization and Liquidation.................... 11
Reasons for the Reorganization and Liquidations ........................ 12
Description of Securities to be Issued ................................. 13
Tax Considerations ..................................................... 13
Certain Comparative Information About the Funds ........................ 14
Capitalization ....................................................... 14
Shareholder Meetings and Voting Rights ............................... 14
Shareholder Liability ................................................ 15
Liability and Indemnification of Directors ........................... 15
Pro Forma Capitalization and Ratios .................................. 15
INFORMATION ABOUT MULTI-SECTOR FUND ........................................ 16
INFORMATION ABOUT STRATEGIST FUND .......................................... 18
OTHER MATTERS .............................................................. 19
SHAREHOLDERS' PROPOSALS .................................................... 19
APPENDIX A-Performance Overview ............................................ A-1
APPENDIX B-Form of Agreement and Plan of Reorganization and Liquidation .... B-1
TABLE OF CONTENTS
ENCLOSURE
Prospectus of Prudential Multi-Sector Fund, Inc. dated August 1, 1994,
including a January 6, 1995 Supplement thereto.
Annual Report of Prudential Strategist Fund, Inc. for the Fiscal Year ended
February 28, 1995.
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
dated April , 1995
Acquisition of Assets of Prudential Strategist Fund, Inc.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(800) 225-1852
---------------
By and in Exchange for the Shares of
PRUDENTIAL MULTI-SECTOR FUND, INC.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(800) 225-1852
This Statement of Additional Information, relating specifically to the
proposed transfer of all the assets and the assumption of all the liabilities,
if any, of Prudential Strategist Fund, Inc. (the Acquired Fund) by Prudential
Multi-Sector Fund, Inc. (the Acquiring Fund) consists of this cover page, the
following page which supplements Multi-Sector Fund's Statement of Additional
Information dated August 1, 1994, the attached pro forma financial statements
and the following described documents, each of which is attached hereto and
incorporated herein by reference.
1. The Statement of Additional Information of the Acquiring Fund dated
August 1, 1994.
2. The Semi-Annual Report to Shareholders of the Acquiring Fund for the
six-months period ended October 31, 1994.
3. The Annual Report to Shareholders of the Acquired Fund for the fiscal
year ended February 28, 1995.
The Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated April , 1995 relating to the above referenced
matter may be obtained from the Acquiring Fund without charge by writing or
calling Prudential Multi-Sector Fund, Inc. at the address or telephone number
listed above. This Statement of Additional Information relates to, and should be
read in conjunction with, the Prospectus/Proxy Statement.
1
<PAGE>
The following information supplements the Prudential Multi-Sector Fund, Inc.
Statement of Additional Information dated August 1, 1994. It responds to Item 14
of Form N-1A, which was amended effective January 23, 1995.
The following table sets forth the aggregate compensation paid by Prudential
Multi-Sector Fund, Inc. (Multi-Sector Fund) for the fiscal year ended April 30,
1994 to the Directors who are not affiliated with the Manager and the aggregate
compensation paid to such Directors for service on Multi-Sector Fund's Board and
the Board of any other investment companies managed by Prudential Mutual Fund
Management, Inc. (Fund Complex) for the calendar year ended December 31, 1994.
Compensation Table
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From Fund
Aggregate Benefits Accrued Estimated Annual and Fund
Compensation As Part of Fund Benefits Upon Complex Paid
Name and Position From Fund Expenses Retirement to Directors
----------------- ------------ ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Edward D. Beach, Director $7,500 None N/A $159,000(20)*
Donald D. Lennox, Director $7,500 None N/A $ 90,000(10)*
Douglas H. McCorkindale, Director $7,500 None N/A $ 60,000(7)*
Thomas T. Mooney, Director $7,500 None N/A $126,000(15)*
Louis A. Weill, III, Director $7,500 None N/A $ 97,500(12)*
-------------
*Indicates number of funds in Fund Complex (including the Fund) to which
aggregate compensation relates.
</TABLE>
2
<PAGE>
Pro-Forma Financial Statements
Pro-Forma Portfolio of Investments
October 31, 1994
(unaudited)
<TABLE>
<CAPTION>
Shares Value
--------------------------------------- -----------------------------------------------
Prudential Prudential Prudential Prudential
Multi-Sector Strategist Multi-Sector Strategist
Fund Fund Total Fund Fund Total
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS-90.4%
Common Stocks-86.2%
Auto Sector-1.3%
25,000 25,000 APS Holding Corp. ..................... $ 737,500 $ 737,500
20,000 20,000 Federal-Mogul Corp. ................... 455,000 455,000
485,000 485,000 Fiat Spa (Italy) ...................... $ 1,976,008 1,976,008
29,200 29,200 Ford Motor Co. ........................ 861,400 861,400
56,300 56,300 Hayes Wheels International, Inc. ...... 1,323,050 1,323,050
------------ ------------- ------------
2,837,408 2,515,550 5,352,958
------------ ------------- ------------
Basic Industry Sector-15.9%
55,800 55,800 Akzo N V (ADR) (Netherlands) ........... 3,494,475 3,494,475
10,700 10,700 BASF AG (Germany) ...................... 2,258,869 2,258,869
70,000 70,000 Bowater, Inc. .......................... 1,890,000 1,890,000
40,000 40,000 Burlington Northern, Inc. .............. 1,995,000 1,995,000
80,000 80,000 Caterpillar, Inc. ...................... 4,780,000 4,780,000
35,000 35,000 Cementos Paz Delaware Rio Spa
(ADR) (Luxembourg) .................... 866,250 866,250
40,000 40,000 Clark Equipment Co. .................... 2,805,000 2,805,000
90,000 90,000 Dow Chemical Co. ....................... 6,615,000 6,615,000
40,000 40,000 Du Pont (E.I.) de Nemours & Co. ........ 2,385,000 2,385,000
40,000 40,000 General Electric Co. ................... 1,955,000 1,955,000
40,000 40,000 Georgia Gulf Corp. ..................... 1,550,000 1,550,000
30,000 30,000 Giddings & Lewis, Inc. ................. 465,000 465,000
145,000 145,000 Hanson PLC (ADR)
(United Kingdom) ...................... 2,700,625 2,700,625
150,000 150,000 Hylsamex (ADR) (Mexico) ................ 3,318,750 3,318,750
8,000 8,000 IO Data Device, Inc. (Japan) ........... 338,637 338,637
35,000 35,000 Illinois Tool Works, Inc. .............. 1,570,625 1,570,625
58,200 58,200 Imperial Chemical Ind. (ADR)
(United Kingdom) ...................... 3,026,400 3,026,400
131,100 131,100 Kymmene Oy (Finland) ................... 3,575,067 3,575,067
85,000 85,000 Om Group, Inc. ......................... 1,700,000 1,700,000
77,600 77,600 Praxair, Inc. .......................... 1,794,500 1,794,500
90,000 90,000 Stewart & Stevenson
Services, Inc. ........................ 3,465,000 3,465,000
</TABLE>
1
<PAGE>
Pro-Forma Financial Statements
Pro-Forma Portfolio of Investments
October 31, 1994
(unaudited)
<TABLE>
<CAPTION>
Shares Value
--------------------------------------- -----------------------------------------------
Prudential Prudential Prudential Prudential
Multi-Sector Strategist Multi-Sector Strategist
Fund Fund Total Fund Fund Total
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Basic Industry Sector (continued)
80,000 80,000 TJ International, Inc. ................. $ 1,440,000 $ 1,440,000
55,000 55,000 Union Carbide Corp. .................... $ 1,821,875 1,821,875
175,000 175,000 Varity Corp. ........................... 6,693,750 6,693,750
20,000 20,000 York International Corp. ............... 780,000 780,000
------------ ------------ ------------
28,463,573 34,821,250 63,284,823
------------ ------------ ------------
Business Services Sector-0.6%
5,000 5,000 Computer Sciences Corp. ................ 233,425 233,425
20,000 20,000 Xerox Corp. ............................ 2,050,000 2,050,000
------------- ------------
2,283,425 2,283,425
Consumer Goods & Services Sector-5.4%
100,000 100,000 Au Bon Pain Co., Inc. .................. 1,950,000 1,950,000
34,000 34,000 Aviall, Inc. ........................... 340,000 340,000
50,000 50,000 Federal Express Corp. .................. 3,037,500 3,037,500
50,000 50,000 McDonald's Corp. ....................... 1,437,500 1,437,500
47,000 47,000 Nissen Co., Ltd. (Japan) ............... 1,916,886 1,916,886
60,000 60,000 Philip Morris Companies, Inc. .......... 3,675,000 3,675,000
40,000 40,000 Temple Inland, Inc. .................... 1,890,000 1,890,000
50,000 50,000 The Coca-Cola Co. ...................... 2,512,500 2,512,500
65,000 65,000 The Gillette Company ................... 4,834,375 4,834,375
------------ ------------- ------------
9,134,386 12,459,375 21,593,761
------------ ------------- ------------
Defense & Aerospace Sector-0.3%
30,000 30,000 Boeing Co. ............................. 1,316,250 1,316,250
------------- ------------
Energy Sector-19.1%
43,700 43,700 Aquilla Gas Pipeline Corp. ............. 333,213 333,213
205,000 205,000 Baker Hughes, Inc. ..................... 4,202,500 4,202,500
70,000 70,000 British Petroleum Co. .................. 5,950,000 5,950,000
97,000 97,000 Cabre Exploration, Ltd. (Canada) ....... 824,799 824,799
100,000 100,000 Chestar Energy, Inc. ................... 1,229,251 1,229,251
65,000 65,000 Chevron Corp. .......................... 2,925,000 2,925,000
43,700 43,700 Cross Timbers Oil Co. .................. 699,200 699,200
258,500 258,500 Discovery West Corp. (Canada) .......... 1,051,240 1,051,240
184,300 184,300 Ensign Resource Service
Group, Inc. .......................... 640,475 640,475
</TABLE>
2
<PAGE>
Pro-Forma Financial Statements
Pro-Forma Portfolio of Investments
October 31, 1994
(unaudited)
<TABLE>
<CAPTION>
Shares Value
--------------------------------------- -----------------------------------------------
Prudential Prudential Prudential Prudential
Multi-Sector Strategist Multi-Sector Strategist
Fund Fund Total Fund Fund Total
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
58,200 58,200 Enterprise Oil PLC (ADR)
(United Kingdom) ..................... $ 1,091,250 $ 1,091,250
79,000 79,000 Exxon Corp. ............................ 4,967,125 4,967,125
250,000 250,000 Global Marine, Inc. .................... 1,187,500 1,187,500
500,000 500,000 Mesa, Inc. ............................. 2,562,500 2,562,500
97,000 97,000 Morrison Petroleum, Ltd. (Canada) ...... 645,495 645,495
83,400 83,400 Oryx Energy Co. ........................ 1,209,300 1,209,300
55,000 90,000 145,000 Phillips Petroleum Co. ................. 2,028,125 $ 3,318,750 5,346,875
145,600 145,600 Rigel Energy Corp. ..................... 2,013,149 2,013,149
225,000 225,000 Rollins Environmental Services,
Inc. ................................. 1,321,875 1,321,875
301,000 301,000 Rowan Cos., Inc. ....................... 2,295,125 2,295,125
45,000 45,000 Royal Dutch Petroleum Co. .............. 5,242,500 5,242,500
150,000 150,000 Santa Fe Pacific Gold Corp. ............ 2,156,250 2,156,250
55,000 55,000 Shell Transport & Trading Co., PLC
(United Kingdom) ..................... 3,925,625 3,925,625
90,000 59,100 149,100 Societe Nationale Elf Aquitaine
(ADR) (France) ....................... 3,296,250 2,164,537 5,460,787
183,000 183,000 Sonat Offshore Drilling, Inc. .......... 3,637,125 3,637,125
121,300 121,300 Talisman Energy, Inc. (Canada) ......... 2,578,561 2,578,561
50,000 50,000 Texaco, Inc. ........................... 3,268,750 3,268,750
75,000 75,000 Total SA (ADR) (France) ................ 2,475,000 2,475,000
53,400 53,400 Trident Holding, Inc. .................. 567,375 567,375
116,500 116,500 USX-Delhi Group ........................ 1,412,563 1,412,563
155,000 155,000 USX-Marathon Group ..................... 2,906,250 2,906,250
100,000 100,000 YPF Sociedad Anonima (ADR)
(Argentina) .......................... 2,412,500 2,412,500
------------ ------------- ------------
47,268,996 29,270,162 76,539,158
------------ ------------- ------------
Financial Services Sector-6.4%
60,000 60,000 Banco Wiese (ADR) (Peru) ............... 1,275,000 1,275,000
110,000 110,000 Citicorp ............................... 5,252,500 5,252,500
28,700 28,700 CCP Insurance, Inc. .................... 444,850 444,850
60,000 60,000 CTL Credit, Inc. ....................... 630,000 630,000
50,000 50,000 Continental Corp. ...................... 756,250 756,250
70,000 70,000 Equitable of Iowa Cos. ................. 2,476,250 2,476,250
145,000 145,000 First Financial Management Corp. ....... 8,120,000 8,120,000
75,000 75,000 MBNA Corp. ............................. 2,006,250 2,006,250
</TABLE>
3
<PAGE>
Pro-Forma Financial Statements
Pro-Forma Portfolio of Investments
October 31, 1994
(unaudited)
<TABLE>
<CAPTION>
Shares Value
--------------------------------------- -----------------------------------------------
Prudential Prudential Prudential Prudential
Multi-Sector Strategist Multi-Sector Strategist
Fund Fund Total Fund Fund Total
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Financial Services Sector (continued)
43,650 43,650 Mercantile Bancorp, Inc. ............... $ 1,516,838 $ 1,516,838
5,000 5,000 Post Properties Inc. (REIT) ............ $ 146,875 146,875
15,000 15,000 Price, Inc. (REIT) ..................... 513,750 513,750
55,000 55,000 Sun America, Inc. ...................... 2,138,125 2,138,125
------------ ------------- ------------
5,999,188 19,277,500 25,276,688
------------ ------------- ------------
Health Care Sector-0.7%
85,000 85,000 Patterson Dental Co. ................... 1,615,000 1,615,000
49,300 49,300 Physicians Corp. of America, Inc. ...... 1,189,363 1,189,363
------------ ------------- ------------
1,189,363 1,615,000 2,804,363
------------ ------------- ------------
Leisure Sector-1.2%
20,000 20,000 Hilton Hotels Corp. .................... 1,212,500 1,212,500
135,000 135,000 La Quinta Inns, Inc. ................... 3,391,875 3,391,875
------------- ------------
4,604,375 4,604,375
------------- ------------
Natural Resources Sector-1.4%
29,100 10,000 39,100 International Paper Co. ................ 2,167,950 745,000 2,912,950
40,000 40,000 Scott Paper Co. ........................ 2,645,000 2,645,000
------------ ------------- ------------
2,167,950 3,390,000 5,557,950
------------ ------------- ------------
Precious Metals Sector-2.3%
190,000 65,000 255,000 Potash Corp. of
Saskatchewan Inc. (Canada) ........... 6,721,250 2,299,375 9,020,625
------------ ------------- ------------
Public Utilities Sector-1.1%
68,500 68,500 Entergy Corp. .......................... 1,601,187 1,601,187
50,000 50,000 Telefonos de Mexico
(ADR) (Mexico) ....................... 2,756,250 2,756,250
------------ ------------
4,357,437 4,357,437
------------ ------------
Retailing Sector-1.2%
45,000 45,000 Burlington Coat
Factory Warehouse .................... 585,000 585,000
225,000 225,000 Consolidated Stores Corp. .............. 4,078,125 4,078,125
------------ ------------
4,663,125 4,663,125
------------ ------------
Technology Sector-20.8%
118,000 118,000 Adaptec, Inc. .......................... 2,743,500 2,743,500
46,000 46,000 Aspen Technology, Inc. ................. 782,000 782,000
200,000 200,000 Autodesk, Inc. ......................... 6,900,000 6,900,000
</TABLE>
4
<PAGE>
Pro-Forma Financial Statements
Pro-Forma Portfolio of Investments
October 31, 1994
(unaudited)
<TABLE>
<CAPTION>
Shares Value
--------------------------------------- -----------------------------------------------
Prudential Prudential Prudential Prudential
Multi-Sector Strategist Multi-Sector Strategist
Fund Fund Total Fund Fund Total
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Technology Sector (continued)
60,000 60,000 Cheyenne Software, Inc. ................ $ 667,500 $ 667,500
100,000 100,000 Cirrus Logic Corp. ..................... 2,875,000 2,875,000
200,000 200,000 Cisco Systems, Inc. .................... 6,025,000 6,025,000
85,000 5,000 90,000 Compaq Computer Corp. .................. 3,410,625 $ 206,550 3,617,175
150,000 150,000 Computer Associates Int'l, Inc. ........ 7,443,750 7,443,750
90,000 90,000 Cyrix Corp. ............................ 3,735,000 3,735,000
125,000 125,000 Electronic Arts, Inc. .................. 2,812,500 2,812,500
40,000 40,000 Hewlett-Packard Co. .................... 3,910,000 3,910,000
50,000 40,000 90,000 Informix Corp. ......................... 1,375,000 1,100,000 2,475,000
40,000 40,000 International Business Machines
Corp. ................................ 2,980,000 2,980,000
65,000 65,000 Loral Corp. ............................ 2,575,625 2,575,625
20,000 20,000 Lotus Development Corp. ................ 765,000 765,000
20,000 20,000 40,000 Motorola, Inc. ......................... 1,177,500 1,177,500 2,355,000
63,800 63,800 Murata Manufacturing Co., Ltd.
(Japan) .............................. 2,602,070 2,602,070
127,500 127,500 National Semiconductors Corp. .......... 2,247,187 2,247,187
200,000 200,000 Nextel Communications, Inc. ............ 4,187,500 4,187,500
40,700 40,700 Reliance Electric Company .............. 1,210,825 1,210,825
140,000 140,000 Seagate Technology Inc. ................ 3,552,500 3,552,500
20,000 20,000 Sensormatic Electronics Corp. .......... 752,500 752,500
155,000 30,000 185,000 Silicon Graphics, Inc. ................. 4,708,125 911,250 5,619,375
68,500 68,500 Stratus Computer, Inc. ................. 2,551,625 2,551,625
45,500 45,500 Ultimate Electronics, Inc. ............. 511,875 511,875
110,000 110,000 Verifone, Inc. ......................... 2,475,000 2,475,000
60,000 60,000 Vishay Intertechnology, Inc. ........... 2,947,500 2,947,500
50,000 50,000 WMX Technologies, Inc. ................. 1,468,750 1,468,750
------------ ------------- ------------
48,323,507 34,465,250 82,788,757
------------ ------------- ------------
Transportation Sector-8.5%
13,600 13,600 American President Cos., Ltd. .......... 329,800 329,800
40,000 40,000 Anangel--American Shipholdings Ltd.
(ADR) ................................ 625,000 625,000
19,400 19,400 British Airways PLC (ADR)
(United Kingdom) ..................... 1,134,900 1,134,900
230,000 70,000 300,000 Canadian Pacific, Ltd. (Canada) ........ 3,680,000 1,120,000 4,800,000
116,300 116,300 Carolina Freight Corp. ................. 1,177,538 1,177,538
</TABLE>
5
<PAGE>
Pro-Forma Financial Statements
Pro-Forma Portfolio of Investments
October 31, 1994
(unaudited)
<TABLE>
<CAPTION>
Shares Value
--------------------------------------- -----------------------------------------------
Prudential Prudential Prudential Prudential
Multi-Sector Strategist Multi-Sector Strategist
Fund Fund Total Fund Fund Total
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Transportation Sector (continued)
40,000 40,000 Celadon Group, Inc. .................... $ 740,000 $ 740,000
110,000 110,000 CSX Corp. .............................. 7,975,000 7,975,000
60,000 60,000 Harper Group, Inc. ..................... 795,000 795,000
50,000 50,000 Kansas City Southern Inds., Inc. ....... $ 1,687,500 1,687,500
72,800 72,800 KLM Royal Dutch Airlines Corp. ......... 2,020,200 2,020,200
238,000 238,000 Methanex Corp. (Canada) ................ 3,563,533 3,563,533
300,000 300,000 OMI Corp. .............................. 1,950,000 1,950,000
78,100 78,100 Overseas Shipholding Group, Inc. ....... 1,845,113 1,845,113
146,000 146,000 Singapore Airlines, Ltd.
(Singapore) .......................... 1,400,075 1,400,075
20,000 20,000 Union Pacific Corp. .................... 977,500 977,500
55,000 55,000 XTRA Corp. ............................. 2,805,000 2,805,000
------------ ------------- ------------
14,663,746 19,162,413 33,826,159
------------ ------------- ------------
Total common stocks
(cost $311,126,355) .................. 175,789,929 167,479,925 343,269,854
------------ ------------- ------------
Convertible Preferred Stocks-2.7%
Basic Industry Sector-1.4%
24,833 24,833 Alumax, Inc. ........................... 3,187,936 3,187,936
25,000 25,000 Bethlehem Steel Corp. .................. 1,343,750 1,343,750
19,067 19,067 Cyprus Amax Minerals Co. ............... 1,194,071 1,194,071
------------ ------------
5,725,757 5,727,757
------------ ------------
Technology Sector-1.3%
34,000 34,000 Nokia Corp. (Finland) .................. 5,114,165 5,114,165
------------ ------------
Total preferred stocks
(cost $5,732,340) .................... 10,839,922 10,839,922
------------ ------------
Warrants
------------------------------------------
Warrants-0.2%
Retailing Sector
200 200 Autobacs Seven Co. (Japan)
expiring Mar. '96 @ Y8,231
(cost $739,375) ...................... 807,500 807,500
------------ ------------
</TABLE>
6
<PAGE>
Pro-Forma Financial Statements
Pro-Forma Portfolio of Investments
October 31, 1994
(unaudited)
<TABLE>
<CAPTION>
Principal Amount (000) Value
--------------------------------------- -----------------------------------------------
Prudential Prudential Prudential Prudential
Multi-Sector Strategist Multi-Sector Strategist
Fund Fund Total Fund Fund Total
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Foreign Government Bond-0.8%
$ 4,724 $ 4,724 Federal Republic of Germany Bond,
8.00%, 3/20/97
(cost $3,262,585) .................... $ 3,229,936 $ 3,229,936
------------ ------------
Convertible Bond-0.5%
Basic Industry Sector-0.5%
2,000 $ 2,000 IMC Fertilizer Group, Inc.,
Conv. Sub. Deb., 6.25%, 12/1/01
(cost $1,779,135) .................... $ 1,850,000 1,850,000
------------- ------------
Total long-term investments
(cost $322,639,790) .................. 190,667,287 169,329,925 359,997,212
------------ ------------- ------------
SHORT-TERM INVESTMENTS-6.2%
Business Services Center-1.7%
6,800 6,800 Koch Industries, 4.64%, 11/1/94
(cost $6,800,000) .................... 6,800,000 6,800,000
------------- ------------
U.S. Government Securities-1.0%
U.S. Treasury Bills,
1,000 1,000 4.54%, 11/25/94 ...................... 996,973 996,973
2,000 2,000 4.525%, 12/8/94 ...................... 1,990,699 1,990,699
1,000 1,000 4.56%, 12/15/94 ...................... 994,427 994,427
------------ ------------
Total U.S. Government securities
(cost $3,982,099) .................... 3,982,099 3,982,099
------------ ------------
Repurchase Agreement-3.5%
13,892 13,892 Joint Repurchase Agreement
Account, 4.77%, 11/1/94
(cost $13,892,000) ................... 13,892,000 13,892,000
------------ ------------
Total short-term investments
(cost $24,674,099) ................... 17,874,099 6,800,000 24,674,099
------------ ------------- ------------
Total Investments Before Common
Stocks Sold Short-96.6%
(cost $347,313,889) .................. 208,541,386 176,129,925 384,671,311
------------ ------------- ------------
</TABLE>
7
<PAGE>
Pro-Forma Financial Statements
Pro-Forma Portfolio of Investments
October 31, 1994
(unaudited)
<TABLE>
<CAPTION>
Shares Value
--------------------------------------- -----------------------------------------------
Prudential Prudential Prudential Prudential
Multi-Sector Strategist Multi-Sector Strategist
Fund Fund Total Fund Fund Total
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS SOLD SHORT-(1.7)%
Retailing Sector-(1.2)%
25,000 25,000 Ann Taylor Stores, Inc. ................ $ (1,037,500) $ (1,037,500)
50,000 50,000 Cracker Barrel Old Country, Inc. ....... (1,100,000) (1,100,000)
50,000 50,000 Sports and Recreation, Inc. ............ (1,836,250) (1,836,250)
38,000 38,000 Starbucks Corp. ........................ (1,030,750) (1,030,750)
------------ ------------
(5,004,500) (5,004,500)
------------ ------------
Technology Sector-(0.5)%
40,000 40,000 Biogen, Inc. ........................... (1,960,000) (1,960,000)
------------ ------------
Total common stocks sold short
(proceeds $6,595,189) ................ (6,964,500) (6,964,500)
------------ ------------
Total investments, net of
short sales-94.9% .................... 201,576,886 $176,129,925 377,706,811
Other assets in excess of
other liabilities-5.1% ............... 16,502,566 3,873,230 20,375,796
------------ ------------- ------------
Net Assets-100% ........................ $218,079,452 $180,003,155 $398,082,607
============ ============ ============
<FN>
-----------
ADR -American Depository Receipt.
REIT-Real Estate Investment Trust.
</FN>
</TABLE>
8
<PAGE>
Pro-Forma Statement of Assets and Liabilities
October 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Prudential Prudential
Multi-Sector Strategist Pro-Forma
Fund Fund Combined
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Investments, at value (cost $187,754,108; $159,559,781 and
$347,313,889, respectively) .................................. $208,541,386 $176,129,925 $384,671,311
Foreign currency, at value (cost $17,189,280) .................. 17,995,719 17,995,719
Cash ........................................................... 2,696 1,894,537 1,897,233
Deposits with broker for investments sold short ................ 6,595,189 6,595,189
Receivable for Fund shares sold ................................ 2,270,386 58,342 2,328,728
Dividends and interest receivable .............................. 299,871 221,582 521,453
Receivable for investments sold ................................ 98,750 13,829,514 13,928,264
Deferred expenses and other assets ............................. 31,916 106,430 138,346
------------ ------------ ------------
Total assets ................................................. 235,835,913 192,240,330 428,076,243
------------ ------------ ------------
Liabilities
Investments sold short, at value (proceeds $6,595,189) ......... 6,964,500 6,964,500
Payable for investments purchased .............................. 6,055,835 11,253,880 17,309,715
Payable for Fund shares reacquired ............................. 3,532,307 399,183 3,931,490
Forward contracts-amounts payable to counterparties ............ 803,161 803,161
Accrued expenses ............................................... 149,242 342,504 491,746
Distribution fee payable ....................................... 138,280 147,430 285,710
Management fee payable ......................................... 113,136 94,178 207,314
------------ ------------ ------------
Total liabilities ............................................ 17,756,461 12,237,175 29,993,636
------------ ------------ ------------
Net Assets ..................................................... $218,079,452 $180,003,155 $398,082,607
============ ============ ============
Net assets were comprised of:
Common stock, at par ........................................... $ 15,893 $ 130,634 $ 28,960
Paid-in capital in excess of par ............................... 189,051,584 164,298,326 353,467,477
------------ ------------ ------------
189,067,477 164,428,960 353,496,437
Overdistributed net investment income .......................... (494,830) (819,247) (1,314,077)
Accumulated net realized capital and currency gains (losses) ... 9,082,702 (176,708) 8,905,994
Net unrealized appreciation on investments and foreign currencies 20,424,103 16,570,150 36,994,253
------------ ------------ ------------
Net assets, October 31, 1994 ................................... $218,079,452 $180,003,155 $398,082,607
============ ============ ============
Class A:
Net asset value and redemption price per share ............... $13.80 $13.96 $13.80
Maximum sales charge (5.00% of offering price) ............... .73 .73 .73
------ ------ ------
Maximum offering price to public ............................. $14.53 $14.69 $14.53
====== ====== ======
Class B:
Net asset value, offering price and redemption price per share $13.69 $13.77 $13.69
====== ====== ======
Class C:
Net asset value, offering price and redemption price per share $13.69 $13.77 $13.69
====== ====== ======
</TABLE>
9
<PAGE>
Pro-Forma Statement of Operations
Six Months Ended October 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Prudential Prudential
Multi-Sector Strategist Pro-Forma Pro-Forma
Fund Fund Adjustments Combined
----------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Net Investment Income
Income
Dividends ..................................... $ 1,059,467 $ 1,541,465 $ 2,600,932
Interest ...................................... 399,215 748,743 1,147,958
----------- ------------ -----------
Total income ................................ 1,458,682 2,290,208 3,748,890
----------- ------------ -----------
Expenses
Management fee ................................ 617,489 568,000 $ (23,750)(a) 1,161,739
Distribution fee-Class A ...................... 67,498 5,423 72,921
Distribution fee-Class B ...................... 679,410 887,057 1,566,467
Distribution fee-Class C ...................... 581 51 632
Custodian's fees and expenses ................. 120,000 92,000 (40,000)(b) 172,000
Transfer agent's fees and expenses ............ 115,000 230,000 345,000
Reports to shareholders ....................... 59,000 81,000 (30,000)(b) 110,000
Amortization of organization expense .......... 22,000 22,000
Registration fees ............................. 20,000 1,000 21,000
Directors' fees ............................... 19,000 19,000 (19,000)(b) 19,000
Audit fee ..................................... 15,000 28,000 (23,000)(b) 20,000
Legal fees .................................... 14,000 16,000 (16,000)(b) 14,000
Miscellaneous ................................. 3,177 33,272 (30,000)(b) 6,449
----------- ------------ -------- -----------
Total expenses .............................. 1,752,155 1,960,803 (181,750) 3,531,208
----------- ------------ -------- -----------
Net investment income (loss) .................... (293,473) 329,405 181,750 217,682
----------- ------------ -------- -----------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain (loss) ........................ 9,070,992 (33,207,568) (24,136,576)
Net change in unrealized appreciation ........... 9,815,458 8,861,002 18,676,460
----------- ------------ -----------
Net gain (loss) on investments and foreign
currency transactions ......................... 18,886,450 (24,346,566) (5,460,116)
----------- ------------ -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations ....................... $18,592,977 $(24,017,161) $181,750 $(5,242,434)
=========== ============ ======== ===========
<FN>
(a) Adjustment to reflect voluntary reduction in management fees of Prudential Multi-Sector Fund.
(b) Adjustment to reflect elimination of duplicitive expenses.
</FN>
</TABLE>
10
<PAGE>
Pro-Forma Statement of Operations
Year Ended April 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
Prudential Prudential
Multi-Sector Strategist Pro-Forma Pro-Forma
Fund Fund Adjustments Combined
----------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Net Investment Income
Income
Dividends ..................................... $ 3,353,985 $ 2,678,169 $ 6,032,154
Interest....................................... 515,264 468,400 983,664
----------- ------------ -----------
Total income ................................ 3,869,249 3,146,569 7,015,818
----------- ------------ -----------
Expenses
Management fee ................................ 1,032,341 1,342,175 $(39,705)(a) 2,334,811
Distribution fee-Class A ...................... 108,720 8,910 117,630
Distribution fee-Class B ...................... 1,089,811 2,106,385 3,196,196
Transfer agent's fees and expenses ............ 225,000 532,000 757,000
Custodian's fees and expenses ................. 214,000 193,000 (80,000)(b) 327,000
Registration fees ............................. 59,500 102,000 161,500
Amortization of organization expense .......... 45,000 45,000
Reports to shareholders ....................... 45,000 72,000 117,000
Directors' fees ............................... 37,500 51,000 (51,000)(b) 37,500
Audit fee ..................................... 30,000 54,000 (44,000)(b) 40,000
Legal fees and expenses ....................... 16,000 40,000 (40,000)(b) 16,000
Miscellaneous ................................. 9,684 47,859 (40,000)(b) 17,543
----------- ------------ -------- -----------
Total expenses .............................. 2,912,556 4,549,329 (294,705) 7,167,180
----------- ------------ -------- -----------
Net investment income (loss)..................... 956,693 (1,402,760) 294,705 (151,362)
----------- ------------ -------- -----------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain ............................... 22,140,711 4,083,096 26,223,807
Net change in unrealized appreciation ........... (5,325,410) (18,201,059) (23,526,469)
----------- ------------ -----------
Net gain (loss) on investments and
foreign currency transactions ................. 16,815,301 (14,117,963) 2,697,338
----------- ------------ -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations ....................... $17,771,994 $(15,520,723) $294,705 $ 2,545,976
=========== ============ ======== ===========
-----------
(a) Adjustment to reflect voluntary reduction in management fees to Prudential Multi-Sector Fund.
(b) Adustment to reflect elimination of duplicative expenses.
</TABLE>
11
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Additional Information
dated August 1, 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
"Description of Economic Sectors" 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. There can be no
assurance that the Fund's investment objectives will be achieved. See
"Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and
its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Fund's Prospectus, dated August 1, 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-10 13
Directors and Officers. . . . . . . . . . . . . . . . B-11 14
Manager . . . . . . . . . . . . . . . . . . . . . . . B-13 14
Distributor . . . . . . . . . . . . . . . . . . . . . B-15 15
Portfolio Transactions and Brokerage. . . . . . . . . B-17 16
Purchase and Redemption of Fund Shares. . . . . . . . B-18 20
Shareholder Investment Account. . . . . . . . . . . . B-21 29
Net Asset Value . . . . . . . . . . . . . . . . . . . B-24 16
Performance Information . . . . . . . . . . . . . . . B-24 17
Dividends and Distributions . . . . . . . . . . . . . B-26 17
Taxes . . . . . . . . . . . . . . . . . . . . . . . . B-26 17
Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants. . . . . . . . . . . . . . . B-28 16
Financial Statements. . . . . . . . . . . . . . . . . B-29 --
Independent Auditors' Report. . . . . . . . . . . . . B-40 --
-----------------------------------------------------------------------------
<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 "Description of Economic Sectors" 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.
There can be no assurance that the Fund's investment objectives will be
achieved.
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), an institution which
interposes itself between buyers and sellers of options. Technically, the OCC
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.
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<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. 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
the Fund's purchasing and selling futures contracts and options thereon for bona
fide hedging transactions, except that the Fund may purchase and sell futures
contracts and options thereon for any other purpose to the extent that the
aggregate inital margin and option premiums do not exceed 5% of the liquidation
value of the Fund's total assets.
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 Ratings Group (S&P) or Moody's Investors Service
(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 adopted by the Securities and Exchange Commission (SEC) and the 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, 1993 and
April 30, 1994, the Fund's portfolio turnover rate was 209% and 110%,
respectively. The 1993 portfolio turnover rate was due to market volatility.
Illiquid Securities
The Fund may not invest more than 5% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other
illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market (either within or outside of the United
States) or legal or contractual restrictions on resale. Historically, illiquid
securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (Securities Act), securities which are
otherwise not readily marketable and repurchase agreements having a maturity
of longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which
the unregistered security can be readily resold or on an issuer's ability to
honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain institutions may
not be indicative of the liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to
the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. The investment adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper and foreign securities will expand further as a
result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser
will consider, inter alia, the following factors: (1) the frequency of trades
and quotes for the security; (2) the number of dealers wishing to purchase or
sell the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (ii) it must not be "traded
flat" (i.e., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
B-9
<PAGE>
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 Fund's outstanding voting securities. A "majority of the
Fund's outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (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.
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).
B-10
<PAGE>
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 the outstanding securities of such issuer, and such
officers and Directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer;
7. invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or securities
of issuers which are restricted as to disposition, if more than 15% of its
total assets would be invested in such securities. This restriction shall not
apply to mortgage-backed securities, asset-backed securities or obligations
insured or guaranteed by the U.S. Government, its agencies or instrumentalities;
8. invest more than 5% of its total assets in securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years, and in equity securities of issuers which are not readily
marketable; and
9. invest in oil, gas and mineral leases.
<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.
</TABLE>
B-11
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name and Address Fund During Past Five Years
---------------- ------------- ----------------------
<S> <C> <C>
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, P.L.C. (since
June 1991); formerly Director of Crazy
Eddie Inc. (1987-1990) and Kaiser Tech.
Ltd. and Kaiser Aluminum and Chemical
Corp. (March 1987-November 1988); formerly
Executive Vice President and Director of
W.R. Grace & Company; President and Director
of The Global Government Plus Fund, Inc.,
The Global 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 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.
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.
------------
<FN>
* "Interested" Director, as defined in the Investment Company Act, by reason
of his affiliation with Prudential Securities or PMF.
</FN>
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name and Address Fund During Past Five Years
---------------- -------------- -------------------------
<S> <C> <C>
Susan C. Cote Treasurer and Senior Vice President (since January 1989)
One Seaport Plaza Principal and First Vice President (June 1987-
New York, NY Financial and December 1988) of PMF; Senior Vice President
Accounting (since January 1992) and Vice President
Officer (January 1986-December 1991) of
Prudential Securities.
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.
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.
</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.
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 June 17, 1994, the Directors and officers of the Fund, as a group,
owned beneficially less than 1% of the outstanding common stock of the Fund.
As of June 17, 1994, Prudential Securities was record holder of 2,683,283
Class A shares (or 67.7% of the outstanding Class A shares) and 8,783,684 Class
B shares (or 89.6% 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 June 30, 1994, PMF managed and/or administered
open-end and closed-end management investment companies with assets of
approximately $47 billion and, according to the Investment Company
Institute, as of April 30, 1994, the Prudential Mutual Funds were the 12th
largest family of mutual funds in the United States.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities. In
connection therewith, PMF is obligated to keep certain books and records of
the Fund. PMF also administers the Fund's corporate affairs
B-13
<PAGE>
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, 1994.
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 a majority of the Directors who are not
parties to the contract or interested persons of any such party as defined in
the Investment Company Act, on May 3, 1994, and by the shareholders of the
Fund on September 12, 1991.
For the fiscal years ended April 30, 1994, April 30, 1993 and April 30,
1992, PMF received a management fee of $1,032,341, $948,752 and $1,078,435,
respectively.
PMF has entered into the Subadvisory Agreement with PIC (the Subadviser).
The Subadvisory Agreement provides that PIC will furnish investment advisory
services in connection with the management of the Fund. In connection
therewith, PIC is obligated to keep certain books and records of the Fund. PMF
continues to have responsibility for all investment advisory services
B-14
<PAGE>
pursuant to the Management Agreement and supervises PIC's performance of such
services. PIC is reimbursed by PMF for the reasonable costs and expenses
incurred by PIC in furnishing those services.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party as defined in the Investment Company Act,
on May 3, 1994 and by the shareholders of the Fund on September 12, 1991.
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 The Prudential
Insurance Company of America (Prudential) which, as of December 31, 1993, is
one of the largest financial institutions in the world and the largest
insurance company in North America. Prudential has been engaged in the
insurance business since 1875. In July 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 so 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 so modified, the Class B Plan provides that (i) up to
.25 of 1% of the average daily net assets of the Class B shares may be paid as
a service fee and (ii) up to .75 of 1% (not including the service fee) may be
used as reimbursement for distribution-related expenses with respect to the
Class B shares (asset-based sales charge). 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 July 19, 1994. The Class C Plan was approved by the
sole shareholder of Class C shares on August 1, 1994.
Class A Plan. For the fiscal year ended April 30, 1994, PMFD received
payments of $108,720 under the Class A Plan. This amount was primarily
expended for payment of account servicing fees to financial advisers and other
persons who sell Class A shares. For the fiscal year ended April 30, 1994, PMFD
also received approximately $229,600 in initial sales charges.
Class B Plan. For the fiscal year ended April 30, 1994, the Distributor
received $1,089,811 from the Fund under the Class B Plan and spent approximately
$1,746,600 in distributing the Class B shares of the Fund. It is estimated that
of the latter amount approximately 2.7% ($47,800) was spent on printing and
mailing prospectuses to other than current shareholders; 3.9% ($68,300) was
spent in commissions paid to or on account of representatives of Prusec; 3.7%
($64,200) in interest and/or carrying charges; and 89.7% ($1,566,300) on the
aggregate of (i) payments of commissions to financial advisers (43.9% or
$765,900) and (ii) an allocation of overhead and other branch office
distribution-related expenses (45.8% or $800,400). The term
B-15
<PAGE>
"overhead and other branch office distribution-related expenses" represents (a)
the expenses of operating branch offices of Prudential Securities 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, 1994,
Prudential Securities received approximately $283,400 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. Interest charges on unreimbursed distribution expenses
equal to the prime rate plus one percent per annum may be added to the 6.25%
limitation. Sales from the reinvestment of dividends and distributions are not
included in the calculation of the 6.25% limitation. The annual asset-based
sales charge on shares of the Fund may not exceed .75 of 1% per class. The
6.25% limitation applies to each class of the Fund rather than on a per
shareholder basis. If aggregate sales charges were to exceed 6.25% of the
total gross sales of any class, all sales charges on shares of that class
would be suspended.
B-16
<PAGE>
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 for 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 non-interested Directors, has adopted procedures
which are reasonably designed to provide that any commissions, fees or other
remuneration paid to Prudential Securities (or any affiliate) are consistent
with the foregoing standard. 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
B-17
<PAGE>
compensation retained by 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 three-year period ended April 30, 1994.
<TABLE>
<CAPTION>
Year ended Year ended Year ended
April 30, April 30, April 30,
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund ........................................ $640,908 $641,156 $507,037
Total brokerage commissions paid to Prudential
Securities and its foreign affiliates .............................................. 62,385 $ 84,496 $155,200
Percentage of total brokerage commissions paid
to Prudential Securities and its foreign
affiliates ......................................................................... 9.7% 13.2% 30.6%
</TABLE>
The Fund effected approximately 11.3% of the total dollar amount of its
transactions involving the payment of commissions through Prudential
Securities during the fiscal year ended April 30, 1994. Of the total brokerage
commissions paid during that period, $582,231 (or 90%) were paid to firms
which provide research, statistical or other services to PMF. PMF has not
seperately identified a portion of such brokerage commissions as applicable to
the provision of such research, statistical or other services.
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 . . . $13.21
Maximum sales charge (5% of offering price). . . . . . . . . .70
------
Offering price to public . . . . . . . . . . . . . . . . . . $13.91
======
Class B
Net asset value, offering price and redemption price to
public per Class B share* . . . . . . . . . . . . . . . . $13.16
======
Class C
Net asset value, offering price and redemption price to
public per Class C share* . . . . . . . . . . . . . . . . $13.16
======
_________
* 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. Class C shares
did not exist on April 30, 1994.
B-18
<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
employer).
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. The Combined
Purchase and Cumulative Purchase Privilege does not apply to individual
participants in any retirement or group plans.
Rights of Accumulation. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of
related investors, as described above under "Combined Purchase and Cumulative
Purchase Privilege," may aggregate the value of their existing holdings of
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 any retirement or group plan.
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
B-19
<PAGE>
sales charge otherwise applicable to the purchases made during this period and
the sales charge actually paid. Such payment may be made directly to the
Distributor or, if not paid, the Distributor will liquidate sufficient
escrowed shares to obtain such difference. 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.
Waiver of the Contingent Deferred Sales Charge--Class B Shares.
The contingent deferred sales charge is waived under circumstances
described in the Prospectus. See "Shareholder Guide--How to Sell Your Shares
--Waiver of the Contingent Deferred Sales Charges--Class B Shares" in the
Prospectus. In connection with these waivers, the Transfer Agent will require
you to submit the supporting documentation set forth below.
Category of Waiver Required Documentation
Death A copy of the shareholder's death
certificate or, in the case of a trust,
a copy of the grantor's death
certificate, plus a copy of the trust
agreement identifying the grantor.
Disability--An individual will be A copy of the Social Security
considered disabled if he or she is Administration award letter or a letter
unable to engage in any substantial from a physician on the physician's
gainful activity by reason of any letterhead stating that the shareholder
medically determinable physical or (or, in the case of a trust, the
mental impairment which can be grantor) is permanently disabled. The
expected to result in death or to be letter must also indicate the date of
of long-continued and indefinite disability.
duration.
Distribution from an IRA or 403(b) A copy of the distribution form from the
Custodial Account custodial firm indicating (i) the date
of birth of the shareholder and (ii) that
the shareholder is over age 59 1/2 and
is taking a normal distribution--
signed by the shareholder.
Distribution from Retirement Plan A letter signed by the plan
administrator/trustee indicating the
reason for the distribution.
Excess Contributions A letter from the shareholder (for an
IRA) or the plan administrator/trustee
on company letterhead indicating the
amount of the excess and whether or not
taxes have been paid.
The Transfer Agent reserves the right to request such additional
documents as it may deem appropriate.
Quantity Discount--Class B Shares Purchased Prior to August 1, 1994
The CDSC is reduced on redemptions of Class B shares of the Fund
purchased prior to August 1, 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.
B-20
<PAGE>
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for issuance of a certificate. The Fund makes available
to the shareholders the following privileges and plans.
Automatic Reinvestment of Dividends and/or Distributions
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the 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. Such investment will be made at the net asset value per share
next determined after receipt of the check or proceeds by the Transfer Agent.
Such shareholder will receive credit for any contingent deferred sales charge
paid in connection with the amount of proceeds being reinvested.
Exchange Privilege
The 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 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, a 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.
B-21
<PAGE>
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. Conversely, if shares are exchanged into
a money market fund prior to the last day of the month (and are held in the
money market fund on the last day of the month), the entire month will be
excluded from the CDSC holding period. For purposes of calculating the seven
year holding period applicable to the Class B conversion feature, the time
period during which Class B Shares were held in a money market fund will be
excluded.
At any time after acquiring shares of other funds participating in the
Class B or Class C Exchange Privilege, a shareholder may again exchange
those shares (and any reinvested dividends and distributions) for Class B or
Class C shares of the Fund, 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 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
B-22
<PAGE>
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 tax-deferred retirement plans, including a 401(k) plan,
self-directed individual retirement accounts and "tax-deferred accounts" under
Section 403(b)(7) of the 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.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
Tax-Deferred Retirement Accounts
Individual Retirement Accounts. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
Tax-Deferred Compounding 1
Contributions Personal
Made Over: Savings IRA
------------- -------- --------
10 years $ 26,265 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
------------
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.
B-23
<PAGE>
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 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
comparable securities, relationship 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 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-related expense accrual
differential among the classes.
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.
B-24
<PAGE>
The average annual total return for Class A shares for the one
year and since inception periods ended April 30, 1994 was 8.17% and 9.96%,
respectively. The average annual total return for Class B shares for the one
year and since inception periods ended on April 30, 1994 was 8.22%
and 10.24%, 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, 1994 was 14.16% and 51.97%,
respectively. The aggregate total return for Class B shares for the one year
and since inception periods ended on April 30, 1994 was 13.22% and 47.38%,
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 .52% and
0% for the Class A and Class B shares, respectively. During this period, no
Class C shares were outstanding.
B-25
<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 elected to qualify 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, provided that it
distributes at least 90% of its net investment income and short-term capital
gains, 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. 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.
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
B-26
<PAGE>
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, 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).
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 or the twelve-month period ending on October 31 of
such prior calendar year, respectively. To the extent it does not meet these
distribution requirements, the Fund will be subject to a non-deductible 4%
excise tax on the undistributed amount. For 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. 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.
Shareholders electing to receive dividends and distributions in the form
of additional shares will have a cost basis for federal income tax purposes in
each share so received equal to the net asset value of a share of the Fund on
the reinvestment date.
Any 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.
B-27
<PAGE>
Any dividends or distributions paid shortly after a purchase by an
investor may have the effect of reducing the per share net asset value of the
investor's shares by the per share amount of the dividends or distributions.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to federal income taxes. 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, 1994, the Fund incurred fees of
approximately $225,000 for the service of PMFS.
Deloitte & Touche, 1633 Broadway, New York, New York 10019,
serves as the Fund's independent accountants and in that capacity audits the
Fund's annual financial statements.
B-28
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC. Portfolio of Investments
April 30, 1994
-----------------------------------------------------
Value
Shares Description (Note 1)
-----------------------------------------------------
LONG-TERM INVESTMENTS--89.6%
COMMON STOCKS--81.7%
Auto Sector--4.6%
43,700 APS Holding Corp.*......... $ 876,731
3,400 Bayerisch Motoren Werks
(Germany) ................. 1,857,732
485,000 Fiat Spa* (Italy).......... 2,114,311
14,600 Ford Motor Co.............. 852,275
45,600 General Motors Corp........ 2,587,800
----------
8,288,849
----------
Basic Industry Sector--19.6%
55,800 Akzo N V (ADR)
(Netherlands) ............. 3,379,387
72,800 Alaska Steel Holding
Corporation ............... 1,665,300
29,100 Aluminum Co. of America.... 1,978,800
10,700 BASF AG.................... 2,136,756
65,000 Champion Int'l. Corp....... 1,982,500
34,000 Enplas Corp. (Japan)....... 1,216,560
485,000 Fletcher Forestry, Ltd..... 698,400
93,000 Hanson PLC (ADR) (United
Kingdom) .................. 1,918,125
4,000 I O Data Device, Inc.
(Japan)* .................. 713,652
48,500 IMC Fertilizer Group,
Inc.* ..................... 1,794,500
58,200 Imperial Chemical Ind. (ADR)
(United Kingdom) .......... 2,895,450
29,100 International Paper Co..... 1,898,775
131,100 Kymmene Corp. (Finland).... 2,700,001
19,400 Monsanto Co................ 1,595,650
85,000 Om Group, Inc.............. 1,700,000
106,000 Potash Corp................ 2,703,000
77,600 Praxair, Inc............... 1,484,100
8,450 Rayonier, Inc.............. 238,712
23,000 Unidanmark (ADR)
(Denmark)* ................ 810,750
53,400 USX Corp................... 1,815,600
19,400 Westinghouse Electric
Corp. ..................... 225,525
----------
35,551,543
----------
Consumer Goods & Services Sector--4.0%
58,200 Archer-Daniels-Midland
Co. ....................... 1,338,600
50,000 Au Bon Pain Co., Inc....... 962,500
34,000 Aviall, Inc................ $ 510,000
97,000 Interco, Inc.*............. 1,297,375
14,600 ITT Corp................... 1,310,350
47,000 Nissen Co., Ltd. (Japan)... 1,853,130
----------
7,271,955
----------
Energy Sector--18.1%
43,700 Aquila Gas Pipeline
Corp.* .................... 393,300
143,000 Baker Hughes, Inc.......... 2,627,625
97,000 Cabre Exploration, Ltd.*
(Canada) .................. 963,971
77,600 Canadian Occidental
Petroleum, Ltd ............ 1,570,396
100,000 Crestar Energy Inc.*....... 1,174,472
43,700 Cross Timbers Oil Co....... 633,650
128,500 Discovery West Corp.*
(Canada) .................. 455,081
184,300 Ensign Resource Service
Group, Inc.* .............. 915,772
58,200 Enterprise Oil PLC., (ADR)
(United Kingdom) .......... 1,091,250
55,000 Exxon Corp................. 3,458,125
250,000 Global Marine, Inc.*....... 1,000,000
400,000 Mesa, Inc.*................ 2,450,000
97,000 Morrison Petroleum, Ltd.
(Canada) .................. 797,466
83,400 Oryx Energy Co............. 1,407,375
77,600 Rigei Energy Corp.*........ 1,134,900
180,100 Rowan Cos., Inc.*.......... 1,305,725
54,000 Societe Nationale Elf
Aquitaine, (ADR)
(France) .................. 1,964,250
105,200 Sonat Offshore Drilling,
Inc. ...................... 1,867,300
121,300 Talisman Energy, Inc.*
(Canada) .................. 2,794,476
53,400 Trident Holding, Inc....... 480,600
116,500 USX - Delhi Group.......... 1,660,125
155,000 USX - Marathon Group....... 2,615,625
----------
32,761,484
----------
Financial Services Sector--6.5%
28,700 CCP Insurance, Inc......... 591,938
11,600 Credit Lyonnais Group
(France) .................. 1,135,363
40,000 First Eastern Corp.*....... 1,055,000
See Notes to Financial Statements.
B-29
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
-----------------------------------------------------
Value
Shares Description (Note 1)
-----------------------------------------------------
Financial Services Sector (cont'd.)
30,100 Integra Financial Corp..... $1,410,937
43,650 Mercantile Bancorp, Inc.... 1,571,400
29,100 Midlantic Corp.*........... 854,812
43,700 SunAmerica, Inc............ 1,600,512
72,800 Toronto-Dominion Bank
(Canada) .................. 1,111,521
29,100 Union Planters Corp........ 771,150
72,800 Whitney Holdings Corp...... 1,656,200
----------
11,758,833
----------
Health Care Sector--2.0%
61,100 FHP International Corp.*... 1,496,950
19,400 Intergroup Healthcare
Corp.* .................... 875,425
49,300 Physicians Corp. of
America, Inc.* ............ 1,189,363
----------
3,561,738
----------
Housing Sector--2.1%
45,200 Ethan Allen Interiors,
Inc.* ..................... 1,107,400
14,600 Lapeyre (France)........... 863,080
38,800 Owens Corning
Fiberglass* ............... 1,348,300
29,100 Ryland Group, Inc.......... 582,000
----------
3,900,780
----------
Public Utilities Sector--3.4%
38,800 Allgon AB (Sweden)*........ 1,159,110
48,500 Entergy Corp............... 1,485,313
43,700 Telefonica de Espana, S.A.
(ADR) (Spain) ............. 1,780,775
30,000 Telefonos de Mexico (ADR)
(Mexico) .................. 1,766,250
----------
6,191,448
----------
Retailing Sector--1.2%
14,000 Aoyama Trading Co.
(Japan) ................... 648,595
19,400 Lowes Companies, Inc....... 683,850
30,000 Men's Wearhouse, Inc.*..... 851,250
----------
2,183,695
----------
Technology Sector--8.7%
118,000 Adaptec, Inc.*............. 1,873,250
55,000 Cisco Systems, Inc.*....... 1,670,625
75,000 Cyrix Corp................. $1,884,375
75,000 Electronic Arts, Inc....... 1,612,500
65,000 Electronics for Imaging,
Inc. ...................... 991,250
100,000 Informix Corp.............. 1,637,500
38,800 Motorola, Inc.............. 1,731,450
58,000 Murata Manufacturing Co.,
Ltd. (Japan) .............. 2,515,525
110,000 Verifone, Inc.*............ 1,925,000
----------
15,841,475
----------
Transportation Sector--11.5%
19,400 British Airways (ADR)
(United Kingdom) .......... 1,263,425
230,000 Canadian Pacific, Ltd...... 3,737,500
48,500 Continental Airlines,
Inc.* ..................... 830,563
63,100 Illinois Central Corp...... 2,169,062
48,500 Kansas City Southern
Industries, Inc. .......... 1,891,500
72,800 KLM Royal Dutch Airlines
Corp.* .................... 2,074,800
150,000 Methanex Corp.* (Canada)... 1,612,641
97,000 Northwest Airlines
Corp.* .................... 1,491,375
67,900 Ryder System, Inc.......... 1,697,500
146,000 Singapore Airlines, Ltd.
(Singapore) ............... 1,145,687
135,800 Southern Pacific Rail
Corp.* .................... 2,987,600
-----------
20,901,653
-----------
Total common stocks
(cost $140,599,670) 148,213,453
-----------
Convertible Preferred
Stocks--5.8%
Auto Sector--1.2%
16,200 Chrysler Corp.............. 2,176,875
-----------
Basic Industry Sector--3.0%
24,833 Alumax, Inc................ 2,685,068
25,000 Bethleham Steel Corp....... 1,409,375
19,067 Cyprus Amax Minerals Co.... 1,248,889
-----------
5,343,332
-----------
Technology Sector--1.6%
34,000 Nokia Corp................. 2,902,767
-----------
Total preferred stocks
(cost $7,595,016) 10,422,974
-----------
See Notes to Financial Statements.
B-30
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
-----------------------------------------------------
Value
Warrants Description (Note 1)
-----------------------------------------------------
Warrants*--0.5%
Retailing Sector
Autobacs Seven Co. (Japan)
expiring Mar. '96 @
(YEN)8,231
200 (cost $739,375)............ $ 920,000
----------
Principal
Amount Corporate Bonds--1.6%
(000) Basic Industry Sector
---------
Treuhandanstalt (Germany)
7.75%, 10/1/02
$ 2,888 (cost $2,956,461)......... 2,957,780
-----------
Total long-term investments
(cost $151,890,522)....... 162,514,207
-----------
SHORT-TERM INVESTMENT--14.0%
GOVERNMENT ISSUES--0.5%
U.S.Treasury Bills,
3.52%, 6/16/94
1,000# (cost $995,509)........... 995,509
------------
-----------------------------------------------------
Principal
Amount Value
(000) Description (Note 1)
-----------------------------------------------------
REPURCHASE AGREEMENT--13.5%
Joint Repurchase Agreement
Account,
3.54%, 5/2/94, (Note 5)
$ 24,413 (cost $24,413,000)........ $ 24,413,000
------------
Total short-term investment
(cost $25,408,509)........ 25,408,509
------------
Total Investments--103.6%
(cost $177,299,031;
Note 4)................... 187,922,716
COMMON STOCK SOLD
Shares SHORT--(0.1)%
Retailing Sector
25,000 Jan Bell Marketing, Inc.*
(proceeds $341,976)...... (137,500)
------------
Total investments, net of
short sales--103.5%...... 187,785,216
Liabilities in excess of
other assets--(3.5%)..... (6,449,569)
------------
Net Assets--100%......... $181,335,647
============
---------------
* Non-income producing security.
ADR--American Depository Receipt.
# Pledged as collateral on short sale.
See Notes to Financial Statements.
B-31
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets April 30, 1994
--------------
<S> <C>
Investments, at value (cost $177,299,031) ................................ $ 187,922,716
Foreign currency, at value (cost $9,546,466) ............................. 9,770,822
Cash ..................................................................... 2,297
Deposits with broker for investment sold short ........................... 341,976
Receivable for investments sold .......................................... 2,640,088
Receivable for Fund shares sold .......................................... 572,243
Interest and dividends receivable ........................................ 459,727
Deferred expenses and other assets ....................................... 57,880
-------------
Total assets ............................................................ 201,767,749
-------------
Liabilities
Payable for investments purchased ........................................ 19,084,668
Forward contracts-net amount payable to counterparties ................... 446,513
Payable for Fund shares reacquired ....................................... 390,062
Accrued expenses and other liabilities ................................... 161,597
Investments sold short, at value (proceeds $341,976) ..................... 137,500
Distribution fee payable ................................................. 115,286
Management fee payable ................................................... 96,476
-------------
Total liabilities ....................................................... 20,432,102
-------------
Net Assets ............................................................... $ 181,335,647
=============
Net assets were comprised of:
Common stock, at par .................................................... $ 13,763
Paid-in capital in excess of par ........................................ 160,556,164
-------------
160,569,927
Overdistributed net investment income .................................... (511,077)
Accumulated net realized capital and currency gains ...................... 10,668,152
Net unrealized appreciation on investments and foreign currencies ........ 10,608,645
-------------
Net assets, April 30, 1994 ............................................... $ 181,335,647
=============
Class A:
Net asset value and redemption price per share
($53,237,492 / 4,030,623 shares of common stock issued and outstanding). $ 13.21
Maximum sales charge (5.25% of offering price) .......................... .73
------
Maximum offering price to public ........................................ $ 13.94
======
Class B:
Net asset value, offering price and redemption price per share
($128,098,155 / 9,732,466 shares of common stock issued and outstanding) $ 13.16
======
</TABLE>
See Notes to Financial Statements.
B-32
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Operations
Year Ended
Net Investment Income April 30, 1994
--------------
Income
Dividends (net of foreign withholding
taxes of $108,903) ................. $ 3,353,985
Interest and discount earned ........ 515,264
------------
Total income ....................... 3,869,249
------------
Expenses
Management fee ...................... 1,032,341
Distribution fee--Class A ........... 108,720
Distribution fee--Class B ........... 1,089,811
Transfer agent's fees and expenses .. 225,000
Custodian's fees and expenses ....... 214,000
Registration fees ................... 59,500
Amortization of organization
expense ............................. 45,000
Reports to shareholders ............. 45,000
Directors' fees ..................... 37,500
Audit fee ........................... 30,000
Legal fees and expenses ............. 16,000
Miscellaneous ....................... 9,684
------------
Total expenses ..................... 2,912,556
------------
Net investment income ................ 956,693
------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Security transactions ............... 21,864,808
Short sale transactions ............. 692,140
Financial futures contracts ......... (30,960)
Foreign currency transactions ....... (385,277)
------------
22,140,711
------------
Net change in unrealized appreciation
on:
Securities .......................... (5,310,456)
Short sales ......................... (26,371)
Foreign currencies .................. 11,417
------------
(5,325,410)
------------
Net gain on investments and foreign
currency transactions ............... 16,815,301
------------
Net Increase in Net Assets
Resulting from Operations ............ $ 17,771,994
============
See Notes to Financial Statements.
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Changes in Net Assets
Year Ended April 30,
Increase (Decrease) ----------------------------
in Net Assets 1994 1993
------------ ------------
Operations
Net investment
income ............... $ 956,693 $ 2,779,322
Net realized gain on
investments and
foreign currency
transactions ......... 22,140,711 11,595,984
Net change in
unrealized
appreciation of
investments .......... (5,325,410) 4,606,869
------------- -------------
Net increase in net
assets resulting from
operations ........... 17,771,994 18,982,175
------------- -------------
Net equalization credits
(debits) .............. 152,418 (245,681)
------------- -------------
Dividends and
distributions (Note 1)
Dividends from net
investment income
Class A ............. (724,102) (1,037,706)
Class B ............. (736,046) (1,396,681)
------------- -------------
(1,460,148) (2,434,387)
------------- -------------
Distributions from net
capital and currency
gains
Class A ............. (5,543,404) (2,957,844)
Class B ............. (12,086,917) (6,314,531)
------------- -------------
(17,630,321) (9,272,375)
------------- -------------
Fund share transactions
(Note 6)
Net proceeds from Fund
shares subscribed .... 81,243,634 21,369,671
Net asset value of Fund
shares issued in
reinvestment of
dividends and
distributions ........ 17,794,396 10,984,287
Cost of shares
reacquired ............ (52,846,996) (63,974,340)
------------- -------------
Net increase (decrease)
in net assets from
Fund share
transactions ......... 46,191,034 (31,620,382)
------------- -------------
Total increase
(decrease) ............ 45,024,977 (24,590,650)
Net Assets
Beginning of year ...... 136,310,670 160,901,320
------------- -------------
End of year ............ $ 181,335,647 $ 136,310,670
============= =============
See Notes to Financial Statements.
B-33
<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 Policies The following is a summary 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 or designated subcustodians, as the case may be under
triparty repurchase agreements, 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 losses on
security transactions.
Net realized losses on foreign currency transactions of $385,277 represents
net foreign exchange losses 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 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
B-34
<PAGE>
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, 1994.
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.
Income distributions and capital gains distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Reclassification of Capital Accounts: Effective May 1, 1993 the Fund began
accounting and reporting for distributions to shareholders in accordance with
Statement of Position 93-2; Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. As a result of this statement, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. The effect caused by adopting this
statement was to decrease undistributed net investment income by $86,242, and
increase accumulated net realized gains by $86,242 compared to amounts
previously reported through April 30, 1993. During the year ended April 30,
1994, the Fund reclassified $652,086 of foreign currency losses to undistributed
net investment income from accumulated net realized gains on investment
transactions. Net investment income, net realized gains, and net assets were not
affected by this change.
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
B-35
<PAGE>
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 eight months ended December 31, 1993.
Effective January 1, 1994, the Class A Plan distribution expenses were increased
to .25 of 1% of the average daily net assets. 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 $229,600 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended April 30, 1994. 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, 1994, PSI
advised the Fund that it received approximately $283,400 in contingent deferred
sales charges imposed upon redemptions by certain shareholders. PSI, as
distributor, has also advised the Fund that at April 30, 1994, the amount of
distribution expenses incurred by PSI and not yet reimbursed by the Fund or
recovered through contingent deferred sales charges approximated $2,093,300.
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.
Note 3. Other Prudential Mutual Fund Services, Inc. ("PMFS"),
Transactions a wholly-owned subsidiary of PMF, serves as the
with Affiliates Fund's transfer agent. During the fiscal year
ended April 30, 1994, the Fund incurred fees of
approximately $206,000 for the services of PMFS. As of April 30, 1994,
approximately $22,000 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.
B-36
<PAGE>
For the fiscal year ended April 30, 1994, PSI earned approximately $62,400 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
Note 4. Portfolio Purchases and sales of investment securities,
Securities other than short-term investments, for the fiscal
year ended April 30, 1994 aggregated $177,353,193
and $165,135,386, respectively.
The federal income tax basis of the Fund's investment at April 30, 1994 was
$177,349,184 and, accordingly, net unrealized appreciation for federal income
tax purposes was $10,573,532 (gross unrealized appreciation--$17,666,497, gross
unrealized depreciation--$7,092,965).
At April 30, 1994, the Fund had outstanding forward currency contracts to
purchase and sell foreign currency as follows:
Value at
Foreign Currency Settlement Date Current Appreciation/
Purchase Contracts Payable Value (Depreciation)
---------------------- ---------------- ---------- --------------
Finnish Markka,
expiring 6/7/94 $ 276,727 $ 280,557 $ 3,830
Swedish Krona,
expiring 6/1/94 1,760,121 1,836,766 76,645
---------- ---------- -------
$2,036,848 $2,117,323 $80,475
========== ========== =======
Value at
Foreign Currency Settlement Date Current Appreciation/
Sale Contracts Receivable Value (Depreciation)
---------------------- ---------------- ---------- --------------
British Pounds,
expiring 6/9/94 $ 5,932,000 $ 6,078,535 $(146,535)
Finnish Markka,
expiring 6/7/94 5,479,718 5,672,674 (192,956)
German Deutschemarks,
expiring 5/24/94-
6/20/94 2,503,240 2,584,346 (81,106)
Swedish Krona,
expiring 6/1/94 2,698,612 2,805,003 (106,391)
----------- ----------- ----------
$16,613,570 $17,140,558 $(526,988)
=========== =========== ==========
Note 5. Joint Repurchase The Fund, along with other affiliated registered
Agreement Account investment 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,
1994, the Fund had a 2.50% undivided interest in the repurchase agreements in
the joint account. The undivided interest for the Fund represented $24,413,000
in principal amount. As of such date, each repurchase agreement in the joint
account and the value of the collateral therefor was as follows:
Barclays de Zoete Wedd, Inc., 3.55%, in the principal amount of $53,000,000,
repurchase price $53,015,679, due 5/2/94. The value of the collateral including
accrued interest is $54,060,428.
Goldman Sachs & Co., 3.50%, in the principal amount of $315,000,000,
repurchase price $315,091,875, due 5/2/94. The value of the collateral including
accrued interest is $321,300,231.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 3.55%, in the principal amount of
$315,000,000, repurchase price $315,093,188, due 5/2/94. The value of the
collateral including accrued interest is $321,300,584.
Morgan (J.P.) Securities, Inc., 3.58%, in the principal amount of
$295,000,000, repurchase price $295,088,008, due 5/2/94. The value of the
collateral including accrued interest is $300,901,625.
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, 1994:
Shares sold .................... 2,294,758 $ 31,099,578
Shares issued in reinvestment of
dividends and distributions ... 451,690 5,953,064
Shares reacquired .............. (2,004,567) (26,983,820)
------------- -------------
Net increase in shares
outstanding ................... 741,881 $ 10,068,822
============= =============
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)
============= =============
B-37
<PAGE>
Class B Shares Amount
-------- ---------------- ------------
Year ended April 30, 1994:
Shares sold .................... 3,671,115 $ 50,144,056
Shares issued in reinvestment of
dividends and distributions ... 900,324 11,841,332
Shares reacquired .............. (1,905,508) (25,863,176)
------------- -------------
Net increase in shares
outstanding ................... 2,665,931 $ 36,122,212
============= =============
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)
============= =============
B-38
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------- -----------------------------------------
June 29, June 29,
1990(D) 1990(D)
Through Through
Years Ended April 30, April Years Ended April 30, April
PER SHARE OPERATING --------------------------- 30, ------------------------------ 30,
PERFORMANCE: 1994 1993 1992 1991 1994 1993 1992 1991
------- ------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 13.19 $ 12.51 $ 12.10 $ 11.37 $ 13.15 $ 12.47 $ 12.06 $ 11.37
------ ------ ------ -------- -------- -------- ------- -------
Income from investment operations:
----------------------------------
Net investment income........................ .18 .30 .23 .40 .07 .19 .13 .32
Net realized and unrealized gain on
investments and foreign currency
transactions............................... 1.64 1.47 .50 .59 1.63 1.47 .51 .59
------ ------ ------ -------- -------- -------- ------- -------
Total from investment operations........... 1.82 1.77 .73 .99 1.70 1.66 .64 .91
------ ------ ------ -------- -------- -------- ------- -------
Less distributions:
-------------------
Dividends from net investment income......... (.21) (.30) (.30) (.26) (.10) (.19) (.21) (.22)
Distributions from net capital and currency
gains...................................... (1.59) (.79) (.02) -- (1.59) (.79) (.02) --
------ ------ ------ -------- -------- -------- -------- -------
Total distributions........................ (1.80) (1.09) (.32) (.26) (1.69) (.98) .23) (.22)
------ ------ ------ -------- -------- -------- -------- -------
Net asset value, end of period............... $ 13.21 $ 13.19 $ 12.51 $ 12.10 $ 13.16 $ 13.15 $ 12.47 12.06
====== ====== ====== ======== ======== ======== ======== ========
TOTAL RETURN#................................ 14.16% 15.14% 6.16% 17.64% 13.22% 14.13% 5.39% 16.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $53,237 $43,390 $52,625 $ 59,085 $128,098 $ 92,921 $108,276 $ 99,537
Average net assets (000)..................... $49,840 $46,890 $57,403 $ 55,545 $108,981 $ 99,072 $108,510 $ 82,890
Ratios to average net assets:
Expenses, including distribution fees...... 1.30% 1.28% 1.29% 1.35%* 2.08% 2.08% 2.09% 2.15%*
Expenses, excluding distribution fees...... 1.08% 1.08% 1.09% 1.15%* 1.08% 1.08% 1.09% 1.15%*
Net investment income...................... 1.15% 2.44% 1.83% 4.28%* .35% 1.64% 1.03% 3.39%*
Portfolio turnover........................... 110% 209% 147% 253% 110% 209% 147% 253%
---------------
<FN>
* Annualized.
(D) Commencement of investment operations.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total return for periods of less than a full year are not
annualized.
</FN>
</TABLE>
See Notes to Financial Statements.
B-39
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of
Prudential Multi-Sector Fund, Inc.
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, 1994, the related statements of operations for the year then ended
and of changes in net assets for each of the two years in the period then ended
and the financial highlights for each of the three years in the period then
ended and 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, 1994, by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential
Multi-Sector Fund, Inc. at April 30, 1994, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
Deloitte & Touche
New York, New York
June 16, 1994
B-40
<PAGE>
Prudential Mutual Funds
Supplement dated November 1, 1994
The following information supplements the Statement of Additional
Information of each of the Funds listed below effective November 1, 1994. For
those Funds having only one class of shares, all references herein to "Class A
shares" shall be deemed to refer to "shares."
PURCHASE AND REDEMPTION OF FUND SHARES
The minimum initial investment requirement is waived for purchases of Class
A shares of each of the Funds listed below effected through an exchange of Class
B shares of The BlackRock Government Income Trust.
Listed below are the names of the Prudential Mutual Funds and the dates of
the Statement of Additional Information to which this supplement relates.
Name of Fund Prospectus Date
------------------------------------------------------ ---------------------
Prudential Adjustable Rate Securities Fund, Inc. May 1, 1994
Prudential Allocation Fund September 29, 1994
Prudential California Municipal Fund
California Series August 1, 1994
California Income Series August 1, 1994
Prudential Equity Fund, Inc. August 1, 1994
Prudential Equity Income Fund, Inc. August 1, 1994
Prudential Europe Growth Fund, Inc. July 11, 1994
Prudential Global Fund, Inc. August 1, 1994
Prudential Global Genesis Fund, Inc. August 1, 1994
Prudential Global Natural Resources Fund, Inc. August 1, 1994
Prudential GNMA Fund, Inc. August 1, 1994
Prudential Government Income Fund, Inc. August 1, 1994
Prudential Growth Opportunity Fund, Inc. August 1, 1994
Prudential High Yield Fund, Inc. August 1, 1994
Prudential IncomeVertible(R) Fund, Inc. August 1, 1994
Prudential Intermediate Global Income Fund, Inc. August 1, 1994
Prudential Multi-Sector Fund, Inc. August 1, 1994
Prudential Municipal Bond Fund August 1, 1994
High Yield Series
Insured Series
Modified Term Series
<PAGE>
Prudential Municipal Series Fund
Arizona Series August 1, 1994
Florida Series August 1, 1994
Hawaii Income Series September 19, 1994
Georgia Series August 1, 1994
Maryland Series August 1, 1994
Massachusetts Series August 1, 1994
Michigan Series August 1, 1994
Minnesota Series August 1, 1994
New Jersey Series August 1, 1994
New York Series August 1, 1994
North Carolina Series August 1, 1994
Ohio Series August 1, 1994
Pennsylvania Series August 1, 1994
Prudential Pacific Growth Fund, Inc. August 1, 1994
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio August 1, 1994
Short-Term Global Income Portfolio August 1, 1994
Prudential Strategist Fund, Inc. August 1, 1994
Prudential Structured Maturity Fund, Inc.
Income Portfolio August 1, 1994
Prudential U.S. Government Fund August 1, 1994
Prudential Utility Fund, Inc. August 1, 1994
Global Utility Fund, Inc. August 1, 1994
Nicholas-Applegate Fund, Inc. August 1, 1994
MF940C-4
<PAGE>
SEMI-ANNUAL
REPORT
SEMI-ANNUAL REPORT OCTOBER 31, 1994
Letter to Shareholders
December 19, 1994
Dear Shareholder:
In the past year, the stock market has provided both good and bad times for
mutual fund investors. Stock market returns slowed at the end of 1993, and
despite a short summer rally, they have been modest all during 1994. We are
pleased to announce that despite the ups and downs of this difficult stock
market, the Prudential Multi-Sector Fund earned above-average returns.
Prudential Multi-Sector Fund At A Glance
CUMULATIVE TOTAL RETURNS1
As of October 31, 1994
<TABLE>
<CAPTION>
Six months Since Inception2
<S> <C> <C>
Class A 11.4% 67.9%
Class B 10.6 62.2
Class C N/A 5.4
Lipper Capital 00.0 54.1(D)
Appreciation Fund Avg.*
S&P 500** 3.9 53.1(D)
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS3
Period Ended September 30, 1994
<TABLE>
<CAPTION>
One Year Since Inception2
<S> <C> <C>
Class A 4.7% 11.2%
Class B 4.3 11.5
Class C N/A N/A
</TABLE>
1Source: Lipper Analytical Services, Inc. Past performance is not a
guarantee of future results. Investment return and principal value will
fluctutate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. These figures do not take into account sales
charges. The fund charges a maximum front end sales load of 5.0% for Class A
shares. Class B shares are subject to a declining contingent deferred sales
charge of 5%, 4%, 3%, 2%, 1% and 1% during these six years. Beginning in
February 1995, the Fund's Class B shares will convert to Class A shares
approximately seven years after purchase.
2 Inception dates: 6/29/90 Class A and Class B, 8/1/94 Class C.
3 Source: Prudential Mutual Fund Management Inc. These averages take into
account applicable sales charges. Class C average annual total returns are not
reported since the share class has only been in existence since August.
*These are the average returns of 13 funds for the capital appreciation fund
category for one year and 87 since inception of the Class A and B shares, as
determined by Lipper Analytical Services, Inc.
**The S&P 500 Index is a capital-weighted index of 500 stocks primarily
traded on the New York Stock Exchange, which represents a broad indication of
stock price movements. The securities that comprise the S&P may differ
substantially from the securities in the Fund.
(D)Since 6/29/90.
-1-
<PAGE>
The Goal
The Fund seeks long-term capital growth by investing primarily in domestic
and foreign stocks of companies in specific economic sectors, and makes
significant shifts among these sectors based on world economic changes and
other investment trends. The Fund may use derivatives like foreign currency
futures, forward contracts and stock options to hedge risk.
Benefitting from the "New World Economic Order"
Greg Smith, chief investment strategist for Prudential Securities
Incorporated and a consultant to the Fund's subadvisor, recommends stock market
sector allocations. He anticipates that the economic recovery underway in the
U.S., Canada, Western Europe and Australia will continue to gather steam. He
also believes developing countries in Latin America, Central Europe and Asia
may be gearing up for economic growth, as well.
Consistent with this forecast, sector allocation recommendations continue to
be translated to stocks expected to benefit from the improving global economy.
We are currently heavily weighted in "cyclical" stocks (i.e., sectors expected
to benefit from economic recovery). These include technology, basic industry
and energy. As of October 31, 1994, these three sectors comprised approximately
62% of the Fund's net assets. The strong performance of these sectors so far
this year has contributed to the Fund's above-average returns relative to its
peers and the broader market.
"Portfolio manager
Greg Goldberg selects the
individual securities for
the Fund."
Crossing the Border for Opportunities
As Europe, Asia and Latin America join the global recovery, we have sought
comparable cyclical opportunities outside the U.S for the stock portion of the
portfolio. Currently, approximately one-third of the portfolio is invested in
foreign companies. These holdings tend to be multinational corporations doing
business around the world, and while most are concentrated in Europe, the Fund
also buys stocks of companies in Asia and Latin America. In investigating
opportunities abroad, we have focused on manufacturers and producers expected
to benefit early in the recovery cycle.
Technological Advances
We expect the strong growth potential in many emerging markets to make the
technology sector a major benefactor of the global recovery. As many
lesser-developed countries invest in the newest and best technology products
available, more-established nations will be forced to follow suit to maintain
comparable levels of technology. This signals growth opportunities for
well-positioned technology firms. Some of the Fund's largest holdings can be
found in this sector, including software firm Silicon Graphics, PC-networking
firm Cisco Systems and computer hardware manufacturers Seagate Technology.
-2-
<PAGE>
Industrial Strength
In the industrial sector, the Fund's holdings are concentrated in the
chemical, fertilizer and forest products industries. We expect companies in
these industries to benefit early in the recovery cycle as economic activity
increases worldwide.
Chemical holdings include Dutch firm Akzo, which has undergone a
restructuring that we believe makes it well-positioned for global recovery.
Canadian fertilizer firm Potash Corp. of Saskatchewan, positioned for
increasing prices and demand in the industry, was the Fund's largest holding
as of October 31, 1994. In forest products, we maintain positions in
International Paper and Finnish low-cost paper producer Kymmene Oy.
Energy Surge
In the energy sector, we are concentrated in oil exploration and production
and oil services firms that should benefit from price increases as demand
outstrips supply. Exxon and recently-privatized French oil firm Elf Aquitaine
are oil exploration and production holdings we expect to benefit from
production increases. Well-positioned oil services holdings include U.S.
driller Sonat Offshore.
Outlook
Despite the uneven performance of the U.S. stock market this year, we believe
the continuing improvement of the U.S. economy - when combined with a similar
recovery overseas - may help U.S. stocks achieve returns in line with
historical averages. At the same time, the uncertainty of inflationary
pressures and their effect on U.S. interest rates and of shifting economic
conditions in global markets makes individual stock selection more important
than ever. Consequently, we will continue to explore opportunities across a
wide range of sectors and geographic regions.
As always, we are pleased you have selected the Prudential Multi-Sector Fund
for the portion of your portfolio devoted to long-term growth.
Sincerely,
Lawrence C. McQuade
President
Gregory Goldberg
Portfolio Manager
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC. Portfolio of Investments
October 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--87.4%
Common Stocks--80.5%
Auto Sector--1.3%
485,000 Fiat Spa (Italy)............. $ 1,976,008
29,200 Ford Motor Co................ 861,400
------------
2,837,408
------------
Basic Industry Sector--19.6%
55,800 Akzo N V (ADR)
(Netherlands).............. 3,494,475
10,700 BASF AG (Germany)............ 2,258,869
40,000 Burlington Northern, Inc..... 1,995,000
116,300 Carolina Freight Corp........ 1,177,538
35,000 Cementos Paz Delaware Rio Sa*
(ADR) (Luxembourg)......... 866,250
40,000 General Electric Co.......... 1,955,000
145,000 Hanson PLC (ADR) (United
Kingdom)................... 2,700,625
Hylsamex (ADR) (Mexico)...... 3,318,750
150,000
8,000 I O Data Device, Inc.
(Japan).................... 338,637
3,026,400
58,200 Imperial Chemical Ind. (ADR)
(United Kingdom)...........
29,100 International Paper Co....... 2,167,950
131,100 Kymmene Oy (Finland)......... 3,575,067
200,000 Nextel Communications,
Inc........................ 4,187,500
85,000 Om Group, Inc................ 1,700,000
190,000 Potash Corp. (Canada)........ 6,721,250
77,600 Praxair, Inc................. 1,794,500
80,000 TJ International, Inc........ 1,440,000
------------
42,717,811
------------
Consumer Goods & Services Sector--4.2%
100,000 Au Bon Pain Co., Inc.*....... 1,950,000
34,000 Aviall, Inc.................. 340,000
50,000 Federal Express Corp.*....... 3,037,500
47,000 Nissen Co., Ltd. (Japan)..... 1,916,886
40,000 Temple Inland, Inc........... 1,890,000
------------
9,134,386
------------
Energy Sector--21.7%
43,700 Aquila Gas Pipeline Corp..... 333,213
205,000 Baker Hughes, Inc............ $ 4,202,500
97,000 Cabre Exploration, Ltd.*
(Canada)................... 824,799
100,000 Crestar Energy, Inc.*........ 1,229,251
43,700 Cross Timbers Oil Co......... 699,200
258,500 Discovery West Corp.*
(Canada)................... 1,051,240
184,300 Ensign Resource Service
Group, Inc.*............... 640,475
58,200 Enterprise Oil PLC. (ADR)
(United Kingdom)........... 1,091,250
79,000 Exxon Corp................... 4,967,125
250,000 Global Marine, Inc.*......... 1,187,500
500,000 Mesa, Inc.*.................. 2,562,500
97,000 Morrison Petroleum, Ltd.*
(Canada)................... 645,495
83,400 Oryx Energy Co............... 1,209,300
55,000 Phillips Petroleum Co........ 2,028,125
145,600 Rigel Energy Corp.*.......... 2,013,149
225,000 Rollins Environmental
Services, Inc.............. 1,321,875
301,000 Rowan Cos., Inc.*............ 2,295,125
150,000 Santa Fe Pacific Gold
Corp.*..................... 2,156,250
3,296,250
90,000 Societe Nationale Elf
Aquitaine (ADR) (France)...
183,000 Sonat Offshore Drilling,
Inc........................ 3,637,125
121,300 Talisman Energy, Inc.*
(Canada)................... 2,578,561
53,400 Trident Holding, Inc......... 567,375
116,500 USX--Delhi Group............. 1,412,563
155,000 USX--Marathon Group.......... 2,906,250
2,412,500
100,000 YPF Sociedad Anonima* (ADR)
(Argentina)................
------------
47,268,996
------------
Financial Services Sector--2.7%
Banco Wiese* (ADR) (Peru).... 1,275,000
60,000
28,700 CCP Insurance, Inc........... 444,850
50,000 Continental Corp............. 756,250
75,000 MBNA Corp.................... 2,006,250
43,650 Mercantile Bancorp, Inc...... 1,516,838
------------
5,999,188
------------
</TABLE>
-4- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Health Care Sector--0.5%
49,300 Physicians Corp. of America,
Inc.*...................... $ 1,189,363
------------
Public Utilities Sector--2.0%
68,500 Entergy Corp................. 1,601,187
50,000 Telefonos de Mexico (ADR)
(Mexico)................... 2,756,250
------------
4,357,437
------------
Retailing Sector--2.1%
45,000 Burlington Coat Factory
Warehouse*................. 585,000
225,000 Consolidated Stores Corp.*... 4,078,125
------------
4,663,125
------------
Technology Sector--20.2%
118,000 Adaptec, Inc.*............... 2,743,500
46,000 Aspen Technology, Inc.*...... 782,000
60,000 Cheyenne Software, Inc.*..... 667,500
100,000 Cirrus Logic Corp.*.......... 2,875,000
200,000 Cisco Systems, Inc.*......... 6,025,000
85,000 Compaq Computer Corp.*....... 3,410,625
90,000 Cyrix Corp.*................. 3,735,000
125,000 Electronic Arts, Inc.*....... 2,812,500
50,000 Informix Corp.*.............. 1,375,000
20,000 Motorola, Inc................ 1,177,500
63,800 Murata Manufacturing Co.,
Ltd.
(Japan).................... 2,602,070
127,500 National Semiconductors
Corp.*..................... 2,247,187
140,000 Seagate Technology Inc.*..... 3,552,500
155,000 Silicon Graphics, Inc.*...... 4,708,125
110,000 Verifone, Inc.*.............. 2,475,000
60,000 Vishay Intertechnology,
Inc........................ 2,947,500
------------
44,136,007
------------
Transportation Sector--6.2%
19,400 British Airways PLC (ADR)
(United Kingdom)........... 1,134,900
230,000 Canadian Pacific, Ltd.
(Canada)................... $ 3,680,000
50,000 Kansas City Southern Inds.,
Inc........................ 1,687,500
72,800 KLM Royal Dutch Airlines
Corp.*..................... 2,020,200
238,000 Methanex Corp.* (Canada)..... 3,563,533
146,000 Singapore Airlines, Ltd.
(Singapore)................ 1,400,075
------------
13,486,208
------------
Total common stocks
(cost $160,145,709).......... 175,789,929
------------
Convertible Preferred Stocks--5.0%
Basic Industry Sector--2.7%
24,833 Alumax, Inc.................. 3,187,936
25,000 Bethleham Steel Corp.*....... 1,343,750
19,067 Cyprus Amax Minerals Co.*.... 1,194,071
------------
5,725,757
------------
Technology Sector--2.3%
34,000 Nokia Corp. (Finland)........ 5,114,165
------------
Total preferred stocks
(cost $5,732,340).......... 10,839,922
------------
<CAPTION>
Warrants Warrants*--0.4%
---------
<C> <S> <C>
Retailing Sector
Autobacs Seven Co. (Japan)
expiring Mar. '96 @
(YEN)8,231
200 (cost $739,375).............. 807,500
------------
<CAPTION>
Principal
Amount Foreign Government
(000) Bonds--1.5%
---------
<C> <S> <C>
Federal Republic of Germany
Bonds,
8.00%, 3/20/97
$ 4,724 (cost $3,262,585)............ 3,229,936
------------
Total long-term investments
(cost $169,880,009)........ 190,667,287
------------
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
SHORT-TERM INVESTMENTS--8.2%
U.S. Government Securities--1.8%
U.S. Treasury Bills,
$ 1,000 # 4.54%, 11/25/94.............. $ 996,973
2,000 # 4.525%, 12/8/94.............. 1,990,699
1,000 # 4.56%, 12/15/94.............. 994,427
------------
Total U.S. Government
securities
(cost $3,982,099).......... 3,982,099
------------
Repurchase Agreement--6.4%
Joint Repurchase Agreement
Account,
13,892 4.77%, 11/1/94, (Note 5)
(cost $13,892,000)......... 13,892,000
------------
Total short-term investments
(cost $17,874,099)......... 17,874,099
------------
Total Investments--95.6%
(cost $187,754,108; Note
4)......................... 208,541,386
------------
<CAPTION>
COMMON STOCKS SOLD
Shares SHORT*--(3.2)%
---------
<C> <S> <C>
Retailing Sector--(2.3)%
25,000 Ann Taylor Stores, Inc....... $ (1,037,500)
50,000 Cracker Barrel Old Country,
Inc........................ (1,100,000)
50,000 Sports and Recreation,
Inc........................ (1,836,250)
38,000 Starbucks Corp............... (1,030,750)
------------
(5,004,500)
------------
Technology Sector--(0.9)%
40,000 Biogen, Inc.................. (1,960,000)
------------
Total common stocks sold
short
(proceeds $6,595,189)...... (6,964,500)
------------
Total investments, net of
short sales--92.4%......... 201,576,886
Other assets in excess of
other
liabilities--7.6%.......... 16,502,566
------------
Net Assets--100%............. $218,079,452
------------
------------
</TABLE>
---------------
* Non-income producing security.
ADR--American Depository Receipt.
# Pledged as collateral on short sale.
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets October 31, 1994
----------------
<S> <C>
Investments, at value (cost $187,754,108)............................................... $208,541,386
Foreign currency, at value (cost $17,189,280)........................................... 17,995,719
Cash.................................................................................... 2,696
Deposits with broker for investments sold short......................................... 6,595,189
Receivable for Fund shares sold......................................................... 2,270,386
Dividends and interest receivable....................................................... 299,871
Receivable for investments sold......................................................... 98,750
Deferred expenses and other assets...................................................... 31,916
----------------
Total assets.......................................................................... 235,835,913
----------------
Liabilities
Investments sold short, at value (proceeds $6,595,189).................................. 6,964,500
Payable for investments purchased....................................................... 6,055,835
Payable for Fund shares reacquired...................................................... 3,532,307
Forward contracts--amount payable to counterparties..................................... 803,161
Accrued expenses........................................................................ 149,242
Distribution fee payable................................................................ 138,280
Management fee payable.................................................................. 113,136
----------------
Total liabilities..................................................................... 17,756,461
----------------
Net Assets.............................................................................. $218,079,452
----------------
----------------
Net assets were comprised of:
Common stock, at par.................................................................... $ 15,893
Paid-in capital in excess of par........................................................ 189,051,584
----------------
189,067,477
Overdistributed net investment income................................................... (494,830)
Accumulated net realized capital and currency gains..................................... 9,082,702
Net unrealized appreciation on investments and foreign currencies....................... 20,424,103
----------------
Net assets, October 31, 1994............................................................ $218,079,452
----------------
----------------
Class A:
Net asset value and redemption price per share
($59,096,976 / 4,283,235 shares of common stock issued and outstanding)............. $13.80
Maximum sales charge (5.00% of offering price)........................................ .73
----------------
Maximum offering price to public...................................................... $14.53
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($158,316,885 / 11,561,317 shares of common stock issued and outstanding)........... $13.69
----------------
----------------
Class C:
Net asset value, offering price and redemption price per share
($665,591 / 48,603 shares of common stock issued and outstanding)................... $13.69
----------------
----------------
</TABLE>
See Notes to Financial Statements.
-7-
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income October 31, 1994
----------------
<S> <C>
Income
Dividends (net of foreign withholding
taxes of
$59,383)........................... $ 1,059,467
Interest............................. 399,215
----------------
Total income....................... 1,458,682
----------------
Expenses
Management fee....................... 617,489
Distribution fee--Class A............ 67,498
Distribution fee--Class B............ 679,410
Distribution fee--Class C............ 581
Custodian's fees and expenses........ 120,000
Transfer agent's fees and expenses... 115,000
Reports to shareholders.............. 59,000
Amortization of organization
expense.............................. 22,000
Registration fees.................... 20,000
Directors' fees...................... 19,000
Audit fee............................ 15,000
Legal fees........................... 14,000
Miscellaneous........................ 3,177
----------------
Total expenses..................... 1,752,155
----------------
Net investment loss.................... (293,473)
----------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Security transactions................ 9,516,514
Foreign currency transactions........ 401,503
Short sale transactions.............. 193,601
Financial futures contracts.......... (1,040,626)
----------------
9,070,992
----------------
Net change in unrealized appreciation
on:
Securities........................... 10,163,593
Short sales.......................... (164,835)
Foreign currencies................... (183,300)
----------------
9,815,458
----------------
Net gain on investments and foreign
currency transactions................ 18,886,450
----------------
Net Increase in Net Assets
Resulting from Operations.............. $ 18,592,977
----------------
----------------
</TABLE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) October 31, April 30,
in Net Assets 1994 1994
------------ ------------
<S> <C> <C>
Operations
Net investment income
(loss)................. $ (293,473) $ 956,693
Net realized gain on
investments and
foreign currency
transactions......... 9,070,992 22,140,711
Net change in
unrealized
appreciation of
investments.......... 9,815,458 (5,325,410)
------------ ------------
Net increase in net
assets resulting from
operations........... 18,592,977 17,771,994
------------ ------------
Net equalization
credits................ 16,247 152,418
------------ ------------
Dividends and
distributions (Note 1)
Dividends from net
investment income
Class A.............. -- (724,102)
Class B.............. -- (736,046)
------------ ------------
-- (1,460,148)
------------ ------------
Distributions from net
capital and currency
gains
Class A.............. (2,921,317) (5,543,404)
Class B.............. (7,437,397) (12,086,917)
Class C.............. (4,255) --
------------ ------------
(10,362,969) (17,630,321)
------------ ------------
Fund share transactions
(Note 6)
Proceeds from Fund
shares subscribed.... 55,922,413 81,243,634
Net asset value of
shares issued in
reinvestment of
dividends and
distributions........ 9,613,750 17,794,396
Cost of shares
reacquired............. (37,038,613) (52,846,996)
------------ ------------
Net increase in net
assets from Fund
share transactions... 28,497,550 46,191,034
------------ ------------
Total increase........... 36,743,805 45,024,977
Net Assets
Beginning of period...... 181,335,647 136,310,670
------------ ------------
End of period............ $218,079,452 $181,335,647
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-8-
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Notes to Financial Statements
(Unaudited)
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 poli-
cies 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 or designated subcustodians, as the case may be under
triparty repurchase agreements, 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 period, the Fund does not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of securities held at the end of the fiscal period. 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 period. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized gains on
security transactions.
Net realized gain on foreign currency transactions of $401,503 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, interest 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 period 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 holdings.
-9-
<PAGE>
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 October 31, 1994.
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.
Income distributions and capital gains distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Reclassification of Capital Accounts: The Fund accounts for and reports
distributions to shareholders in accordance with the A.I.C.P.A.'s Statement of
Position 93-2: Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies. As a result of this statement, the Fund changed the classification of
distributions to shareholders to better disclose the differences between
financial statement amounts and distributions determined in accordance with
income tax regulations. During the six months ended October 31, 1994, the Fund
reclassified $293,473 net operating losses to accumulated net realized gains on
investment transactions from overdistributed net investment income. Net
investment income, net realized gains, and net assets were not affected by this
change.
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
-10-
<PAGE>
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''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution, (the ``Class A, B and C Plans'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
On July 19, 1994, shareholders of the Fund approved amendments to the Class A
and Class B Plans under which the distribution plans became compensation plans,
effective August 1, 1994. Prior thereto, the distribution plans were
reimbursement plans under which PMFD and PSI were reimbursed for expenses
actually incurred by them up to the amount permitted under the Class A and Class
B Plans, respectively. The Fund is not obligated to pay any prior or future
excess distribution costs (costs incurred by the Distributors in excess of
distribution fees paid by the Fund and contingent deferred sales charges
received by the Distributors). The rate of the distribution fees charged to
Class A and Class B shares of the Fund did not change under the amended plans of
distribution. The Fund began offering Class C shares on August 1, 1994.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, 1% and
1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .25 of 1% of the average daily
net assets of Class A shares and 1% of the average daily net assets of both the
Class B and C shares for the period ended October 31, 1994.
PMFD has advised the Fund that it has received approximately $60,100 in
front-end sales charges resulting from sales of Class A shares during the six
months ended October 31, 1994. 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.
PSI has advised the Fund that for the six months ended October 31, 1994, it
received approximately $170,500 in contingent deferred sales charges imposed
upon redemptions by certain Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended October 31, 1994, the Fund incurred fees of approximately
$110,000 for the services of PMFS. As of October 31, 1994, approximately $21,500
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 six months ended October 31, 1994, PSI earned approximately $1,700 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the six months ended
October 31, 1994 aggregated $82,582,174 and $74,770,121, respectively.
The federal income tax basis of the Fund's investments at October 31, 1994
was $187,793,162 and, accordingly, net unrealized appreciation for federal
income tax purposes was $20,748,224 (gross unrealized appreciation--$27,611,429,
gross unrealized depreciation--$6,863,205).
-11-
<PAGE>
At October 31, 1994, the Fund had outstanding forward currency contracts to
purchase and sell foreign currency as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation/
Purchase Contract Payable Value (Depreciation)
<S> <C> <C> <C>
-------------------------- ---------------- ---------- ---------------
Swedish Krona,
expiring 12/01/94 $ 1,042,741 $1,021,050 $ (21,691)
---------------- ---------- ---------------
---------------- ---------- ---------------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation/
Sale Contracts Receivable Value (Depreciation)
<S> <C> <C> <C>
----------------------- ---------------- ----------- ---------------
Finnish Markka,
expiring 12/01/94 $ 5,653,407 $ 6,239,727 $ (586,320)
Japanese Yen,
expiring 11/08/94 4,672,972 4,796,085 (123,113)
Swedish Krona,
expiring 12/01/94 949,013 1,021,050 (72,037)
---------------- ----------- ---------------
$ 11,275,392 $12,056,862 $ (781,470)
---------------- ----------- ---------------
---------------- ----------- ---------------
</TABLE>
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 October 31, 1994, the Fund had a 1.5% undivided interest in the
repurchase agreements in the joint account. The undivided interest for the Fund
represented $13,892,000 in principal amount. As of such date, each repurchase
agreement in the joint account and the value of the collateral therefor were as
follows:
Smith Barney, Inc., 4.80%, in the principal amount of $260,000,000,
repurchase price $260,034,667, due 11/1/94. The value of the collateral
including accrued interest is $265,200,122.
Nomura Securities International, Inc., 4.77%, in the principal amount of
$100,000,000, repurchase price $100,013,250, due 11/1/94. The value of the
collateral including accrued interest is $102,000,391.
Goldman Sachs & Co., 4.75%, in the principal amount of $275,000,000,
repurchase price $275,036,285, due 11/1/94. The value of the collateral
including accrued interest is $280,500,611.
CS First Boston Corp., 4.75%, in the principal amount of $265,000,000,
repurchase price $265,034,965, due 11/1/94. The value of the collateral
including accrued interest is $271,053,272.
Note 6. Capital The Fund offers Class A,
Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 5%. 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. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase commencing in or about February 1995.
The Fund has authorized 2 billion shares of common stock, $.001 par value per
share, equally divided into three classes, designated Class A, B and Class C
common stock.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
--------------------------------- ---------------- ------------
<S> <C> <C>
Six months ended
October 31, 1994:
Shares sold...................... 1,790,510 $ 23,943,694
Shares issued in reinvestment of
distributions.................. 210,776 2,784,357
Shares reacquired................ (1,748,674) (23,335,654)
---------------- ------------
Net increase in shares
outstanding.................... 252,612 $ 3,392,397
---------------- ------------
---------------- ------------
Year ended April 30, 1994:
Shares sold...................... 2,294,758 $ 31,099,578
Shares issued in reinvestment of
dividends and distributions.... 451,690 5,953,064
Shares reacquired................ (2,004,567) (26,983,820)
---------------- ------------
Net increase in shares
outstanding.................... 741,881 $ 10,068,822
---------------- ------------
---------------- ------------
<CAPTION>
Class B
<S> <C> <C>
Six months ended
October 31, 1994:
Shares sold...................... 2,339,002 $ 31,328,953
Shares issued in reinvestment of
distributions.................. 517,448 6,825,143
Shares reacquired................ (1,027,599) (13,702,930)
---------------- ------------
Net increase in shares
outstanding.................... 1,828,851 $ 24,451,166
---------------- ------------
---------------- ------------
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Class B Shares Amount
--------------------------------- ---------------- ------------
<S> <C> <C>
Year ended April 30, 1994:
Shares sold...................... 3,671,115 $ 50,144,056
Shares issued in reinvestment of
dividends and distributions.... 900,324 11,841,332
Shares reacquired................ (1,905,508) (25,863,176)
---------------- ------------
Net increase in shares
outstanding.................... 2,665,931 $ 36,122,212
---------------- ------------
---------------- ------------
<CAPTION>
Class C
---------------------------------
August 1, 1994* through
October 31, 1994:
<S> <C> <C>
Shares sold...................... 48,283 $ 649,766
Shares issued in reinvestment of
distributions.................. 322 4,250
Shares reacquired................ (2) (29)
---------------- ------------
Net increase in shares
outstanding.................... 48,603 $ 653,987
---------------- ------------
---------------- ------------
</TABLE>
---------------
* Commencement of offering of Class C shares.
Note 7. Distributions On November 15, 1994 the
Board of Directors of the Fund announced a
distribution from net capital and currency gains to Class A, B and C
shareholders of $.525 per share, payable on November 29, 1994 to shareholders
of record on November 22, 1994.
-13-
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------------------------------ ---------------------------------------------------- --------
August
Six June 29, Six June 29, 1,
Months 1990(D) Months 1990(D) 1994@
Ended Through Ended Through Through
PER SHARE October Years Ended April 30, April October Years Ended April 30, April October
OPERATING 31, --------------------------- 30, 31, ------------------------------ 30, 31,
PERFORMANCE: 1994 1994 1993 1992 1991 1994 1994 1993 1992 1991 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Net asset
value,
beginning
of
period..... $ 13.21 $ 13.19 $ 12.51 $ 12.10 $ 11.37 $ 13.16 $ 13.15 $ 12.47 $ 12.06 $ 11.37 $ 13.74
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Income from
investment
operations:
Net
investment
income
(loss)..... .03 .18 .30 .23 .40 (.02) .07 .19 .13 .32 (.01)
Net realized
and
unrealized
gain on
investments
and
foreign
currency
transactions... 1.32 1.64 1.47 .50 .59 1.31 1.63 1.47 .51 .59 .72
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations... 1.35 1.82 1.77 .73 .99 1.29 1.70 1.66 .64 .91 .71
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Less
distributions:
Dividends
from net
investment
income..... -- (.21) (.30) (.30) (.26) -- (.10) (.19) (.21) (.22) --
Distributions
from net
capital and
currency
gains...... (.76) (1.59) (.79) (.02) -- (.76) (1.59) (.79) (.02) -- (.76)
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Total
distributions... (.76) (1.80) (1.09) (.32) (.26) (.76) (1.69) (.98) (.23) (.22) (.76)
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Net asset
value, end
of
period..... $ 13.80 $ 13.21 $ 13.19 $ 12.51 $ 12.10 $ 13.69 $ 13.16 $ 13.15 $ 12.47 $ 12.06 $ 13.69
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
TOTAL
RETURN#.... 11.41% 14.16% 15.14% 6.16% 17.64% 10.55% 13.22% 14.13% 5.39% 16.14% 5.38%
RATIOS/SUPPLEMENTAL
DATA:
Net assets,
end of
period
(000)...... $59,097 $53,237 $43,390 $52,625 $ 59,085 $158,317 $128,098 $ 92,921 $108,276 $ 99,537 $ 666
Average net
assets
(000)...... $53,558 $49,840 $46,890 $57,403 $ 55,545 $134,774 $108,981 $ 99,072 $108,510 $ 82,890 $ 236
Ratios to
average net
assets:##
Expenses,
including
distribution
fees..... 1.37%* 1.30% 1.28% 1.29% 1.35%* 2.12%* 2.08% 2.08% 2.09% 2.15%* 2.04%*
Expenses,
excluding
distribution
fees..... 1.12%* 1.08% 1.08% 1.09% 1.15%* 1.12%* 1.08% 1.08% 1.09% 1.15%* 1.04%*
Net
investment
income
(loss)..... .45%* 1.15% 2.44% 1.83% 4.28%* (.36)%* .35% 1.64% 1.03% 3.39%* (.57)%*
Portfolio
turnover... 42% 110% 209% 147% 253% 42% 110% 209% 147% 253% 42%
</TABLE>
---------------
* Annualized.
(D) Commencement of investment operations.
@ Commencement of offering of Class C shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total return for periods of less than a full
year are not annualized.
## Because of the event referred to in @ and the timing of such, the ratios
for Class C shares are not necessarily comparable to that of Class A or B
shares and are not necessarily indicative of future ratios.
See Notes to Financial Statements.
-14-
<PAGE>
PART C
OTHER INFORMATION
Item 15. 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 shareholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
As permitted by Section 17(i) of the 1940 Act, pursuant to Section 10 of each
Distribution Agreement (Exhibit 7 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 maintains an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and Trustees, 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 6(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 6(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Section 17(b) and 17(i) of such Act remain
in effect and are consistently applied.
Item 16. Exhibits:
1. Restated Articles of Incorporation of the Registrant.*
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. Plan of Reorganization, filed herewith as Appendix B to the Proxy
Statement/Prospectus.*
5. (a) Specimen certificate for Class A shares of common stock, $.001 par
value, of the Registrant. Incorporated by reference to Exhibit No. 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 No. 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).
(c) Instruments defining rights of shareholders. Incorporated by
reference to Exhibits 1 and 2.
6. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc. Incorporated by reference to Exhibit 5(a) to
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A
filed on November 30, 1990 (File No. 33-33477).
C-1
<PAGE>
(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).
7. (a) Distribution Agreement for Class A shares.*
(b) Distribution Agreement for Class B shares.*
(c) Distribution Agreement for Class C shares.*
9. 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).
10. (a) Distribution and Service Plan for Class A shares.*
(b) Distribution and Service Plan for Class B shares.*
(c) Distribution and Service Plan for Class C shares.*
11. Opinion of Counsel.*
12. Tax Opinion of Counsel.*
14. Consent of Independent Accountants.*
15. Not Applicable.
16. Not Applicable.
17. (a) Proxy.*
(b) Proxy insert card.*
(c) Copy of Registrant's declaration pursuant to Rule 24f-2 under the
1940 Act.*
(d) Prospectus of Prudential Multi-Sector Fund, Inc. dated August 1,
1994.*
(e) Prospectus of Prudential Strategist Fund, Inc. dated August 1,
1994.*
Item 17. Undertakings
(1) The undersigned registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
------------
* Filed herewith.
C-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on behalf of the Registrant, in the City
of New York and State of New York, on the 29th day of March, 1995.
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
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
---------------------------
Susan C. Cote Treasurer and March 29, 1995
Principal Financial
and Accounting Officer
/s/ Edward D. Beach
---------------------------
Edward D. Beach Director March 29, 1995
/s/ Donald D. Lennox
---------------------------
Donald D. Lennox Director March 29, 1995
/s/ Douglas H. McCorkindale
---------------------------
Douglas H. McCorkindale Director March 29, 1995
/s/ Lawrence C. McQuade
---------------------------
Lawrence C. McQuade President and Director March 29, 1995
/s/ Thomas T. Mooney
---------------------------
Thomas T. Mooney Director March 29, 1995
/s/ Richard A. Redeker
---------------------------
Richard A. Redeker Director March 29, 1995
/s/ Louis A. Weil, III
---------------------------
Louis A. Weil, III Director March 29, 1995
<PAGE>
EXHIBIT INDEX
1. Restated Articles of Incorporation of the Registrant.*
4. Plan of Reorganization, filed herewith as Appendix B to the Proxy
Statement/Prospectus.*
7. (a) Distribution Agreement for Class A shares.*
(b) Distribution Agreement for Class B shares.*
(c) Distribution Agreement for Class C shares.*
10. (a) Distribution and Service Plan for Class A shares.*
(b) Distribution and Service Plan for Class B shares.*
(c) Distribution and Service Plan for Class C shares.*
11. Opinion of Counsel.*
12. Tax Opinion of Counsel.*
14. Consent of Independent Accountants.*
17. (a) Proxy.*
(b) Proxy insert card.*
(c) Copy of Registrant's declaration pursuant to Rule 24f-2 under the
1940 Act.*
(d) Prospectus of Prudential Multi-Sector Fund, Inc. dated August 1,
1994.*
(e) Prospectus of Prudential Strategist Fund, Inc. dated August 1,
1994.*
-----------
*Filed herewith.
ARTICLES OF RESTATEMENT
OF
PRUDENTIAL MULTI-SECTOR FUND, INC.
PRUDENTIAL MULTI-SECTOR FUND, INC., a Maryland corporation having its
principal offices in Baltimore, Maryland and New York, New York (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby restated in its entirety to
read as follows:
ARTICLE I.
The name of the corporation (hereinafter called the "Corporation") is
Prudential 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.
<PAGE>
ARTICLE III.
Address in Maryland
The post office address of the place at which the principal office of the
Corporation in the State of Maryland is located is c/o CT Corporation System, 32
South Street, Baltimore, Maryland 21202. The name of the Corporation's resident
agent is The Corporation Trust Incorporated, and its post office address is 32
South Street, Baltimore, Maryland 21202. 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
2
<PAGE>
the Board of Directors from time to time. All shares of each particular
class shall represent an equal proportionate interest in that class, and
each share of any particular class shall be equal to each other share of
that class.
(b) Each share of the Class B Common Stock of the Corporation shall be
converted automatically, and without any action or choice on the part of the
holder thereof, into shares (including fractions thereof) of the Class A
Common Stock of the Corporation (computed in the manner hereinafter
described), at the applicable net asset value per share of each Class, at
the time of the calculation of the net asset value of such Class B Common
Stock at such times, which may vary between shares originally issued for
cash and shares acquired through the automatic reinvestment of dividends and
distributions with respect to Class B Common Stock, (each "Conversion Date")
determined by the Board of Directors in accordance with applicable laws,
rules, regulations and interpretations of the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. and
pursuant to such procedures as may be established from time to time by the
Board of Directors and disclosed in the 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.
3
<PAGE>
(d) On the Conversion Date, the shares of the Class B Common Stock of
the Corporation converted into shares of the Class A Common Stock will cease
to accrue dividends and will no longer be outstanding and the rights of the
holders thereof will cease (except the right to receive declared but unpaid
dividends to the Conversion Date).
(e) The Board of Directors shall have full power and authority to adopt
such other terms and conditions concerning the conversion of shares of the
Class B Common Stock to shares of the Class A Common Stock as they deem
appropriate; provided such terms and conditions are not inconsistent with
the terms contained in this Section 1 and subject to any restrictions or
requirements under the Investment Company Act of 1940 and the rules,
regulations and interpretations thereof promulgated or issued by the
Securities and Exchange Commission, 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
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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 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
5
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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 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,
6
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subject to subsection (b) of this Section 6, the Board of Directors, in its
discretion, may suspend the daily determination of net asset value of any
share of any series or class of capital stock of the Corporation.
(b) The net asset value of each share of the capital stock of the
Corporation or any class or series thereof shall be determined in accordance
with any applicable provision of the Investment Company Act, any applicable
rule, regulation or order of the Securities and Exchange Commission
thereunder, and any applicable rule or regulation made or adopted by any
securities association registered under the Securities Exchange Act of 1934.
(c) All shares now or hereafter authorized shall be subject to
redemption and redeemable at the option of the stockholder pursuant to the
applicable provisions of the Investment Company Act and laws of the State of
Maryland, including any applicable rules and regulations thereunder. Each
holder of a share of any class or series, upon request to the Corporation
(if such holder's shares are certificated, such request being accompanied by
surrender of the appropriate stock certificate or certificates in proper
form for transfer), shall be entitled to require the Corporation to redeem
all or any part of such shares outstanding in the name of such holder on the
books of the Corporation (or as represented by share certificates
surrendered to the Corporation by such redeeming holder) at a redemption
price 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;
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(ii) for any period during which an emergency, as defined by the
rules of the Securities and Exchange Commission or any successor
thereto, exists as a result of which (A) disposal by the Corporation of
securities owned by it and belonging to 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
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Section 6 and to take all other steps deemed necessary or advisable in
connection therewith.
(g) Except as otherwise permitted by the Investment Company Act, payment
of the redemption price of shares of any class or series of the capital
stock of the Corporation surrendered to the Corporation for redemption
pursuant to the provisions of subsection (c) of this Section 6 or for
purchase by the Corporation pursuant to the provisions of subsection (e) or
(f) of this Section 6 shall be made by the Corporation within seven 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
9
<PAGE>
respect to which such assets, payments or funds were received by the
Corporation for all purposes, subject only to the rights of creditors, and
shall be so handled upon the books of account of the Corporation. Such
assets, payments and funds, including any proceeds derived from the sale,
exchange or liquidation thereof, and any assets derived from any
reinvestment of such proceeds in whatever form the same may be, are herein
referred to as "assets belonging to" such series.
(b) The Board of Directors may from time to time declare and pay
dividends or distributions, in additional shares of capital stock of such
series or in cash, on any or all series of capital stock, the amount of such
dividends and the means of payment being wholly in the discretion of the
Board of Directors.
(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
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<PAGE>
amount to be deemed available for distribution to that series with the
net capital gain may be reduced by the amount offset.
(c) In the event of the liquidation or dissolution of the Corporation,
holders of shares of capital stock of each series shall be entitled to
receive, as a series, out of the assets of the Corporation available for
distribution to such holders, but other than general assets not belonging to
any particular series, the assets belonging to such series; and the assets
so distributable to the holders of shares of capital stock of any series
shall be distributed, subject to the provisions of subsection (d) of this
Section 7, among such stockholders in proportion to the number of shares of
such series held by them and recorded on the books of the Corporation. In
the event that there are any general assets not belonging to any particular
series and available for distribution, such distribution shall be made to
the holders of all series in proportion to the net asset value of the
respective series determined in accordance with the 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
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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).
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 By-Laws of the Corporation may fix the number of directors at no less
than three and may authorize the Board of Directors, by the vote of a majority
of the entire Board of Directors, to increase or decrease the number of
directors within a limit specified in the By-Laws (provided that, if there are
no shares outstanding, the number of directors may be less than three but not
less than one) and to fill the vacancies created by any such increase in the
number of directors. Unless otherwise provided by the By-Laws of the
Corporation, the directors of the Corporation need not be stockholders.
The By-Laws of the Corporation may divide the directors of the Corporation
into classes and prescribe the tenure of office of the several classes; but no
class shall be elected for a period shorter than one year or for a period longer
than five years, and the term of office of at least one class shall expire each
year.
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ARTICLE VI.
Indemnification and Limitation of
Liability of Directors and Officers
Section 1. The Corporation shall indemnify to the fullest extent permitted
by law (including the Investment Company Act), as currently in effect or as the
same may hereafter be amended, any person made or threatened to be made a party
to any action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that such person or such person's testator
or intestate is or was a director or officer of the Corporation or serves or
served at the request of the Corporation any other enterprise as a director or
officer. To the fullest extent permitted by law (including the Investment
Company Act), as currently in effect or as the same may hereafter be amended,
expenses incurred by any such person in defending any such action, suit or
proceeding shall be paid or reimbursed by the Corporation promptly upon receipt
by it of an undertaking of such person to repay such expenses if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation. The rights provided to any person by this Article VI shall be
enforceable against the Corporation by such person who shall be presumed to have
relied upon it in serving or continuing to serve as a director or officer as
provided above. No amendment of this Article VI shall impair the rights of any
person arising at any time with respect to events occurring prior to such
amendment. For purposes of this Article VI, the term "Corporation" shall include
any predecessor of the Corporation and any constituent corporation (including
any constituent of a constituent) absorbed by the Corporation in a consolidation
or merger; the term "other enterprise" shall include any corporation,
partnership, joint venture, trust or employee benefit plan; service "at the
request of the Corporation" shall include service as a director or officer of
the Corporation which imposes duties on, or involves services by, such director
or officer with respect to an employee benefit plan, its participants or
beneficiaries; any excise taxes assessed on a person with respect to an employee
benefit plan shall be deemed to be indemnifiable expenses; and action by a
person with
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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 by law (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.
(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,
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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 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.
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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 stockholders of the Corporation by these Articles of
Incorporation are subject to the provisions of this Article VIII.
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SECOND: The provisions set forth in these Articles of Restatement constitute
all of the provisions of the Charter of the Corporation as currently in effect.
These Articles do not amend the Charter of the Corporation.
THIRD: The restatement of the Charter of the Corporation has been approved
by the affirmative vote of a majority of the Directors of the Corporation at a
meeting duly called and held on August 16, 1994. The Corporation has seven
Directors, Edward D. Beach, Donald D. Lennox, Douglas H. McCorkindale, Lawrence
C. McQuade, Thomas T. Mooney, 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 16th day of August, 1994.
PRUDENTIAL MULTI-SECTOR
FUND, INC.
By: /s/ Lawrence C. McQuade
----------------------------
Lawrence C. McQuade
President
Attest
[SEAL]
By: /s/ Marguerite E. H. Morrison
-----------------------------------
Marguerite E. H. Morrison
Assistant Secretary
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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.
/s/ Lawrence C. McQuade
----------------------------
Lawrence C. McQuade
President
18
EXHIBIT 7(a)
PRUDENTIAL MULTI-SECTOR FUND, INC.
Distribution Agreement
(Class A Shares)
Agreement made as of August 1, 1994, 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, 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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3.3 The Fund shall have the right to suspend the sale of its
Class A shares at times when redemption is suspended pursuant to the conditions
in Section 4.3 hereof or at such other times as may be determined by the Board
of Directors. The Fund shall also have the right to suspend the sale of its
Class A shares if a banking moratorium shall have been declared by federal or
New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing
by the Fund, shall be promptly advised of all purchase orders for Class A shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class A shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefore, will
deliver deposit receipts for such Class A shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class A Shares by the Fund
4.1 Any of the outstanding Class A shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class A
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class A shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption
price as defined in the above paragraph pursuant to the instructions of the
Distributor on or before the seventh calendar day subsequent to its having
received the notice of redemption in proper form. The proceeds of any redemption
of Class A shares shall be paid by the Fund to or for the account of the
redeeming shareholder, in each case in accordance with applicable provisions of
the Prospectus.
4.3 Redemption of Class A shares or payment may be suspended
at times when the New York Stock Exchange is closed for other than customary
weekends and holidays, when trading on said Exchange is restricted, when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order,
3
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so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of Class A
shares as provided herein, the Fund agrees to sell its Class A shares so long as
it has Class A shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class A
shares, and this shall include one certified copy, upon request by the
Distributor, of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its Prospectus and annual and interim reports as the Distributor
shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class A shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class A shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class A shares for
sales under the securities laws of such states as the Distributor and the Fund
may approve; provided that the Fund shall not be required to amend its Articles
of Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class A shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
A shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to
effect sales of Class A shares of the Fund, but shall not be obligated to sell
any specific number of Class A shares. Sales of the Class A shares shall be on
the terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class A shares, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer nor any other person is authorized by the
Fund to give any information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales literature
approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities dealers and
other financial institutions of its choice for the sale of Class A shares,
provided that the Fund shall approve the forms of such agreements. Within the
United States, the Distributor shall offer and sell Class A shares only to such
selected dealers as are members in good standing of the NASD. Class A shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any portion of
any front-end sales charge which is imposed on sales of Class A shares and not
reallocated to selected dealers as set forth in the Prospectus, subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of the Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of .30
of 1% (including an asset-based sales charge of .05 of 1% and a service fee of
.25 of 1%) per annum
5
<PAGE>
of the average daily net assets of the Class A shares of the Fund. Amounts
payable under the Plan shall be accrued daily and paid monthly or at such other
intervals as the Board of Directors may determine. Amounts payable under the
Plan shall be subject to the limitations of Article III, Section 26 of the NASD
Rules of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect,
the Distributor shall inform the Board of Directors of the commissions and
account servicing fees to be paid by the Distributor to account executives of
the Distributor and to broker-dealers and financial institutions which have
dealer agreements with the Distributor. So long as the Plan (or any amendment
thereto) is in effect, at the request of the Board of Directors or any agent or
representative of the Fund, the Distributor shall provide such additional
information as may reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such activities.
8.3 Expenses of distribution with respect to the Class A
shares of the Fund include, among others:
(a) amounts paid to Prudential Securities for
performing services under a selected dealer
agreement between Prudential Securities and
the Distributor for sale of Class A shares of
the Fund, including sales commissions and
trailer commissions paid to, or on account of,
account executives and indirect and overhead
costs associated with distribution activities,
including central office and branch expenses;
(b) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class A
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(c) sales commissions and trailer commissions paid to,
or on account of, broker-dealers and financial
institutions (other than Prudential Securities
and Prusec) which have entered into selected
dealer agreements with the Distributor with
respect to Class A shares of the Fund;
(d) amounts paid to, or an account of, account
executives of Prudential Securities, Prusec,
6
<PAGE>
or of other broker-dealers or financial
institutions for personal service and/or the
maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms
through any available medium, including
the cost of printing and mailing Fund
Prospectuses, and periodic financial
reports and sales literature to persons
other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clauses (a) and (b)
of the foregoing sentence include (i) lease expenses, (ii) salaries and benefits
of personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class A shares, including fees and disbursements of
its counsel and auditors, in connection with the preparation and filing of any
required Registration Statements and/or Prospectuses under the Investment
Company Act or the Securities Act, and preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not limited to the
expense of setting in type any such Registration Statements, Prospectuses,
annual or periodic reports or proxy materials). The Fund shall also bear the
cost of expenses of qualification of the Class A shares for sale, and, if
necessary or advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5.4 hereof
and the cost and expense payable to each such state for continuing qualification
therein until the Fund decides to discontinue such qualification pursuant to
Section 5.4 hereof. As set forth in Section 8 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to Class A shares, so
long as the Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and directors and any person who controls the
Distributor within the meaning of Section 15 of the Securities Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person may incur
under the Securities Act, or under common law or
7
<PAGE>
otherwise, arising out of or based upon any untrue statement of a material fact
contained in the Registration Statement or Prospectus or arising out of or based
upon any alleged omission to state a material fact required to be stated in
either thereof or necessary to make the statements in either thereof not
misleading, except insofar as such claims, demands, liabilities or expenses
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given by letter or telegram addressed to the Fund at its
principal business office. The Fund agrees promptly to notify the Distributor of
the commencement of any litigation or proceedings against it or any of its
officers or Directors in connection with the issue and sale of any Class A
shares.
10.2 The Distributor agrees to indemnify, defend and hold the
Fund, its officers and Directors and any person who controls the Fund, if any,
within the meaning of Section 15 of the Securities Act, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be
8
<PAGE>
stated in the Registration Statement or Prospectus or necessary to make such
information not misleading. The Distributor's agreement to indemnify the Fund,
its officers and Directors and any such controlling person as aforesaid, is
expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and Directors or any such
controlling person, such notification being given to the Distributor at its
principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date
first above written and shall remain in force for two years from the date hereof
and thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class A shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting securities", when used
in this Agreement, shall have the respective meanings specified in the
Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of the Fund, or
by the vote of a majority of the outstanding voting securities of the Class A
shares of the Fund, and (b) by the vote of a majority of the Rule 12b-1
Directors cast in person at a meeting called for the purpose of voting on such
amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as at the time
in effect and the applicable provisions of the Investment Company Act. To the
extent that the applicable law of
9
<PAGE>
the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: /s/ Robert F. Gunia
------------------------------
Robert F. Gunia
Executive Vice President
Prudential Multi-Sector Fund, Inc.
By: /s/ Lawrence C. McQuade
------------------------------
Lawrence C. McQuade
President
[mc]cla-comp.agr
10
EXHIBIT 7(b)
PRUDENTIAL MULTI-SECTOR FUND, INC.
Distribution Agreement
(Class B Shares)
Agreement made as of August 1, 1994, 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 therefore, will
deliver deposit receipts for such Class B shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class B Shares by the Fund
4.1 Any of the outstanding Class B shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class B
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class B shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption
price as defined in the above paragraph pursuant to the instructions of the
Distributor on or before the seventh day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of Class B
shares shall be paid by the Fund as follows: (a) any applicable contingent
deferred sales charge shall be paid to the Distributor and (b) the balance shall
be paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be suspended
at times when the New York Stock Exchange is closed for other than customary
weekends and holidays, when trading on said Exchange is restricted, when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
3
<PAGE>
Fund fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of Class B
shares as provided herein, the Fund agrees to sell its Class B shares so long as
it has Class B shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class B
shares, and this shall include one certified copy, upon request by the
Distributor, of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its Prospectus and annual and interim reports as the Distributor
shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class B shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class B shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class B shares for
sales under the securities laws of such states as the Distributor and the Fund
may approve; provided that the Fund shall not be required to amend its Articles
of Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class B shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
B shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to
effect sales of Class B shares of the Fund, but shall not be obligated to sell
any specific number of Class B shares. Sales of the Class B shares shall be on
the terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class B shares, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer nor any other person is authorized by the
Fund to give any information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales literature
approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities dealers and
other financial institutions of its choice for the sale of Class B shares,
provided that the Fund shall approve the forms of such agreements. Within the
United States, the Distributor shall offer and sell Class B shares only to such
selected dealers as are members in good standing of the NASD. Class B shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any contingent
deferred sales charge which is imposed with respect to repurchases and
redemptions of Class B shares as set forth in the Prospectus, subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of the Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales
5
<PAGE>
charge of .75 of 1% and a service fee of .25 of 1%) per annum of the average
daily net assets of the Class B shares of the Fund. Amounts payable under the
Plan shall be accrued daily and paid monthly or at such other intervals as the
Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
8.2 So long as the Plan or any amendment thereto is in effect,
the Distributor shall inform the Board of Directors of the commissions
(including trailer commissions) and account servicing fees to be paid by the
Distributor to account executives of the Distributor and to broker-dealers and
financial institutions which have selected dealer agreements with the
Distributor. So long as the Plan (or any amendment thereto) is in effect, at the
request of the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities.
8.3 Expenses of distribution with respect to the Class B
shares of the Fund include, among others:
(a) sales commissions (including trailer
commissions) paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of distribution
activities, including central office and
branch expenses;
(c) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class B
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prusec) which have entered into
selected dealer agreements with the Distributor
with respect to Class B shares of the Fund;
(e) amounts paid to, or an account of, account
executives of the Distributor or of other
6
<PAGE>
broker-dealers or financial institutions 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 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
7
<PAGE>
otherwise, arising out of or based upon any untrue statement of a material fact
contained in the Registration Statement or Prospectus or arising out of or based
upon any alleged omission to state a material fact required to be stated in
either thereof or necessary to make the statements in either thereof not
misleading, except insofar as such claims, demands, liabilities or expenses
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given 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
8
<PAGE>
stated in the Registration Statement or Prospectus or necessary to make such
information not misleading. The Distributor's agreement to indemnify the Fund,
its officers and Directors and any such controlling person as aforesaid, is
expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and Directors or any such
controlling person, such notification to be given to the Distributor in writing
at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date
first above written and shall remain in force for two years from the date hereof
and thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class B shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting securities," when used
in this Agreement, shall have the respective meanings specified in the
Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of the Fund, or
by the vote of a majority of the outstanding voting securities of the Class B
shares of the Fund, and (b) by the vote of a majority of the Rule 12b-1
Directors cast in person at a meeting called for the purpose of voting on such
amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as at the time
in effect and the applicable provisions of the Investment Company Act. To the
extent that the applicable law of
9
<PAGE>
the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential 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
[mc]clb-comp.agr
10
EXHIBIT 7(c)
PRUDENTIAL MULTI-SECTOR FUND, INC.
Distribution Agreement
(Class C Shares)
Agreement made as of August 1, 1994, 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 C shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934, as amended, and is engaged in the business
of selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other, with respect to the continuous offering of the Fund's
Class C shares from and after the date hereof in order to promote the growth of
the Fund and facilitate the distribution of its Class C shares; and
WHEREAS, the Fund has adopted a distribution and service plan
pursuant to Rule 12b-1 under the Investment Company Act (the Plan) authorizing
payments by the Fund to the Distributor with respect to the distribution of
Class C shares of the Fund and the maintenance of Class C shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Class C shares of the Fund to sell Class C
shares to the public and the Distributor hereby accepts such appointment and
agrees to act hereunder. The Fund hereby agrees during the term of this
Agreement to sell Class C shares of the Fund to the Distributor on the terms and
conditions set forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the
Fund to act as principal underwriter and distributor of the Fund's Class C
shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class C shares from the Fund shall not apply to Class C shares of the
Fund issued in connection with the merger or consolidation of any other
investment company or personal holding company with the Fund or the acquisition
by purchase or otherwise of all (or substantially all) the assets or the
outstanding shares of any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class C shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
2.3 Such exclusive rights shall not apply to Class C shares
issued by the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made
through the Fund's transfer and dividend disbursing agent in the manner set
forth in the currently effective Prospectus of the Fund. The term "Prospectus"
shall mean the Prospectus and Statement of Additional Information included as
part of the Fund's Registration Statement, as such Prospectus and Statement of
Additional Information may be amended or supplemented from time to time, and the
term "Registration Statement" shall mean the Registration Statement filed by the
Fund with the Securities and Exchange Commission and effective under the
Securities Act of 1933, as amended (the Securities Act), and the Investment
Company Act, as such Registration Statement is amended from time to time.
Section 3. Purchase of Class C Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund
the Class C shares needed, but not more than the Class C shares needed (except
for clerical errors in transmission) to fill unconditional orders for Class C
shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers). The
price which the Distributor shall pay for the Class C shares so purchased from
the Fund shall be the net asset value, determined as set forth in the
Prospectus.
3.2 The Class C shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its
Class C shares at times when redemption is suspended pursuant to the conditions
in Section 4.3 hereof or at such other times as may be determined by the Board
of Directors. The Fund shall also have the right to suspend the sale of its
Class C shares if a banking moratorium shall have been declared by federal or
New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing
by the Fund, shall be promptly advised of all purchase orders for Class C shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class C shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefore, will
deliver deposit receipts for such Class C shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class C Shares by the Fund
4.1 Any of the outstanding Class C shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class C
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class C shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption
price as defined in the above paragraph pursuant to the instructions of the
Distributor on or before the seventh day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of Class C
shares shall be paid by the Fund as follows: (a) any applicable contingent
deferred sales charge shall be paid to the Distributor and (b) the balance shall
be paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus.
4.3 Redemption of Class C shares or payment may be suspended
at times when the New York Stock Exchange is closed for other than customary
weekends and holidays, when trading on said Exchange is restricted, when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
3
<PAGE>
Fund fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of Class 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
5
<PAGE>
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 the average daily net assets of
the Class C shares of the Fund. Amounts payable under the Plan shall be accrued
daily and paid monthly or at such other intervals as Directors may determine.
Amounts payable under the Plan shall be subject to the limitations of Article
III, Section 26 of the NASD Rules of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect,
the Distributor shall inform the Board of Directors of the commissions
(including trailer commissions) and account servicing fees to be paid by the
Distributor to account executives of the Distributor and to broker-dealers and
financial institutions which have selected dealer agreements with the
Distributor. So long as the Plan (or any amendment thereto) is in effect, at the
request of the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities.
8.3 Expenses of distribution with respect to the Class C
shares of the Fund include, among others:
(a) sales commissions (including trailer
commissions) paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of distribution
activities, including central office and
branch expenses;
(c) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class C
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prusec) which have entered into
selected dealer agreements with the Distributor
with respect to Class C shares of the Fund;
(e) amounts paid to, or an account of, account
executives of the Distributor or of other
6
<PAGE>
broker-dealers or financial institutions 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
7
<PAGE>
otherwise, arising out of or based upon any untrue statement of a material fact
contained in the Registration Statement or Prospectus or arising out of or based
upon any alleged omission to state a material fact required to be stated in
either thereof or necessary to make the statements in either thereof not
misleading, except insofar as such claims, demands, liabilities or expenses
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given 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
8
<PAGE>
stated in the Registration Statement or Prospectus or necessary to make such
information not misleading. The Distributor's agreement to indemnify the Fund,
its officers and Directors and any such controlling person as aforesaid, is
expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and Directors or any such
controlling person, such notification to be given to the Distributor in writing
at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date
first above written and shall remain in force for two years from the date hereof
and thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class C shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class C shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting securities," when used
in this Agreement, shall have the respective meanings specified in the
Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of the Fund, or
by the vote of a majority of the outstanding voting securities of the Class C
shares of the Fund, and (b) by the vote of a majority of the Rule 12b-1
Directors cast in person at a meeting called for the purpose of voting on such
amendment.
Section 12. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as at the time
in effect and the applicable provisions of the Investment Company Act. To the
extent that the applicable law of
9
<PAGE>
the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential 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
[mc]clb-comp.agr
10
EXHIBIT 10(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 pursuant to which
the Fund will employ the Distributor to distribute Class A shares issued by the
Fund (Class A shares). Under the Plan, the Fund intends to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class A shares.
A majority of the Board of Directors of the Fund, including a majority
of those Directors who are not "interested persons" of the Fund (as defined in
the Investment Company Act) and who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the Rule
12b-1 Directors), have determined by votes cast in person at a meeting called
for the purpose of voting on this Plan that there is a reasonable likelihood
that adoption of this Plan will benefit the Fund and
<PAGE>
its shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
A shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A shares of
the Fund and to service shareholder accounts using all of the facilities of the
distribution networks of Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities Corporation (Prusec), including sales personnel
and branch office and central support systems, and also using such other
qualified broker-dealers and financial institutions as the Distributor may
select. Services provided and activities undertaken to distribute Class A shares
of the Fund are referred to herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class A
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services
a distribution fee, together with the service fee (described in Section 2
hereof), of .30 of 1% per annum of the average daily net assets of the Class A
shares of the Fund for the performance of Distribution Activities. The Fund
shall calculate and accrue daily amounts payable by the Class A shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class A shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
3
<PAGE>
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) amounts paid to Prudential Securities for
performing services under a selected dealer
agreement between Prudential Securities and
the Distributor for sale of Class A shares of
the Fund, including sales commissions and
trailer commissions paid to, or on account
of, account executives and indirect and
overhead costs associated with Distribution
Activities, including central office and
branch expenses;
(b) amounts paid to Prusec for performing
services under a selected dealer agreement
between Prusec and the Distributor for sale
of Class A shares of the Fund, including
sales commissions and trailer commissions
paid to, or on account of, agents and
indirect and overhead costs associated with
Distribution Activities;
(c) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund prospectuses,
statements of additional information and
periodic financial reports and sales literature
to persons other than current shareholders of
the Fund; and
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prudential Securities and Prusec)
which have entered into selected dealer
agreements with the Distributor with respect to
Class A shares of the Fund.
4
<PAGE>
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of
Directors of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors of the Fund such additional
information as the Board shall from time to time reasonably request, including
information about Distribution Activities undertaken or to be undertaken by the
Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and financial institutions
which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class A shares of the Fund, the Plan shall, unless earlier
terminated in accordance with its terms, continue in full force and effect
thereafter for so long as such continuance is specifically approved at least
annually by a majority of the Board of Directors of the Fund and a majority of
5
<PAGE>
the Rule 12b-1 Directors by votes cast in person at a meeting called for the
purpose of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class A shares of
the Fund.
7. Amendments
The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class A shares of the Fund.
All material amendments of the Plan shall be approved by a majority of the Board
of Directors of the Fund and a majority of the Rule 12b-1 Directors by votes
cast in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors shall be committed to the discretion of the Rule 12b-1
Directors.
9. Records
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at
6
<PAGE>
least the first two years in an easily accessible place.
Dated: August 1, 1994
[mc]cla-comp.pln
7
EXHIBIT 10(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-Sector Fund, Inc. (the Fund)
and by Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will continue to employ the Distributor to distribute Class B shares
issued by the Fund (Class B shares). Under the Plan, the Fund wishes to pay to
the Distributor, as compensation for its services, a distribution and service
fee with respect to Class B shares.
A majority of the Board of Directors of the Fund including a majority
who are not "interested persons" of the Fund (as defined in the Investment
Company Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and its shareholders. Expenditures
<PAGE>
under this Plan by the Fund for Distribution Activities (defined below) are
primarily intended to result in the sale of Class B shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B shares of
the Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class B shares of the Fund are referred to
herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class B
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services
a distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class B shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among
3
<PAGE>
classes will be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems
appropriate on Distribution Activities which include, among others:
(a) sales commissions (including trailer
commissions) paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of Distribution
Activities including central office and branch
expenses;
(c) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class B
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with Distribution
Activities;
(d) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
prospectuses, statements of additional
information and periodic financial reports and
sales literature to persons other than current
shareholders of the Fund; and
(e) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and other financial
institutions (other than Prusec) which have
entered into selected dealer agreements with
the Distributor with respect to Class B shares
of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of
Directors of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors of the Fund such additional
information as they shall from time to time reasonably request, including
4
<PAGE>
information about Distribution Activities undertaken or to be undertaken by the
Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class B shares of the Fund, the Plan shall, unless earlier
terminated in accordance with its terms, continue in full force and effect
thereafter for so long as such continuance is specifically approved at least
annually by a majority of the Board of Directors of the Fund and a majority of
the Rule 12b-1 Directors by votes cast in person at a meeting called for the
purpose of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class B shares of
the Fund.
5
<PAGE>
7. Amendments
The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class B shares of the Fund.
All material amendments of the Plan shall be approved by a majority of the Board
of Directors of the Fund and a majority of the Rule 12b-1 Directors by votes
cast in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors shall be committed to the discretion of the Rule 12b-1
Directors.
9. Records
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: August 1, 1994
[mc]clb-comp.pln
6
EXHIBIT 10(c)
PRUDENTIAL MULTI-SECTOR FUND, INC.
Distribution and Service Plan
(Class C Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Multi-Sector Fund, Inc. (the Fund)
and by Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will continue to employ the Distributor to distribute Class C shares
issued by the Fund (Class C shares). Under the Plan, the Fund wishes to pay to
the Distributor, as compensation for its services, a distribution and service
fee with respect to Class C shares.
A majority of the Board of Directors of the Fund including a majority
who are not "interested persons" of the Fund (as defined in the Investment
Company Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and its shareholders. Expenditures
<PAGE>
under this Plan by the Fund for Distribution Activities (defined below) are
primarily intended to result in the sale of Class C shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class C shares of
the Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class C shares of the Fund are referred to
herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services
a distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class C shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among
3
<PAGE>
classes will be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer
commissions) paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of Distribution
Activities including central office and branch
expenses;
(c) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class C
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with Distribution
Activities;
(d) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
prospectuses, statements of additional
information and periodic financial reports and
sales literature to persons other than current
shareholders of the Fund; and
(e) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and other financial
institutions (other than Prusec) which have
entered into selected dealer agreements with
the Distributor with respect to Class C shares
of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors of the Fund such additional
information as they shall from time to time reasonably request, including
4
<PAGE>
information about Distribution Activities undertaken or to be undertaken by the
Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class C shares of the Fund, the Plan shall, unless earlier
terminated in accordance with its terms, continue in full force and effect
thereafter for so long as such continuance is specifically approved at least
annually by a majority of the Board of Directors of the Fund and a majority of
the Rule 12b-1 Directors by votes cast in person at a meeting called for the
purpose of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class C shares of
the Fund.
5
<PAGE>
7. Amendments
The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class C shares of the Fund.
All material amendments of the Plan shall be approved by a majority of the Board
of Directors of the Fund and a majority of the Rule 12b-1 Directors by votes
cast in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors shall be committed to the discretion of the Rule 12b-1
Directors.
9. Records
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: August 1, 1994
[mc]clb-comp.pln
6
GARDNER, CARTON & DOUGLAS
SUITE 3400-QUAKER TOWER
321 NORTH CLARK STREET
CHICAGO, ILLINOIS 60610-4795
(312) 644-3000
TELECOPIER: (312) 644-3381
March 29, 1995
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Prudential Multi-Sector Fund, Inc.
Shares of Common Stock, $0.001 par value per share
---------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Prudential Multi-Sector Fund, Inc., a Maryland
corporation (the "Fund"), in connection with its filing of a Registration
Statement on Form N-14 (the "Registration Statement"). The Registration
Statement registers Class A, Class B and Class C shares of Common Stock, $.001
par value per share, of the Fund.
We have examined all instruments, documents and records which, in our
opinion, were necessary of examination for the purpose of rendering this
opinion. Based upon such examination, we are of the opinion that the
above-described shares of Common Stock will be, if and when issued by the Fund
in the manner and upon the terms set forth in the Registration Statement,
validly authorized and issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Gardner, Carton & Douglas
GARDNER, CARTON & DOUGLAS
HJM/dmh
<TABLE>
<CAPTION>
SULLIVAN & CROMWELL
<S> <C>
NEW YORK TELEPHONE: (212) 558-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC) 125 Broad Street, New York 10004-2498
CABLE ADDRESS: LADYCOURT, NEW YORK _____
FACSIMILE: (212) 558-3588 (125 Broad Street) 250 PARK AVENUE, NEW YORK 10177-0021
(212) 558-3792 (250 Park Avenue) 1701 PENNSYLVANIA AVE, N.W. WASHINGTON, D.C. 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI I-CHOME, CHIYODA-KU, TOKYO 100
3602 GLOUCESTER TOWER, 11 PEDDER STREET, HONG KONG
</TABLE>
March 29, 1995
Prudential Strategist Fund, Inc.,
One Seaport Plaza,
New York, New York 10292,
Prudential Multi-Sector Fund, Inc.,
One Seaport Plaza,
New York, New York 10292.
Ladies and Gentlemen:
We have acted as counsel to Prudential Strategist Fund, Inc., a Maryland
corporation ("Strategist Fund"), in connection with the transaction to be
effected under the proposed Agreement and Plan of Reorganization and Liquidation
(the "Agreement"), attached as Appendix B to the Fund's Registration Statement
on Form N-14 (the "Registration Statement"), between Strategist Fund and
Prudential Multi-Sector Fund, Inc., a Maryland corporation ("Multi-Sector
Fund"). We are rendering this opinion, solely for your benefit, pursuant to
paragraph 8.6 of the Agreement.
For the purposes of the opinion set forth below, we have relied, with your
consent, upon the accuracy and completeness of the statements and
representations made in the Agreement and in the Prospectus/Proxy Statement that
is
<PAGE>
Prudential Strategist Fund, Inc. -2-
Prudential Multi-Sector Fund, Inc.
included in the Registration Statement and that will be distributed to the
shareholders of Strategist Fund in connection with the transaction. We have not
attempted to verify independently the accuracy of any information in these
documents, and we have assumed that the provisions of the Agreement will be
carried out in accordance with their terms.
In connection with this opinion we have also assumed, with your consent, the
following:
(1) Both Strategist Fund and Multi-Sector Fund are "regulated investment
companies" within the meaning of Section 851 of the Internal Revenue Code of
1986, as amended (the "Code").
(2) There is no plan or intention on the part of any shareholder of
Strategist Fund that owns 5 percent or more of the stock of Strategist Fund
("Strategist Fund Shares"), and to the best of the knowledge of the management
of Strategist Fund there is no plan or intention on the part of the remaining
shareholders of Strategist Fund, to sell, exchange, or otherwise dispose of a
number of shares of Multi-Sector Fund stock ("Multi-Sector Fund Shares")
received in the transaction that would reduce Strategist Fund shareholders'
ownership of Multi-Sector Fund to a number of Multi-Sector Fund Shares having a
value, as of the
<PAGE>
Prudential Strategist Fund, Inc. -3-
Prudential Multi-Sector Fund, Inc.
Closing Date (as defined in paragraph 3.1 of the Agreement), of less than 50
percent of the value of all of the formerly outstanding Strategist Fund Shares
as of the same date.
(3) The liabilities of Strategist Fund assumed by Multi-Sector Fund, as well
as the liabilities, if any, to which the transferred assets are subject, were
incurred by Strategist Fund in the ordinary course of its business.
(4) Multi-Sector Fund has no plan or intention to sell or otherwise dispose
of any of the assets of Strategist Fund acquired pursuant to the Agreement,
except for dispositions in the ordinary course of its business.
(5) Neither Strategist Fund nor persons who were shareholders of Strategist
Fund immediately before the Closing Date will own, immediately after the Closing
Date, Multi-Sector Fund Shares constituting "control" of Multi-Sector Fund
within the meaning of Section 304(c) of the Code.
(6) There is no intercorporate indebtedness between Multi-Sector Fund and
Strategist Fund that was issued, was acquired, or will be settled at a discount.
(7) The total adjusted basis of the assets of Strategist Fund transferred to
Multi-Sector Fund will equal or exceed the sum of the liabilities to be assumed
by Multi-
<PAGE>
Prudential Strategist Fund, Inc. -4-
Prudential Multi-Sector Fund, Inc.
Sector Fund, plus the amount of liabilities, if any, to which the transferred
assets are subject.
(8) Strategist Fund is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
On the basis of the foregoing and our consideration of such other matters as
we have considered relevant, we advise you that, in our opinion:
(1) The acquisition by Multi-Sector Fund of the assets of Strategist Fund
solely in exchange for Multi- Sector Fund Shares and the assumption by
Multi-Sector Fund of Strategist Fund's liabilities, if any, followed by the
distribution of Multi-Sector Fund Shares by Strategist Fund pro rata to its
shareholders pursuant to its liquidation and constructively in exchange for
their Strategist Fund Shares, will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and Strategist Fund and
Multi-Sector Fund will each be "a party to a reorganization" within the meaning
of Section 368(b) of the Code;
(2) Strategist Fund's shareholders will recognize no gain or loss upon the
constructive exchange of all of their Strategist Fund Shares solely for
Multi-Sector Fund Shares in complete liquidation of Strategist Fund;
<PAGE>
Prudential Strategist Fund, Inc. -5-
Prudential Multi-Sector Fund, Inc.
(3) No gain or loss will be recognized to Strategist Fund upon the transfer
of its assets to Multi-Sector Fund in exchange solely for Multi-Sector Fund
Shares and the assumption by Multi-Sector Fund of Strategist Fund's liabilities,
if any, or upon the subsequent distribution of Multi-Sector Fund Shares to
Strategist Fund Shareholders in complete liquidation of Strategist Fund;
(4) No gain or loss will be recognized to Multi- Sector Fund upon the
acquisition of the assets of Strategist Fund in exchange solely for Multi-Sector
Fund Shares and the assumption by Multi-Sector Fund of Strategist Fund's
liabilities, if any;
(5) The basis of Strategist Fund's assets acquired by Multi-Sector Fund will
be the same as the basis of such assets to Strategist Fund immediately prior to
the Closing Date, and the holding period of such assets acquired by Multi-Sector
Fund will include the period for which such assets were held by Strategist Fund;
(6) The basis of the Multi-Sector Fund Shares received by shareholders of
Strategist Fund pursuant to the Agreement will be the same as the basis of the
Strategist Fund Shares constructively surrendered in exchange therefor.
(7) The holding period of the Multi-Sector Fund Shares received by
shareholders of Strategist Fund will
<PAGE>
Prudential Strategist Fund, Inc. -6-
Prudential Multi-Sector Fund, Inc.
include the holding period of the Strategist Fund Shares that are surrendered in
exchange therefor and that were capital assets in the hands of the Strategist
Fund shareholders on the Closing Date.
Very truly yours,
Very truly yours,
/s/ Sullivan & Cromwell
Sullivan & Cromwell
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement No. 33-33477 filed on Form
N-14 of Prudential Multi-Sector Fund, Inc. of our report dated June 16, 1994,
appearing in the Statement of Additional Information, which is incorporated by
reference in such Registration Statement, and to the references to us under the
headings "Financial Highlights" in the Prospectus, which is incorporated by
reference in such Registration Statement, and "Custodian, Transfer and Dividend
Disbursing Agent and Independent Accountants" in the Statement of Additional
Information.
Deloitte & Touche LLP
New York, New York
March 28, 1995
<TABLE>
<S> <C> <C>
Prudential Strategist PROXY This Proxy is Solicited on Behalf of the Board of Directors
Fund, Inc. The undersigned hereby appoints S. Jane Rose, Deborah A. Docs and Eugene S. Stark as
One Seaport Plaza Proxies, each with the power of substitution, and hereby authorizes each of them to
New York, New York 10292 represent and to vote, as designated below, all the shares of common stock of the Pru-
dential Strategist Fund, Inc. held of record by the undersigned on April 7, 1995 at the
Special Meeting of Shareholders to be held on June 9, 1995, or any adjournment thereof.
</TABLE>
1. Approval or disapproval of the Agreement and Plan of Reorganization
and Liquidation
[ ] APPROVE
[ ] DISAPPROVE
[ ] ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting.
(over)
(Continued from other side)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
This proxy when executed will be voted in the manner described herein by
the undersigned shareholder. If executed and no direction is made, this proxy
will be voted FOR Proposal 1.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Dated ___________________________________________, 1995
-------------------------------------------------------
Signature
-------------------------------------------------------
Signature if held jointly
<TABLE>
<S> <C>
|
| Many shareholders think their votes are not important.
|
| On the contrary, they are vital.
|
Prudential Strategist | The Special Meeting on June 9, 1995 will have to be adjourned without conducting any busi-
Fund, Inc. | ness if less than a majority of the eligible shares are represented.
Needs |
Your Proxy Vote | And the Fund, at shareholders' expense, will have to continue to solicit votes until
Before | a quorum is obtained.
June 9, 1995 |
| Your vote, then, could be critical in allowing the Fund to hold the meeting as scheduled.
|
| So please return your proxy card as soon as possible.
|
| All shareholders will benefit from your cooperation.
|
| Thank you.
</TABLE>
As filed with the Securities and Exchange Commission on February 23, 1989
Registration No. 33-33477
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 / X /
Amendment No. / /
(Check appropriate box or boxes)
_____________________
PRUDENTIAL-BACHE MANAGED 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)
Registrant's Telephone Number, Including Area Code (212) 214-1250
S. Jane Rose
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service)
copy to:
Paul H. Dykstra, Esq.
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, Illinois 60610-4795
____________________
Approximate date of proposed public offering: As soon as practicable after the
effective date of the registration statement.
____________________
It is proposed that this filing will become effective: (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
Title of Securities Amount Being Maximum Offering Maximum Aggregate Amount of Registration
Being Registered Registered Price Per Unit Offering Price Fee
-----------------------------------------------------------------------------------------------------------------------
Shares of Common indefinite number of * * $500
Stock ($.001 par value) shares*
-----------------------------------------------------------------------------------------------------------------------
<FN>
*Registrant hereby elects, pursuant to Rule 24f-2 under the Investment Company Act of 1940, to register an indefinite
number of shares by this Registration Statement. In accordance with Rule 24f-2, a registration fee, in the amount of $500, is
being paid herewith.
____________________
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
</FN>
</TABLE>
Prudential Multi-Sector Fund, Inc.
------------------------------------------------------------------------------
Prospectus dated August 1, 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 objective will be
achieved. See "How the Fund Invests--Investment Objective and Policies." The
Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated August 1, 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. There can be no assurance that the Fund's objectives
will be achieved. See "How the Fund Invests--Investment Objective and
Policies" at page 6.
Risk Factors and Special Characteristics
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. The Fund may also engage in various hedging and income
enhancement strategies, including derivatives. See "How the Fund
Invests--Hedging and Income Enhancement Strategies--Risks of Hedging and Income
Enhancement Strategies" at page 11.
The Fund is permitted to invest up to 30% of its total assets in
fixed-income securities rated Baa or lower by Moody's Investors Service or BBB
or lower by Standard & Poor's Ratings Group or in non-rated fixed-income
securities of comparable quality. Securities rated lower than Baa or BBB,
commonly known as "junk bonds", may be considered speculative and are subject to
the risk of the issuer's inability to meet principal and interest payments on
the obligations as well as price volatility. See "How the Fund Invests--
Investment Objective and Policies--Risks of Investing in High Yield Securities"
at page 7.
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 June 30, 1994, PMF
served as manager or administrator to 66 investment companies, including 37
mutual funds, with aggregate assets of approximately $47 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 paid an annual distribution and service fee
which is currently being charged at the rate of .25 of 1% of the average daily
net assets of the Class A shares.
2
<PAGE>
Prudential Securities Incorporated (Prudential Securities or PSI), a
major securities underwriter and securities and commodities broker, acts as
the Distributor of the Fund's Class B and Class C shares and is paid an annual
distribution and service fee at the 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 29.
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 distribution-related 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 24.
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 by 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 .43 .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.,
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
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 Distribution and Service Plan provides that the Fund
may pay a distribution fee of up to .30 of 1% per annum of the average
daily net assets of the Class A shares, the Distributor has agreed to
limit its distribution fees 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. Total
operating expenses without such limitation would be 1.38%. 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,
1994 1993 1992 1991 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period. . . . $ 13.19 $ 12.51 $ 12.10 $ 11.37 $ 13.15 $ 12.47 $ 12.06 $ 11.37
------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations
---------------------------------
Net investment income . . . . . . . . . . . .18 .30 .23 .40 .07 .19 .13 .32
Net realized and unrealized gain on
investments and foreign currency
transactions . . . . . . . . . . . . . . . 1.64 1.47 .50 .59 1.63 1.47 .51 .59
------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations . . . . . 1.82 1.77 .73 .99 1.70 1.66 .64 .91
------- ------- ------- ------- ------- ------- ------- -------
Less distributions
------------------
Dividends from net investment income. . . . (.21) (.30) (.30) (.26) (.10) (.19) (.21) (.22)
Distributions from net capital and
currency gains . . . . . . . . . . . . . . (1.59) (.79) (.02) -- (1.59) (.79) (.02) --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions. . . . . . . . . . . . (1.80) (1.09) (.32) (.26) (1.69) (.98) (.23) (.22)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period. . . . . . . $ 13.21 $ 13.19 $ 12.51 $ 12.10 $ 13.16 $ 13.15 $ 12.47 $ 12.06
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN**: . . . . . . . . . . . . . . 14.16% 15.14% 6.16% 17.64% 13.22% 14.13% 5.39% 16.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) . . . . . . $53,237 $43,390 $52,625 $59,085 $128,098 $92,921 $108,276 $99,537
Average net assets (000). . . . . . . . . . $49,840 $46,890 $57,403 $55,545 $108,981 $99,072 $108,510 $82,890
Ratios to average net assets:
Expenses, including distribution fees. . . 1.30% 1.28% 1.29% 1.35%* 2.08% 2.08% 2.09% 2.15%*
Expenses, excluding distribution fees. . . 1.08% 1.08% 1.09% 1.15%* 1.08% 1.08% 1.09% 1.15%*
Net investment income. . . . . . . . . . . 1.15% 2.44% 1.83% 4.28%* .35% 1.64% 1.03% 3.39%*
Portfolio turnover. . . . . . . . . . . . . 110% 209% 147% 253% 110% 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 "Description of Economic Sectors" 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 such objectives will be achieved. See "Investment Objective
and Policies" in the Statement of Additional Information.
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.
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.
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 "Description of Economic Sectors" in 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
"Description of Economic Sectors" 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
6
<PAGE>
considerations. Companies will be 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
(Moody's) or Standard & Poor's Ratings Group (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 or in non-rated fixed-income securities of
comparable quality. 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 or lower by S&P or Ba or
lower by Moody's, commonly known as "junk bonds", 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
"Description of Security Ratings" in the Appendix to this Prospectus. 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
7
<PAGE>
not backed by the "full faith and credit" of the United States, the Fund
must look principally to the agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the United
States if the agency or instrumentality does not meet its commitments.
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 under certain conditions 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, including
derivatives, 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
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. See "Investment
Objective and Policies--Forward Foreign Currency Exchange Contracts" in the
Statement of Additional Information.
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>
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act are exempt from the definition of
"commodity pool operator", subject to compliance with certain conditions. The
exemption is conditioned upon the Fund's purchasing and selling futures
contracts and options thereon for bona fide hedging transactions, except that
the Fund may purchase and sell futures contracts and options thereon for any
other purpose to the extent that the aggregate initial margin and option
premiums do not exceed 5% of the liquidation value of the 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.
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 options and stock index futures 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.
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 if 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 5% 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 in securities markets
either within or outside the United States. Restricted securities eligible for
resale pursuant to Rule 144A under the Securities Act of 1933, as amended (the
Securities Act), and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
The investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. Repurchase agreements subject
to demand are deemed to have a maturity equal to the applicable notice period.
The staff of the SEC has taken the position that purchased over-the-counter
options and the assets used as "cover" for written over-the-counter options are
illiquid securities unless the 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."
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. 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. 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
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company
Act. See "Investment Restrictions" in the Statement of Additional Information.
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<PAGE>
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, 1994, total expenses as a percentage
of average net assets were 1.30% 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 Fund's average daily
net assets. 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 management
fees to PMF of .65% of the Fund's average net assets. See "Manager" in the
Statement of Additional Information.
As of June 30, 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 $47 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.
Under the Management Agreement, PMF continues to have responsibility for all
investment advisory services and supervises PIC's performance of such
services.
The current portfolio manager of the 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 portfolio. Mr.
Goldberg has managed the Fund's portfolio since March 1994. Mr. Goldberg was
previously employed by Daiwa International Captial Management (January
1988-December 1993) as a portfolio manager for institutional clients. Prior
thereto, 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 and the President of Greg A. Smith Asset
Management Corporation, a registered investment adviser. Mr. Smith is a
consultant to PIC with respect to the allocation of assets for Prudential
Allocation Fund and is the portfolio manager of Prudential Strategist Fund, Inc.
Mr. Smith is recognized in the financial community as a leading asset allocation
strategist. Since 1983, he has been named by Institutional Investor magazine as
a member of its All-America Research Team. He is also responsible for Prudential
Securities' receiving the top ranking for asset allocation among twelve
brokerage firms for the five-year period ended March 31, 1994 in a continuing
survey conducted by The Wall Street Journal and Wilshire Associates.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
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<PAGE>
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 representatives of Pruco Securities
Corporation (Prusec), an affiliated broker-dealer, commissions and account
servicing fees paid to, or on account of, other broker-dealers or financial
institutions (other than national banks) which have entered into 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
activities with respect to Class A shares at an annual rate of up to .30 of 1%
of the average daily net assets of the Class A shares. The Class A Plan
provides that (i) up to .25 of 1% of the average daily net assets of the Class
A shares may be used to pay for personal service and/or the maintenance of
shareholder accounts (service fee) and (ii) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1% of the average daily
net assets of the Class A shares. PMFD has agreed to limit its
distribution-related fees payable under the Class A Plan to .25 of 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, 1994, PMFD received payments of
$108,720 under the Class A Plan. This amount was primarily expended for payment
of account servicing fees to financial advisers and other persons who sell
Class A shares. For the fiscal year ended April 30, 1994, PMFD also received
approximately $229,600 in initial sales charges.
Under the Class B and Class C Plans, the Fund pays Prudential Securities
for its distribution-related activities with respect to Class B and Class C
shares at an annual rate of 1% of the average daily net assets of each of the
Class B and Class C shares. The Class B and Class C Plans provide for the
payment to Prudential Securities of (i) an asset-based sales charge of .75 of
1% of the average daily net assets of each of the Class B and Class C shares,
and (ii) a service fee of .25 of 1% of the average daily net assets of each of
the Class B and Class C shares. The service fee is used to pay for personal
service and/or the maintenance of shareholder accounts. Prudential Securities
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, 1994, Prudential Securities incurred
distribution expenses of approximately $1,746,600 under the Class B Plan and
received $1,089,811 from the Fund under the Class B Plan. In addition,
Prudential Securities received approximately $283,400 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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<PAGE>
For the fiscal year ended April 30, 1994, the Fund paid distribution
expenses of .22 of 1% of the average daily net assets of the Class A shares. For
the fiscal year ended April 30, 1994, the Fund paid distribution expenses of
1.00% of the average daily net assets of the Class B shares. 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. Prior to the date of this Prospectus, the Class A and
Class B Plans operated as "reimbursement type" plans and, in the case of Class
B, provided for the reimbursement of distribution expenses incurred in current
and prior years. See "Distributor" in the Statement of Additional Information.
Distribution expenses attributable to the sale of shares of the Fund will
be allocated to each class based upon the ratio of sales of each class to the
sales of all shares of the Fund other than expenses allocated to a particular
class. The distribution fee and sales charge of one class will not be used to
subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to
the Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each
Plan may be terminated at any time by vote of a majority of the Rule 12b-1
Directors or 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 out of its own resources 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.
16
<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 any 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., Morningstar Publications, 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.
17
<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.
Taxation of Shareholders
All dividends out of net investment income, together with distributions of
any net short-term capital gains in excess of net long-term capital losses, will
be taxable as ordinary income to the shareholder whether or not reinvested. Any
net capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses) distributed to shareholders will be taxable as
long-term capital gains to the shareholders, whether or not reinvested and
regardless of the length of time a shareholder has owned his or her shares. The
maximum long-term capital gains rate for individuals is 28%. The maximum
long-term capital gains rate for corporate shareholders is 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.
The Fund has obtained opinions of counsel to the effect that neither (i)
the conversion of Class B shares into Class A shares nor (ii) the exchange of
Class B or Class C shares for Class A shares constitutes a taxable event for
federal income tax purposes. However, such opinions are not binding on the
Internal Revenue Service.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. 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. If you hold shares through Prudential
Securities, you should contact your financial adviser to elect to receive
dividends and distributions in cash. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis.
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," the NAV of each class is reduced by the
amount of the dividend or distribution allocable to each class. If you buy
shares just prior to the ex-dividend date (which generally occurs four business
days prior to the record date), the price you pay will include the dividend or
distribution and a portion of your investment will be returned to you as a
taxable dividend or distribution. You should, therefore, consider the timing of
dividends and distributions when making your purchases.
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 666,666,666 2/3 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." The Fund has
received an order from the SEC permitting the issuance and sale of multiple
classes of common stock. Currently, the Fund is offering three classes
designated Class A, Class B and Class C shares. In accordance with the Fund's
Articles of Incorporation, the Board of Directors may authorize the creation of
additional series of common stock and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the Board
may determine.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to
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<PAGE>
earnings, assets and voting privileges, except as noted above, and each
class bears the expenses related to the distribution of its shares. Except for
the conversion feature applicable to the Class B shares, there are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of the Fund is entitled to its portion
of all 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 or custodial accounts for the benefit of minors. For purchases
made through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment is $50. See "Shareholder Services" below.
The purchase price is the NAV next determined following receipt of an
order by the Transfer Agent or Prudential Securities plus a sales charge
which, at 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 into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund.
The Distributor reserves the right to cancel any purchase order for which
payment has not been received by the fifth business day following the
investment.
Transactions in Fund shares may be subject to postage and handling
charges imposed by your dealer.
Purchase by Wire. For an initial purchase of shares of the Fund by wire,
you must first telephone PMFS at (800) 225-1852 (toll-free) to receive an
account number. The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions
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<PAGE>
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 Initial sales charge waived or reduced
the public offering price being charged at a rate for certain purchases
of .25 of 1%)
Class B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six years
Class C Maximum CDSC of 1% of the lesser of 1% Shares do not convert to another class
the amount invested or the redemption
proceeds on redemptions made within
one year of purchase
</TABLE>
The three classes of shares represent an interest in the same portfolio
of investments of the Fund and have the same rights, except that (i) each
class bears the separate expenses of its Rule 12b-1 distribution and service
plan, (ii) each class has exclusive voting rights with respect to its plan
(except as noted under the heading "General Information--Description of Common
Stock"), and (iii) only Class B shares have a conversion feature . The three
classes also have separate exchange privileges. See "How to Exchange Your
Shares" below. The income attributable to each class and the dividends payable
on the shares of each class will be reduced by the amount of the distribution
fee of each class. Class B and Class C shares bear the expenses of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund
will receive different compensation for selling Class A, Class B and Class C
shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C shares.
In selecting a purchase alternative, you should consider, among other
things, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
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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 a maximum 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:
<TABLE>
<CAPTION>
Sales Charge as Sales Charge as Dealer Concession
Percentage of Percentage of as Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
------------------ --------------- ---------------- ----------------
<S> <C> <C> <C>
Less than $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
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is defined
in the Securities Act.
Reduction and Waiver of Initial Sales Charges. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money
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<PAGE>
market funds other than those acquired pursuant to the exchange privilege) may
be aggregated to determine the applicable reduction. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class
A Shares" in the Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of
an initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code (Benefit Plans), provided that the plan has existing
assets of at least $1 million invested in shares of Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the
exchange privilege) or 1,000 eligible employees or members. In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account recordkeeping (Direct Account Benefit
Plans) and Benefit Plans sponsored by PSI or its subsidiaries (PSI or
Subsidiary Prototype Benefit Plans), Class A shares may be purchased at NAV by
participants who are repaying loans made from such plans to the participant.
Prudential Retirement Accumulation Program 401(k) Plan. Class A shares may
be purchased at net asset value, with a waiver of the initial sales charge, by
or on behalf of participants in the Prudential Retirement Accumulation Program
401(k) Plan for which the Transfer Agent or Prudential Securities provides
recordkeeping services (PruRap Plan) provided that (i) for existing plans, the
plan has existing assets of $1 million or more, as measured on the last
business day of the month, invested in shares of Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the exchange
privilege) held at the Transfer Agent or Prudential Securities and (ii) for new
plans, the plan initially invests $1 million or more in shares of non-money
market Prudential Mutual Funds or has at least 1,000 eligible employees or
members.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or the
PruRap Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.
Miscellaneous Waivers. In addition, Class A shares may be purchased at NAV,
through Prudential Securities or the Transfer Agent, by the following persons:
(a) Directors and officers of the Fund and other Prudential Mutual Funds, (b)
employees of Prudential Securities and PMF and their subsidiaries and members
of the families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees and special agents
of Prudential and its subsidiaries and all persons who have retired directly
from active service with Prudential or one of its subsidiaries,(d) registered
representatives and employees of dealers who have entered into a selected
dealer agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer and (e) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares
of any open-end, non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or service
fee of .25 of 1% or less) 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
23
<PAGE>
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 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" below.
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 for the redemption
to be processed. If redemption is requested by a corporation, partnership,
trust or fiduciary, written evidence of authority acceptable to the Transfer
Agent must be submitted before such request will be accepted. All
correspondence and documents concerning redemptions should be sent to the Fund
in care of its Transfer Agent, Prudential Mutual Fund Services, Inc.,
Attention: Redemption Services, P.O. Box 15010, New Brunswick, New Jersey
08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid
to a person other than the record owner, (c) are to be sent to an address
other than the address on the Transfer Agent's records, or (d) are to be paid
to a corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Preferred
Services offices.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent of the certificate and/or
written request, except as indicated below. If you hold shares through
Prudential Securities, payment for shares presented for redemption will be
credited to your Prudential Securities account, unless you indicate otherwise.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on such Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(d) during any other period when the SEC, by order, so permits; provided that
applicable rules and regulations of the SEC shall govern as to whether the
conditions prescribed in (b), (c) or (d) exist.
Payment for redemption of recently purchased shares will be delayed until
the Fund or its Transfer Agent has been advised that the purchase check has
been honored, up to 10 calendar days from the time of receipt of the purchase
check by the Transfer Agent. Such delay may be avoided by purchasing shares by
wire or by certified or official bank check.
Redemption in Kind. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make 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
24
<PAGE>
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 will apply to such
repurchases. You will receive pro rata credit for any contingent deferred sales
charge paid in connection with the redemption of Class B or Class C shares. You
must notify the Fund's Transfer Agent, either directly or through Prudential
Securities or Prusec, at the time the repurchase privilege is exercised, that
you are entitled to credit for the contingent deferred sales charge previously
paid. Exercise of the repurchase privilege will generally not affect federal
income tax treatment of any gain realized upon redemption. If the redemption
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
shares or shares purchased through reinvestment of dividends or distributions
are not subject to a CDSC. The amount of any CDSC will be paid to and retained
by the Distributor. See "How the Fund is Managed--Distributor" and "Waiver of
the Contingent Deferred Sales Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The CDSC will be calculated from the first day of the month after
the initial purchase, excluding the time shares were held in a money market
fund. See "How to Exchange Your Shares."
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
Contingent Deferred Sales
Charge as a Percentage of
Year Since Purchase Dollars Invested or
Payment Made Redemption Proceeds
------------------ -------------------------
<S> <C>
First. . . . . . . . . . . . . 5.0%
Second . . . . . . . . . . . . 4.0%
Third. . . . . . . . . . . . . 3.0%
Fourth . . . . . . . . . . . . 2.0%
Fifth. . . . . . . . . . . . . 1.0%
Sixth. . . . . . . . . . . . . 1.0%
Seventh. . . . . . . . . . . . None
</TABLE>
25
<PAGE>
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value above the total
amount of payments for the purchase of 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 be applied to the value of the reinvested dividend shares and the
amount which represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 4% (the
applicable rate in the second year after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
Waiver of the Contingent Deferred Sales Charges--Class B Shares. The CDSC
will be waived in the case of a redemption following the death or disability of
a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), at the time of death or initial determination of
disability, provided that the shares were purchased prior to death or
disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a
tax-deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59 1/2; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were 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 (i.e.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
redemptions otherwise qualify for a waiver as described above. In the case of
Direct Account and PSI or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC was
not previously deducted will thereafter be subject to a CDSC without regard to
the time such amounts were previously invested. In the case of a 401(k) plan,
the CDSC will also be waived upon the redemption of shares purchased with
amounts used to repay loans made from the account to the participant and from
which a CDSC was previously deducted.
In addition, the CDSC will be waived on redemptions of shares held by a
Director of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to waiver
of the CDSC and provide the Transfer Agent with such supporting documentation as
it may deem appropriate. The waiver will be granted subject to confirmation of
your entitlement. See "Purchase and Redemption of Fund Shares--Waiver of the
Contingent Deferred Sales Charge--Class B Shares" in the Statement of
Additional Information.
A quantity discount may apply to redemptions of Class B shares purchased
prior to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994" in the Statement of
Additional Information.
26
<PAGE>
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. It is currently
anticipated that conversions will occur during the months of February, May,
August and November commencing in or about 1995. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares then in your account. Each time any Eligible Shares in
your account convert to Class A shares, all shares or amounts representing Class
B shares then in your account that were acquired through the automatic
reinvestment of dividends and other distributions will convert to Class A
shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus,
although the aggregate dollar value will be the same, you may receive fewer
Class A shares than Class B shares converted. See "How the Fund Values its
Shares."
For purposes of calculating the applicable holding period for
conversions, all payments for Class B shares during a month will be deemed to
have been made on the last day of the month, or for Class B shares acquired
through exchange or a series of exchanges, on the last day of the month in
which the original payment for purchases of such Class B shares was made. For
Class B shares previously exchanged for shares of a money market fund, the
time period during which such shares were held in the money market fund will
be excluded. For example, Class B shares held in a money market fund for one
year will not convert to Class A shares until approximately eight years from
purchase. For purposes of measuring the time period during which shares are
held in a money market fund, exchanges will be deemed to have been made on the
last day of the month. Class B shares acquired through exchange will convert
to Class A shares after expiration of the conversion period applicable to the
original purchase of such shares. The conversion feature described above will
not be implemented and, consequently, the first conversion of Class B shares
will not occur before February, 1995, but as soon thereafter as practicable.
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
27
<PAGE>
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. No sales charge will be imposed at the time of the exchange. Any
applicable CDSC payable upon the redemption of shares exchanged will be
calculated from the first day of the month after the 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. 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
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the
Fund at (800) 225-1852 to execute a telephone exchange of shares, on weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fraudulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction will be sent to you.
Neither the Fund nor its agents will be liable for any loss, liability or cost
which results from acting upon instructions reasonably believed to be genuine
under the foregoing procedures. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order. The Exchange Privilege is available only in states where the
exchange may legally be made.
If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.
If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates, must be returned in order for the shares to be
exchanged. See "How to Sell Your Shares" above.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange
of shares may be difficult to implement and you should make exchanges
by mail by writing to Prudential Mutual Fund Services, Inc., at the address
noted above.
Special Exchange Privilege. Commencing in or about February 1995, a special
exchange privilege is available for shareholders who qualify to purchase Class
A shares at NAV. See "Alternative Purchase Plan--Class A Shares--Reduction and
Waiver of Initial Sales Charges" above. Under this exchange privilege, amounts
representing any Class B and Class C shares (which are not subject to a CDSC)
held in such a shareholder's account will be automatically exchanged for Class
A shares on a quarterly basis, unless the shareholder elects otherwise. It is
currently anticipated that this exchange will occur quarterly in February, May,
August and November. Eligibility for this exchange privilege will be calculated
on the business day prior to the date of the exchange. Amounts representing
Class B or Class C shares which are not subject to a CDSC include the following:
(1) amounts representing Class B or Class C shares acquired pursuant to the
automatic reinvestment of dividends and distributions, (2) amounts representing
the increase in the net asset value above the total amount of payments for the
purchase of Class B or Class C shares, and (3) amounts representing Class B
or Class C shares held beyond the applicable CDSC period. Class B and Class C
shareholders must
28
<PAGE>
notify the Transfer Agent either directly or through Prudential Securities or
Prusec that they are eligible for this special exchange privilege.
The Exchange Privilege may be modified or terminated at any time on 60
days' notice to shareholders.
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder in 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 representative or
the Transfer Agent directly.
. Tax Deferred Retirement Plans. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.
. Systematic Withdrawal Plan. A systematic withdrawal plan is available
to shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges" above.
. Reports to Shareholders. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
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
A-1
<PAGE>
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.
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.
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<PAGE>
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
Bond Ratings
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of 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.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year.
P-1: Issuers rated Prime-1 or P-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
P-2: Issuers rated Prime-2 or P-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations.
B-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP
Debt 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.
BB, B, CCC, CC and C: Debt rated BB, B, CCC, CC and C is regarded, on
balance, as having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates the least degree of
speculation and C the highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Commercial Paper Ratings
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debt considered short-term in the relevant
market.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with the designation A-2 is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
B-2
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the
investment options available through our family of funds. For more information
on the Prudential Mutual Funds, including charges and expenses, contact your
Prudential Securities financial adviser or Prusec representative or
telephone the 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 Europe Growth Fund, Inc.
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
C-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
Risk Factors and Special
Characteristics . . . . . . . . . . . . 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. . . . . . . . . 24
Conversion Feature-Class B Shares. . . . 27
How to Exchange Your Shares. . . . . . . 28
Shareholder Services . . . . . . . . . . 29
DESCRIPTION OF ECONOMIC SECTORS . . . . . B-1
DESCRIPTION OF SECURITY RATINGS . . . . . B-1
THE PRUDENTIAL MUTUAL FUND FAMILY . . . . C-1
-------------------------------------------------
MF142A 444123A
************************************************
CUSIP Nos.: Class A: 74435J108
Class B: 74435J207
Class C: 74435J306
************************************************
Prudential
Multi-Sector
Fund, Inc.
--------------
[LOGO]
PROSPECTUS
August 1, 1994
<PAGE>
Prudential Mutual Funds
Supplement dated January 6, 1995
The following information supplements the Prospectus of each of the Funds
listed below effective January 6, 1995.
SHAREHOLDER GUIDE
ALTERNATIVE PURCHASE PLAN
Class A Shares--Reduction and Waiver of Initial Sales Charges
Other Waivers. Class A shares may be purchased at NAV, through Prudential
Securities or the Transfer Agent, by 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 .25 of
1% or less) and (iii) the financial adviser served as the client's broker on the
previous purchase.
HOW TO SELL YOUR SHARES
90-day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. No sales charge will apply to such repurchases. You will
receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption of Class B or Class C shares. You must notify the
Fund's Transfer Agent, either directly or through Prudential Securities or
Prusec, at the time the repurchase privilege is exercised that you are entitled
to credit for the contingent deferred sales charge previously paid. Exercise of
the repurchase privilege will generally not effect federal tax treatment of any
gain realized upon redemption. If the redemption resulted in a loss, some or all
of the loss, depending on the amount reinvested, will generally not be allowed
for federal income tax purposes.
<PAGE>
Listed below are the names of the Prudential Mutual Funds and the dates of
the Prospectuses to which this supplement relates.
<TABLE>
<CAPTION>
Name of Fund Prospectus Date
------------ ---------------
<S> <C>
Prudential Adjustable Rate Securities Fund, Inc. May 1, 1994
Prudential Allocation Fund September 29, 1994
Prudential California Municipal Fund
California Income Series December 30, 1994
California Series December 30, 1994
Prudential Equity Fund, Inc. August 1, 1994
Prudential Equity Income Fund December 30, 1994
Prudential Global Fund, Inc. January 3, 1995
Prudential Global Genesis Fund, Inc. August 1, 1994
Prudential Global Natural Resources Fund, Inc. August 1, 1994
Prudential GNMA Fund, Inc. August 1, 1994
Prudential Government Income Fund, Inc. August 1, 1994
Prudential Growth Opportunity Fund, Inc. August 1, 1994
Prudential High Yield Fund, Inc. August 1, 1994
Prudential IncomeVertible (R) Fund, Inc. August 1, 1994
Prudential Intermediate Global Income Fund, Inc. August 1, 1994
Prudential Multi-Sector Fund, Inc. August 1, 1994
Prudential Municipal Bond Fund August 1, 1994
Prudential Municipal Series Fund
Arizona Series December 30, 1994
Florida Series December 30, 1994
Georgia Series December 30, 1994
Hawaii Income Series September 19, 1994
Maryland Series December 30, 1994
Massachusetts Series December 30, 1994
Michigan Series December 30, 1994
Minnesota Series December 30, 1994
New Jersey Series December 30, 1994
New York Series December 30, 1994
North Carolina Series December 30, 1994
Ohio Series December 30, 1994
Pennsylvania Series December 30, 1994
Prudential National Municipals Fund, Inc. August 1, 1994
Prudential Pacific Growth Fund, Inc. January 3, 1995
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio January 3, 1995
Short-Term Global Income Fund January 3, 1995
Prudential Strategist Fund, Inc. August 1, 1994
Prudential Structured Maturity Fund, Inc. August 1, 1994
Prudential U.S. Government Fund January 3, 1995
Prudential Utility Fund, Inc. August 1, 1994
The BlackRock Government Income Trust November 1, 1994
(as supplemented December 30, 1994)
Global Utility Fund, Inc. August 1, 1994
Nicholas-Applegate Fund, Inc. August 1, 1994
</TABLE>
MF950C-1
Rule 497(c)
File No. 2-82764
PRUDENTIAL STRATEGIST FUND, INC.
--------------------------------------------------------------------------------
PROSPECTUS DATED AUGUST 1, 1994
--------------------------------------------------------------------------------
Prudential Strategist Fund, Inc. (the Fund), formerly Prudential Growth Fund,
Inc., is an open-end, diversified management investment company. Its investment
objective is to seek a high total return (capital appreciation plus dividend and
interest income) consistent with reasonable risk. In seeking to achieve this
objective, the Fund allocates assets among equity securities, fixed-income
securities and cash based on an evaluation of current market and economic
conditions by Greg A. Smith Asset Management Corporation, its Subadviser. Under
normal market conditions, the Fund invests at least 50% of its total assets in
equity securities that, in the view of the Subadviser, have the potential for
long-term growth of capital. The Fund invests in common stocks, securities
convertible into common stocks, non-convertible preferred stocks and debt
securities of U.S. and non-U.S. issuers. The Fund may also purchase and sell
options on debt and equity securities, on financial indices and foreign
currencies, and financial futures and options thereon. 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 objective will be achieved. See "How the
Fund Invests--Investment Objective and Policies." The Fund's address is One
Seaport Plaza, New York, New York 10292, and its telephone number is (800)
225-1852.
--------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated August 1, 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 STRATEGIST FUND, INC.?
Prudential Strategist 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 sales in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek high total return (capital
appreciation plus dividend and interest income) consistent with reasonable risk.
It seeks to achieve this objective by allocating its assets among equity
securities, fixed income securities and cash based on an evaluation of current
market and economic conditions by the Subadviser. There can be no assurance that
the Fund's objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies" at page 7.
RISK FACTORS AND SPECIAL CHARACTERISTICS
In seeking to achieve its investment objective, the Fund may engage in
short-selling and short-term trading. The Fund may also purchase and sell
options on debt and equity securities, on financial indices and foreign
currencies, and financial futures and options thereon. These various hedging and
income enhancement strategies, including the use of derivatives, may be
considered speculative and may result in higher risks and costs to the Fund. See
"How the Fund Invests--Hedging and Income Enhancement Strategies--Risks of
Hedging and Income Enhancement Strategies" at page 10.
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 based on the
Fund's average daily net assets. As of June 30, 1994, PMF served as manager or
administrator to 66 investment companies, including 37 mutual funds, with
aggregate assets of approximately $47 billion. Greg A. Smith Asset Management
Corporation (the Subadviser) furnishes investment advisory services in
connection with the management of the Fund under a Subadvisory Agreement with
PMF. See "How the Fund is Managed--Manager" at page 12.
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 paid an annual distribution and service fee
which is currently being charged at the 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 an annual
distribution and service fee at the 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 12.
--------------------------------------------------------------------------------
2
<PAGE>
--------------------------------------------------------------------------------
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 17 and "Shareholder Guide--Shareholder Services"
at page 26.
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 14 and "Shareholder Guide--How to Buy Shares of the Fund" at page 17.
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 distribution-related 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 18.
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 21.
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 15.
--------------------------------------------------------------------------------
3
<PAGE>
--------------------------------------------------------------------------------
FUND EXPENSES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
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 by 1% annually redemptions made
to 1% in the fifth and sixth within one year
years and 0% the seventh of purchase
year*
Redemption Fees ........................... None None None
Exchange Fee .............................. None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) CLASS A SHARES CLASS B SHARES CLASS C SHARES**
-------------- -------------- --------------
Management Fees ........................... .625% .625% .625%
12b-1 Fees ................................ .250%++ 1.000% 1.000%
Other Expenses ............................ .505% .505% .505%
----- ----- -----
Total Fund Operating Expenses ............. 1.380% 2.130% 2.130%
===== ===== =====
</TABLE>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
You would pay the following
expenses on a $1,000
investment, assuming (1) 5%
annual return and (2)
redemption at the end of each
time period
Class A .................... $ 63 $ 92 $122 $207
Class B .................... $ 72 $ 97 $124 $218
Class C** .................. $ 32 $ 67 $114 $246
You would pay the following
expenses on the same
investment, assuming no
redemption
Class A .................... $ 63 $ 92 $122 $207
Class B .................... $ 22 $ 67 $114 $218
Class C** .................. $ 22 $ 67 $114 $246
The above example with respect to Class A and Class B shares is based on
restated data for the Fund's fiscal year ended February 28, 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 February 28, 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" includes operating expenses of
the Fund, such as directors' and professional fees, registration fees, reports
to shareholders, transfer agency and custodian fees and franchise taxes.
------------
* 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 February 28,
1994.
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
the Fund rather than on a per shareholder basis. Therefore, long-term
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 Distribution and Service Plan provides that the Fund
may pay a distribution fee of up to .30 of 1% per annum of the average
daily net assets of the Class A shares, the Distributor has agreed to limit
its distribution fees with respect to Class A shares of the Fund to no more
than .25 of 1% of the average daily net assets of the Class A shares for
the fiscal year ending February 28, 1995. Total operating expenses without
such limitation would be 1.43%. See "How the Fund is Managed--Distributor."
--------------------------------------------------------------------------------
4
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS A SHARES)
--------------------------------------------------------------------------------
The following financial highlights have been audited by Price Waterhouse,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and notes thereto,
which appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class A share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for each of 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
-------------------------------------------------------------
JANUARY 22,
1990*
YEAR ENDED FEBRUARY 28/29, THROUGH
-------------------------------------------- FEBRUARY 28,
1994 1993 1992+ 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............... $15.74 $15.84 $14.91 $14.47 $14.45
------ ------ ------ ------ ------
Income from Investment Operations
Net investment income .............................. .03 .19 .21 .27 .01
Net realized and unrealized gain on
investment transactions .......................... 1.29 .37 1.75 .64 .01
------ ------ ------ ------ ------
Total from investment operations ............... 1.32 .56 1.96 .91 .02
------ ------ ------ ------ ------
Less Distributions
Dividends from net investment income ............... -- (.18) (.29) (.26) --
Distributions from net realized gains .............. (1.95) (.48) (.74) (.21) --
------ ------ ------ ------ ------
Total distributions ........................... (1.95) (.66) (1.03) (.47) --
------ ------ ------ ------ ------
Net asset value, end of period ..................... $15.11 $15.74 $15.84 $14.91 $14.47
====== ====== ====== ====== ======
TOTAL RETURN++: .................................... 8.81% 3.74% 13.76% 6.74% .14%
RATIOS/SUPLEMENTAL DATA:
Net assets, end of period (000) .................... $5,469 $4,264 $5,202 $1,105 $ 147
Ratios to average net assets:
Expenses, including distribution fees ............ 1.34% 1.29% 1.35% 1.46% 1.49%**
Expenses, excluding distribution fees ............ 1.13% 1.09% 1.15% 1.26% 1.29%**
Net investment income ............................ .20% 1.13% 1.37% 1.94% 3.39%**
Portfolio turnover rate ............................ 178% 99% 146% 77% 76%
<FN>
------------
* Commencement of offering of Class A shares.
** Annualized.
+ Calculated based upon weighted average shares outstanding during the year.
++ 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>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS B SHARES)
--------------------------------------------------------------------------------
The following financial highlights, with respect to the five-year period
ended February 28, 1994, have been audited by Price Waterhouse, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the financial statements and notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class B share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for each of 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 B
----------------------------------------------------------------------------------------------
YEARS ENDED FEBRUARY 28/29
----------------------------------------------------------------------------------------------
1994 1993 1992+ 1991 1990* 1989 1988 1987 1986 1985
---- ---- ----- ---- ----- ---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ................... $15.74 $15.86 $14.92 $14.46 $13.40 $12.79 $14.38 $11.86 $ 9.12 $ 8.49
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income
(loss) ...................... (.09) .06 .11 .17 .26 .35 .24 .16 .26 .44
Net realized and unrealized
gain (loss) on investment
transactions ................ 1.29 .37 1.73 .65 1.21 .64 (.80) 3.04 2.73 .59
------ ------ ------ ------ ------ ------ ------ ------ ------ ----
Total from investment
Operations .............. 1.20 .43 1.84 .82 1.47 .99 (.56) 3.20 2.99 1.03
------ ------ ------ ------ ------ ------ ------ ------ ------ ----
Less Distributions
Dividends from net investment
income ...................... -- (.07) (.16) (.16) (.41) (.38) (.15) (.18) (.25) (.40)
Distributions from net
realized gains .............. (1.95) (.48) (.74) (.20) -- -- (.88) (.50) -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ----
Total distributions ....... (1.95) (.55) (.90) (.36) (.41) (.38) (1.03) (.68) (.25) (.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ----
Net asset value, end
of period ................... $14.99 $15.74 $15.86 $14.92 $14.46 $13.40 $12.79 $14.38 $11.86 $ 9.12
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN++: ............... 8.02% 2.91% 12.80% 6.03% 10.90% 7.90% -4.02% 27.93% 33.80% 12.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets,
end of period (000) ......... $203,115 $236,590 $275,826 $277,282 $327,406 $350,387 $446,155 $272,515 $157,329 $163,502
Ratios to average net assets+++:
Expenses, including
distribution fees ......... 2.13% 2.09% 2.15% 2.26% 1.70% 1.63% 1.81% 1.94% 1.85% 1.93%
Expenses, excluding
distribution fees ......... 1.13% 1.09% 1.15% 1.26% 0.97% 0.91% 0.88% 0.97% 0.97% 0.93%
Net investment income ....... (.59%) 0.37% 0.74% 1.14% 1.71% 2.67% 1.79% 1.24% 2.74% 5.23%
Portfolio turnover rate ....... 178% 99% 146% 77% 76% 64% 93% 109% 216% 233%
<FN>
------------
* On January 22, 1990, Prudential Mutual Fund Management, Inc. succeeded
Prudential Securities Incorporated as the manager of the Fund.
+ Calculated based upon weighted average shares outstanding during the year.
++ 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.
+++ The Fund adopted a plan of distribution effective July 1, 1985 which was
amended and restated on January 22, 1990. Consequently, historical expenses
and ratios of expenses to average net assets for Class B shares, prior to
1990, are not necessarily indicative of future expenses and related ratios
for that Class. See "How the Fund is Managed--Distributor."
</FN>
</TABLE>
--------------------------------------------------------------------------------
6
<PAGE>
--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------
On July 19, 1994, at a special meeting of shareholders, shareholders
approved a change in the name of the Fund to Prudential Strategist Fund, Inc.
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK A HIGH TOTAL RETURN (CAPITAL
APPRECIATION PLUS DIVIDEND AND INTEREST INCOME) CONSISTENT WITH REASONABLE RISK.
IN SEEKING TO ACHIEVE THIS OBJECTIVE, THE FUND WILL ALLOCATE ASSETS AMONG EQUITY
SECURITIES, FIXED-INCOME SECURITIES AND CASH BASED ON AN EVALUATION OF CURRENT
MARKET AND ECONOMIC CONDITIONS BY GREG A. SMITH ASSET MANAGEMENT CORPORATION
(THE SUBADVISER).
Under normal market conditions, the Fund will invest at least 50% of its
total assets in equity securities that, in the view of the Subadviser, have the
potential for long-term growth of capital. The Fund invests in common stocks,
securities convertible into common stocks, non-convertible preferred stocks and
debt securities of U.S. and non-U.S. issuers. The Fund's investments in bonds
will be in securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, foreign government securities or in obligations of banks
or corporations rated A (upper medium grade obligations) or better by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service (Moody's). The Fund may
also purchase and sell options on debt and equity securities, on financial
indices and foreign currencies, and financial futures and options thereon. See
"Hedging and Income Enhancement Strategies" below. The Fund may engage in
short-selling and short-term trading, which may be considered speculative and
may result in higher risks and costs to the Fund. See "Other Investments and
Policies" below. THERE IS NO ASSURANCE THAT THE FUND WILL MEET ITS OBJECTIVE.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND 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.
In structuring the Fund's portfolio and in selecting specific investments
for the Fund, the Subadviser determines: (1) the mix of assets among equity
securities, fixed-income securities and cash; (2) the distribution of securities
among various economic sectors (such as energy, financial services and
utilities); (3) specific industries within each economic sector; and (4)
specific securities within each industry. In making asset allocations, the
Subadviser will consider the general economic environment, its impact on
financial markets, the rate of inflation, the outlook for real economic growth
in the United States and abroad and monetary, fiscal and foreign policy. Within
the framework of historical benchmarks and valuations, the Subadviser will
consider price/earnings ratios, ratios of market value to book value and
dividend growth. In selecting securities, the Subadviser considers economic
sectors and industries worldwide that in its judgment are most likely to benefit
from prevailing economic and market conditions.
When the Subadviser believes that in light of market and economic
conditions a defensive investment strategy is appropriate, the Fund will attempt
to reduce its exposure to market risk and may invest without limit in U.S.
Government securities, foreign government securities, corporate debt obligations
and high quality money market instruments.
MONEY MARKET INSTRUMENTS. The Fund may invest in high quality money market
instruments, including commercial paper of a U.S. or non-U.S. company, foreign
government securities, certificates of deposit, bankers' acceptances and time
deposits of domestic and foreign banks, and obligations issued or guaranteed by
the U.S. Government, its agencies and instrumentalities. These obligations will
be U.S. dollar denominated or denominated in a foreign currency.
FOREIGN INVESTMENTS. Investing in securities of foreign companies and
countries involves certain considerations and risks which are not typically
associated with investing in U.S. Government securities and those of domestic
companies. Foreign companies are not generally subject to uniform accounting,
auditing and financial standards and requirements comparable to those applicable
to U.S. companies. There may also be less government supervision and
7
<PAGE>
regulation of foreign securities exchanges, brokers and listed companies than
exists in the United States. Dividends and interest paid by foreign issuers may
be subject to withholding and other foreign taxes which may decrease the net
return on such investments as compared to dividends and interest paid to the
Fund by domestic companies or the U.S. Government. There may be the possibility
of expropriations, confiscatory taxation, political, economic or social
instability or diplomatic developments which could affect assets of the Fund
held in foreign countries. In addition, a portfolio of foreign securities may be
adversely affected by fluctuations in the relative rates of exchange between the
currencies of different nations and by exchange control regulations.
There may be less publicly available information about foreign companies
and governments compared to reports and ratings published about U.S. companies.
Foreign securities markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Brokerage commissions and
other transaction costs on foreign securities exchanges are generally higher
than in the United States.
PORTFOLIO TURNOVER. The Fund does not expect to trade in securities for
short-term gain. It is anticipated that the annual portfolio turnover rate will
not exceed 100%. 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.
HEDGING AND INCOME ENHANCEMENT STRATEGIES
THE FUND MAY ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING DERIVATIVES,
TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE INCOME.
These strategies include the purchase and writing (i.e., sale) of put and call
options on stocks, stock indices, debt securities and foreign currencies, the
use of forward currency exchange contracts and the purchase and sale of stock
index futures and related options. The Fund's ability to use these strategies
may be limited by market conditions, regulatory limits and tax considerations
and there can be no assurance that any of these strategies will succeed. See
"Investment Objective and Policies" in the Statement of Additional Information.
New financial products and risk management techniques have been or may be
developed and the Fund may use these new investments and techniques to the
extent consistent with its investment objective and policies and investment
restrictions.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES AND CURRENCIES THAT ARE TRADED ON NATIONAL SECURITIES EXCHANGES OR IN
THE OVER-THE-COUNTER MARKET TO ENHANCE INCOME OR TO HEDGE THE FUND'S PORTFOLIO.
These options will be primarily on stocks and stock indices but may also be on
debt securities, U.S. Government securities (listed and over-the-counter, i.e.,
purchased or sold through primary U.S. Government securities dealers) and
foreign currencies. The Fund may write covered put and call options to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of a security that it owns against a decline in
market value and purchase call options in an effort to protect against an
increase in the price of securities (or currencies) it intends to purchase. The
Fund may also purchase put and call options to offset previously written put and
call options of the same series. See "Investment Objective and Policies--Options
on Securities" in the Statement of Additional Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR CURRENCY
SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE "EXERCISE PRICE" OR "STRIKE
PRICE"). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver, depending upon the terms of
the option contract, the underlying securities or a specified amount of cash to
the purchaser upon receipt of the exercise price. When the Fund writes a call
option, the Fund gives up the potential for gain on the underlying securities or
currency in excess of the exercise price of the option during the period that
the option is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put
8
<PAGE>
option, in return for the premium, has the obligation, upon exercise of the
option, to acquire the securities or currency underlying the option at the
exercise price. The Fund might, therefore, as the writer of a put option be
obligated to purchase the underlying securities or currency for more than their
current market price.
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 the premium, is
obligated to pay the amount of cash due upon exercise of the option. See
"Investment Objective and Policies--Options on Stock Indices" in the Statement
of Additional Information.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, so
long as the Fund is obligated under the option, it owns an offsetting position
in the underlying security or currency or maintains cash, U.S. Government
securities or other liquid high-grade debt obligations with a value sufficient
at all times to cover its obligations. See "Investment Objective and
Policies--Options on Securities" in the Statement of Additional Information.
There is no limitation on the amount of call options the Fund may write. The
Fund may only write covered put options to the extent that cover for such
options does not exceed 25% of the Fund's net assets. The Fund will not purchase
an option if, as a result of such purchase, more than 20% of its total assets
would be invested in premiums for options and options on futures.
FORWARD CURRENCY EXCHANGE CONTRACTS
THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF THE FOREIGN SECURITIES IN ITS PORTFOLIO AGAINST FUTURE
CHANGES IN THE LEVEL OF CURRENCY EXCHANGE RATES. The Fund may conduct such
transactions on a spot, i.e., cash, basis at the rate then prevailing in the
currency exchange market or on a forward basis, by entering into a forward
contract to purchase or sell currency. A forward contract on foreign currency is
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days agreed upon by the parties from the date of the
contract at a price set on the date of the contract.
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR CERTAIN
HEDGING, RETURN ENHANCEMENT AND RISK MANAGEMENT PURPOSES IN ACCORDANCE WITH
REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION. These futures contracts
and related options will primarily be stock index futures and related options
but may also include futures contracts on debt securities, U.S. Government
securities and foreign currencies and related options. A stock index futures
contract is an agreement in which one party agrees to deliver to another an
amount of cash equal to a specific dollar amount times the difference between a
specific stock 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
stocks in the index is made.
THE FUND MAY NOT PURCHASE OR SELL FUTURES CONTRACTS AND RELATED OPTIONS IF
IMMEDIATELY THEREAFTER THE SUM OF THE AMOUNT OF INITIAL MARGIN DEPOSITS ON THE
FUND'S EXISTING FUTURES AND OPTIONS ON FUTURES AND PREMIUMS PAID FOR SUCH
RELATED OPTIONS WOULD EXCEED 5% OF THE MARKET VALUE OF THE FUND'S TOTAL ASSETS.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS DEPENDS
UPON THE SUBADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND IS
SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the price of the securities being hedged is
imperfect and there is a risk that the value of the securities being hedged may
increase or decrease at a greater rate than a specified futures contract
resulting in losses to the Fund.
THE FUND'S ABILITY TO ENTER INTO FUTURES CONTRACTS AND OPTIONS THEREON MAY
ALSO BE LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE INTERNAL REVENUE CODE), FOR QUALIFICATION AS A REGULATED INVESTMENT
COMPANY. SEE "INVESTMENT OBJECTIVE AND POLICIES--FUTURES CONTRACTS," "--OPTIONS
ON FUTURES
9
<PAGE>
CONTRACTS" AND "--CURRENCY FUTURES AND OPTIONS THEREON" AND "DIVIDENDS,
DISTRIBUTIONS AND TAXES" IN THE STATEMENT OF ADDITIONAL INFORMATION.
RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the Subadviser's
prediction of movements in the direction of the securities, foreign currency and
interest rate markets is inaccurate, the adverse consequences to the Fund may
leave the Fund in a worse position than if such strategies were not used. Risks
inherent in the use of options, foreign currency and futures contracts and
options on futures contracts include (1) dependence on the Subadviser's ability
to predict correctly movements in the direction of interest rates, securities
prices and currency markets; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices of
the securities or currencies being hedged; (3) the fact that skills needed to
use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; (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; and (7) in the case of over-the-counter options, the risk of
default by the counterparty. See "Additional Risks of Options on Securities and
Currencies, Futures Contracts, Options on Futures Contracts and Forward
Contracts," "Special Risk Considerations Relating to Futures Contracts and
Options Thereon" and "Limitations on the Purchase and Sale of Futures Contracts
and Options on Futures Contracts" under the caption "Investment Objective and
Policies" in the Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
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 period of maturity is usually quite
short, possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's money is
invested in the security. The Fund's repurchase agreements will at all times be
fully collateralized in an amount at least equal to the purchase price including
accrued interest earned on the underlying securities. The instruments held as
collateral are valued daily, and 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. See "Investment Objective and Policies--Repurchase Agreements" 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.
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 sale). 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,
interest or other distributions 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 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 the amount deposited in the
10
<PAGE>
account plus the amount deposited with the broker as collateral will equal or
exceed the greater of (i) the current value of the security sold short and (ii)
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 in an amount greater than any premium paid
in connection with the short sale. This result is the opposite of what would
result 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, when added
together, will 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.
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.
BORROWING
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (computed at the time the loan is made) from banks for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 20% of its total assets to secure these borrowings.
ILLIQUID SECURITIES
The Fund may not invest more than 15% of its total assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Securities that have legal or contractual restrictions on resale but have a
readily available market, such as Rule 144A securities and privately placed
commercial paper, are not considered illiquid for purposes of this limitation.
The Subadviser will monitor the liquidity of such restricted securities under
the supervision of the Board of Directors. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. See "Investment
Objective and Policies--Illiquid Securities" in the Statement of Additional
Information.
The staff of the Securities and Exchange Commission (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. However, 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 over-the-counter options on U.S. Government
securities only to qualified dealers who agree that the Fund may repurchase any
over-the-counter options it writes for a maximum price to be calculated by a
predetermined formula. In such cases, the over-the-counter option would be
considered illiquid only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option.
The staff of the SEC has also 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."
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
11
<PAGE>
--------------------------------------------------------------------------------
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 February 28, 1994, the total expenses as a
percentage of average net assets for the Fund's Class A and Class B shares were
1.34% and 2.13%, respectively. See "Financial Highlights." No Class C shares
were outstanding during the fiscal year ended February 28, 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 .625 OF 1% OF THE FIRST $500 MILLION OF
AVERAGE DAILY NET ASSETS, .55 OF 1% OF THE NEXT $500 MILLION AND .50 OF 1%
THEREAFTER OF THE FUND'S AVERAGE DAILY NET ASSETS. It was incorporated in May
1987 under the laws of the State of Delaware. For the fiscal year ended February
28, 1994, the Fund paid management fees to PMF of .625% of the Fund's average
net assets. See "Manager" in the Statement of Additional Information.
As of June 30, 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. These companies have
aggregate assets of approximately $47 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 GREG A. SMITH ASSET
MANAGEMENT CORPORATION, THE SUBADVISER FURNISHES INVESTMENT ADVISORY SERVICES IN
CONNECTION WITH THE MANAGEMENT OF THE FUND. PMF CONTINUES TO HAVE RESPONSIBILITY
FOR ALL INVESTMENT ADVISORY SERVICES PURSUANT TO THE MANAGEMENT AGREEMENT AND
SUPERVISES THE SUBADVISER'S PERFORMANCE OF SUCH SERVICES. Under the Subadvisory
Agreement, PMF compensates the Subadviser for its services thereunder at an
annual rate of .375 of 1% of the Fund's average daily net assets up to $500
million, .35 of 1% of such amounts between $500 million and $1 billion and .30
of 1% of such amounts in excess of $1 billion.
Greg A. Smith, the president and principal stockholder of the Subadviser,
is the portfolio manager of the Fund and has responsibility for the day-to-day
management of the Fund's portfolio. Mr. Smith has managed the Fund's portfolio
since August 1, 1991 and from its inception in 1983 until September 1987. Greg
A. Smith is also a consultant to Prudential Securities Incorporated (Prudential
Securities or PSI) and has acted as Prudential Securities' Chief Investment
Strategist since 1982. He also acts as a consultant to The Prudential Investment
Corporation on two open-end funds managed by the Manager. Prudential Securities
provides office facilities to the Subadviser.
Mr. Smith is recognized in the financial community as a leading asset
allocation strategist. Since 1983, he has been named by Institutional Investor
magazine as a member of its All-America Research Team. He is also responsible
for Prudential Securities receiving the top ranking for asset allocation among
twelve brokerage firms for the five-year period ended March 31, 1994 in a
continuing survey conducted by The Wall Street Journal and Wilshire Associates.
As a consultant to PSI, the Subadviser currently prepares PSI's Market and
Economic Outlook.
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 (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.
12
<PAGE>
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS
B PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND SEPARATE DISTRIBUTION AGREEMENTS
(THE DISTRIBUTION AGREEMENTS), PMFD AND PRUDENTIAL SECURITIES (COLLECTIVELY, THE
DISTRIBUTOR) INCUR THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND
CLASS C SHARES. These expenses include commissions and account servicing fees
paid to, or on account of, financial advisers of Prudential Securities and
representatives of Pruco Securities Corporation (Prusec), an affiliated
broker-dealer, commissions and account servicing fees paid to, or on account of,
other broker-dealers or financial institutions (other than national banks) which
have entered into 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
ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE OF UP TO .30 OF 1%
OF THE AVERAGE DAILY NET ASSET VALUE OF THE CLASS A SHARES. The Class A Plan
provides that (i) up to .25 of 1% of the average daily net assets of the Class A
shares may be used to pay for personal service and/or the maintenance of
shareholder accounts (service fee) and (ii) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1% of the average daily net
assets of the Class A shares. It is expected that in the case of Class A shares,
proceeds from the distribution fee will be used primarily to pay account
servicing fees to financial advisers. 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
February 28, 1995.
For the fiscal year ended February 28, 1994, PMFD received payments of
$8,690 under the Class A Plan. This amount was primarily expended for payment of
account servicing fees to financial advisers and other persons who sell Class A
shares. For the fiscal year ended February 28, 1994. PMFD also received
approximately $44,200 in initial sales charges.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES
FOR ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C
SHARES AT AN ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE
CLASS B AND CLASS C SHARES. The Class B and Class C Plans provide for the
payment to Prudential Securities of (i) an asset-based sales charge of .75 of 1%
of the average daily net assets of 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 February 28, 1994, Prudential Securities incurred
distribution expenses of approximately $1,037,200 under the Class B Plan and
received $2,180,398 from the Fund under the Class B Plan. In addition,
Prudential Securities received approximately $249,900 in contingent deferred
sales charges from redemptions of Class B shares during the year. No Class C
shares were outstanding during the fiscal year ended February 28, 1994.
For the fiscal year ended February 28, 1994, the Fund paid distribution
expenses of .21% and 1.00% of the average net assets of the Class A and Class B
shares, respectively. The Fund records all payments made under the Plans as
expenses in the calculation of net investment income. No Class C shares were
outstanding during the fiscal year ended February 28, 1994. Prior to the date of
this Prospectus, the Class A and Class B Plans operated as "reimbursement type"
plans and, in the case of Class B, provided for the reimbursement of
distribution expenses incurred in current and prior years. See "Distributor" in
the Statement of Additional Information.
13
<PAGE>
Distribution expenses attributable to the sale of shares of the Fund will
be allocated to each class based upon the ratio of sales of each class to the
sales of all shares of the Fund other than expenses allocable to a particular
class. The distribution fee and sales charge of one class will not be used to
subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors
or of a majority of the outstanding shares of the applicable class of the Fund.
The Fund will not be obligated to pay expenses incurred under any plan if it is
terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources 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 also 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,
Masssachusetts 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., 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 NAV TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
The 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 net asset
value. The New York Stock Exchange is closed on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
14
<PAGE>
Although the legal rights of each class of shares will be identical, the
different expenses borne by each class will result in different NAVs and
dividends. The NAV of Class B and Class C shares will generally be lower than
the NAV of Class A shares as a result of the larger distribution-related fee to
which Class B and Class C shares are subject. It is expected, however, that the
NAV of the three classes will tend to converge immediately after the recording
of dividends which will differ by approximately the amount of the
distribution-related expense accrual differential among the classes.
--------------------------------------------------------------------------------
HOW THE FUND CALCULATES PERFORMANCE
--------------------------------------------------------------------------------
FROM TIME TO TIME THE 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 any 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 may
also from time to time advertise its 30-day yield. 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., Morningstar Publications, Inc., other industry publications,
business periodicals, rating services 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 QUALIFIED 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.
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.
TAXATION OF SHAREHOLDERS
All dividends distributed out of net investment income, together with
distributions of net short-term capital gains, will be taxable as ordinary
income to the shareholder whether or not reinvested. Any net long-term capital
gains (i.e., the
15
<PAGE>
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
currently 28%. The maximum long-term capital gains rate for corporate
shareholders is currently the same as the maximum tax rate for ordinary income.
The Fund has obtained opinions of counsel to the effect that neither (i)
the conversion of Class B shares into Class A shares nor (ii) the exchange of
Class B or Class C shares for Class A shares constitutes a taxable event for
federal income tax purposes. However, such opinions are not binding on the
Internal Revenue Service.
WITHHOLDING TAXES
Under U.S. Treasury regulations, the Fund 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) with the required certifications regarding the
shareholder's status under the federal income tax law. Notwithstanding the
foregoing, dividends of net investment income and short-term capital gains to a
foreign shareholder will generally be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY,
SEMI-ANNUALLY AND MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY NET CAPITAL GAINS.
IN DETERMINING AMOUNTS OF CAPITAL GAINS TO BE DISTRIBUTED, ANY CAPITAL LOSS
CARRYFORWARDS FROM PRIOR YEARS WILL BE OFFSET AGAINST CAPITAL GAINS. 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-related expenses, 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 paid by the Fund are eligible for the 70% dividends-received
deduction for corporate shareholders to the extent that the Fund's income is
derived from certain dividends received from domestic corporations. Capital
gains distributions are not eligible for the 70% dividends-received deduction.
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., Account Maintenance, P.O. Box 15015, New Brunswick, New
Jersey 08906-5015. If you hold shares through Prudential Securities, you should
contact your financial adviser to elect to redeem dividends and distributions in
cash. The Fund will notify each shareholder after the close of the Fund's
taxable year both of the dollar amount and the taxable status of that year's
dividends and distributions on a per share basis. See "Dividends, Distributions
and Taxes" in the Statement of Additional Information.
WHEN THE FUND GOES "EX-DIVIDEND," THE NAV OF EACH CLASS IS REDUCED BY THE
AMOUNT OF THE DIVIDEND OR DISTRIBUTION ALLOCABLE TO EACH CLASS. IF YOU BUY
SHARES JUST PRIOR TO THE EX-DIVIDEND DATE, THE PRICE YOU PAY WILL INCLUDE THE
DIVIDEND OR DISTRIBUTION AND A PORTION OF YOUR INVESTMENT WILL BE RETURNED TO
YOU AS A TAXABLE DIVIDEND OR DISTRIBUTION. YOU SHOULD, THEREFORE, CONSIDER THE
TIMING OF DIVIDENDS AND DISTRIBUTIONS WHEN MAKING YOUR PURCHASES.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes.
--------------------------------------------------------------------------------
GENERAL INFORMATION
--------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
THE FUND WAS INCORPORATED IN MARYLAND ON MARCH 21, 1983. THE FUND IS
AUTHORIZED TO ISSUE 500 MILLION SHARES
16
<PAGE>
OF COMMON STOCK, $.01 PAR VALUE PER SHARE, DIVIDED INTO THREE CLASSES,
DESIGNATED CLASS A, CLASS B AND CLASS C COMMON STOCK, WHICH CONSISTS OF
166,666,666 AUTHORIZED CLASS A SHARES, 166,666,666 AUTHORIZED CLASS B SHARES AND
166,666,668 AUTHORIZED CLASS C 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." The Fund has received an order from the
SEC permitting the issuance and sale of multiple classes of common stock.
Currently, the Fund is offering three classes, designated Class A, Class B and
Class C shares. Pursuant to the Fund's Articles of Incorporation, the Board of
Directors may authorize the creation of additional series of common stock and
classes within such series, with such preferences, privileges, limitations and
voting and dividend rights as the Board may determine.
The Board of Directors may increase or decrease the number of authorized
shares without approval by the shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of common
stock of the Fund is entitled to its portion of all of the Fund's assets after
all debt and expenses of the Fund have been paid. Since Class B and Class C
shares generally bear higher distribution expenses than Class A shares, the
liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders. The Fund's shares do not have cumulative voting
rights for the election of Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the Securities
and Exchange Commission (the SEC) under the Securities Act of 1933, as amended
(the Securities Act). 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 or custodial accounts for the benefit of minors. For purchases
made through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment requirement is $50. See "Shareholder Services" below.
17
<PAGE>
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 into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire,
you must first telephone PMFS at (800) 225-1852 (toll-free) to receive an
account number. The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you to
your bank to transfer funds by wire to State Street Bank and Trust Company
(State Street), Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Prudential Strategist Fund, Inc., specifying on the wire
the account number assigned by PMFS and the investor's 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 Strategist 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>
CLASS A Maximum initial sales charge of 5% .30 OF 1% (Currently Initial sales charge waived or reduced
of the public offering price being charged at a rate for certain purchases
of .25 OF 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser of 1% Shares do not convert to another class
the amount invested or the
redemption proceeds on redemptions
made within one year of purchase
</TABLE>
18
<PAGE>
The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except as
noted under the heading "General Information--Description of Common Stock"), and
(iii) only Class B shares have a conversion feature. The three classes also have
separate exchange privileges. See "How to Exchange Your Shares" below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares automatically
convert to Class A shares approximately seven years after purchase (see
"Conversion Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum 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.
19
<PAGE>
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested) as
shown in the following table:
<TABLE>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
------------------ --------------- --------------- --------------
<S> <C> <C> <C>
Less than $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
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is defined
in the Securities Act.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Fund
Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares" in the
Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of
an initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the Internal
Revenue Code (Benefit Plans), provided that the plan has existing assets of at
least $1 million invested in shares of Prudential Mutual Funds (excluding money
market funds other than those acquired pursuant to the exchange privilege) or
1,000 eligible employees or members. In the case of Benefit Plans whose accounts
are held directly with the Transfer Agent or Prudential Securities and for which
the Transfer Agent or Prudential Securities does individual account 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.
Prudential Retirement Accumulation Program 401(k) Plan. Class A shares may
be purchased at net asset value, with a waiver of the initial sales charge, by
or on behalf of participants in the Prudential Retirement Accumulation Program
401(k) Plan for which the Transfer Agent or Prudential Securities provides
recordkeeping services (PruRap Plan) provided that (i) for existing plans, the
plan has existing assets of $1 million or more, as measured on the last business
day of the month, invested in shares of Prudential Mutual Funds (excluding money
market funds other than those acquired pursuant to the exchange privilege) held
at the Transfer Agent or Prudential Securities and (ii) for new plans, the plan
initially invests $1 million or more in shares of non-money market Prudential
Mutual Funds or has at least 1,000 eligible employees or members.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or the
PruRap Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.
Miscellaneous Waivers. In addition, Class A shares may be purchased at NAV,
through Prudential Securities or the Transfer Agent, by the following persons:
(a) Directors and officers of the Fund and other Prudential Mutual Funds, (b)
employees of Prudential Securities and PMF and their subsidiaries and members of
the families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees and special agents of
Prudential and its subsidiaries and all persons who have retired directly from
active service with Prudential or one of
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<PAGE>
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 Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
purchased upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales
Charges--Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class B
and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV NEXT DETERMINED
AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE TRANSFER AGENT OR
PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS SHARES." In certain cases,
however, redemption proceeds will be reduced by the amount of any applicable
contingent deferred sales charge, as described below. See "Contingent Deferred
Sales Charges" below.
IF YOU HOLD SHARES OF THE 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 FOR THE REDEMPTION
REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION,
PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE
TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All
correspondence and documents concerning redemptions should be sent to the Fund
in care of its Transfer Agent, Prudential Mutual Fund Services, Inc., Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Prudential Preferred Financial Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH PRUDENTIAL
SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE CREDITED TO YOUR
PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when
21
<PAGE>
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
Commission shall govern as to whether the conditions described 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 CHECKS.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. See "How the Fund Values its Shares." If your
shares are redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Fund, however, has elected to be governed by Rule 18f-1
under the Investment Company Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less then $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 will apply to such repurchases. You will
receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption of Class B or Class C shares. You must notify the
Fund's Transfer Agent, either directly or through Prudential Securities or
Prusec, at the time the repurchase privilege generally is exercised that you are
entitled to credit for the contingent deferred sales charge previously paid.
Exercise of the repurchase privilege will generally not affect federal income
tax treatment of any gain realized upon redemption. If the redemption resulted
in a loss, some or all of the loss, depending on the amount reinvested, will
generally not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid to
you. The CDSC will be imposed on any redemption by you which reduces the current
value of your Class B or Class C shares to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and one year, in the case of Class C shares. A CDSC will
be applied on the lesser of the original purchase price or the current value of
the shares being redeemed. Increases in the value of your shares or shares
purchased through reinvestment of dividends or distributions are not subject to
a CDSC. The amount of any contingent deferred sales charge will be paid to and
retained by the Distributor. See "How the Fund Is Managed--Distributor" and
"Waiver of the Contingent Deferred Sales Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to
22
<PAGE>
have been made on the last day of the month. The CDSC will be calculated from
the first day of the month after the initial purchase, excluding the time shares
were held in a money market fund. See "How to Exchange Your Shares."
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
YEAR SINCE PURCHASE OF 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 the net asset value above the total
amount of payments for the purchase of Fund shares made during the preceding six
years (5 years for Class B shares purchased prior to January 22, 1990); then of
amounts representing the cost of shares held beyond the applicable CDSC period;
and finally, of amounts representing the cost of shares held for the longest
period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the net
asset value had appreciated to $12 per share, the value of your Class B shares
would be $1,260 (105 shares at $12 per share). The CDSC would not be applied to
the value of the reinvested dividend shares and to the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500 minus
$260) would be charged at a rate of 4% (the applicable rate in the second year
after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability of
a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), at the time of death or initial determination of
disability, provided that the shares were purchased prior to death or
disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a
tax-deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59-1/2; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were 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 (i.e.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
redemptions otherwise qualify for a waiver as described above. In the case of
Direct Account and PSI or Subsidiary
23
<PAGE>
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 the
Directors of the Fund.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to waiver of the CDSC and provide the Transfer Agent with such
supporting documentation as it may deem appropriate. The waiver will be granted
subject to confirmation of your entitlement. See "Purchase and Redemption of
Fund Shares--Waiver of the Contingent Deferred Sales Charge--Class B Shares" in
the Statement of Additional Information.
A quantity discount may apply to redemptions of Class B shares purchased
prior to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994" in the Statement of
Additional Information.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. It is currently anticipated that
conversions will occur during the months of February, May, August and November
commencing in or about February 1995. Conversions will be effected at relative
net asset value without the imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (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 purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second 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
for 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,
24
<PAGE>
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. The conversion feature described above will not be implemented and,
consequently, the first conversion of Class B shares will not occur before
February, 1995, but as soon thereafter as practicable. 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 that (i) 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) the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET
FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A,
CLASS B AND CLASS C SHARES OF THE FUND MAY BE EXCHANGED FOR CLASS A, CLASS B AND
CLASS C SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV.
No sales charge will be imposed at the time of the exchange. Any applicable CDSC
payable upon the redemption of shares exchanged will be calculated from the
first day of the month after the initial purchase excluding the time shares were
held in a money market fund. Class B and Class C shares may not be exchanged
into money market funds other than Prudential Special Money Market Fund. For
purposes of calculating the holding period applicable to the Class B conversion
feature, the time period during which Class B shares were held in a money market
fund will be excluded. See "Conversion Feature--Class B Shares" above. An
exchange will be treated as a redemption and purchase for tax purposes. See
"Shareholder Investment Account--Exchange Privilege" in the Statement of
Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order. The Exchange Privilege is available only in states where the
exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
25
<PAGE>
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, THE TELEPHONE EXCHANGE
OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGE. Commencing in or about February 1995, a special
exchange privilege is available for shareholders who qualify to purchase Class A
shares at NAV. See "Alternative Purchase Plan--Class A Shares--Reduction and
Waiver of Initial Sales Charges" above. Under this exchange privilege, amounts
representing any Class B and Class C shares (which are not subject to a CDSC)
held in such a shareholder's account will be automatically exchanged for Class A
shares on a quarterly basis, unless the shareholder elects otherwise. It is
currently anticipated that this exchange will occur quarterly in February, May,
August and November. Eligibility for this exchange privilege will be calculated
on the business day prior to the date of the exchange. Amounts representing
Class B or Class C shares which are not subject to a CDSC include the following:
(1) amounts representing Class B or Class C shares acquired pursuant to the
automatic reinvestment of dividends and distributions, (2) amounts representing
the increase in the net asset value above the total amount of payments for the
purchase of Class B or Class C shares and (3) amounts representing Class B or
Class C shares held beyond the applicable CDSC period. Class B and Class C
shareholders must notify the Transfer Agent either directly or through
Prudential Securities or Prusec that they are eligible for this special exchange
privilege.
The Exchange Privilege may be modified or terminated at any time on 60
days' notice to shareholders.
SHAREHOLDER SERVICES
In addition to the Exchange Privilege as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:
*AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.
*AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including a
Command Account). For additional information about this service, you may contact
your Prudential Securities financial adviser, Prusec representative or the
Transfer Agent directly.
*TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code,
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
*SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
26
<PAGE>
*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, NY 10292. In addition, monthly unaudited financial data are
available upon request from the Fund.
*SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone at (800) 225-1852
(toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
27
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--------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
--------------------------------------------------------------------------------
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the 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 Europe Growth Fund, Inc.
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
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A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of an offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
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TABLE OF CONTENTS
Page
----
FUND HIGHLIGHTS.............................. 2
Risk Factors and Special Characteristics .. 2
FUND EXPENSES................................ 4
FINANCIAL HIGHLIGHTS......................... 5
HOW THE FUND INVESTS......................... 7
Investment Objective and Policies.......... 7
Hedging and Income Enhancement Strategies.. 8
Other Investments and Policies............. 10
Investment Restrictions.................... 11
HOW THE FUND IS MANAGED...................... 12
Manager.................................... 12
Distributor................................ 12
Portfolio Transactions..................... 14
Custodian and Transfer and
Dividend Disbursing Agent................ 14
HOW THE FUND VALUES ITS SHARES............... 14
HOW THE FUND CALCULATES PERFORMANCE.......... 15
TAXES, DIVIDENDS AND DISTRIBUTIONS........... 15
GENERAL INFORMATION.......................... 16
Description of Common Stock................ 16
Additional Information..................... 17
SHAREHOLDER GUIDE............................ 17
How to Buy Shares of the Fund.............. 17
Alternative Purchase Plan.................. 18
How to Sell Your Shares.................... 21
Conversion Feature--Class B Shares......... 24
How to Exchange Your Shares................ 25
Shareholder Services....................... 26
THE PRUDENTIAL MUTUAL FUND FAMILY............A-1
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MF114A 433089X
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Class A: 743943 10 5
CUSIP Nos.: Class B: 743943 20 4
Class C: 743943 30 3
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Prudential
Strategist
Fund, Inc.
Prudential Mutual Funds (LOGO)
Building Your Future
On Our Strength(SM)
PROSPECTUS
August 1, 1994
<PAGE>
Prudential Mutual Funds
Supplement dated January 6, 1995
The following information supplements the Prospectus of each of the Funds
listed below effective January 6, 1995.
SHAREHOLDER GUIDE
ALTERNATIVE PURCHASE PLAN
Class A Shares--Reduction and Waiver of Initial Sales Charges
Other Waivers. Class A shares may be purchased at NAV, through Prudential
Securities or the Transfer Agent, by 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 .25 of
1% or less) and (iii) the financial adviser served as the client's broker on the
previous purchase.
HOW TO SELL YOUR SHARES
90-day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. No sales charge will apply to such repurchases. You will
receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption of Class B or Class C shares. You must notify the
Fund's Transfer Agent, either directly or through Prudential Securities or
Prusec, at the time the repurchase privilege is exercised that you are entitled
to credit for the contingent deferred sales charge previously paid. Exercise of
the repurchase privilege will generally not effect federal tax treatment of any
gain realized upon redemption. If the redemption resulted in a loss, some or all
of the loss, depending on the amount reinvested, will generally not be allowed
for federal income tax purposes.
<PAGE>
Listed below are the names of the Prudential Mutual Funds and the dates of
the Prospectuses to which this supplement relates.
<TABLE>
<CAPTION>
Name of Fund Prospectus Date
------------ ---------------
<S> <C>
Prudential Adjustable Rate Securities Fund, Inc. May 1, 1994
Prudential Allocation Fund September 29, 1994
Prudential California Municipal Fund
California Income Series December 30, 1994
California Series December 30, 1994
Prudential Equity Fund, Inc. August 1, 1994
Prudential Equity Income Fund December 30, 1994
Prudential Global Fund, Inc. January 3, 1995
Prudential Global Genesis Fund, Inc. August 1, 1994
Prudential Global Natural Resources Fund, Inc. August 1, 1994
Prudential GNMA Fund, Inc. August 1, 1994
Prudential Government Income Fund, Inc. August 1, 1994
Prudential Growth Opportunity Fund, Inc. August 1, 1994
Prudential High Yield Fund, Inc. August 1, 1994
Prudential IncomeVertible (R) Fund, Inc. August 1, 1994
Prudential Intermediate Global Income Fund, Inc. August 1, 1994
Prudential Multi-Sector Fund, Inc. August 1, 1994
Prudential Municipal Bond Fund August 1, 1994
Prudential Municipal Series Fund
Arizona Series December 30, 1994
Florida Series December 30, 1994
Georgia Series December 30, 1994
Hawaii Income Series September 19, 1994
Maryland Series December 30, 1994
Massachusetts Series December 30, 1994
Michigan Series December 30, 1994
Minnesota Series December 30, 1994
New Jersey Series December 30, 1994
New York Series December 30, 1994
North Carolina Series December 30, 1994
Ohio Series December 30, 1994
Pennsylvania Series December 30, 1994
Prudential National Municipals Fund, Inc. August 1, 1994
Prudential Pacific Growth Fund, Inc. January 3, 1995
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio January 3, 1995
Short-Term Global Income Fund January 3, 1995
Prudential Strategist Fund, Inc. August 1, 1994
Prudential Structured Maturity Fund, Inc. August 1, 1994
Prudential U.S. Government Fund January 3, 1995
Prudential Utility Fund, Inc. August 1, 1994
The BlackRock Government Income Trust November 1, 1994
(as supplemented December 30, 1994)
Global Utility Fund, Inc. August 1, 1994
Nicholas-Applegate Fund, Inc. August 1, 1994
</TABLE>
MF950C-1
<PAGE>
Prudential Strategist Fund, Inc.
Supplement dated March 17, 1995 to Prospectus dated August 1, 1994
The Board of Directors of Prudential Strategist Fund, Inc. (Strategist Fund)
has recently approved a proposal to exchange the assets and liabilities of the
Fund for shares of Prudential Multi-Sector Fund, Inc. (Multi-Sector Fund). Class
A, Class B and Class C shares of Strategist Fund would be exchanged at net asset
value for Class A, Class B and Class C shares, respectively, of equivalent value
of Multi-Sector Fund.
The transfer has been approved by Multi-Sector Fund's Directors and is
subject to approval by Strategist Fund's shareholders. A proxy
statement/prospectus will be mailed to Strategist Fund's shareholders in late
April.
Multi-Sector Fund's primary investment objective is long-term growth of
capital. Greg A. Smith, the Strategist Fund's portfolio manager, currently makes
recommendations with respect to the Multi-Sector Fund's allocation of assets,
pursuant to a consulting arrangement between Prudential Investment Corporation,
Multi-Sector Fund's Subadviser, and Greg A. Smith Asset Management Corporation.
Under the terms of the proposal, shareholders of Strategist Fund would
become shareholders of Multi-Sector Fund. No sales charges would be imposed on
the proposed transfer. Strategist Fund anticipates obtaining an opinion of Fund
counsel that no gain or loss for federal income tax purposes would be recognized
by shareholsers of Strategist Fund as a result of the transfer.
Effective immediately, Strategist Fund will no longer accept purchase orders
for shares of any class. Existing Strategist Fund shareholders may continue to
acquire shares through dividend reinvestment, however exchanges into Strategist
Fund from other Funds will not be permitted. Existing shareholders will continue
to be permitted to exchange out of Strategist Fund and to redeem their shares
pursuant to the current redemption privileges until the transfer occurs.
MF 114A-1
