As filed with the Securities and Exchange Commission on June 29, 1995
Securities Act Registration No. 33-33477
Investment Company Act Registration No. 811-6047
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 8 [x]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 9 [x]
(Check appropriate box or boxes)
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PRUDENTIAL MULTI-SECTOR FUND, INC.
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, Including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service)
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Copy to:
Paul H. Dykstra, Esq.
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, Illinois 60610-4795
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Approximate date of public offering: As soon as practicable after the
effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate
box):
[ ] immediately upon filing pursuant to paragraph (b)
[x] on June 30, 1995 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has previously registered an indefinite number of shares of Common Stock, par
value $.001 per share. The Registrant filed a notice under such Rule for its
fiscal year ended April 30, 1995 on or about June 29, 1995.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
- ------------ --------
<S> <C> <C>
Part A
Item 1. Cover Page ........................................................ Cover Page
Item 2. Synopsis .......................................................... Fund Expenses
Item 3. Condensed Financial Information ................................... Fund Expenses; Financial Highlights;
How the Fund Calculates Performance
Item 4. General Description of Registrant ................................. Cover Page; Fund Highlights; How the
Fund Invests; General Information
Item 5. Management of Fund ................................................ Financial Highlights; How the Fund
is Managed; General Information
Item 6. Capital Stock and Other Securities ................................ Taxes, Dividends and Distributions;
General Information
Item 7. Purchase of Securities Being Offered .............................. Shareholder Guide; How the Fund
Values Its Shares
Item 8. Redemption or Repurchase .......................................... Shareholder Guide; How the Fund
Values its Shares; General Information
Item 9. Pending Legal Proceedings ......................................... Not Applicable
Part B
Item 10. Cover Page ........................................................ Cover Page
Item 11. Table of Contents ................................................. Table of Contents
Item 12. General Information and History ................................... General Information
Item 13. Investment Objectives and Policies ................................ Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund ............................................ Directors and Officers; Manager;
Distributor
Item 15. Control Persons and Principal Holders of Securities ............... Not Applicable
Item 16. Investment Advisory and Other Services ............................ Manager; Distributor; Custodian,
Transfer and Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other Practices .......................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities ................................ Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Offered ...... Purchase and Redemption of Fund
Shares; Shareholder Investment Account
Item 20. Tax Status ........................................................ Taxes
Item 21. Underwriters ...................................................... Distributor
Item 22. Calculation of Performance Data ................................... Performance Information
Item 23. Financial Statements .............................................. Financial Statements
Part C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
<PAGE>
Prudential Multi-Sector Fund, Inc.
- --------------------------------------------------------------------------------
Prospectus dated June 30, 1995
- --------------------------------------------------------------------------------
Prudential Multi-Sector Fund, Inc. (the Fund) is an open-end, 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 and may utilize derivatives. 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 June 30, 1995, 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, 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 8.
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 8. The Fund may also engage in various hedging and income
enhancement strategies, including utilizing derivatives. See "How the Fund
Invests--Hedging Strategies--Risks of Hedging Strategies" at page 13.
The Fund may invest in foreign securities without limit. Investing in
securities of foreign companies and countries involves certain considerations
and risks not typically associated with investing in securities of domestic
companies. See "How the Fund Invests Investment Objective and Policies--Risks of
Investing in Foreign Securities" at page 10.
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 9.
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. For the fiscal year ending April 30,
1996, the Manager has agreed to limit its fee to .625 of 1% of the first $500
million of the Fund's average daily net assets, .55 of 1% of the next $500
million of the Fund's average daily net assets and .50 of 1% of the Fund's
average daily net assets in excess of $1 billion. As of May 31, 1995, PMF served
as manager or administrator to 69 investment companies, including 39 mutual
funds, with aggregate assets of approximately $49 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
16.
2
<PAGE>
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 17.
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 24 and "Shareholder Guide--Shareholder Services"
at page 32.
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 19 and "Shareholder Guide--How to Buy Shares of the
Fund" at page 24.
What Are My Purchase Alternatives?
The Fund offers three classes of shares:
o Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
o 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.
o 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 25.
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 27.
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 21.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
Shareholder Transaction Expenses<F1> 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
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average net assets) Class A Shares Class B Shares Class C Shares**
-------------- -------------- ----------------
Management Fees<F3> ............................ .625% .625% .625%
12b-1 Fees ..................................... .25<F2> 1.00 1.00
Other Expenses ................................. .54 .54 .54
Total Fund Operating Expenses .................. 1.415% 2.165% 2.165%
<CAPTION>
1 3 5 10
Example year years years 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:
<S> <C> <C> <C> <C>
Class A ............................. $64 $93 $124 $211
Class B ............................. $72 $98 $126 $222
Class C** ........................... $32 $68 $116 $250
You would pay the following expenses on the
same investment, assuming no redemption:
Class A ............................. $64 $93 $124 $211
Class B ............................. $22 $68 $116 $222
Class C** ........................... $22 $68 $116 $250
The above example is based on restated data for the Fund's fiscal year ended
April 30, 1995. 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 entire fiscal year ended April 30,
1995.
<FN>
<F1> 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
each class of 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."
<F2> 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, 1996. Total Fund Operating
Expenses of Class A shares without such limitation would be 1.465%. See
"How the Fund is Managed--Distributor."
<F3> Although the Management Agreement provides that the Fund will pay a
management fee of .65 of 1% per annum of the average daily net assets of
the Fund, the Manager has agreed to limit its management fee to no more
than .625% of 1% of the first $500 million of the average daily net assets
of the Fund, .55 of 1% of the next $500 million and .50 of 1% thereafter
for the fiscal year ending April 30, 1996.
</FN>
</TABLE>
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 Deloitte & Touche
LLP, 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
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.
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------
June 29,
1990<F1>
Year Ended April 30, Through
------------------------------------------ April 30,
1995<F2> 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........... $ 13.21 $ 13.19 $ 12.51 $ 12.10 $ 11.37
------- ------- ------- ------- -------
Income from investment operations
Net investment income .......................... .09 .18 .30 .23 .40
Net realized and unrealized gain on
investments and foreign currency
transactions ................................. 1.44 1.64 1.47 .50 .59
------- ------- ------- ------- -------
Total from investment operations ........... 1.53 1.82 1.77 .73 .99
------- ------- ------- ------- -------
Less distributions
Dividends from net investment income ........... -- (.21) (.30) (.30) (.26)
Distributions from net capital and
currency gains ............................... (1.29) (1.59) (.79) (.02) --
------- ------- ------- ------- -------
Total distributions .......................... (1.29) (1.80) (1.09) (.32) (.26)
------- ------- ------- ------- -------
Net asset value, end of period ................. $ 13.45 $ 13.21 $ 13.19 $ 12.51 $ 12.10
======= ======= ======= ======= =======
TOTAL RETURN**: ................................ 12.15% 14.16% 15.14% 6.16% 17.64%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ................ $76,035 $53,237 $43,390 $52,625 $59,085
Average net assets (000) ....................... $59,316 $49,840 $46,890 $57,403 $55,545
Ratios to average net assets:
Expenses, including distribution fees ........ 1.44% 1.30% 1.28% 1.29% 1.35%*
Expenses, excluding distribution fees ........ 1.19% 1.08% 1.08% 1.09% 1.15%*
Net investment income ........................ .68% 1.15% 2.44% 1.83% 4.28%*
Portfolio turnover rate ........................ 122% 110% 209% 147% 253%
- ----------------------
<FN>
<F1> Commencement of investment operations.
<F2> Calculated based upon weighted average shares outstanding during the year.
* 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>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
(Class B Shares)
The following financial highlights for the five years ended April 30, 1995
have been audited by Deloitte & Touche LLP, 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 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.
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------
June 29,
1990<F1>
Year Ended April 30, Through
----------------------------------------- April 30,
1995<F2> 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........... $ 13.16 $ 13.15 $ 12.47 $ 12.06 $ 11.37
------- ------- ------- ------- -------
Income from investment operations
Net investment income .......................... (.01) .07 .19 .13 .32
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........................ 1.43 1.63 1.47 .51 .59
------- ------- ------- ------- -------
Total from investment operations ............. 1.42 1.70 1.66 .64 .91
------- ------- ------- ------- -------
Less distributions
Dividends from net investment income ........... -- (.10) (.19) (.21) (.22)
Distributions from net capital and
currency gains ............................... (1.29) (1.59) (.79) (.02) --
------- ------- ------- ------- -------
Total distributions .......................... (1.29) (1.69) (.98) (.23) (.22)
------- ------- ------- ------- -------
Net asset value, end of period ................. $ 13.29 $ 13.16 $ 13.15 $ 12.47 $ 12.06
======== ======== ======= ======== =======
TOTAL RETURN**: ................................ 11.31% 13.22% 14.13% 5.39% 16.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ................ $185,474 $128,098 $92,921 $108,276 $99,537
Average net assets (000) ....................... $153,209 $108,981 $99,072 $108,510 $82,890
Ratios to average net assets:
Expenses, including distribution fees ......... 2.19% 2.08% 2.08% 2.09% 2.15%*
Expenses, excluding distribution fees ......... 1.19% 1.08% 1.08% 1.09% 1.15%*
Net investment income (loss) .................. (.07)% .35% 1.64% 1.03% 3.39%*
Portfolio turnover rate ........................ 122% 110% 209% 147% 253%
- -------------
<FN>
<F1> Commencement of investment operations.
<F2> Calculated based upon weighted average shares outstanding during the year.
* 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
thelast 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>
6
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the indicated period)
(Class C Shares)
The following financial highlights have been audited by Deloitte & Touche
LLP, 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
financial highlights contain selected data for a Class C share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the period indicated. The information is based on data contained in the
financial statements.
<TABLE>
Class C
August 1, 1994<F1>
Through
April 30, 1995<F2>
---------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....................... $13.74
------
Income from investment operations
Net investment income ...................................... --
------
Net realized and unrealized gain on investments
and foreign currency transactions ........................ .84
------
Total from investment operations ....................... .84
------
Less distributions
Dividends from net investment income ....................... --
Distributions from net capital and currency gains .......... (1.29)
------
Total distributions .................................... (1.29)
------
Net asset value, end of period ............................. $13.29
======
TOTAL RETURN**: ............................................ 6.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ............................ $3,587
Average net assets (000) ................................... $1,653
Ratios to average net assets:<F4>
Expenses, including distribution fees .................... 2.37%*
Expenses, excluding distribution fees .................... 1.37%*
Net investment income .................................... .03%*
Portfolio turnover rate .................................... 122%
- -----------
<FN>
<F1> Commencement of offering of Class C shares.
<F2> Calculated based upon weighted average shares outstanding during the
period.
* 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 the period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
<F4> Since the Fund did not commence a public offering of Class C shares until
August 1, 1994, historical expenses and ratio of expenses to average net
assets of Class A and Class B shares are not necessarily indicative of
future expenses and related ratios of Class C shares.
</FN>
</TABLE>
7
<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 these 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 domestic and foreign 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.
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 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
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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, of this total, 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 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
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<PAGE>
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.
Risks of Investing in Foreign Securities
Investment in foreign 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 STRATEGIES
The Fund may also engage in various portfolio strategies, including
purchasing and selling derivatives, to reduce certain risks of its investments
and to attempt to enhance return. 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
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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.
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.
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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.
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 Strategies
Participation in the options or futures markets involves investment risks
and transaction costs to which the Fund would not be subject and transaction
costs from which no future benefit may be derived 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.
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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 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 repurchase agreement. 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 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of 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 Fund intends to comply with any applicable state blue sky laws restricting
the Fund's investments in illiquid securities. See "Investment Restrictions" in
the Statement of Additional Information. 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."
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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 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
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<PAGE>
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.
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, 1995, the Fund's expenses as a
percentage of average net assets for Class A, Class Bond Class C shares, were
1.44%, 2.19% and 2.37% (annualized), respectively. See "Financial Highlights."
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, 1995, the Fund paid management fees to PMF
of .65% of the Fund's average net assets. For the fiscal year ending April 30,
1996, the Manager has agreed to limit its management fee to .625 of 1% of the
first $500 million of the Fund's average net assets, .55 of 1% of the next $500
million and .50 of 1% of the Fund's average daily net assets in excess of $1
billion. See "Manager" in the Statement of Additional Information.
As of May 31, 1995, PMF served as the manager to 39 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 30 closed-end investment companies with aggregate assets of
approximately $49 billion.
Under the Management Agreement with the Fund, PMF manages the investment
operations of the Fund and also administers the Fund's corporate affairs. See
"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.
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<PAGE>
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 Capital 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, 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 (Strategy Portfolio). 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.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
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
17
<PAGE>
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, 1996.
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 up to 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, 1995, the Fund paid distribution
expenses of .25 of 1%, 1.00% and 1.00% (annualized) of the average daily net
assets of the Class A , Class B and Class C shares, respectively. The Fund
records 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
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 distribution and service fees 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. (NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the allegations
asserted against it, PSI consented to the entry of an SEC Administrative Order
which stated that PSI's conduct violated the federal securities laws, directed
PSI to cease and desist from violating the federal securities laws, pay civil
penalties, and adopt certain remedial measures to address the violations.
18
<PAGE>
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI's settlement with the
state securities regulators included an agreement to pay a penalty of $500,000
per jurisdiction. PSI has agreed to provide additional funds, if necessary, for
the purpose of the settlement fund. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
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.
19
<PAGE>
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.
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, if any, 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."
20
<PAGE>
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.
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
Any dividends out of net investment income, together with distributions of
any net short-term gains (i.e., the excess of net short-term capital gains over
net long-term capital losses) distributed to shareholders, 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 generally 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 with respect to
shares that are held for six months or less, 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 with
respect to those shares.
21
<PAGE>
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). Withholding at this rate is also required from
dividends and capital gains distributions (but not redemption proceeds) payable
to shareholders who are otherwise subject to backup withholding. 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).
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.
22
<PAGE>
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
of Directors 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 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.
23
<PAGE>
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
You may purchase shares of the Fund through Prudential Securities, Prusec
or directly from the Fund, through its Transfer Agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), Attention: Investment Services,
P.O. Box 15020, New Brunswick, New Jersey 08906-5020. 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. The minimum initial investment requirement is
waived for purchases of Class A shares effected through an exchange of Class B
shares of The BlackRock Government Income Trust. 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 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 the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day. See "Net Asset Value" in the
Statement of Additional Information.
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.
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<PAGE>
ALTERNATIVE PURCHASE PLAN
The Fund offers three classes of shares (Class A, Class B and Class C
shares) which allows you to choose the most beneficial sales charge structure
for your individual circumstances, given the amount of the purchase, the length
of time you expect to hold the shares and other relevant circumstances
(Alternative Purchase Plan).
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
------------------------------------ ----------------------- --------------------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of 5% of .30 of 1% (Currently 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
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
25
<PAGE>
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related 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 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
26
<PAGE>
participants. 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.
After a Benefit Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.
Other 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) and (iii) the financial adviser served as the client's
broker on the previous purchase.
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 acquired upon the reinvestment of dividends and distributions.
See "Purchase and Redemption of Fund Shares--Reduction and Waiver of Initial
Sales Charges--Class A Shares" in the Statement of Additional Information.
Class B and Class C Shares
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class B
shares and Class C may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
HOW TO SELL YOUR SHARES
You can redeem your shares 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.
27
<PAGE>
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 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.
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 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.
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<PAGE>
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
acquired through reinvestment of dividends or distributions are not subject to a
CDSC. The amount of any CDSC will be paid to and retained by the Distributor.
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>
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.
29
<PAGE>
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.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
The first conversion of Class B shares occurred in February 1995, when the
conversion feature was first implemented.
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.
30
<PAGE>
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 may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code and
(ii) that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
As a shareholder of the Fund you have an exchange privilege (the Exchange
Privilege) with certain other Prudential Mutual Funds, including one or more
specified money market funds, subject to the minimum investment requirements of
such funds. Class A, Class B and Class C shares may be exchanged for Class A,
Class B and Class C shares, respectively, of another fund on the basis of the
relative NAV. 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
31
<PAGE>
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. 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. 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 services and privileges:
O 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.
O 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.
O 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
32
<PAGE>
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.
O 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.
O 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.
O 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.
33
<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.
A-3
<PAGE>
(THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK)
<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 protective
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 characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
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 S&P. 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
S&P'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 stong
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 Diversified Bond 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
Hawaii Income 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 IncomeVertibler(R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
o 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
o 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
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o 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 ................................................ 8
Investment Objective and Policies .................................. 8
Hedging Strategies ................................................. 11
Other Investments and Policies ..................................... 14
Investment Restrictions ............................................ 16
HOW THE FUND IS MANAGED ............................................. 16
Manager ............................................................ 16
Distributor ........................................................ 17
Portfolio Transactions ............................................. 19
Custodian and Transfer and Dividend Disbursing
Agent ............................................................ 19
HOW THE FUND VALUES ITS SHARES ...................................... 19
HOW THE FUND CALCULATES PERFORMANCE ................................. 20
TAXES, DIVIDENDS AND DISTRIBUTIONS .................................. 21
GENERAL INFORMATION ................................................. 23
Description of Common Stock ........................................ 23
Additional Information ............................................. 23
SHAREHOLDER GUIDE ................................................... 24
How to Buy Shares of the Fund ...................................... 24
Alternative Purchase Plan .......................................... 25
How to Sell Your Shares ............................................ 27
Conversion Feature-Class B Shares .................................. 30
How to Exchange Your Shares ........................................ 31
Shareholder Services ............................................... 32
DESCRIPTION OF ECONOMIC SECTORS ..................................... A-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.
------------------
Prudential Mutual Funds
BUILDING YOUR FUTURE [LOGO]
ON OUR STRENGTH(SM)
P
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June 30, 1995
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Additional Information
dated June 30, 1995
Prudential Multi-Sector Fund, Inc. (the Fund) is an open-end, 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 June 30, 1995. A copy of
the Prospectus may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference
to page in
Page Prospectus
---- ---------------
<S> <C> <C>
General Information ........................................................................... B-2 23
Investment Objective and Policies ............................................................. B-2 8
Investment Restrictions ....................................................................... B-10 16
Directors and Officers ........................................................................ B-12 16
Manager ....................................................................................... B-14 16
Distributor ................................................................................... B-15 17
Portfolio Transactions and Brokerage .......................................................... B-18 19
Purchase and Redemption of Fund Shares ........................................................ B-19 24
Shareholder Investment Account ................................................................ B-22 32
Net Asset Value ............................................................................... B-25 19
Performance Information ....................................................................... B-25 20
Dividends and Distributions ................................................................... B-27 22
Taxes ......................................................................................... B-27 21
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants ................. B-29 19
Financial Statements .......................................................................... B-30 --
Independent Auditors' Report .................................................................. B-41 --
Appendix ...................................................................................... A-1 --
</TABLE>
================================================================================
<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. See "How
the Fund Invests--Investment Objective and Policies" in the Prospectus.
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
B-2
<PAGE>
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue 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
B-3
<PAGE>
of the industry or market segment index and will represent at least 50% of the
Fund's holdings in that industry or market segment. 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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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 initial 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 an Appendix to the
Prospectus.
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, 1994 and April 30, 1995, the Fund's
portfolio turnover rate was 110% and 122%, respectively.
Illiquid Securities
The Fund may not invest more that 10% 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 advisor 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).
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<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;
9. invest in oil, gas and mineral leases; and
10. (a) write puts having aggregate exercise prices greater than 25% of
total net assets, or (b) purchase (i) put options on stocks not held in the
Fund's portfolio, (ii) put options on stock indices or foreign currencies or
(iii) call options on stock, stock indices or foreign currencies if, after any
such purchase, the aggregate premiums paid for such options would exceed 10% of
the Fund's total assets; provided, however, that the Fund may purchase put
options on stocks held by the Fund if after such purchase the aggregate premiums
paid for such options do not exceed 20% of the Fund's total assets.
The Fund's Board of Directors has approved a change in the Fund's
subclassification from a non-diversified to a diversified investment company. As
a diversified investment company, the Fund may not purchase any security if, as
a result, with respect to 75% of its total assets, more than 5% of the Fund's
total assets would be invested in the securities of any one issuer (provided
that this restriction does not apply to U.S. Government securities).
B-11
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- ----------------------
<S> <C> <C>
Edward D. Beach (70) Director President and Director of BMC Fund, Inc., a closed-end investment
c/o Prudential Mutual company; prior thereto Vice Chairman of Broyhill Furniture
Fund Management, Inc. Industries, Inc.; Certified Public Accountant; Secretary and
One Seaport Plaza Treasurer of Broyhill Family Foundation, Inc.; President, Treasurer
New York, NY and Director of First Financial Fund, Inc. and The High Yield Plus
Fund, Inc.; President and Director of Global Utility Fund, Inc.;
Director of The Global Government Plus Fund, Inc. and The Global
Total Return Fund, Inc.
Donald D. Lennox (76) Director Chairman (since February 1990) and Director (since April 1989) of
c/o Prudential Mutual International Imaging Materials, Inc.; Retired Chairman, Chief
Fund Management, Inc. Executive Officer and Director of Schlegel Corporation (industrial
One Seaport Plaza manufacturing) (March 1987-February 1989); Director of Gleason
New York, NY Corporation, Personal Sound Technologies, Inc., The Global Government
Plus Fund, Inc. and The High Yield Income Fund, Inc.
Douglas H. McCorkindale (56) Director Vice Chairman, Gannett Co. Inc. (publishing and media) (since March
c/o Prudential Mutual 1984); Director, Continental Airlines, Inc., Gannett Co. Inc.,
Fund Management, Inc. Frontier Corporation and The Global Government Plus Fund, Inc.
One Seaport Plaza
New York, NY
Thomas T. Mooney (53) Director President of the Greater Rochester Metro Chamber of Commerce;
c/o Prudential Mutual formerly Rochester City Manager; Trustee of Center for Governmental
Fund Management, Inc. Research, Inc.; Director of Blue Cross of Rochester, Monroe County
One Seaport Plaza Water Authority, Rochester Jobs, Inc., Executive Service Corps of
New York, NY Rochester, Monroe County Industrial Development Corporation,
Northeast Midwest Institute, First Financial Fund, Inc., The Global
Government Plus Fund, Inc., The Global Total Return Fund, Inc. and
The High Yield Plus Fund, Inc.
*Richard A. Redeker (51) President and President, Chief Executive Officer and Director (since October 1993),
One Seaport Plaza Director PMF; Executive Vice President, Director and Member of Operating
New York, NY Committee (since October 1993), Prudential Securities Incorporated
(Prudential Securities); Director (since October 1993) of
Prudential Securities Group, Inc.(PSG); Executive Vice President
(since January 1994), The Prudential Investment Corporation; Director (since
January 1994), Prudential Mutual Fund Distributors, Inc. (PMFD);
Director (since January 1994), Prudential Mutual Fund Services,
Inc. (PMFS); formerly Senior Executive Vice President and
Director of Kemper Financial Services, Inc. (September 1978-September 1993);
President and Director of The Global Total Return Fund, Inc., The Global
Government Plus Fund, Inc. and The High Yield Income Fund, Inc.
Louis A. Weil, III (54) Director Publisher and Chief Executive Officer, Phoenix Newspapers, Inc.
c/o Prudential Mutual (since August 1991); Director of Central Newspapers, Inc. (since
Fund Management, Inc. September 1991); prior thereto, Publisher of Time Magazine (May
One Seaport Plaza 1989-March 1991); formerly President, Publisher and CEO of The
New York, NY Detroit News (February 1986-August 1989); formerly, member of the
Advisory Board, Chase Manhattan Bank-Westchester; Director of The
Global Government Plus Fund, Inc.
</TABLE>
- ------------------
* "Interested" Director, as defined in the Investment Company Act, by reason of
his affiliation with Prudential Securities or PMF.
B-12
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- ----------------------
<S> <C> <C>
Robert F. Gunia (48) Vice President Chief Administrative Officer (since July 1990), Director (since
One Seaport Plaza January 1989) and Executive Vice President, Treasurer and Chief
New York, NY Financial Officer (since June 1987) of PMF; Senior Vice President
(since March 1987) of Prudential Securities; Executive Vice
President, Treasurer, Comptroller and Director (since March 1991),
PMFD; Director (since June 1987), PMFS: Vice President and Director
(since May 1989) of The Asia Pacific Fund, Inc.
Susan C. Cote (40) Treasurer and Chief Operating Officer and Managing Director, Prudential Investment
751 Broad Street Principal Advisors, and Vice President, The Prudential Investment Corporation
Newark, NJ Financial and (since February 1995); Senior Vice President (January 1989-January
Accounting 1995) and First Vice President (June 1987-December 1988) of PMF;
Officer Senior Vice President (January 1992-January 1995) and Vice President
(January 1986-December 1991) of Prudential Securities.
Stephen M. Ungerman (42) Assistant First Vice President of Prudential Mutual Fund Management, Inc.
One Seaport Plaza Treasurer (since February 1993); prior thereto, Senior Tax Manager of Price
New York, NY Waterhouse (1981-January 1993).
S. Jane Rose (49) Secretary Senior Vice President (since January 1991), Senior Counsel (since
One Seaport Plaza June 1987) and First Vice President (June 1987-December 1990) of PMF;
New York, NY 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 (39) Assistant Vice President and Associate General Counsel (since June 1991) of
One Seaport Plaza Secretary PMF; Vice President and Associate General Counsel of Prudential
New York, NY 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.
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.
Pursuant to the terms of the Management Agreement with the Fund, the
Manager pays all compensation of officers and employees of the Fund as well as
the fees and expenses of all Directors of the Fund who are affiliated persons of
the Manager.
B-13
<PAGE>
The following table sets forth the aggregate compensation paid by the Fund
to the Directors who are not affiliated with the Manager for the fiscal year
ended April 30, 1995 and the aggregate compensation paid to such Directors for
service on the Fund's Board and the Boards 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 Estimated From Fund
Aggregate Benefits Accrued 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 -- Trustee $7,500 None N/A $159,000(20)*
Donald D. Lennox -- Trustee 7,500 None N/A 90,000(10)*
Douglas H. McCorkindale -- Trustee 7,500 None N/A 60,000 (7)*
Thomas T. Mooney -- Trustee 7,500 None N/A 126,000(17)*
Louis A. Weil, III -- Trustee 7,500 None N/A 97,500(12)*
</TABLE>
- -----------
* Indicates number of funds in Fund Complex to which aggregate compensation
relates.
As of June 9, 1995, 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 9, 1995, Prudential Securities was record holder of 3,558,707
Class A shares (or 64% of the outstanding Class A shares), 12,404,673 Class B
shares (or 88% of the outstanding Class B shares) and 279,266 Class C shares (or
92% of the outstanding Class C 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.
As of June 9, 1995, the beneficial owners, directly or indirectly, of more
than 5% of the outstanding shares of any class of common stock were: Foundation
For Jewish Philan, James Stovroff Annuity TR, DTD 12/29/94, Attn: P.
Fleischmann, 787 Delaware Ave., Buffalo, NY 14209-2005, who held 23,015 Class C
shares of the Fund (7.5%); Foundation For Jewish Philan, Haskell Stovroff
Annuity TR, DTD 12/29/94, Attn: P. Fleischmann, 787 Delaware Ave., Buffalo, NY
14209-2005, who held 23,015 Class C shares of the Fund (7.5%); and Buck
Anderson, Dick Holland CO-TTEES, Anderson Grain Corp. PFT SH & 401K, P.O. Box
1117, Levelland TX 79336-1117 who held 30,705 Class C shares of the Fund
(10.1%).
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 May 31, 1995, PMF managed and/or administered open-end and
closed-end management investment companies with assets of approximately $49
billion and, according to the Investment Company Institute, as of December 31,
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 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, 1995. Currently, the Fund
believes that the
B-14
<PAGE>
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, 1995, and by the
shareholders of the Fund on September 12, 1991.
For the fiscal years ended April 30, 1995, 1994 and 1993, the Fund paid
management fees to PMF of $1,389,386, $1,032,341 and $948,752, 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 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, 1995 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, 1994, 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 1994, Institutional Investor ranked Prudential the second largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1993.
B-15
<PAGE>
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the Fund.
Prudential Securities Incorporated (Prudential Securities or PSI), 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.
On February 9, 1993, 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 operations of the Plans or in any agreement
related to the Plans (the Rule 12b-1 Directors), at a meeting called for the
purpose of voting on 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, 1995. 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, 1995, PMFD received
payments of $148,289 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, 1995, PMFD also
received approximately $238,700 in initial sales charges.
Class B Plan. For the fiscal year ended April 30, 1995, the Distributor
received $1,532,086 from the Fund under the Class B Plan and spent approximately
$2,051,500 in distributing the Fund's Class B shares. It is estimated that of
the latter amount approximately 2.3% ($47,400) was spent on printing and mailing
prospectuses to other than current shareholders; 5.0% ($102,300) was spent in
commissions paid to or on account of representatives of Prusec; 1.1% ($22,900)
in interest and/or carrying charges; and 91.6% ($1,878,900) on the aggregate of
(i) payments of commissions to financial advisers (47.1% or $965,400) and (ii)
an allocation of overhead and other branch office distribution-related expenses
(44.5% or $913,500). The term "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, 1995, Prudential
Securities received approximately $350,300 in contingent deferred sales charges
attributable to Class B shares.
Class C Plan. For the period August 1, 1994 (inception of Class C shares)
through April 30, 1995, Prudential Securities received $12,272 under the Class C
Plan and spent approximately $34,500 in distributing Class C shares. It is
estimated that the latter amount was spent on (i) payments of commissions and
account servicing fees to financial advisers (49.6% or $17,100) and (ii) an
allocation of overhead and other branch office distribution-related expenses for
payments of related expenses (50.4% or $17,400). Prudential Securities also
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. For the
period August 1, 1994 (inception of Class C shares) through April 30, 1995,
Prudential Securities received approximately $1,000 in contingent deferred sales
charges attributable to Class C shares.
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
B-16
<PAGE>
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, 1995.
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.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. (PSG) and PSI
entered into agreements with the United States Attorney deferring prosecution
(provided PSI complies with the terms of the agreement for three years) for any
alleged criminal activity related to the sale of certain limited partnership
programs from 1983 to 1990. In connection with these agreements, PSI agreed to
add the sum of $330,000,000 to the fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent "ombudsman" whom PSI
employees can call anonymously with complaints about ethics and compliance.
Prudential Securities shall report any allegations or instances of criminal
conduct and material improprieties to the new director. The new director will
submit compliance reports which shall identify all such allegations or instances
of criminal conduct and material improprieties every three months for a
three-year period.
B-17
<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 commission 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 commissions 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 execution
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 merchants 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 Securities, 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-18
<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, 1995.
<TABLE>
<CAPTION>
Year ended Year ended Year ended
April 30, April 30, April 30,
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund ............................... $862,863 $640,908 $641,156
Total brokerage commissions paid to Prudential Securities and its
foreign affiliates ........................................................ 27,959 62,385 $ 84,496
Percentage of total brokerage commissions paid to Prudential
Securities and its foreign affiliates ..................................... 3.2% 9.7% 13.2%
</TABLE>
The Fund effected approximately 4.1% of the total dollar amount of its
transactions involving the payment of commissions through Prudential Securities
during the fiscal year ended April 30, 1995. Of the total brokerage commissions
paid during that period, $738,453 (or 88%) were paid to firms which provide
research, statistical or other services to PMF. PMF has not separately
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 of the Fund 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, 1995, the maximum offering price of the Fund's
shares is as follows:
Class A
Net asset value and redemption price per Class A share ................. $13.45
Maximum sales charge (5% of offering price) ............................ .71
------
Offering price to public ............................................... $14.16
======
Class B
Net asset value, offering price and redemption price to
public per Class B share* ............................................ $13.29
======
Class C
Net asset value, offering price and redemption price to
public per Class C share* ............................................ $13.29
======
- ----------------
*Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. See "Shareholder Guide--How to Sell Your Shares--
Contingent Deferred Sales Charges" in the Prospectus.
B-19
<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 "Shareholder
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 privilege) to determine the
reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales 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) including retirement and group plans, 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, except in the case of retirement and group plans where the employer
or plan sponsor will be responsible for paying any applicable sales charge. 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, except in
the case of retirement and group plans.
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 (or the employer or
plan sponsor, in the case
B-20
<PAGE>
of any retirement or group plan) is required to pay the difference between the
sales charge otherwise applicable to the purchases made during this period and
the sales charge actually paid. Such payment may be made directly to the
Distributor or, if not paid, the Distributor will liquidate sufficient escrowed
shares to obtain such difference. Investors electing to purchase Class A shares
of the Fund pursuant to a Letter of Intent should carefully read such Letter of
Intent.
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.
<TABLE>
<S> <C>
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 considered disabled if he A copy of the Social Security Administration award letter or
or she is unable to engage in any substantial gainful a letter from a physician on the physician's letterhead
activity by reason of any medically determinable physical stating that the shareholder (or, in the case of a trust, the
or mental impairment which can be expected to result in grantor) is permanently disabled. The letter must also indicate
death or to be of long-continued and indefinite duration. the date of disability.
Distribution from an IRA or 403(b) Custodial Account A copy of the distribution form from the custodial firm
indicating (i) the date of birth of the shareholder and
(ii) that the shareholder is over age 59-1/2 and is taking a
a normal distribution--signed by the shareholder.
Distribution from Retirement Plan A letter signed by the plan administrator/trustee indicating
the reason for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or the Plan
administrator/trustee on company letterhead indicating
the amount of the excess and whether or not taxes have
been paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
Quantity Discount--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 purchased 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-21
<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 applicable state laws. For
retirement and group plans having a limited menu of Prudential Mutual Funds, the
Exchange Privilege is available for those funds eligible for investment in the
particular program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
Class A. Shareholders of the Fund 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-22
<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, respectively, of other funds 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-23
<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 Compounding1
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-24
<PAGE>
NET ASSET VALUE
Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at the
last sale price on the day of valuation or, if there was no sale on such day,
the mean between the last bid and asked prices on such day, as provided by a
pricing service or principal market maker. Corporate bonds (other than
convertible debt securities) and U.S. Government securities that are actively
traded in the over-the-counter market, including listed securities for which the
primary market is believed to be over-the-counter, are valued on the basis of
valuations provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in comparable securities and various relationships between
securities in determining value. Convertible debt securities that are actively
traded in the over-the-counter market, including listed securities for which the
primary market is believed to be over-the-counter, are valued at the mean
between the last reported bid and asked prices provided by principal market
makers. Options on stock and stock indices traded on an exchange are valued at
the mean between the most recently quoted bid and asked prices on the respective
exchange and futures contracts and options thereon are valued at their last sale
prices as of the close of the commodities exchange or board of trade. Should an
extraordinary event, which is likely to affect the value of the security, occur
after the close of an exchange on which a portfolio security is traded, such
security will be valued at fair value considering factors determined in good
faith by the investment adviser under procedures established by and under the
general supervision of the Fund's Board of Directors.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Directors. Short-term debt securities are valued at cost, with interest
accrued or discount amortized to the date of maturity, if their original
maturity was 60 days or less, unless this is determined by the Board of
Directors not to represent fair value. Short-term securities with remaining
maturities of 60 days or more, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or principal market maker. The Fund will compute its
net asset value at 4:15 P.M., New York time, on each day the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem Fund shares have been received or days on which changes in the value
of the Fund's portfolio securities do not affect net asset value. In the event
the New York Stock Exchange closes early on any business day, the net asset
value of the Fund's shares shall be determined at the time between such closing
and 4:15 P.M., New York time.
Net asset value is calculated separately for each class. 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 Calculates
Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $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-25
<PAGE>
The average annual total return for Class A shares for the one year and
since inception (June 29, 1990) periods ended April 30, 1995 was 6.5% and 10.5%,
respectively. The average annual total return for Class B shares for the one
year and since inception (June 29, 1990) periods ended April 30, 1995 was 6.3%
and 10.7%, respectively. The average annual total return for Class C shares for
the period since inception (August 1, 1994) through April 30, 1995 was 5.6%.
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 Prospectus.
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 (June 29, 1990) periods ended April 30, 1995 was 12.2% and 70.4%,
respectively. The aggregate total return for Class B shares for the one year and
since inception periods ended April 30, 1995 was 11.3% and 64.1%, respectively.
The aggregate total return for Class C shares for the period since inception
(August 1, 1994) through April 30, 1995 was 6.6%.
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:
YIELD = 2
a-b +1 6
---------------- -1
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period.
The Fund's 30-day yields for the period ended April 30, 1995 were(.63)%,
(1.39)% and (1.39)% for the Class A, Class B and Class C shares, respectively.
B-26
<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
A Look At Performance Over the Long-Term
(1926-1992)
Insert Graph Here
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-27
<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 dispositions 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-28
<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
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions, and related
functions. For these services, PMFS receives an annual fee per shareholder
account, 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, 1995, the Fund incurred fees of
approximately $277,000 for the services of PMS.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, serves as the Fund's independent accountants and in that capacity audits
the Fund's annual financial statements.
B-29
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC. Portfolio of Investments
April 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--87.6%
COMMON STOCKS--86.9%
Auto Sector--2.1%
451,000 Fiat SpA* (ADR) (Italy)...... $ 1,835,614
135,000 Ford Motor Co................ 3,645,000
------------
5,480,614
------------
Basic Industry Sector--9.0%
140,000 Cominco, Ltd.* (Canada)...... 4,283,667
41,800 European Vinyls Corp.,
Int'l.* (Netherlands)...... 1,843,362
37,200 General Electric Co.......... 2,083,200
75,000 Hylsamex* S.A. (ADR)
(Mexico)................... 1,059,375
75,000 National Steel Corp.*........ 956,250
70,000 Owens-Corning Fiberglass
Corp.*..................... 2,563,750
35,000 Philips Electronics N.V...... 1,347,500
50,000 Ply Gem Industries, Inc...... 831,250
107,800 Quad Systems Corp.*.......... 862,400
74,400 TJ International, Inc........ 1,264,800
70,000 Trinity Industries, Inc...... 2,703,750
75,000 Uniphase Corp.*.............. 1,481,250
175,000 Ventritex, Inc.*............. 2,625,000
------------
23,905,554
------------
Consumer Goods & Services Sector--6.1%
60,800 Federal Express Corp.*....... 4,134,400
190,000 Fruit of the Loom, Inc.*..... 4,940,000
52,400 Nissen Co., Ltd. (Japan)..... 1,662,104
100,000 RJR Nabisco Holdings Corp.... 2,737,500
135,000 Stone Container Corp.*....... 2,683,125
------------
16,157,129
------------
Energy Sector--10.8%
130,000 Baker Hughes, Inc............ 2,925,000
Enterprise Oil PLC., (ADR)
54,100 (United Kingdom)........... 1,068,475
73,500 Exxon Corp................... 5,117,437
465,000 Mesa, Inc.*.................. 2,673,750
128,500 Noble Drilling Corp.*........ 851,313
139,500 Oryx Energy Co............... 1,918,125
118,900 Repsol S.A. (ADR) (Spain).... 3,804,800
72,200 Rigel Energy Corp.*.......... 731,025
200,000 Rowan Cos., Inc.*............ $ 1,375,000
70,000 Sonat Offshore Drilling,
Inc........................ 1,890,000
112,800 Talisman Energy, Inc.*
(Canada)................... 2,166,201
21,300 Weatherford International,
Inc........................ 234,300
190,000 YPF Sociedad Anonima (ADR)
(Argentina)................ 3,847,500
------------
28,602,926
------------
Financial Services Sector--17.9%
121,400 Ahmanson (H.F.) & Co......... 2,549,400
319,597 Banco Wiese (ADR) (Peru)..... 2,876,373
10,700 Berkley (W.R.) Corp.......... 401,250
80,500 Citicorp..................... 3,733,187
129,000 Dean Witter, Discover &
Co......................... 5,466,375
67,500 Federal National Mortgage
Assoc...................... 5,956,875
82,000 Manufactured Home
Communities, Inc........... 1,291,500
75,000 NationsBank Corp............. 3,750,000
65,500 PMI Group, Inc.*............. 2,439,875
50,200 Republic New York Corp....... 2,403,325
105,000 Salomon, Inc................. 3,793,125
171,500 SunAmerica, Inc.............. 8,403,500
107,000 Travelers Inc................ 4,427,125
------------
47,491,910
------------
Health Care Sector--11.1%
25,900 Akzo N.V. (ADR)
(Netherlands).............. 1,502,200
75,000 Columbia Healthcare Corp..... 3,150,000
100,000 Forest Laboratories, Inc.*... 4,500,000
151,500 Glaxo Holdings PLC (ADR)
(United Kingdom)........... 3,579,188
60,000 Merck & Co., Inc............. 2,572,500
165,000 National Medical Enterprises,
Inc.*...................... 2,805,000
75,000 Ostex International, Inc.*... 665,625
63,300 Physician Corp. of America,
Inc.*...................... 1,131,488
660 Roche Holdings, Ltd.
(Switzerland).............. 3,981,931
64,700 St. Jude Medical, Inc.*...... 2,782,100
99,500 U.S. HealthCare, Inc......... 2,661,625
------------
29,331,657
------------
</TABLE>
B-30 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Leisure Sector--1.1%
117,300 Carnival Cruise Lines,
Inc........................ $ 2,917,837
------------
Precious Metals Sector--1.3%
280,000 Santa Fe Pacific Gold
Corp....................... 3,535,000
------------
Public Utilities Sector--0.9%
80,000 Telefonos de Mexico S.A.
(ADR) (Mexico)............. 2,420,000
------------
Retailing Sector--3.2%
93,000 Au Bon Pain Co., Inc.*....... 1,255,500
37,200 Burlington Northern, Inc..... 2,213,400
135,900 Caldor Corp.*................ 2,633,062
91,000 Dillard Department Stores,
Inc........................ 2,354,625
------------
8,456,587
------------
Technology Sector--20.1%
50,000 Applied Materials, Inc.*..... 3,081,250
65,000 Aspen Technology, Inc.*...... 1,348,750
75,000 Bay Networks*................ 2,728,125
100,000 Chipcom Corp.*............... 3,275,000
90,000 Cisco Systems, Inc.*......... 3,588,750
79,000 Compaq Computer Corp.*....... 3,002,000
65,000 Computer Associates Int'l.,
Inc........................ 4,184,375
31,500 Diamond Multimedia Systems,
Inc.*...................... 630,000
112,900 EMC Corp.*................... 2,229,775
30,500 Intel Corp................... 3,122,437
50,000 Motorola, Inc................ 2,843,750
230,000 NEXTEL Communications,
Inc.*...................... 3,708,750
70,000 Seagate Technology, Inc.*.... 2,231,250
70,000 Silicon Graphics, Inc.*...... 2,625,000
130,000 Sun Microsystems, Inc.*...... 5,183,750
58,000 Sybase, Inc.*................ 1,406,500
175,000 Tandem Computers, Inc.*...... 2,231,250
21,500 Veeco Instruments, Inc.*..... 309,063
102,300 VeriFone, Inc.*.............. 2,416,838
145,000 VLSI Technology, Inc.*....... 3,090,312
------------
53,236,925
------------
Transportation Sector--3.3%
213,900 Canadian Pacific, Ltd.
(Canada)................... $ 3,261,975
108,100 Carolina Freight Corp........ 986,413
70,000 Illinois Central Corp........ 2,458,750
21,700 Kansas City Southern
Industries, Inc............ 813,750
110,300 Methanex Corp.* (Canada)..... 1,155,377
------------
8,676,265
------------
Total common stocks
(cost $217,070,288).......... 230,212,404
------------
CONVERTIBLE PREFERRED STOCK--0.7%
Basic Industry Sector
16,000 Alumax, Inc.
(cost $1,351,972).......... 1,932,000
------------
Total long-term investments
(cost $218,422,260).......... 232,144,404
------------
Principal
Amount SHORT-TERM INVESTMENTS--13.8%
(000) U.S. Government Securities--9.5%
- ---------
U.S. Treasury Bills,
$ 500 # 5.76%, 5/11/95............... 499,200
1,000 # 5.72%, 5/18/95............... 997,334
1,700 # 5.685%, 6/1/95............... 1,691,678
1,000 5.855%, 6/8/95............... 993,910
825 # 5.685%, 6/15/95.............. 819,137
1,000 5.73%, 6/15/95............... 992,838
20,000 5.69%, 11/16/95.............. 19,269,642
------------
Total U.S. Government
Securities
(cost $25,263,739)........... 25,263,739
------------
Repurchase Agreement--4.3%
11,447 Joint Repurchase Agreement
Account,
5.93%, 5/1/95, (Note 5)
(cost $11,447,000)......... 11,447,000
------------
Total short-term investments
(cost $36,710,739)........... 36,710,739
------------
</TABLE>
B-31 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Total investments before
short sales--101.4%
(cost $255,132,999; Note
4)......................... $268,855,143
------------
COMMON STOCKS SOLD SHORT*--(2.6%)
Basic Industry Sector--(0.5%)
100,000 Centocor, Inc................ (1,412,500)
------------
Consumer Goods & Services Sector--(0.8%)
15,000 NIKE, Inc.................... (1,149,375)
30,000 Reebok International......... (937,500)
------------
(2,086,875)
------------
Retailing Sector--(1.3%)
30,000 AutoZone, Inc................ (693,750)
50,000 Cracker Barrel Old Country,
Inc........................ (1,062,500)
20,000 PETsMART, Inc................ (667,500)
38,000 Starbucks Corp............... (893,000)
------------
(3,316,750)
------------
Total common stocks sold
short
(proceeds $7,577,839)...... (6,816,125)
------------
Total investments, net of
short sales--98.8%......... 262,039,018
Other assets in excess of
other
liabilities--1.2%.......... 3,057,107
------------
Net Assets--100%............. $265,096,125
============
</TABLE>
- ---------------
* Non-income producing security.
# Pledged as collateral on short sales.
ADR--American Depository Receipt.
B-32 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets April 30, 1995
----------------
<S> <C>
Investments, at value (cost $255,132,999)............................................... $268,855,143
Foreign currency, at value (cost $1,068)................................................ 1,121
Deposits with broker for securities sold short.......................................... 7,577,839
Receivable for investments sold......................................................... 3,232,149
Receivable for Fund shares sold......................................................... 871,730
Forward currency contracts-amount receivable from counterparties........................ 332,945
Interest and dividends receivable....................................................... 231,498
Deferred expenses and other assets...................................................... 13,569
----------------
Total assets.......................................................................... 281,115,994
----------------
Liabilities
Investments sold short, at value (proceeds $7,577,839).................................. 6,816,125
Payable for investments purchased....................................................... 5,610,445
Payable for Fund shares reacquired...................................................... 2,139,927
Forward currency contracts - amount payable to counterparties........................... 838,084
Accrued expenses and other liabilities.................................................. 310,174
Distribution fee payable................................................................ 167,074
Management fee payable.................................................................. 138,040
----------------
Total liabilities..................................................................... 16,019,869
----------------
Net Assets.............................................................................. $265,096,125
----------------
----------------
Net assets were comprised of:
Common stock, at par.................................................................. $ 19,875
Paid-in capital in excess of par...................................................... 239,687,667
----------------
239,707,542
Undistributed net investment income................................................... 22,179
Accumulated net realized capital and currency gains................................... 11,387,268
Net unrealized appreciation on investments and foreign currencies..................... 13,979,136
----------------
Net assets, April 30, 1995.............................................................. $265,096,125
----------------
----------------
Class A:
Net asset value and redemption price per share
($76,034,667 / 5,653,135 shares of common stock issued and outstanding)............. $13.45
Maximum sales charge (5.00% of offering price)........................................ .71
----------------
Maximum offering price to public...................................................... $14.16
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($185,474,014 / 13,951,887 shares of common stock issued and outstanding)........... $13.29
----------------
----------------
Class C:
Net asset value, offering price and redemption price per share
($3,587,444 / 269,856 shares of common stock issued and outstanding)................ $13.29
----------------
----------------
</TABLE>
See Notes to Financial Statements.
B-33
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
April 30,
Net Investment Income 1995
-----------
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $100,984)................. $ 2,295,606
Interest and discount earned......... 2,226,288
-----------
Total income....................... 4,521,894
-----------
Expenses
Management fee....................... 1,389,386
Distribution fee--Class A............ 148,289
Distribution fee--Class B............ 1,532,086
Distribution fee--Class C............ 12,272
Transfer agent's fees and expenses... 317,000
Reports to shareholders.............. 277,000
Custodian's fees and expenses........ 265,000
Registration fees.................... 124,000
Legal fees and expenses.............. 52,500
Amortization of organization
expense.............................. 45,000
Directors' fees...................... 37,500
Audit fee............................ 30,000
Miscellaneous........................ 9,066
-----------
Total expenses..................... 4,239,099
-----------
Net investment income.................. 282,795
-----------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Security transactions................ 20,552,418
Short sale transactions.............. 1,251,132
Foreign currency transactions........ (128,118)
Financial futures contracts.......... (1,523,750)
-----------
20,151,682
-----------
Net change in unrealized appreciation
on:
Securities........................... 3,098,459
Short sales.......................... 557,238
Foreign currencies................... (285,206)
-----------
3,370,491
-----------
Net gain on investments and foreign
currency transactions................ 23,522,173
-----------
Net Increase in Net Assets Resulting
from Operations........................ $23,804,968
-----------
-----------
</TABLE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------
Increase in Net Assets 1995 1994
------------ ------------
<S> <C> <C>
Operations
Net investment
income................. $ 282,795 $ 956,693
Net realized gain on
investments and
foreign currency
transactions......... 20,151,682 22,140,711
Net change in
unrealized
appreciation of
investments.......... 3,370,491 (5,325,410)
------------ ------------
Net increase in net
assets resulting from
operations........... 23,804,968 17,771,994
------------ ------------
Net equalization
credits................ 72,776 152,418
------------ ------------
Dividends and
distributions (Note 1)
Dividends from net
investment income
Class A.............. -- (724,102)
Class B.............. -- (736,046)
Class C.............. -- --
------------ ------------
-- (1,460,148)
------------ ------------
Distributions from net
capital and currency
gains
Class A.............. (5,260,734) (5,543,404)
Class B.............. (13,945,867) (12,086,917)
Class C.............. (48,280) --
------------ ------------
(19,254,881) (17,630,321)
------------ ------------
Fund share transactions
(net of conversion)
(Note 6)
Net proceeds from Fund
shares subscribed.... 131,985,932 81,243,634
Net asset value of Fund
shares issued in
reinvestment of
dividends and
distributions........ 17,954,751 17,794,396
Cost of shares
reacquired............. (70,803,068) (52,846,996)
------------ ------------
Net increase in net
assets from Fund
share transactions... 79,137,615 46,191,034
------------ ------------
Total increase........... 83,760,478 45,024,977
Net Assets
Beginning of year........ 181,335,647 136,310,670
------------ ------------
End of year.............. $265,096,125 $181,335,647
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
B-34
<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 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 of significant
Policies 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 gains on
security transactions.
Net realized loss on foreign currency transactions of $128,118 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, 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 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: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The Fund enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings or on specific receivables and payables denominated in a foreign
currency. The contracts are
B-35
<PAGE>
valued daily at current exchange rates and any unrealized gain or loss is
included in net unrealized appreciation or depreciation on investments. Gain or
loss is realized on the settlement date of the contract equal to the difference
between the settlement value of the original and renegotiated forward contracts.
This gain or loss, if any, is included in net realized gain (loss) on 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 amount 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. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Fund invests in financial futures contracts in order to hedge its existing
portfolio securities, or securities the Fund intends to purchase, against
fluctuations in value caused by changes in prevailing interest rates. Should
interest rates move unexpectedly, the Fund may not achieve the anticipated
benefits of the financial futures contracts and may realized 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, 1995.
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. During the fiscal year ended April 30 1995, the Fund reclassified
$177,685 of foreign currency losses which were recognized for tax purposes in
the current fiscal year by increasing undistributed net investment income and
decreasing accumulated net realized capital and currency gains. 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 organization and initial registration of the
Fund. This amount
B-36
<PAGE>
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 year ended April 30, 1995.
PMFD has advised the Fund that it has received approximately $238,700 in
front-end sales charges resulting from sales of Class A shares during the year
ended April 30 1995. 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 year ended April 30, 1995, it received
approximately $351,300 in contingent deferred sales charges imposed upon
redemptions by certain Class B and Class C 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 year ended April 30, 1995, the Fund incurred fees of approximately $277,000
for the services of PMFS. As of April 30, 1995, approximately $29,000 of such
fees were due to PMFS. Transfer agent fees and expenses in the Statement of
Operations include certain out-of-pocket expenses paid to non-affiliates.
For the year ended April 30, 1995, PSI earned approximately $28,000 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 year ended April
30, 1995 aggregated $275,090,519 and $229,098,513, respectively.
The federal income tax basis of the Fund's investments at April 30, 1995 was
$255,829,870 and, accordingly, net unrealized appreciation for federal income
tax purposes was $13,025,273 (gross unrealized appreciation--$25,069,291, gross
unrealized depreciation--$12,044,018).
B-37
<PAGE>
At April 30, 1995, 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>
- -------------------------- ---------------- ---------- ---------------
Finnish Markka,
expiring 6/01/95 $ 3,379,481 $3,409,222 $ 29,741
Japanese Yen,
expiring 5/02/95 3,577,700 3,875,507 297,807
---------------- ---------- ---------------
$ 6,957,181 $7,284,729 $ 327,548
---------------- ---------- ---------------
---------------- ---------- ---------------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation/
Sale Contracts Receivable Value (Depreciation)
<S> <C> <C> <C>
- ----------------------- ---------------- ----------- ---------------
Finnish Markka,
expiring 6/01/95 $ 3,140,567 $ 3,409,222 $ (268,655)
Japanese Yen,
expiring
5/02/95-8/02/95 4,825,109 5,384,624 (559,515)
Swiss Francs,
expiring 6/30/95 3,300,000 3,304,517 (4,517)
---------------- ----------- ---------------
$ 11,265,676 $12,098,363 $ (832,687)
---------------- ----------- ---------------
---------------- ----------- ---------------
</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. As of April 30, 1995, the Fund had a 1.7% undivided interest in the
repurchase agreements in the joint account. The undivided interest for the Fund
represents $11,447,000 in principal amount. As of such date, each repurchase
agreement in the joint account and the value of the collateral therefor were as
follows:
Bear, Stearns & Co., Inc., 5.92%, in the principal amount of $125,000,000,
repurchase price $125,061,666, due 5/1/95. The value of the collateral including
accrued interest is $127,647,875.
UBS Securities Inc., 5.93%, in the principal amount of $100,000,000,
repurchase price $100,049,416, due 5/1/95. The value of the collateral including
accrued interest is $102,001,215.
Morgan Stanley and Co., Inc., 5.93%, in the principal amount of $225,000,000,
repurchase price $225,111,187, due 5/1/95. The value of the collateral including
accrued interest is $229,982,534.
CS First Boston Corp., 5.93%, in the principal amount of $225,000,000,
repurchase price $225,111,187, due 5/1/95. The value of the collateral including
accrued interest is $229,725,279.
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. A special exchange privilege is also available for
shareholders who qualified to purchase Class A shares at net asset value.
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>
Year ended April 30, 1995:
Shares sold...................... 3,485,186 $ 45,817,949
Shares issued in reinvestment of
distributions.................. 389,581 5,024,771
Shares reacquired................ (2,985,480) (39,186,110)
---------------- ------------
Net increase in shares
outstanding before
conversion..................... 889,287 11,656,610
Shares issued upon conversion
from Class B................... 733,225 9,121,406
---------------- ------------
Net increase in shares
outstanding.................... 1,622,512 $ 20,778,016
---------------- ------------
---------------- ------------
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>
Year ended April 30, 1995:
Shares sold...................... 6,351,539 $ 82,308,938
Shares issued in reinvestment of
distributions.................. 1,004,374 12,882,502
Shares reacquired................ (2,410,850) (31,149,102)
---------------- ------------
Net increase in shares
outstanding before
conversion..................... 4,945,063 64,042,338
Shares reacquired upon conversion
from Class A................... (725,642) (9,121,406)
---------------- ------------
Net increase in shares
outstanding.................... 4,219,421 $ 54,920,932
---------------- ------------
---------------- ------------
</TABLE>
B-38
<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
April 30, 1995:
<S> <C> <C>
Shares sold...................... 303,058 $ 3,859,045
Shares issued in reinvestment of
distributions.................. 3,797 47,478
Shares reacquired................ (36,999) (467,856)
---------------- ------------
Net increase in shares
outstanding.................... 269,856 $ 3,438,667
---------------- ------------
---------------- ------------
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
Note 7. Distributions On June 15, 1995 the Board
of Directors of the Fund announced a dividend from
net investment income of $.040, $.015 and $.015 per Class A, B and C shares,
respectively and a distribution from net capital and currency gains to Class A,
B and C shareholders of $.69 per share, payable on June 22, 1995 to shareholders
of record on June 19, 1995.
Note 8. Proposed On March 16, 1995, the
Reorganization Board of Directors of the
Fund approved an Agreement and Plan of
Reorganization (the ``Plan'') which provides for the transfer of substantially
all of the assets and liabilities of the Prudential Strategist Fund, Inc.
(``Strategist'') to the Fund. Class A, Class B and Class C shares of Strategist
would be exchanged at net asset value for Class A, Class B and Class C shares,
respectively, of equivalent value of the Fund.
The Plan was approved by Strategist shareholders on June 9, 1995. It is
expected that the reorganization will take place in late June 1995. The Fund and
Strategist will each bear their pro-rata share of the costs of the
reoganization, including costs of proxy solicitation.
B-39
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------------------------------ ---------------------------------------------------- --------
June 29, June 29, August 1,
1990(D) 1990(D) 1994@
Through Through Through
PER SHARE Years Ended April 30, April Years Ended April 30, April April
OPERATING ------------------------------------- 30, ----------------------------------------- 30, 30,
PERFORMANCE: 1995** 1994 1993 1992 1991 1995** 1994 1993 1992 1991 1995**
<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)..... .09 .18 .30 .23 .40 (.01) .07 .19 .13 .32 --
Net realized
and
unrealized
gain on
investments
and
foreign
currency
transactions 1.44 1.64 1.47 .50 .59 1.43 1.63 1.47 .51 .59 .84
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations... 1.53 1.82 1.77 .73 .99 1.42 1.70 1.66 .64 .91 .84
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Less
distributions:
Dividends
from net
investment
income..... -- (.21) (.30) (.30) (.26) -- (.10) (.19) (.21) (.22) --
Distributions
from net
capital and
currency
gains...... (1.29) (1.59) (.79) (.02) -- (1.29) (1.59) (.79) (.02) -- (1.29)
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Total
distributions (1.29) (1.80) (1.09) (.32) (.26) (1.29) (1.69) (.98) (.23) (.22) (1.29)
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Net asset
value, end
of
period..... $ 13.45 $ 13.21 $ 13.19 $ 12.51 $ 12.10 $ 13.29 $ 13.16 $ 13.15 $ 12.47 $ 12.06 $ 13.29
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
------- ------- ------- ------- -------- -------- -------- -------- -------- -------- --------
TOTAL
RETURN#.... 12.15% 14.16% 15.14% 6.16% 17.64% 11.31% 13.22% 14.13% 5.39% 16.14% 6.62%
RATIOS/SUPPLEMENTAL
DATA:
Net assets,
end of
period
(000)...... $76,035 $53,237 $43,390 $52,625 $ 59,085 $185,474 $128,098 $ 92,921 $108,276 $ 99,537 $ 3,587
Average net
assets
(000)...... $59,316 $49,840 $46,890 $57,403 $ 55,545 $153,209 $108,981 $ 99,072 $108,510 $ 82,890 $ 1,653
Ratios to average net
assets:##
Expenses,
including
distribution
fees..... 1.44% 1.30% 1.28% 1.29% 1.35%* 2.19% 2.08% 2.08% 2.09% 2.15%* 2.37%*
Expenses,
excluding
distribution
fees..... 1.19% 1.08% 1.08% 1.09% 1.15%* 1.19% 1.08% 1.08% 1.09% 1.15%* 1.37%*
Net
investment
income
(loss)... .68% 1.15% 2.44% 1.83% 4.28%* (.07)% .35% 1.64% 1.03% 3.39%* .03%*
Portfolio
turnover... 122% 110% 209% 147% 253% 122% 110% 209% 147% 253% 122%
</TABLE>
- ---------------
* Annualized.
** Calculated based upon weighted average shares outstanding during the year.
(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.
B-40
<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, 1995, 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 four 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, 1995, 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, 1995, 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 LLP
New York, New York
June 15, 1995
B-41
<PAGE>
APPENDIX--HISTORICAL PERFORMANCE DATA
The historical performance information contained in this Appendix relies on
data obtained from statistical services, reports and other services believed by
the Manager to be reliable. The information has not been independently verified
by the Manager with the exception of that contained in the third table.
Average Annual Total Returns of Major World Stock Markets
(1985 - 1994) (in U.S. dollars)
CAMERA READY GRAPH
Source: Morgan Stanley Capital International. Morgan Stanley country
indices are unmanaged indices which include those stocks making up the largest
two-thirds of each country's total stock market capitalization. Returns reflect
the reinvestment of all distributions. This chart is for illustrative purposes
only and is not indicative of the past, present or future performance of any
specific investment. Investors cannot invest directly in stock indices.
A-1
<PAGE>
CAMERA READY GRAPH
Source: "Stocks, Bonds, Bills and Inflation 1994 Yearbook,(TM)" Ibbotson
Associates, annually updates work by Roger Ibbotson and Rex Sinquefeld. Used
with permission. This chart is for illustrative purposes only and is not
indicative of the past, present, or future performance of any portfolio.
Generally, stock returns are attributable to capital appreciation and the
reinvestment of distributions. Bond returns are attributable mainly to the
reinvestment of distributions. Also, stock prices are usually more volatile than
bond prices over the long term.
Small stock returns for 1926-1980 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund.
Common stock returns are based on the S&P Composite Index, a
market-weighted, unmanaged index of 500 stocks (currently) in a variety of
industries. It is often used as a broad measure of stock market performance.
Long-term government bond returns are represented by a portfolio that
contains only one bond with a maturity of roughly 20 years. At the beginning of
each year a new bond with a then-current coupon replaces the old bond.
Treasury bill returns are for a one-month bill. Treasuries are guaranteed
by the government as to the timely payment of principal and interest; equities
are not.
Inflation is measured by the consumer price index (CPI).
A-2
<PAGE>
Historical U.S. Stock Market Sector Performance (total return)
CAMERA READY GRAPH
Source: Prudential Investment Advisors. Total return includes capital
appreciation and the reinvestment of distributions. This table is for
illustrative purposes only and is not indicative of the past, present or future
performance of the Fund. This table highlights stock sectors that are
represented in the S&P 500. The S&P 500 is an unmanaged index made up of 500 of
the largest U.S. stocks based on their market value. Investors cannot invest
directly in stock indices.
A-3
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1987 to
May 1995. The total returns of the indices include accrued interest, plus the
price changes (gains or losses) of the underlying securities during the period
mentioned. The data is provided to illustrate the varying historical total
returns and investors should not consider this performance data as an indication
of the future performance of the Fund or of any sector in which the Fund
invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Fund Expenses" in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.
Historical Total Returns of Different Bond Market Sectors
<TABLE>
<CAPTION>
YTD
'87 '88 '89 '90 '91 '92 '93 '94 5/95
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Treasury
Bonds1 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 10.3%
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Government
Mortgage
Securities2 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.60)% 10.1%
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Investment Grade
Corporate
Bonds3 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 12.8%
- -------------------------------------------------------------------------------------------------------------------------------
U.S.
High Yield
Corporate
Bonds4 5.0% 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 11.7%
- -------------------------------------------------------------------------------------------------------------------------------
World
Government
Bonds5 35.2% 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.4%
===============================================================================================================================
Difference between
highest and lowest
return percent 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 9.3
</TABLE>
1 Lehman Brothers Treasury Bond Index is an unmanaged index made up of over 150
public issues of the U.S. Treasury having maturities of at least one year.
2 Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
3 Lehman Brothers Corporate Bond Index includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.
4 Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one
year.
5 Salomon Brothers World Government Index (Non U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
A-4
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) Financial statements included in the Prospectus constituting Part A
of this Registration Statement:
Financial Highlights.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at April 30, 1995.
Statement of Assets and Liabilities at April 30, 1995.
Statement of Operations for the year ended April 30, 1995.
Statement of Changes in Net Assets for the years ended April 30,
1995 and April 30, 1994.
Notes to Financial Statements.
Financial Highlights.
Independent Auditors' Report.
(b) Exhibits:
1. Articles of Restatement.*
2. By-Laws of the Registrant. Incorporated by reference to Exhibit No.
2 to the Registration Statement on Form N-1A filed on February 23,
1990 (File No. 33-33477).
4. (a) Specimen certificate for Class A shares of common stock, $.001
par value, of the Registrant. Incorporated by reference to Exhibit
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(b) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on November 30, 1990 (File No.
33-33477).
(c) Instruments defining rights of shareholders. Incorporated by
reference to Exhibits 1 and 2.
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc. Incorporated by reference to Exhibit
No. 5(a) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on November 30, 1990 (File No.
33-33477).
(b) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation.
Incorporated by reference to Exhibit No. 5(b) to Post-Effective
Amendment No. 1 to the Registration Statement on Form N-1A filed on
November 30, 1990 (File No. 33-33477).
6. (a) Distribution Agreement for Class A shares.*
(b) Distribution Agreement for Class B shares.*
(c) Distribution Agreement for Class C shares.*
8. Custodian Contract between the Registrant and State Street Bank and
Trust Company. Incorporated by reference to Exhibit No. 8 to
Post-Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed on November 30, 1990 (File No. 33-33477).
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. Incorporated by reference to
Exhibit No. 9 to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on November 30, 1990 (File No.
33-33477).
10. (a) Opinion of Counsel. Incorporated by reference to Exhibit No. 10
to Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A filed on May 21, 1990 (File No. 33-33477).
(b) Opinion of Counsel. Incorporated by reference to Exhibit No.
10(b) to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A filed on June 30, 1993 (File No. 33-33477).
- -----------
*Filed herewith.
C-1
<PAGE>
11. Consent of Independent Accountants.*
13. Purchase Agreement. Incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A filed on May 21, 1990 (File No. 33-33477).
15. (a) Distribution and Service Plan for Class A shares.*
(b) Distribution and Service Plan for Class B shares.*
(c) Distribution and Service Plan for Class C shares.*
16. (a) Schedule of Computation of Performance Quotations (Class A
Shares). Incorporated by reference to Exhibit No. 16(a) to
Post-Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed on November 30, 1990 (File No. 33-33477).
(b) Schedule of Computation of Performance Quotations (Class B
Shares). Incorporated by reference to Exhibit No. 16(b) to
Post-Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed on November 30, 1990 (File No. 33-33477).
27. Financial Data Schedule*
Other Exhibits
Powers of Attorney for
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Thomas T. Mooney
Louis A. Weil, III
Executed copies filed under Other Exhibits to Pre-Effective Amendment No. 2 to
the Registration Statement on Form N-1A (File No. 33-33477) filed on May 21,
1990.
- -----------
*Filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of June 9, 1995 there were 10,285, 21,125 and 368 record holders of
Class A, Class B and Class C shares, respectively, of common stock, $.001 par
value per share, of the Registrant.
Item 27. Indemnification.
As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940 (the 1940 Act) and pursuant to Article VII of the Fund's By-Laws (Exhibit 2
to the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of each Distribution Agreement (Exhibits 6(a),
6(b), 6(c), 6(d) and 6(e) 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
C-2
<PAGE>
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1940 Act and will be governed by the
final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
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 Sections 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
Item 28. Business and other Connections of Investment Adviser.
(i) Prudential Mutual Fund Management, Inc. (PMF)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed on March 30, 1995).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Brendan D. Doyle Executive Vice President, Executive Vice President, Director of Marketing and
Director of Marketing and Director, PMF; Senior Vice President, Prudential Securities
Director Incorporated (Prudential Securities); Chairman and
Director, Prudential Mutual Fund Distributors, Inc. (PMFD)
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities; Vice President, PMFD
Frank W. Giordano Executive Vice Executive Vice President, General Counsel, Secretary and
President, General Director, PMF; Senior Vice President, Prudential Securities;
Counsel, Secretary and Executive Vice President, General Counsel, Secretary and
Director Director, PMFD; Director, Prudential Mutual Fund Services,
Inc. (PMFS)
Robert F. Gunia Executive Vice Executive Vice President, Chief Financial and Administrative
President, Chief Financial Officer, Treasurer and Director, PMF; Senior Vice President,
and Administrative Officer, Prudential Securities; Executive Vice President, Treasurer,
Treasurer and Director Comptroller and Director, PMFD; Director, PMFS
Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating Officer
and Director, PMFD; Chief Executive Officer and Director,
PMFS; Director, PMF
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF;
Executive Officer and Executive Vice President, Director and Member of Operating
Director Committee, Prudential Securities; Director, Prudential
Securities Group, Inc. (PSG); Executive Vice President, PIC;
Director (since January 1994), PMFD; Director (since January
1994), PMFS
S. Jane Rose Senior Vice President, Senior Vice President, Senior Counsel and Assistant
Senior Counsel and Secretary, PMF; Senior Vice President and Senior Counsel,
Assistant Secretary Prudential Securities
</TABLE>
(ii) Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person is Prudential Plaza, Newark, NJ 07102.
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
William M. Bethke Senior Vice President Senior Vice President, The Prudential Insurance Company of
Two Gateway Center America (Prudential); Senior Vice President, PIC
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President and Senior Vice President, Prudential; Senior Vice President and
51 JFK Parkway Director Director, PIC
Short Hills, NJ 07078
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC
Harry E. Knapp President, Director and President, Director and Chief Executive Officer, PIC; Vice
Chief Executive Officer President, Prudential
William P. Link Senior Vice President Executive Vice President, Prudential; Senior Vice President,
Four Gateway Center PIC
Newark, NJ 07102
Richard A. Redeker Executive Vice President President, Chief Executive Officer and Director, PMF;
Executive Vice President, Director and Member of Operating
Committee, Prudential Securities; Director, PSG; Executive
Vice President, PIC; Director, PMFD; Director, PMFS
Arthur F. Ryan Director Chairman of the Board, President and Chief Executive
Officer, Prudential; Director, PIC; Chairman of the Board
and Director, PSG
Eric A. Simonson Vice President and Director Vice President and Director, PIC; Executive Vice President,
Prudential
Claude J. Zinngrabe, Jr. Executive Vice President Executive Vice President, PIC; Vice President, Prudential
</TABLE>
C-4
<PAGE>
Item 29. Principal Underwriters.
(a)(i) Prudential Securities Incorporated
Prudential Securities Incorporated is distributor for Prudential Government
Securities Trust (Intermediate Term Series) and The Target Portfolio Trust, for
Class B shares of Prudential Adjustable Rate Securities Fund, Inc. and for Class
B and Class C shares of The BlackRock Government Income Trust, Global Utility
Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity
Fund), Prudential Allocation Fund, Prudential California Municipal Fund
(California Income Series and California Series), Prudential Diversified Bond
Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund, Inc., Prudential Global Fund, Inc., Prudential
Global Genesis Fund, Inc., Prudential Global Natural Resources Fund, Inc.,
Prudential GNMA Fund, Inc., Prudential Government Income Fund, Inc., Prudential
Growth Opportunity Fund, Inc., Prudential High Yield Fund, Inc., Prudential
IncomeVertible(R) Fund, Inc., Prudential Intermediate Global Income Fund, Inc.,
Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund (except Connecticut Money Market Series, Massachusetts
Money Market Series, New York Money Market Series and New Jersey Money Market
Series), Prudential National Municipals Fund, Inc., Prudential Pacific Growth
Fund, Inc., Prudential Short-Term Global Income Fund, Inc., Prudential
Strategist Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential
U.S. Government Fund and Prudential Utility Fund, Inc. Prudential Securities is
also a depositor for the following unit investment trusts:
The Corporate Income Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(ii) Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series), Prudential
Government Securities Trust (Money Market Series and U.S. Treasury Money Market
Series), Prudential Institutional Liquidity Portfolio, Inc., Prudential-Bache
MoneyMart Assets (d/b/a Prudential MoneyMart Assets), Prudential Municipal
Series Fund (Connecticut Money Market Series, Massachusetts Money Market Series,
New York Money Market Series and New Jersey Money Market Series),
Prudential-Bache Special Money Market Fund, Inc. (d/b/a Prudential Special Money
Market Fund), Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential
Tax-Free Money Fund) and for Class A shares of The BlackRock Government Income
Trust, Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Adjustable Rate Securities
Fund, Inc., Prudential Allocation Fund, Prudential California Municipal Series
(California Income Series and California Series), Prudential Diversified Bond
Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund, Inc., Prudential Global Fund, Inc., Prudential
Global Genesis Fund, Inc., Prudential Global Natural Resources Fund, Inc.,
Prudential GNMA Fund, Inc., Prudential Government Income Fund, Inc., Prudential
Growth Opportunity Fund, Inc., Prudential High Yield Fund, Inc., Prudential
IncomeVertible(R) Fund, Inc., Prudential Intermediate Global Income Fund, Inc.,
Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund (Class A shares of all other Series not mentioned above),
Prudential National Municipals Fund, Inc., Prudential Pacific Growth Fund, Inc.,
Prudential Short-Term Global Income Fund, Inc., Prudential Strategist Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential U.S. Government Fund
and Prudential Utility Fund, Inc.
(b)(i) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below.
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- ----------
<S> <C> <C>
Robert Golden ............. Executive Vice President None
Alan D. Hogan ............. Executive Vice President and Director None
George A. Murray .......... Executive Vice President and Director None
Leland B. Paton ........... Executive Vice President and Director None
Vincent T. Pica, II ....... Executive Vice President and Director None
Richard A. Redeker ........ Director President
and Director
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- ----------
<S> <C> <C>
Gregory W. Scott .......... Executive Vice President, Chief Financial Officer and Director None
Hardwick Simmons .......... Chief Executive Officer, President and Director None
Lee B. Spencer, Jr. ....... Executive Vice President, General Counsel and Director None
(b)(ii) Information concerning the officers and directors of Prudential
Mutual Fund Distributors, Inc. is set forth below.
Joanne Accurso-Soto ...... Vice President None
Dennis Annarumma ......... Vice President, Assistant Treasurer and Assistant Comptroller None
Phyllis J. Berman ........ Vice President None
Brendan D. Boyle ......... Chairman and Director None
Stephen P. Fisher ........ Vice President None
Frank W. Giordano ........ Executive Vice President, General Counsel, Secretary and Director None
Robert F. Gunia .......... Executive Vice President, Treasurer, Comptroller and Director Vice President
Timothy J. O'Brien ....... President, Chief Executive Officer, Chief Operating Officer and Director None
Richard A. Redeker ....... Director President
and Director
Andrew J. Varley ......... Vice President None
Anita L. Whelan .......... Vice President and Assistant Secretary None
</TABLE>
- ------------
(1) The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey, the Registrant, One Seaport Plaza, New
York, New York, and Prudential Mutual Fund Services, Inc., Raritan Plaza One,
Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6), (7), (9), (10)
and (11) and 31a-1(f) will be kept at Three Gateway Center, documents required
by Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport Plaza and the
remaining accounts, books and other documents required by such other pertinent
provisions of Section 31(a) and the Rules promulgated thereunder will be kept by
State Street Bank and Trust Company and Prudential Mutual Fund Services, Inc.
Item 31. Management Services
Other than as set forth under the captions "How the Fund is
Managed--Manager" and "How the Fund is Managed--Distributor" in the Prospectus
and the captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service contract.
Item 32. Undertakings
The Registrant undertakes to furnish to each person to whom a Prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of New York, and State of New York, on the 27th day of June, 1995.
PRUDENTIAL MULTI-SECTOR FUND, INC.
By: /s/ RICHARD A. REDEKER
---------------------------------------
(Richard A. Redeker, President)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ SUSAN C. COTE June 27, 1995
- ---------------------------------- Treasurer and Principal Financial and
Susan C. Cote Accounting Officer
/s/ EDWARD D. BEACH Director June 27, 1995
- ----------------------------------
Edward D. Beach
/s/ DONALD D. LENNOX Director June 27, 1995
- ----------------------------------
Donald D. Lennox
/s/ DOUGLAS H. MCCORKINDALE Director June 27, 1995
- ----------------------------------
Douglas H. McCorkindale
/s/ THOMAS T. MOONEY Director June 27, 1995
- ----------------------------------
Thomas T. Mooney
/s/ RICHARD A. REDEKER President and Director June 27, 1995
- ----------------------------------
Richard A. Redeker
/s/ LOUIS A. WEIL, III Director June 27, 1995
- ----------------------------------
Louis A. Weil, III
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibits Description Page No.
- -------- ----------- --------
<S> <C> <C>
1. Articles of Restatement.*
2. By-Laws of the Registrant. Incorporated by reference to Exhibit No. 2 to the
Registration Statement on Form N-1A filed on February 23, 1990 (File No.
33-33477).
4. (a) Specimen certificate for Class A shares of common stock, $.001 par
value, of the Registrant. Incorporated by reference to Exhibit 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(b) to
Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A
filed on November 30, 1990 (File No. 33-33477).
(c) Instruments defining rights of shareholders. Incorporated by reference
to Exhibits 1 and 2.
5. (a) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc. Incorporated by reference to Exhibit No. 5(a) to
Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A
filed on November 30, 1990 (File No. 33-33477).
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation. Incorporated by reference to
Exhibit No. 5(b) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on November 30, 1990 (File No. 33-33477).
6. (a) Distribution Agreement for Class A shares.*
(b) Distribution Agreement for Class B shares.*
(c) Distribution Agreement for Class C shares.*
8. Custodian Contract between the Registrant and State Street Bank and Trust
Company. Incorporated by reference to Exhibit No. 8 to Post-Effective
Amendment No. 1 to the Registration Statement on Form N-1A filed on November
30, 1990 (File No. 33-33477).
9. Transfer Agency and Service Agreement between the Registrant and Prudential
Mutual Fund Services, Inc. Incorporated by reference to Exhibit No. 9 to
Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A
filed on November 30, 1990 (File No. 33-33477).
10. (a) Opinion of Counsel. Incorporated by reference to Exhibit No. 10 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A
filed on May 21, 1990 (File No. 33-33477).
(b) Opinion of Counsel. Incorporated by reference to Exhibit No. 10(b) to
Post-Effective Amendment No. 4 to the Registration Statement on Form N-1A
filed on June 30, 1993 (File No. 33-33477).
11. Consent of Independent Accountants.*
13. Purchase Agreement. Incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A
filed on May 21, 1990 (File No. 33-33477).
15. (a) Distribution and Service Plan with respect to Class A shares.*
(b) Distribution and Service Plan with respect to Class B shares.*
(c) Distribution and Service Plan with respect to Class C shares.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX--Continued
Exhibits Description Page No.
- -------- ----------- --------
<S> <C> <C>
16. (a) Schedule of Computation of Performance Quotations (Class A Shares).
Incorporated by reference to Exhibit No. 16(a) to Post-Effective Amendment
No. 1 to the Registration Statement on Form N-1A filed on November 30, 1990
(File No. 33-33477).
(b) Schedule of Computation of Performance Quotations (Class B Shares).
Incorporated by reference to Exhibit No. 16(b) to Post-Effective Amendment
No. 1 to the Registration Statement on Form N-1A filed on November 30, 1990
(File No. 33-33477).
27. Financial Data Schedule.*
- --------------
</TABLE>
*Filed herewith.
Other Exhibits
Powers of Attorney for
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Thomas T. Mooney
Louis A. Weil, III
Executed copies filed under Other Exhibits to Pre-Effective Amendment No. 2 to
the Registration Statement on Form N-1A(File No. 33-33477) filed on May 21,
1990.
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
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<PAGE>
Board of Directors from time to time; and (v) the Class C Common Stock
shall be subject to a contingent deferred sales charge and a Rule 12b-1
distribution fee as determined by the Board of Directors from time to time.
All shares of each particular class shall represent an equal proportionate
interest in that class, and each share of any particular class shall be
equal to each other share of that class.
(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
4
<PAGE>
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
<PAGE>
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
<PAGE>
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;
7
<PAGE>
(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
8
<PAGE>
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
10
<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
11
<PAGE>
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
13
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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,
14
<PAGE>
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.
15
<PAGE>
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.
16
<PAGE>
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
17
<PAGE>
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
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.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its Class A shares
at times when redemption is suspended pursuant to the conditions in Section 4.3
hereof or at such other times as may be determined by the Board of Directors.
The Fund shall also have the right to suspend the sale of its Class A shares if
a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class A shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class A shares. The Fund (or its agent) will
confirm orders upon their receipt, will make appropriate book entries and upon
receipt by the Fund (or its agent) of payment 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
<PAGE>
so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of Class A shares as
provided herein, the Fund agrees to sell its Class A shares so long as it has
Class A shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class A shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Board of Directors and the shareholders, all necessary action to
fix the number of authorized Class A shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Class A shares as the Distributor reasonably
may expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class A shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class A shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
A shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to effect sales
of Class A shares of the Fund, but shall not be obligated to sell any specific
number of Class A shares. Sales of the Class A shares shall be on the terms
described in the Prospectus. The Distributor may enter into like arrangements
with other investment companies. The Distributor shall compensate the selected
dealers as set forth in the Prospectus.
6.2 In selling the Class A shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Class A shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Class A shares only to such selected dealers as
are members in good standing of the NASD. Class A shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any portion of any front-end
sales charge which is imposed on sales of Class A shares and not reallocated to
selected dealers as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as compensation for services
under the Distribution and Service Plan and this Agreement a fee of .30 of 1%
(including an asset-based sales charge of .05 of 1% and a service fee of .25 of
1%) per annum
5
<PAGE>
of the average daily net assets of the Class A shares of the Fund. Amounts
payable under the Plan shall be accrued daily and paid monthly or at such other
intervals as 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
10
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
10
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 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
10
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 8 to Registration
Statement No. 33-33477 of Prudential Multi-Sector Fund, Inc. of our report dated
June 15, 1995, appearing in the Statement of Additional Information, which is a
part of such Registration Statement, and to the references to us under the
headings "Financial Highlights" in the Prospectus, which is a part of such
Registration Statement, and "Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants" in the Statement of Additional Information.
[SIGNATURE]
DELOITTE & TOUCHE LLP
New York, New York
June 27, 1995
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 least the first two years in an easily accessible place.
Dated: August 1, 1994
6
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 classes will be subject
to the review of the Board of Directors.
3
<PAGE>
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
information about Distribution Activities undertaken or to be undertaken by the
Distributor.
4
<PAGE>
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
6
7
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 classes will be subject
to the review of the Board of Directors.
3
<PAGE>
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
6
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