Prudential Short-Term
Global Income Fund, Inc.
(Short-Term Global Income Portfolio)
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Prospectus dated January 3, 1995
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Prudential Short-Term Global Income Fund, Inc. (the Fund)--Short-Term Global
Income Portfolio (the Portfolio), is one of two separate portfolios of an
open-end management investment company. Only shares of the Short-Term Global
Income Portfolio are offered by this means of this Prospectus. The Short-Term
Global Income Portfolio's investment objective is to maximize total return, the
components of which are current income and capital appreciation. The Portfolio,
which is not a money market fund, seeks to achieve its objective by investing
primarily in a portfolio of investment grade debt securities having remaining
maturities of not more than three years. The Portfolio will maintain an average
weighted maturity of three years or less. The Portfolio seeks to maximize total
return by investing in debt securities denominated in the U.S. dollar and a
range of foreign currencies. The Portfolio is non-diversified and may invest
more than 5% of its total assets in the securities of one or more issuers.
Investment in a non-diversified portfolio involves greater risk than investment
in a diversified portfolio. In addition, the Portfolio may invest up to 10% of
its total assets in non-investment grade securities, which may entail additional
risks. There can be no assurance that the Portfolio'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.
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This Prospectus sets forth concisely the information about the Fund and the
Portfolio that a prospective investor should know before investing. Additional
information about the Fund and the Portfolio has been filed with the Securities
and Exchange Commission in a Statement of Additional Information, dated January
3, 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.
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Investors are advised to read this Prospectus and retain it for future
reference.
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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.
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FUND HIGHLIGHTS
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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.
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What is Prudential Short-Term Global Income Fund, Inc., Short-Term Global Income
Portfolio?
Prudential Short-Term Global Income Fund, Inc., Short-Term Global Income
Portfolio is a mutual fund. A mutual fund pools the resources of investors by
selling its shares to the public and investing the proceeds of such sale in a
portfolio of securities designed to achieve its investment objective.
Technically, the Fund is an open-end, non-diversified management investment
company.
What is the Portfolio's Investment Objective?
The Portfolio's investment objective is to maximize total return, the
components of which are current income and capital appreciation. There can be no
assurance that the Portfolio's objective will be achieved. See "How the Fund
Invests-Investment Objectives and Policies" at page 7.
Risk Factors and Special Characteristics
In seeking to achieve its investment objective, the Portfolio invests
primarily in a portfolio of investment grade debt securities having remaining
maturities of not more than three years. The Portfolio, which is not a money
market fund, seeks to maximize total return by investing in debt securities
denominated in the U.S. dollar and a range of foreign securities. See "How the
Fund Invests-Investment Objectives and Policies" at page 7. Investing in
securities of foreign companies and countries involves certain considerations
and risks not typically associated with investing in U.S. Government Securities
and securities of domestic companies. See "How the Fund Invests-Risk Factors on
Foreign Investments" at page 9. In addition, the Portfolio may invest up to 10%
of its total assets in securities rated below investment grade, but with a
minimum rating of B, as determined by Moody's Investors Services, Inc.
(Moody's), or Standard & Poor's Ratings Group (S&P) or by another nationally
recognized statistical ratings organization, or if unrated, are deemed to be of
equivalent quality by the Subadviser (defined below). Investment in
non-investment (NRSRO) grade securities may entail additional risks to the Fund.
Companies in which the Fund may invest may have limited product lines, markets
or financial resources and may lack management depth. The securities of these
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. See "How the Fund Invests-Risk Factors-Medium
and Lower-Rated Securities" at page 9. The Portfolio may also engage in various
hedging and income enhancement strategies, including investing in derivatives,
the purchase and sale of put and call options and related short-term trading.
See "How the Fund Invests-Other Investments and Investment Techniques-Hedging
and Income Enhancement Strategies-Risks of Hedging and Income Enhancement
Strategies" at page 12. The amount of income available for distribution to
shareholders will be affected by any foreign currency gains or losses generated
by the Portfolio upon the disposition of debt securities denominated in a
foreign currency and by certain hedging activities of the Portfolio. See "Taxes,
Dividends and Distributions" at page 19.
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 .55 of 1%
of the Fund's average daily net assets. As of November 30, 1994, PMF served as
manager or administrator to 68 investment companies, including 38 mutual funds,
with aggregate assets of approximately $47 billion. The Prudential Investment
Corporation (PIC or the Subadviser) furnishes investment advisory services in
connection with the management of the Fund under a Subadvisory Agreement with
PMF. See "How the Fund is Managed-Manager" at page 14.
Who Distributes the Portfolio's Shares?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
the Portfolio's Class A shares. The Portfolio currently reimburses PMFD for
expenses related to the distribution of Class A shares at an annual rate of up
to .15 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 Portfolio's Class B and Class C shares and is paid an annual
distribution and service fee which is currently being charged at the rate of .75
of 1% of the average daily net assets of each of the Class B and Class C shares.
See "How the Fund is Managed-Distributor" at page 15.
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2
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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 21 and "Shareholder Guide-Shareholder Services"
at page 29.
How Do I Purchase Shares?
You may purchase shares of the Portfolio 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 18 and "Shareholder Guide-How to Buy Shares of the Fund" at
page 21.
What Are My Purchase Alternatives?
The Portfolio offers three classes of shares:
<TABLE>
<S> <C>
. Class A Shares: Sold with an initial sales charge of up to 3% of the offering price.
. Class B Shares: Sold without an initial sales charge but are subject to a contingent deferred sales charge or
CDSC (declining from 3% to zero of the lower of the amount invested or the redemption
proceeds) which will be imposed on certain redemptions made within four 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 five
years after purchase.
. Class C Shares: Sold without an initial sales charge and for one year after purchase, are subject to a 1%
CDSC on redemptions. Like Class B shares, Class C shares are subject to higher ongoing
distribution-related expenses than Class A shares but do not convert to another class.
See "Shareholder Guide-Alternative Purchase Plan" at page 22.
</TABLE>
How Do I Sell My Shares?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide-How to Sell Your Shares" at page 24.
How Are Dividends and Distributions Paid?
The Portfolio expects to pay dividends of net investment income monthly and
make distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the
Portfolio at NAV without a sales charge unless you request that they be paid to
you in cash. The amount of income available for distribution to shareholders
will be affected by any foreign currency gains or losses generated by the
Portfolio upon the disposition of debt securities denominated in a foreign
currency and by certain hedging activities of the Portfolio. See "Taxes,
Dividends and Distributions" at page 19.
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3
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FUND EXPENSES-SHORT-TERM GLOBAL INCOME PORTFOLIO
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<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Shareholder Transaction Expenses\D
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ..... 3% 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 3% during the first year, 1% on redemptions
decreasing by 1% annually made within one year
to 1% in the third year and of purchase
1% in the fourth year and
0% in the fifth year*
Redemption Fees ........................... None None None
Exchange Fees ............................. None None None
</TABLE>
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares**
-------------- -------------- --------------
<S> <C> <C> <C>
Management Fees ........................... .55% .55% .55%
12b-1 Fees\D\D ............................ .15% .75% .75%
Other Expenses ............................ .47% .47% .47%
---- ---- ----
Total Portfolio Operating Expenses ........ 1.17% 1.77% 1.77%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Example 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
Class A ................................................................. $42 $66 $ 92 $ 168
Class B ................................................................. $48 $66 $ 96 $ 171
Class C** .............................................................. $28 $56 $ 96 $ 208
You would pay the following expenses on the same investment, assuming
no redemption:
Class A ................................................................. $42 $66 $ 92 $ 168
Class B ................................................................. $18 $56 $ 96 $ 185
Class C** .............................................................. $18 $56 $ 96 $ 208
<FN>
The above example with respect to Class A and Class B shares is based on
restated data for the Portfolio's fiscal year ended October 31, 1994. The above
example with respect to Class C shares is based on expenses expected to have
been incurred if Class C shares had been in existence during the entire fiscal
year ended October 31, 1994. The example should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Portfolio 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 an estimate
of operating expenses of the Portfolio, such as directors' and professional
fees, registration fees, reports to shareholders and transfer agency and
custodian fees (foreign and domestic).
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*Class B shares will automatically convert to Class A shares
approximately five 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
October 31, 1994.
\D 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 Portfolio may not
exceed 6.25% of total gross sales, subject to certain exclusions.
This 6.25% limitation is imposed on the Portfolio rather than on a
per shareholder basis. Therefore, long-term Class B and Class C
shareholders of the Portfolio 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."
\D\D Although the Class A and Class C Distribution and Service Plans
provide that the Portfolio may pay up to an annual rate of .30 of
1% of the average daily net assets of the Class A shares and up to
1% per annum of the average daily net assets of the Class C shares,
the Distributor has agreed to limit its distribution expenses with
respect to the Class A shares of the Portfolio to no more than .15
of 1% of the average daily net asset value of the Class A shares
and to no more than .75 of 1% of the average daily net assets of
the Class C shares for the fiscal year ending October 31, 1995. See
"How the Fund is Managed--Distributor." Total operating expenses
without such limitation would be 1.32% for the Class A shares and
2.02% for the Class B and Class C shares.
</TABLE>
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4
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FINANCIAL HIGHLIGHTS
(for a share of common stock outstanding throughout each of the
periods indicated)
(Class A Shares)
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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
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class A share of
common stock outstanding, total return, ratios to average net assets and other
supplemental data for the periods indicated. The information is based on data
contained in the financial statements.
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Short-Term Global Income Portfolio
<TABLE>
<CAPTION>
CLASS A
-------------------------------------
Year ended October 31,
-------------------------------------
1994 1993 1992 1991
PER SHARE OPERATING
PERFORMANCE:
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............ $ 9.29 $ 9.16 $ 9.97 $ 10.00
Income from investment operations
Net investment income ........................... .70 .97 .96 1.03
Net realized and unrealized loss on investment
and foreign currency transactions ............. (.86) (.26) (.95) (.02)
Total from investment operations ................ (.16) .71 .01 1.01
Less distributions
Dividends from net investment income ............ - (.58) (.82) (1.03)
Tax return of capital distributions ............. (.57) - - -
Distributions from net capital gains ............ - - - (.01)
Total distributions ............................. (.57) (.58) (.82) (1.04)
Net asset value, end of period .................. $ 8.56 $ 9.29 $ 9.16 $ 9.97
TOTAL RETURN# ................................... (1.89)% 7.96% (0.07)% 10.41%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ................. $28,841 $59,458 $101,358 $105,148
Average net assets (000) ........................ $38,000 $70,347 $119,171 $ 51,830
Ratios to average net assets:
Expenses, including distribution fees ........... 1.17% 1.02% 1.08% 1.01%
Expenses, excluding distribution fees ........... 1.02% .87% .93% .86%
Net investment income ........................... 7.67% 10.81% 9.93% 10.23%
Portfolio turnover rate ......................... 231% 307% 180% 66%
#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.
</TABLE>
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5
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FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the indicated periods)
(Class B and C Shares)
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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
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class B and C shares
of common stock outstanding, total return, ratios to average net assets and
other supplemental data for the periods indicated. The information is based on
data contained in the financial statements.
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Short-Term Global Income Portfolio
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------ -----------
August 1,
1994\d
Year ended October 31, through
------------------------------------ October 31,
1994 1993 1992 1991 1994
---- ---- ---- ---- ----
PER SHARE OPERATING
PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 9.29 $ 9.16 $ 9.97 $ 10.00 $ 8.61
Income from investment operations
- ---------------------------------
Net investment income .................... .62 .88 .88 .95 .14
Net realized and unrealized loss on invest-
ment and foreign currency transactions ... (.86) (.26) (.95) (.02) (.06)
Total from investment operations ......... (.24) .62 (.07) .93 .08
Less distributions
- ------------------
Dividends from net investment income ..... - (.49) (.74) (.95) -
Tax return of capital distributions ...... (.49) - - - (.13)
Distributions from net capital gains ..... - - - (.01) -
Total distributions ...................... (.49) (.49) (.74) (.96) (.13)
Net asset value, end of period ........... $ 8.56 $ 9.29 $ 9.16 $ 9.97 $ 8.56
TOTAL RETURN# ............................ (2.62)% 7.00% (0.86)% 9.51% 0.75%
RATIOS/SUPPLEMENTAL DATA:\d\d
Net assets, end of period (000) .......... $188,966 $375,013 $606,899 $669,086 $200@
Average net assets (000) ................. $281,143 $474,175 $814,734 $349,607 $199@
Ratios to average net assets:
Expenses, including distribution fees .... 1.97% 1.87% 1.93% 1.87% .93%*
Expenses, excluding distribution fees .... 1.02% .87% .93% .87% .18%*
Net investment income .................... 6.82% 9.42% 9.05% 9.46% 7.02%*
Portfolio turnover rate .................. 232% 307% 180% 66% 232%
* Annualized.
\d Commencement of offering of Class C shares.
\d\d Because of the event referred to in \d and the timing of such, the ratios
for the Class C shares are not necessarily comparable to that of Class A or
B shares and are not necessarily indicative of future ratios.
@ Figures are actual and not rounded to the nearest thousand.
# 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.
</TABLE>
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6
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HOW THE FUND INVESTS
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INVESTMENT OBJECTIVES AND POLICIES
The Portfolio's investment objective is to maximize total return, the
components of which are current income and capital appreciation. The Portfolio
seeks to achieve its objective by investing primarily in a portfolio of
investment grade debt securities having remaining maturities of not more than
three years. The Portfolio may also invest up to 10% of its total assets in debt
securities rated below investment grade, with a minimum rating of B, by either
S&P or Moody's or by another NRSRO, or, if unrated, are deemed to be of
equivalent quality by the investment adviser. See "Medium and Lower-Rated
Securities." There is no assurance that the Portfolio will achieve its
investment objective.
The Portfolio's investment objective is a fundamental policy and cannot be
changed without the approval of the holders of a majority of the Portfolio'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.
The Portfolio, which is not a money market fund, will maintain an average
weighted maturity of three years or less and will invest at least 65% of its
total assets in income-producing securities. The Portfolio seeks to maximize
total return by investing in debt securities denominated in U.S. dollars and a
range of foreign currencies. Under normal circumstances, the Portfolio will
invest its assets in debt securities of issuers in at least three different
countries including the United States. The Portfolio may also purchase and sell
covered call and put options on certain of these securities, indices and
currencies, as well as on futures contracts relating to such securities, indices
and currencies.
The Portfolio is managed in accordance with a multi-market investment
strategy, allocating the Portfolio's investments among securities denominated in
the U.S. dollar and the currencies of a number of foreign countries and, within
each such country, among different types of debt securities. The investment
adviser adjusts the Portfolio's exposure to each currency based on its
perception of the most favorable markets and issuers. In this regard, the
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield of such securities and the
relationship of a country's currency to the U.S. dollar. The Portfolio may from
time to time invest 25% or more of its total assets in securities of issuers in
one or more countries depending upon the investment adviser's assessment. The
investment adviser considers fundamental economic strength, credit quality and
interest rate trends in determining whether to increase or decrease the emphasis
placed upon a particular type of security or industry sector within the
Portfolio's investment portfolio.
Returns on short-term foreign currency denominated debt instruments can be
adversely affected by changes in exchange rates. The Portfolio's investment
adviser believes that the use of foreign currency hedging techniques, including
"cross-currency hedges" may assist, under certain conditions, in helping to
protect against declines in the U.S. dollar value of income available for
distribution to shareholders and declines in the net asset value of the
Portfolio's shares resulting from adverse changes in currency exchange rates.
For example, the return available from securities denominated in a particular
foreign currency would diminish in the event the value of the U.S. dollar
increased against such currency. Such a decline could be partially or completely
offset by an increase in value of a cross-currency hedge involving a forward
exchange contract to sell a different foreign currency, where such contract is
available on terms more advantageous to the Portfolio than a contract to sell
the currency in which the position being hedged is denominated. Cross-currency
hedges can, therefore, under certain conditions, provide protection of net asset
value in the event of a general rise in the U.S. dollar against foreign
currencies. However, there can be no assurance that the Fund will be able to
engage in cross-currency hedging or that foreign exchange rate relationships
will be sufficiently predictable to enable the investment adviser to
successfully employ cross-currency hedging techniques. A cross-currency hedge
cannot protect against exchange rates risks perfectly, and if the investment
adviser is incorrect in its judgment of future exchange rate relationships, the
Portfolio could be in a less advantageous position than if such a hedge had not
been established.
7
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The Portfolio invests in debt securities denominated in the currencies of
countries whose governments are considered stable by the Portfolio's investment
adviser. In addition to the U.S. Dollar, such currencies include, among others,
the Australian Dollar, Austrian Schilling, British Pound Sterling, Canadian
Dollar, Dutch Guilder, European Currency Unit (ECU), French Franc, German Mark,
Italian Lira, Japanese Yen, New Zealand Dollar, Spanish Peseta, Finnish Marka,
Mexican Peso, Danish Kroner, Norwegian Kroner, Swedish Krona and Swiss Franc. An
issuer of debt securities purchased by the Portfolio may be domiciled in a
country other than the country in whose currency the instrument is denominated.
The Portfolio may also invest in debt securities denominated in the currencies
of certain "emerging market" nations, such as, but not limited to, the Czech
Republic, Greece, South Korea, Hong Kong, Malaysia, Indonesia, Thailand, China,
Israel, Chile, Colombia, Venezuela, Turkey and Argentina. Companies in these
markets in which the Fund may invest may have limited product lines, markets or
financial resources and may lack management depth. The securities of these
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general.
The Portfolio will primarily invest in investment grade debt securities.
Accordingly, the Portfolio's investments will consist of (i) debt securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
(U.S. Government securities), (ii) obligations issued or guaranteed by a foreign
government or any of its political subdivisions, authorities, agencies or
instrumentalities, or by supranational entities, all of which are rated at least
BBB by S&P or Baa by Moody's or by any other NRSRO, or if unrated, are
determined by the Portfolio's investment adviser to be of equivalent rating
using similar rating standards (investment grade), (iii) corporate debt
securities rated at least investment grade by S&P or Moody's or by any other
NRSRO, or if unrated, are determined by the Portfolio's investment adviser to be
of equivalent rating using similar rating standards, (iv) certificates of
deposit and bankers acceptances issued or guaranteed by, or time deposits
maintained at, banks (including foreign branches of U.S. banks or U.S. or
foreign branches of foreign banks having total assets of more than $500 million
and determined by the investment adviser to be of investment grade using similar
standards, (v) commercial paper rated A-1 by S&P, P-1 by Moody's, or if not
rated, issued by U.S. or foreign companies having outstanding long term debt
securities rated at least investment grade by S&P or Moody's or by any other
NRSRO, or if unrated, are determined by the Portfolio's investment adviser to be
of equivalent rating using similar rating standards; and (vi) loan
participations having a remaining term not exceeding one year in loans extended
by banks to such companies. The value of long term fixed income securities will
fluctuate inversely with interest rates. See the description of securities
ratings in the Appendix.
The Portfolio may also invest up to 10% of its total assets in securities
rated B or BB by S&P or B or Ba by Moody's or by any other NRSRO, or if unrated,
are determined by the Portfolio's investment adviser to be of equivalent rating
using similar rating standards. Investment in non-investment grade securities
may entail additional risks to the Portfolio. See "Medium and Lower-Rated
Securities".
The Portfolio may invest without limitation in commercial paper and other
instruments which are indexed to certain specific foreign currency exchange
rates. The terms of such instruments provide that its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the exchange rate between two currencies while the obligation is
outstanding. The Portfolio will purchase such instruments with the currency in
which it is denominated and, at maturity, will receive interest and principal
payments thereon in that currency, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. The Portfolio will
establish a segregated account with respect to its investments in this type of
instrument and maintain in such account cash or liquid high quality debt
securities having a value at least equal to the aggregate principal amount of
outstanding instruments of this type. While such instruments entail the risk of
loss of principal, the potential for realizing gains as a result of changes in
foreign currency exchange rates enables the Portfolio to hedge (or cross-hedge)
against a decline in the U.S. dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return.
The Portfolio may invest in debt securities issued by supranational
organizations such as the World Bank, which was chartered to finance development
projects in developing member countries; the European Community, which is a
twelve-nation organization engaged in cooperative economic activities; the
European Coal and Steel Community, which is
8
<PAGE>
an economic union of various European nations' steel and coal industries; and
the Asian Development Bank, which is an international development bank
established to lend funds, promote investment and provide technical assistance
to member nations in the Asian and Pacific regions.
The Portfolio may invest in debt securities denominated in the ECU, which is
a "basket" consisting of specified amounts of currencies of certain of the
twelve member states of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies. The Portfolio's investment adviser does not believe that such
adjustments will adversely affect holders of ECU-denominated obligations or the
marketability of such securities. European supranationals, in particular, issue
ECU-denominated obligations.
The Portfolio is "non-diversified" so that the Portfolio may invest more
than 5% of its total assets in the securities of one or more issuers. Investment
in a non-diversified portfolio involves greater risk than investment in a
diversified portfolio because a loss resulting from the default of a single
issuer may represent a greater portion of the total assets of a non-diversified
portfolio.
RISK FACTORS
Risk Factors on Foreign Investments
Investing in securities issued by foreign governments and corporations
involves considerations and possible risks not typically associated with
investing in obligations issued by the U.S. government and domestic
corporations. The values of foreign investments are affected by changes in
currency rates or exchange control regulations, application of foreign tax laws,
including withholding taxes, changes in governmental administration or economic
or monetary policy (in this country or abroad) or changed circumstances in
dealings between nations. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States. Investments in foreign countries could be affected by
other factors not present in the United States, including expropriation,
confiscatory taxation, lack of uniform accounting and auditing standards and
potential difficulties in enforcing contractual obligations and could be subject
to extended settlement periods.
Shareholders should be aware that investing in the fixed-income markets of
developing countries involves exposure to economies that are generally less
diverse and mature, and to political systems which can be expected to have less
stability than those of developed countries. Historical experience indicates
that the markets of developing countries have been more volatile than the
markets of developed countries. The risks associated with investments in foreign
securities, described above, may be greater with respect to investments in
developing countries.
Medium and Lower-Rated Securities. The Portfolio may invest in medium (i.e.,
rated Baa by Moody's or BBB by S&P) and lower-rated securities (i.e., rated
lower than Baa by Moody's or lower than BBB by S&P). However, the Portfolio will
not purchase a security rated lower than B by Moody's or S&P. Securities rated
Baa by Moody's or BBB by S&P, although considered investment grade, possess
speculative characteristics, and changes in economic or other conditions are
more likely to impair the ability of issuers of these securities to make
interest and principal payments than is the case with respect to issuers of
higher-grade bonds.
Generally, lower-rated securities and unrated securities of comparable
quality, sometimes referred to as junk bonds (i.e., securities rated lower than
Baa by Moody's or BBB by S&P) offer a higher current yield than is offered by
higher-rated securities, but also (i) will likely have some quality and
protective characteristics that, in the judgment of the rating organizations,
are outweighed by large uncertainties or major risk exposures to adverse
conditions and (ii) are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation. The market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-quality bonds. In addition, medium and lower-rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is
significantly greater because medium and lower-rated securities and unrated
securities
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of comparable quality generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness. The investment adviser, under the
supervision of the Manager and the Directors, in evaluating the creditworthiness
of an issue whether rated or unrated, take various factors into consideration,
which may include, as applicable, the issuer's financial resources, its
sensitivity to economic conditions and trends, the operating history of and the
community support for the facility financed by the issue, the ability of the
issuer's management and regulatory matters.
In addition, the market value of securities in lower-rated categories is
more volatile than that of higher-quality securities, and the markets in which
medium and lower-rated or unrated securities are traded are more limited than
those in which higher-rated securities are traded. The existence of limited
markets may make it more difficult for the Portfolio to obtain accurate market
quotations for purposes of valuing its portfolio and calculating its net asset
value. Moreover, the lack of a liquid trading market may restrict the
availability of securities for the Portfolio to purchase and may also have the
effect of limiting the ability of the Portfolio to sell securities at their fair
value either to meet redemption requests or to respond to changes in the economy
or the financial markets.
Lower-rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Portfolio
may have to replace the security with a lower- yielding security, resulting in a
decreased return for investors. Also, as the principal value of bonds moves
inversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by the Portfolio may decline
proportionately more than a portfolio consisting of higher-rated securities. If
the Portfolio experiences unexpected net redemptions, it may be forced to sell
its higher-rated bonds, resulting in a decline in the overall credit quality of
the securities held by the Portfolio and increasing the exposure of the
Portfolio to the risks of lower-rated securities. Investments in zero coupon
bonds may be more speculative and subject to greater fluctuations in value due
to changes in interest rates than bonds that pay interest currently.
Subsequent to its purchase by the Portfolio, an issue of securities may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Portfolio. Neither event will require sale of these securities
by the Portfolio, but the investment adviser will consider this event in its
determination of whether the Portfolio should continue to hold the securities.
As of October 31, 1994, the year-end dollar weighted average ratings of the
debt obligations held by the Fund, expressed as a percentage of the Fund's total
investments, were as follows:
Percentage of Total
Ratings Investments
------- -------------------
AAA/Aaa 53.62%
AA/Aa 21.79%
A/A 7.65%
BBB/Baa --
BB/Ba --
B/B --
Unrated 13.70%
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES
In addition, the Portfolio is permitted to make the investments and engage
in the investment techniques described below. Under normal circumstances, these
investments will represent no more than 35% of the total assets of the
Portfolio.
Hedging and Income Enhancement Strategies
The Portfolio may engage in various portfolio strategies, including
investing in derivatives, to reduce certain risks of its investments and to
attempt to enhance income, but not for speculation. These strategies currently
include the use of options, forward currency exchange contracts and futures
contracts and options thereon. The Portfolio's ability to use these strategies
may be limited by market conditions, regulatory limits and tax considerations
and there can be no assurance that any of these strategies will succeed. See
"Additional Investment Information-Investment
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Policies" in the Statement of Additional Information. New financial products and
risk management techniques continue to be developed and the Portfolio may use
these new investments and techniques to the extent consistent with its
investment objective and policies.
Options Transactions
The Portfolio may purchase and write (i.e., sell) put and call options on
securities and currencies that are traded on national securities exchanges or in
the over-the-counter market to enhance income or to hedge the Portfolio's
investments. These options will be on debt securities, financial indices (e.g.,
S&P 500), U.S. Government securities, foreign government securities and foreign
currencies. The Portfolio may write covered put and call options to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of a security that it owns against a decline in
market value and purchase call options in an effort to protect against an
increase in price of securities (or currencies) it intends to purchase. The
Portfolio may also purchase put and call options to offset previously written
put and call options of the same series. See "Additional Investment
Information-Additional Risks-Options on Securities" in the Statement of
Additional Information.
A call option gives the purchaser, in exchange for a premium paid, the right
for a specified period of time to purchase the securities or currency subject to
the option at a specified price (the exercise price or strike price). The writer
of a call option, in return for the premium, has the obligation, upon exercise
of the option, to deliver, depending upon the terms of the option contract, the
underlying securities or a specified amount of cash to the purchaser upon
receipt of the exercise price. When the Portfolio writes a call option, the
Portfolio gives up the potential for gain on the underlying securities or
currency in excess of the exercise price of the option during the period that
the option is open.
A put option gives the purchaser, in return for a premium, the right, for a
specified period of time, to sell the securities or currency subject to the
option to the writer of the put at the specified exercise price. The writer of
the put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities or currency underlying the option at the
exercise price. The Portfolio might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
The Portfolio will write only "covered" options. An option is covered if, so
long as the Portfolio is obligated under the option, it owns an offsetting
position in the underlying security or currency or maintains cash, U.S.
Government securities or other liquid high-grade debt obligations with a value
sufficient at all times to cover its obligations in a segregated account. See
"Additional Investment Information-Additional Risks" in the Statement of
Additional Information.
There is no limitation on the amount of call options the Portfolio may
write. The Portfolio may only write covered put options to the extent that cover
for such options does not exceed 25% of the Portfolio's net assets. The
Portfolio will not purchase an option if, as a result of such purchase, more
than 20% of its total assets would be invested in premiums for options and
options for futures.
Forward Currency Exchange Contracts
The Portfolio may enter into forward foreign currency exchange contracts to
protect the value of its portfolio against future changes in the level of
currency exchange rates. The Portfolio may enter into such contracts on a spot,
i.e., cash, basis at the rate then prevailing in the currency exchange market or
on a forward basis, by entering into a forward contract to purchase or sell
currency. A forward contract on foreign currency is an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
agreed upon by the parties from the date of the contract at a price set on the
date of the contract.
The Portfolio'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 a forward contract with respect to specific
receivables or payables of the Portfolio generally arising in connection with
the purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Portfolio expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different foreign currency (cross-hedge).
Although there are no limits on the number of forward contracts which the
Portfolio may enter into, the Portfolio may not position hedge with respect to a
particular currency for an amount greater than the aggregate market
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<PAGE>
value (determined at the time of making any sale of forward currency) of the
securities held in its portfolio denominated or quoted in, or currently
convertible into or bearing substantial correlation to, such currency. See
"Additional Investment Information-Forward Currency Exchange Contracts" in the
Statement of Additional Information.
Futures Contracts and Options Thereon
The Portfolio may purchase and sell financial futures contracts and options
thereon which are traded on a commodities exchange or board of trade for certain
hedging, return enhancement and risk management purposes in accordance with
regulations of the Commodity Futures Trading Commission. These futures contracts
and related options will be on debt securities, financial indices, U.S.
Government securities, foreign government securities and foreign currencies. A
financial futures contract is an agreement to purchase or sell an agreed amount
of securities or currencies at a set price for delivery in the future.
The Portfolio may not purchase or sell futures contracts and related options
for return enhancement or risk management purposes, if immediately thereafter
the sum of the amount of initial margin deposits on the Portfolio's existing
futures and options on futures and premiums paid for such related options would
exceed 5% of the liquidation value of the Portfolio's total assets. The
Portfolio may purchase and sell futures contracts and related options, without
limitation, for bona fide hedging purposes. Although there are no other limits
applicable to futures contracts, the value of all futures contracts sold will
not exceed the total market value of the Portfolio's portfolio.
The Portfolio's successful use of futures contracts and related options
depends upon the investment adviser's ability to predict the direction of the
market and is subject to various additional risks. The correlation between
movements in the price of a futures contract and the price of the securities or
currencies being hedged is imperfect and there is a risk that the value of the
securities or currencies being hedged may increase or decrease at a greater rate
than the related futures contracts resulting in losses to the Portfolio. Certain
futures exchanges or boards of trade have established daily limits on the amount
that the price of futures contracts or related options may vary, either up or
down, from the previous day's settlement price. These daily limits may restrict
the Portfolio's ability to purchase or sell certain futures contracts or related
options on any particular day.
The Portfolio's ability to enter into futures contracts and options thereon
is limited by the requirements of the Internal Revenue Code of 1986, as amended
(the Internal Revenue Code), for qualification as a regulated investment
company. See "Additional Investment Information-Futures Contracts and Options
Thereon" and "Taxation" in the Statement of Additional Information.
Risks of Hedging and Income Enhancement Strategies
Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transaction costs to which the
Portfolio would not be subject absent the use of these strategies. If the
investment adviser's prediction of movements in the direction of the securities,
foreign currency and interest rate markets are inaccurate, the adverse
consequences to the Portfolio may leave the Portfolio in a worse position than
if such strategies were not used. Risks inherent in the use of options, foreign
currency and futures contracts and options on futures contracts include (1)
dependence on the investment adviser's ability to predict correctly movements in
the direction of interest rates, securities prices and currency markets; (2)
imperfect correlation between the price of options and futures contracts and
options thereon and movements in the prices of the securities or currencies
being hedged; (3) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; and (6) the possible inability of the Portfolio to
purchase or sell a security at a time that otherwise would be favorable for it
to do so, or the possible need for the Portfolio to sell a security at a
disadvantageous time, due to the need for the Portfolio to maintain "cover" or
to segregate securities in connection with hedging transactions. See "Taxation"
in the Statement of Additional Information.
Short Sales Against-the-Box
The Portfolio may make short sales against-the-box for the purpose of
deferring realization of gain or loss for federal income tax purposes. A short
sale "against-the-box" is a short sale in which the Portfolio owns an equal
amount of the securities sold short or owns securities convertible into or
exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short.
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<PAGE>
Repurchase Agreements
The Portfolio may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Portfolio 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 extend over a number of months. The
resale price is in excess of the purchase price, reflecting an agreed-upon rate
of return effective for the period of time the Portfolio's money is invested in
the security. The Portfolio's repurchase agreements will at all times be fully
collateralized in an amount at least equal to the purchase price including
accrued interest earned on the underlying securities. The instruments held as
collateral are valued daily, and as the value of instruments declines, the
Portfolio will require additional collateral. If the seller defaults and the
value of the collateral securing the repurchase agreement declines, the
Portfolio may incur a loss. The Portfolio 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 or Commission). See "Additional Investment Information-Repurchase
Agreements" in the Statement of Additional Information.
Securities Lending
The Portfolio may lend its portfolio securities to brokers or dealers, banks
or other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures an
irrevocable letter of credit in favor of the Portfolio in an amount equal to at
least 100% of the market value of the securities loaned. During the time
portfolio securities are on loan, the borrower will pay the Portfolio an amount
equivalent to any dividend or interest paid on such securities and the Portfolio
may invest the cash collateral and earn additional income, or it may receive an
agreed-upon amount of interest income from the borrower. As a matter of
fundamental policy, the Portfolio cannot lend more than 30% of the value of its
total assets.
When-Issued and Delayed Delivery Securities
The Portfolio 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 Portfolio with payment and delivery
taking place a month or more in the future in order to secure what is considered
to be an advantageous price and yield to the Portfolio at the time of entering
into the transaction. The Fund's Custodian will maintain, in a segregated
account of the Portfolio, cash, U.S. Government securities or other liquid
high-grade debt obligations having a value equal to or greater than the
Portfolio's purchase commitments; the Custodian will likewise segregate
securities sold on a delayed delivery basis.
Borrowing
The Portfolio may borrow an amount equal to no more than 20% of the value of
its total assets (computed at the time the loan is made) from banks for
temporary, extraordinary or emergency purposes or for the clearance of
transactions. During periods when the Portfolio has borrowed for temporary,
extraordinary or emergency purposes or for the clearance of transactions, the
Portfolio may pursue its investment objective by purchasing additional
securities which can result in increased volatility of the Portfolio's net asset
value. The Portfolio will not borrow to take advantage of investment
opportunities. See "Additional Investment Information-Borrowing" in the
Statement of Additional Information. The Portfolio may pledge up to 20% of its
total assets to secure these borrowings.
Illiquid Securities
The Portfolio 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 and securities that
are not readily marketable. Restricted securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933, as amended (the Securities Act)
and privately placed commercial paper that have a readily available market are
not considered illiquid for purposes of this limitation. The investment adviser
will monitor the liquidity of 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 also taken the position that purchased
over-the-counter options and the assets used as "cover" for written
over-the-counter options are illiquid securities unless the Fund and the
counterparty have provided for the Fund, at the Fund's election, to unwind the
over-the-counter option. The exercise of such an option ordinarily
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<PAGE>
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."
Portfolio Turnover
The Portfolio has no fixed policy with respect to portfolio turnover;
however, it is anticipated that the Portfolio's annual portfolio turnover rate
will not exceed 75%. The portfolio turnover rate is calculated by dividing the
lesser of sales or purchases of portfolio securities by the average monthly
value of the Portfolio's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. High portfolio turnover
(over 100%) may involve correspondingly greater brokerage commissions and other
transaction costs which will be borne directly by the Portfolio. For the fiscal
year ended October 31, 1994, the Portfolio's portfolio turnover rate was 232%.
See "Portfolio Transactions and Brokerage" in the Statement of Additional
Information.
INVESTMENT RESTRICTIONS
The Portfolio 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
Portfolio'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 Portfolio's Manager, Subadviser and Distributor, as set forth
below, decides upon matters of general policy. The Portfolio's Manager conducts
and supervises the daily business operations of the Portfolio. The Fund's
Subadviser furnishes daily investment advisory services.
For the year ended October 31, 1994, total expenses for the Portfolio's
Class A, Class B and Class C shares as a percentage of average net assets were
1.17%, 1.97% and 0.93% (annualized), respectively. See "Financial Highlights."
Class C shares were first offered on August 1, 1994.
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, is the manager of the Portfolio and is
compensated for its services at an annual rate of .55 of 1% of the Portfolio's
average daily net assets. It was incorporated in May 1987 under the laws of the
State of Delaware. For the fiscal year ended October 31, 1994, the Portfolio
paid a management fee to PMF of .55 of 1% of the average net assets of the
Portfolio.
As of November 30, 1994, PMF served as the manager to 38 open-end investment
companies, constituting substantially all of the Prudential Mutual Funds, and as
manager or administrator to 30 closed-end investment companies with aggregate
assets of approximately $47 billion.
Under the Management Agreement with the Fund, PMF manages the investment
operations of the Portfolio and also administers the Portfolio's corporate
affairs. See "Manager" in the Statement of Additional Information.
Under the Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), the Subadviser furnishes investment
advisory services in connection with the management of the
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<PAGE>
Portfolio and is reimbursed by PMF for its reasonable costs and expenses
incurred in providing such services. Under the Management Agreement, PMF
continues to have responsibility for all investment advisory services and
supervises PIC's performance of such services.
The Portfolio is managed by Global Advisors, a unit of The Prudential
Investment Corporation (PIC). Jeffrey Brummette, a senior portfolio manager has
responsibility for the day-to-day management of the Portfolio. Mr. Brummette
performs these duties with the assistance of the mutual fund investment team.
Mr. Brummette is a Managing Director of PIC. He has managed the Portfolio since
November 1990. Mr. Brummette has been employed by PIC since 1986. Mr. Brummette
also serves as the portfolio manager of Global Assets Portfolio of the Fund, of
The Global Yield Fund, Inc. and for other institutional client portfolios.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
FEE WAIVERS AND SUBSIDY
PMF may from time to time agree to waive its management fee and subsidize
certain operating expenses with respect to the Portfolio, although no such
waiver or subsidy is currently in effect. Fee waivers and expense subsidies will
lower the overall expenses of the Portfolio and increase its yield and total
return. See "How the Fund Calculates Performance." The fee waiver or expense
subsidies may be terminated at any time without notice after which the
Portfolio's expenses will increase and its yield and total return will be
reduced.
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 Portfolio.
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 Portfolio. 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 Portfolio
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
Portfolio'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 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 Portfolio shares, including lease, utility, communications and
sales promotion expenses. The State of Texas requires that shares of the
Portfolio may be sold in that state only by dealers or other financial
institutions which are registered there as broker-dealers.
Under the Class A Plan, the Portfolio pays the Distributor a distribution
and service fee as reimbursement for expenses incurred in distributing the
Portfolio's Class A shares. Under the Class B and Class C Plans, the Portfolio
pays distribution and/or service fees to the Distributor as compensation for its
distribution and service activities undertaken in connection with the Class B
and Class C shares, not as reimbursement for specific expenses incurred. If the
Distributor's expenses under the Class B and Class C Plans exceed its
distribution and service fees, the Portfolio 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.
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<PAGE>
Under the Class A Plan, the Portfolio reimburses PMFD for its
distribution-related expenses with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net assets of the Class A shares. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. It is expected that, in the case
of Class A shares, proceeds from the distribution fee will be used primarily to
pay account servicing fees to financial advisers. PMFD has advised the Portfolio
that distribution-related expenses under the Class A Plan will not exceed .15 of
1% of the average daily net assets of the Class A shares for the fiscal year
ending October 31, 1995.
For the fiscal year ended October 31, 1994, PMFD received payments of
$57,000, under the Class A Plan as reimbursement of expenses related to the
distribution of Class A shares. This amount was primarily expended for payment
of account servicing fees to financial advisers and other persons who sell Class
A shares. For the fiscal year ended October 31, 1994. PMFD also received
approximately $15,000 in initial sales charges.
Under the Class B and Class C Plans, the Fund may pay 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 the
Class B and Class C shares, respectively. The Class B Plan provides for the
payment to Prudential Securities of (i) an asset-based sales charge of up to .75
of 1% of the average daily net assets of the Class B shares, and (ii) a service
fee of up to .25 of 1% of the average daily net assets of the Class B shares.
The Class C Plan provides for the payment to Prudential Securities of (i) an
asset-based sales charge of up to .75 of 1% of the average daily net assets of
the Class C shares, and (ii) a service fee of up to .25 of 1% of the average
daily net assets of the Class C shares. The service fee is used to pay for
personal service and/or the maintenance of shareholder accounts. Prudential
Securities has agreed to limit its distribution-related fees payable under the
Class B and Class C Plans to .75 of 1% of the average daily net assets of the
Class B and Class C shares for the fiscal year ending October 31, 1995.
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 October 31, 1994, Prudential Securities incurred
distribution expenses of approximately $1,382,000 under the Class B Plan and
received $2,679,726 from the Fund under the Class B Plan and approximately
$1,291,500 in contingent deferred sales charges from redemptions of Class B
shares. For the fiscal year ended October 31, 1994, Prudential Securities did
not receive any remuneration under the Class C Plan nor did Prudential
Securities incur any costs in distributing the Portfolio's Class C shares.
For the fiscal year ended October 31, 1994, the Fund paid distribution
expenses of .15%, .95% and .75% of the average net assets of the Class A, Class
B and Class C shares of the Portfolio, 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 B Plan operated as a "reimbursement
type" plan and 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 Portfolio
will be allocated to each class based upon the ratio of sales of each class to
the sales of all shares of the Portfolio other than expenses allocable to a
particular class. The distribution fee and sales charge of one class will not be
used to subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors
or of a majority of the outstanding shares of the applicable class of the
Portfolio. The Fund will not be obligated to pay expenses incurred under any
plan if it is terminated or not continued.
16
<PAGE>
In addition to distribution and service fees paid by the Portfolio 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 which
distribute shares of the Portfolio. 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. (the 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 PSl'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.
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 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 caling 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 & 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 Portfolio 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 Portfolio's investment
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.
17
<PAGE>
Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison, New Jersey
08837, serves as Transfer Agent and Dividend Disbursing Agent and in those
capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF.
Its mailing address is P.O. Box 15005, New Brunswick, New Jersey 08906-5005.
- --------------------------------------------------------------------------------
HOW THE FUND VALUES ITS SHARES
- --------------------------------------------------------------------------------
The Portfolio'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. For valuation purposes, quotations of foreign securities in a
foreign currency are converted to U.S. dollar equivalents. The Board of
Directors has fixed the specific time of day for the computation of the
Portfolio's net asset value to be as of 4:15 P.M., New York time.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors.
The Portfolio 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 Portfolio or days on
which changes in the value of the Portfolio's 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. See "Net Asset Value" in the
Statement of Additional Information.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class may result in different
NAVs and dividends. As long as the Portfolio declares dividends daily, the NAV
of Class A, Class B and Class C shares will generally be the same. It is
expected, however, that the dividends 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 Portfolio 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 Portfolio would have
increased (decreased) over a specified period of time (i.e., one, five or ten
years or since inception of the Portfolio) assuming that all distributions and
dividends by the Portfolio 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 Portfolio
also may include comparative performance information in advertising or marketing
the Portfolio's shares. Such performance information may include data from
Lipper Analytical Services, Inc., Morningstar Publications, Inc.,
18
<PAGE>
other industry publications, business periodicals and market indices. See
"Performance Information" in the Statement of Additional Information. The
Portfolio will include performance data for each class of shares of the
Portfolio in any advertisement or information including performance data of the
Portfolio. Further performance information is contained in the Portfolio's
annual and semi-annual reports to shareholders, which may be obtained without
charge. See "Shareholder Guide-Shareholder Services-Reports to Shareholders."
- --------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Taxation of the Portfolio
The Portfolio has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code. Accordingly, the
Portfolio will not be subject to federal income taxes on its net investment
income and capital gains, if any, that it distributes to its shareholders.
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of 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 increase or decrease the
amount of the Portfolio's investment company taxable income available to be
distributed to you as ordinary income, rather than increasing or decreasing the
amount of the Portfolio's net capital gain. If currency fluctuation losses
exceed other investment company taxable income during a taxable year,
distributions made by the Portfolio during the year would be characterized as a
return of capital to you, reducing your basis in your Portfolio shares.
In addition, 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 Portfolio 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 may be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxation" in the Statement of Additional Information.
Taxation of Shareholders
Any dividends out of net taxable investment income, together with
distributions of 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 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 currently the same as
the maximum tax rate for ordinary income.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any short-term capital loss,
however, will be treated as long-term capital loss to the extent of any capital
gain distributions received by the shareholder regardless of the length of time
such shares were held.
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.
Withholding Taxes
Under U.S. Treasury Regulations, the Portfolio is required to withhold and
remit to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds payable on your account if you fail to furnish your tax
19
<PAGE>
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding your status
under the federal income tax law.
Dividends And Distributions
The Portfolio expects to declare daily and pay monthly dividends of all or
substantially all of the net investment income (if any) and make distributions
at least annually of any net capital gains. Dividends paid by the Portfolio 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.
Distribution 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 shares based on the
NAV of each class on record date, or such other date as the Board of Directors
may determine, unless the shareholder elects in writing not less than five
business days prior to the record date to receive such dividends and
distributions in cash. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Account Maintenance, P.O. Box 15015, New Brunswick, New
Jersey 08906-5015. If you hold shares through Prudential Securities, you should
contact your financial adviser to elect to 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.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on February 21, 1990. The Fund is
authorized to issue 2 billion shares of common stock, $.001 par value per share,
divided with respect to the Portfolio into three classes designated Class A,
Class B and Class C common stock. Each of the Class A, Class B and Class C
common stock of the Portfolio consists of 500 million authorized shares. Each
class of common stock represents an interest in the same assets of the Portfolio
and is identical in all respects to other shares of the Portfolio 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 for the Portfolio to both Class A and Class B shareholders of the
Portfolio), (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 Portfolio
is offering three classes, designated Class A, Class B and Class C shares. In
accordance with the Fund's Articles of Incorporation, the Board of Directors may
authorize the creation of additional series of common stock and classes within
such series, with such preferences, privileges, limitations and voting and
dividend rights as the Board may determine.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Portfolio, 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 Portfolio
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 of the Portfolio, there are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of the Portfolio is entitled to its
portion of all of the Portfolio's assets after all debt and expenses of the
Portfolio 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 Portfolio's shares do not have cumulative voting rights for
the election of Directors.
20
<PAGE>
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of Directors is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon a vote of 10% of the
Fund's outstanding shares for the purpose of voting on the removal of one or
more Directors or to transact any other business.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Portfolio with the SEC under
the Securities Act of 1933. Copies of the Registration Statement may be obtained
at a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
HOW TO BUY SHARES OF THE FUND
You may purchase shares of the Portfolio 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."
The purchase price is the NAV per share next determined following receipt of
an order by the Transfer Agent or Prudential Securities plus a sales charge
which, at your option, may be imposed either (i) at the time of purchase (Class
A shares) or (ii) on a deferred basis (Class B or Class C shares). See
"Alternative Purchase Plan" below. See also "How the Fund Values its Shares."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
Purchase by Wire. For an initial purchase of shares of the Portfolio by
wire, you must first telephone PMFS to receive an account number at (800)
225-1852 (toll-free). 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, Boston, Massachusetts, Custody and Shareholder Services Division,
Attention: Prudential Short-Term Global Income Fund, Inc.-Short-Term Global
Income Portfolio, 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).
21
<PAGE>
If you arrange for receipt by State Street of Federal Funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Portfolio
as of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Short-Term Global
Income Fund, Inc.-Short-Term Global Income Portfolio, Class A, Class B or Class
C shares and your name and individual account number. It is not necessary to
call PMFS to make subsequent purchase orders utilizing Federal Funds. The
minimum amount which may be invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
The Fund offers three classes of shares (Class A, Class B and Class C
shares) which allows you to choose the most beneficial sales charge structure
for your individual circumstances given the amount of the purchase, the length
of time you expect to hold the shares and other relevant circumstances
(Alternative Purchase Plan).
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other information
------------------------------------- ------------------------- --------------------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of 3% of 0.30 of 1% (Currently Initial sales charge waived or reduced
the public offering price being charged at a for certain purchases
rate of 0.15 of 1%)
Class B Maximum contingent deferred sales 1% (Currently being Shares convert to Class A shares
charge or CDSC of 3% of the lesser of charged at a rate of .75 approximately five years after
the amount invested or the redemption of 1% purchase
proceeds; declines to zero after four
years
Class C Maximum CDSC of 1% of the lesser of 1% (Currently being Shares do not convert to another class
the amount invested or the redemption charged at a rate of
proceeds on redemptions made .75 of 1%)
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 Portfolio
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) that Class B shares automatically convert
to Class A shares approximately five years after purchase (see "Conversion
Feature-Class B Shares" below).
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<PAGE>
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 5 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 3% and Class B shares
are subject to a CDSC of 3% which declines to zero over a 4 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 5 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 5 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced charge in 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 5 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 fee on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher 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
Amount of Percentage of Percentage of as Percentage of
Purchase Offering Price Amount Invested Offering Price
- ---------------- --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $100,000 3.0% 3.09% 2.75%
$100,000 but less than $500,000 2.5 2.56 2.25
$500,000 but less than $1,000,000 2.0 2.04 1.75
$1,000,000 but less than $3,000,000 1.5 1.52 1.30
$3,000,000 and above* 0.0 0.00 0.00
</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
23
<PAGE>
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 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
record keeping (Direct Account Benefit Plans) and Benefit Plans sponsored by PSI
or its subsidiaries (PSI or Subsidiary Prototype Benefit Plans), Class A shares
may be purchased at NAV by participants who are repaying loans made from such
plans to the participant.
Special Rules Applicable to Retirement Plans. 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) on which no deferred sales load, fee or other charge was
imposed on redemption and (iii) the financial adviser served as the clinet's
broker on the previous purchases.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
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 per share next determined
following receipt of an order by the Transfer Agent or Prudential Securities.
Although there is no sales charge imposed at the time of purchase, redemptions
of Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares-Contingent Deferred Sales Charges."
HOW TO SELL YOUR SHARES
You can redeem shares of the Portfolio 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 through Prudential Securities, you must redeem your
shares by contacting your Prudential Securities Financial Adviser. If you hold
shares in non-certificate form, a written request for redemption signed by you
exactly as the account is registered is required. If you hold certificates, the
certificates signed in the name(s) shown on the face of the certificates, must
be received by the Transfer Agent in order for the redemption request to be
24
<PAGE>
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 Portfolio in care of the
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent of the certificate and/or written
request except as indicated below. If you hold shares through Prudential
Securities, payment for shares presented for redemption will be credited to your
Prudential Securities account, unless you indicate otherwise. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Portfolio of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Portfolio
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 Portfolio or the 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 Portfolio
to make payment wholly or partly in cash, the Portfolio may pay the redemption
price in whole or in part by a distribution in kind of securities from the
investment portfolio of the Portfolio, in lieu of cash, in conformity with
applicable rules of the Commission. Securities will be readily marketable and
will be valued in the same manner as in a regular redemption. See "How the Fund
Values its Shares." If your shares are redeemed in kind, you would incur
transaction costs in converting the assets into cash. The Portfolio, however,
has elected to be governed by Rule 18f-1 under the Investment Company Act,
pursuant to which the Portfolio is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Portfolio during
any 90-day period for any one shareholder.
Involuntary Redemption. In order to reduce expenses of the Portfolio, 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 Portfolio will
give such shareholders 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption.
30-day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege you may reinvest any portion or
all of the proceeds of such redemption in shares of the Portfolio at the NAV
next determined after the order is received, which must be within 30 days after
the date of the redemption. No sales charge will apply to such repurchases. You
will receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption of Class B or Class C shares. You must notify the
Portfolio'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
25
<PAGE>
affect federal income tax treatment of any gain realized upon redemption. If the
redemption resulted in a loss, some or all of the loss, depending on the amount
reinvested, will not be allowed for federal income tax purposes.
Contingent Deferred Sales Charges
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 3% to zero over a five-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 four years, in the case of
Class B shares, and one year, in the case of Class C shares. A CDSC will be
applied on the lesser of the original purchase price or the current value of the
shares being redeemed. Increases in the value of your shares or shares purchased
through reinvestment of dividends or distributions are not subject to a CDSC.
The amount of any contingent deferred sales charge will be paid to and retained
by the Distributor. See "How the Fund Is Managed-Distributor" and "Waiver of the
Contingent Deferred Sales Charges-Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund. See "How
to Exchange Your Shares."
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
Contingent Deferred Sales Charge
Year Since Purchase as a Percentage of Dollars Invested
Payment Made or Redemption Proceeds
------------------- -----------------------------------
First ................... 3.0%
Second .................. 2.0%
Third ................... 1.0%
Fourth .................. 1.0%
Fifth and thereafter .... None
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value above the total amount of
payments for the purchase of Class B shares made during the preceding four
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 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 2% (the applicable rate in the second year
after purchase) for a total contingent deferred sales charge of $4.80.
For federal income tax purposes, the amount of the contingent deferred sales
charge will reduce the gain or increase the loss, as the case may be, on the
amount recognized on the redemption of shares.
26
<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), or a trust, at the time of death or initial
determination of disability, provided that the shares were purchased prior to
death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or 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
Directors of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to waiver
of the CDSC 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 five years after purchase. It is currently anticipated that
conversions will occur during the months of February, May, August and November
commencing in or about February 1995. Conversions will be effected at relative
net asset value without the imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least five
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated
27
<PAGE>
as described above will generally be either more or less than the number of
shares actually purchased approximately five 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
five 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 six years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase of
such shares. The conversion feature described above will not be implemented and,
consequently, the first conversion of Class B shares will not occur before
February, 1995, but as soon thereafter as practicable. At that time all amounts
representing Class B shares then outstanding beyond the applicable conversion
period will automatically convert to Class A shares together with all shares or
amounts representing Class B shares acquired through the automatic reinvestment
of dividends and distributions then held in your account.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service, (i) that the
dividends and other distributions paid on Class A, Class B, and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code and
(ii) that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Portfolio 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 Portfolio, you have an exchange privilege with
certain other Prudential Mutual Funds, including one or more specified money
market funds, subject to the minimum investment requirements of such funds.
Class A, Class B and Class C shares of the Portfolio may be exchanged for Class
A, Class B and Class C shares, respectively, of another fund on the basis of the
relative net asset value per share. No sales charge will be imposed at the time
of the exchange. Any applicable CDSC payable upon the redemption of shares
exchanged will be that imposed by the fund in which shares were initially
purchased and will be calculated from the first day of the month after the
initial purchase, excluding the time shares were held in a money market fund.
Class B and Class C shares may not be exchanged into money market funds other
than Prudential Special Money Market Fund. For purposes of calculating the
holding period applicable to the Class B conversion feature, the time period
during which Class B shares were held in a money market fund will be excluded.
See "Conversion Feature-Class B Shares" above. An exchange will be treated as a
redemption and purchase for tax purposes. See "Shareholder Investment
Account-Exchange Privilege" in the Statement of Additional Information.
In order to exchange shares by telephone, you must authorize the telephone
exchange privilege on your initial application form or by written notice to the
Transfer Agent and hold shares in non-certificate form. Thereafter, you
28
<PAGE>
may call the Portfolio at (800) 225-1852 to execute a telephone exchange of
shares, weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M.,
New York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. Neither the Fund nor its agents will be liable for any loss,
liability or cost which results from acting upon instructions reasonably
believed to be genuine under the foregoing procedures. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after the
request is received in good order. The exchange privilege is available only in
states where the exchange may legally be made.
If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.
If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates must be returned in order for the shares to be
exchanged. See "How to Sell Your Shares."
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange of
shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services, Inc., at the address noted above.
Special Exchange Privilege. Commencing in or about February 1995, a special
exchange privilege is available for shareholders who qualify to purchase Class A
shares at NAV. See "Alternative Purchase Plan-Class A Shares-Reduction and
Waiver of Initial Sales Charges" above. Under this exchange privilege, amounts
representing any Class B and Class C shares (which are not subject to a CDSC)
held in such a shareholder's account will be automatically exchanged for Class A
shares on a quarterly basis, unless the shareholder elects otherwise. It is
currently anticipated that this exchange will occur quarterly in February, May,
August and November. Eligibility for this exchange privilege will be calculated
on the business day prior to the date of the exchange. Amounts representing
Class B or Class C shares which are not subject to a CDSC include the following:
(1) amounts representing Class B or Class C shares acquired pursuant to the
automatic reinvestment of dividends and distributions, (2) amounts representing
the increase in the net asset value above the total amount of payments for the
purchase of Class B or Class C shares and (3) amounts representing Class B or
Class C shares held beyond the applicable CDSC period. Class B and Class C
shareholders must notify the Transfer Agent either directly or through
Prudential Securities or Prusec that they are eligible for this special exchange
privilege.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:
(bullet) 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 Portfolio at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than 5 full business days prior to the record date to have subsequent dividends
and/or distributions sent in cash rather than reinvested. If you hold shares
through Prudential Securities, you should contact your financial adviser.
(bullet) Automatic Savings Accumulation Plan (ASAP). Under ASAP you may make
regular purchases of the Portfolio'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.
(bullet) 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
29
<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.
(bullet) Systematic Withdrawal Plan. A systematic withdrawal plan is
available for 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."
(bullet) Reports to Shareholders. The Portfolio 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 Portfolio 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 from the Portfolio upon request.
(bullet) Shareholder Inquiries. Inquiries should be addressed to the
Portfolio 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.
30
<PAGE>
APPENDIX
DESCRIPTION OF SECURITY RATINGS
Moody's Investors Service
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements 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 sometime 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.
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.
Commercial Paper
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.
P-1: The designation "Prime-1" or "P-1" indicates the highest quality
repayment capacity of the rated issue.
P-2: The designation "Prime-2" or "P-2" indicates a strong capacity for
repayment.
Standard & Poor's Ratings Group
AAA: Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. 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 although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
A-1
<PAGE>
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: Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC 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
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debt having an original maturity of no more than
270 days.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is very strong.
A-2: Capacity for timely payment on issues with the designation A-2 is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
A-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 registered representative or telephone
the Fund at (800) 225-1852 for a free prospectus. Read the prospectus carefully
before you invest or send money.
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
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 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
Strategy Portfolio
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible\'AE Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
* Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
* Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
* Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
* Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
- -------------------------------------------------------------------------------
<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 and offer by the Fund or
by the Distributor to sell or a solicitation of an offer to
buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
___________________________________________________________
TABLE OF CONTENTS
Page
----
FUND HIGHLIGHTS.............................. 2
Risk Factors and Special Characteristics... 2
FUND EXPENSES................................ 4
FINANCIAL HIGHLIGHTS......................... 5
HOW THE FUND INVESTS......................... 7
Investment Objective and Policies.......... 7
Risk Factors............................... 9
Other Investments and Investment Techniques 10
Investment Restrictions.................... 14
HOW THE FUND IS MANAGED...................... 14
Manager.................................... 14
Fee Waivers and Subsidy.................... 15
Distributor ............................... 15
Portfolio Transactions..................... 17
Custodian and Transfer and
Dividend Disbursing Agent................ 17
HOW THE FUND VALUES ITS SHARES............... 18
HOW THE FUND CALCULATES PERFORMANCE.......... 18
TAXES, DIVIDENDS AND DISTRIBUTIONS........... 19
GENERAL INFORMATION.......................... 20
Description of Common Stock................ 20
Additional Information..................... 21
SHAREHOLDER GUIDE............................ 21
How to Buy Shares of the Fund.............. 21
Alternative Purchase Plan.................. 22
How to Sell Your Shares.................... 24
Conversion Feature--Class B Shares......... 27
How to Exchange Your Shares................ 28
Shareholder Services....................... 29
APPENDIX.....................................A-1
THE PRUDENTIAL MUTUAL FUND FAMILY............B-1
________________________________________________
MF144A 444129Y
________________________________________________
Class A: 74436H 10 1
CUSIP Nos.: Class B: 74436H 20 0
Class C: 74436H 50 7
________________________________________________
<PAGE>
Prudential
Short-Term
Global Income
Fund, Inc.
(Short-Term Global Income Portfolio)
Prudential Mutual Funds (LOGO)
Building Your Future
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PROSPECTUS
January 3, 1995
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Prudential Short-Term
Global Income Fund, Inc.
(Global Assets Portfolio)
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Prospectus dated January 3, 1995
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Prudential Short-Term Global Income Fund, Inc. (the Fund)--Global Assets
Portfolio (the Portfolio) is one of two separate portfolios of an open-end,
management investment company. Only shares of the Global Assets Portfolio are
offered by means of this Prospectus. The Global Assets Portfolio's investment
objective is high current income with minimum risk to principal. The Portfolio
seeks to achieve its objective by investing in a portfolio of high-quality debt
securities having remaining maturities of not more than one year. The Portfolio
seeks high current yields by investing in debt securities denominated in the
U.S. dollar and a range of foreign currencies. The Portfolio is non-diversified
and may invest more than 5% of its total assets in the securities of one or more
issuers. Investment in a non-diversified portfolio involves greater risk than
investment in a diversified portfolio. The Global Assets Portfolio, which is not
a money market fund, is designed for the investor who seeks a higher yield than
a money market fund and less fluctuation in net asset value than a longer-term
bond fund. There can be no assurance that the Portfolio's investment objective
will be achieved. See "How the Fund Invests-Investment Objective and Policies."
The Portfolio is currently not accepting purchase orders for its Class B shares.
The Portfolio continues to accept purchase orders for its Class A shares. The
Fund's address is One Seaport Plaza, New York, New York 10292, and its telephone
number is (800) 225-1852.
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This Prospectus sets forth concisely the information about the Fund and the
Portfolio that a prospective investor should know before investing. Additional
information about the Fund and the Portfolio has been filed with the Securities
and Exchange Commission in a Statement of Additional Information, dated January
3, 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.
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Investors are advised to read this Prospectus and retain it for future
reference.
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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.
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FUND HIGHLIGHTS
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What is Prudential Short-Term Global Income Fund, Inc., Global Assets Portfolio?
Prudential Short-Term Global Income Fund, Inc., Global Assets Portfolio is a
mutual fund. A mutual fund pools the resources of investors by selling its
shares to the public and investing the proceeds of such sale in a portfolio of
securities designed to achieve its investment objective. Technically, the Fund
is an open-end, non-diversified management investment company.
What is the Portfolio's Investment Objective?
The Portfolio's investment objective is high current income with minimum
risk to principal. There can be no assurance that the Portfolio's objective will
be achieved. See "How the Fund Invests-Investment Objectives and Policies" at
page 6.
Risk Factors and Special Characteristics
In seeking to achieve its investment objective, the Portfolio invests in a
portfolio of high quality debt securities having remaining maturities of not
more than one year. The Portfolio, which is not a money market fund, seeks high
current yields by investing in debt securities denominated in the U.S. dollar
and a range of foreign securities. See "How the Fund Invests-Investment
Objectives and Policies" at page 6. Investing in securities of foreign companies
and countries involves certain considerations and risks not typically associated
with investing in U.S. Government Securities and securities of domestic
companies. See "How the Fund Invests-Risk Factors on Foreign Investments" at
page 8. The Portfolio may also engage in various hedging and income enhancement
strategies, including investing in derivatives, the purchase and sale of put and
call options and related short-term trading. See "How the Fund Invests-Other
Investments and Investment Techniques-Hedging and Income Enhancement
Strategies-Risks of Hedging and Income Enhancement Strategies" at page 10. The
amount of income available for distribution to shareholders will be affected by
any foreign currency gains or losses generated by the Portfolio upon the
disposition of debt securities denominated in a foreign currency and by certain
hedging activities of the Portfolio. See "Taxes, Dividends and Distributions" at
page 17.
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 .55 of 1%
of the Fund's average daily net assets. As of November 30, 1994, PMF served as
manager or administrator to 68 investment companies, including 38 mutual funds,
with aggregate assets of approximately $47 billion. The Prudential Investment
Corporation (PIC or the Subadviser) furnishes investment advisory services in
connection with the management of the Fund under a Subadvisory Agreement with
PMF. See "How the Fund is Managed-Manager" at page 12.
Who Distributes the Portfolio's Shares?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
the Portfolio's Class A shares and is paid an annual distribution and service
fee at the rate of up to .50 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 Portfolio's Class B shares. Prudential Securities is
reimbursed for its expenses related to the distribution of Class B shares at an
annual rate of up to 1% of the average daily net assets of the Class B shares.
See "How the Fund is Managed-Distributor" at page 13.
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What is the Minimum Investment?
The minimum initial investment is $5,000. Thereafter, the minimum investment
is $1,000. There is no minimum investment requirement for certain retirement
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 19 and "Shareholder Guide-Shareholder Services" at page 24.
How Do I Purchase Shares?
You may purchase shares of the Portfolio 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 at the time of purchase or on a deferred
basis. See "How the Fund Values Its Shares" at page 16 and "Shareholder
Guide-How to Buy Shares of the Fund" at page 19.
What Are My Purchase Alternatives?
The Portfolio offers two classes of shares which may be purchased at the
next determined NAV plus a sales charge which, at your election, may be imposed
either at the time of purchase (Class A shares) or on a deferred basis (Class B
shares).
. Class A shares are sold with an initial sales charge of up to .99% of the
amount invested.
. Class B shares are sold without an initial sales charge but are subject
to a contingent deferred sales charge or CDSC (of 1% of the lower of the amount
invested or the redemption proceeds) if they are redeemed within one-year of
purchase. Class B shares will be automatically converted to Class A shares
(which are subject to lower ongoing distribution-related expenses) after the
one-year CDSC period has expired.
The Portfolio no longer accepts purchase orders for Class B shares. The
Portfolio continues to accept purchase orders for Class A shares.
See "Shareholder Guide-Alternative Purchase Plan" at page 20.
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. Although
Class B shares are sold without an initial sales charge, the proceeds of
redemptions of Class B shares held for one year or less may be subject to a
CDSC of 1%. See "Shareholder Guide-How to Sell Your Shares" at page 22.
How Are Dividends and Distributions Paid?
The Portfolio expects to pay dividends of net investment income monthly and
make distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the
Portfolio at NAV without a sales charge unless you request that they be paid to
you in cash. The amount of income available for distribution to shareholders
will be affected by any foreign currency gains or losses generated by the
Portfolio upon the disposition of debt securities denominated in a foreign
currency and by certain hedging activities of the Portfolio. See "Taxes,
Dividends and Distributions" at page 17.
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3
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FUND EXPENSES-GLOBAL ASSETS PORTFOLIO
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<TABLE>
<CAPTION>
Class A Shares Class B Shares
(Initial Sales Charge (Deferred Sales Charge
Alternative) Alternative)
------------ ------------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering .99% None
price) ...................................................................
Maximum Sales Load or Deferred Sales Load Imposed on Reinvested None None
Dividends ................................................................
Deferred Sales Load (as a percentage of original purchase price or
redemption proceeds, whichever is lower)* ................................ None 1% during the first year
and 0% thereafter
Redemption Fees ............................................................ None None
Exchange Fees .............................................................. None None
</TABLE>
<TABLE>
Annual Portfolio Operating Expenses** (as a percentage of average net assets)
<CAPTION>
Class A Class B
<S> <C> <C>
Management Fees ............................................................ .55% .55%
12b-1 Fees\D ............................................................... .50 1.00\D\D
Other Expenses ............................................................. .68 .68
--- ---
Total Portfolio Operating Expenses ......................................... 1.73% 2.23%
==== ====
</TABLE>
<TABLE>
Example
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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:
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A ..................................................................... $27 $64 $103 $212
Class B ..................................................................... $33 $70 $119 $238
You would pay the following expenses on the same investment, assuming no redemption:
Class A ..................................................................... $27 $64 $103 $212
Class B ..................................................................... $23 $59 $98 $207
<FN>
The above example is based on data for the Portfolio's fiscal year ended October 31, 1994. The example should not be
considered a representation of past or future expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist investors in understanding the various costs and expenses that an investor in the
Portfolio 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 an estimate of operating expenses of the Portfolio, such as directors'
and professional fees, registration fees, reports to shareholders and transfer agency and custodian fees (foreign and domestic).
</TABLE>
<TABLE>
<C> <S>
* Class B shares will automatically convert to Class A shares after the one year contingent deferred sales charge period
has expired.
** PMF may from time to time agree to waive its management fee and subsidize certain operating expenses with respect to the
Portfolio. Fee waivers and expense subsidies lower the overall expenses of the Portfolio. See "How the Fund is Managed--
Manager."
\D 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 Portfolio may not exceed 6.25% of total gross sales, subject to
certain exclusions. This 6.25% limitation is imposed on the Portfolio rather than on a per shareholder basis. Therefore,
long-term Class B shareholders of the Portfolio 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."
\D\D The Distributor currently has no distribution costs reimbursable to it under the Class B Plan and therefore, the Fund has
discontinued assessing any 12b-1 fees on the Class B shares and has discontinued the payment to the Distributor of any
contingent deferred sales charges collected on the redemption of Class B shares (any such contingent deferred sales charges
collected on the redemption of Class B shares are paid to the Fund). As a result and under current conditions, Total Fund
Operating Expenses will be lower for Class B shares than for the Class A shares. The Fund is no longer accepting purchase
orders for the Class B shares.
</TABLE>
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4
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FINANCIAL HIGHLIGHTS
(for a share of common stock outstanding throughout each of the
periods indicated)
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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
notes thereto, which appear in the Statement of Additional Information. The
following highlights contain selected data for a share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. The information is based on data contained in
the financial statements.
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<TABLE>
Global Assets Portfolio
<CAPTION>
Class A Class B
--------------------------------------------- ------------------------------------------
Feb. 15, Nov. 1, Feb. 15,
1991* 1993 1991*
Year ended Oct. 31, through through Year ended Oct. 31, through
---------------------------- Oct. 31, May 9, ------------------- Oct. 31,
1994 1993 1992 1991 1994@ 1993 1992 1991
---- ---- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $ 1.88 $ 1.89 $ 2.00 $ 2.00 $1.90 $ 1.89 $ 2.00 $ 2.00
-------- -------- -------- ------- ----- ------- -------- --------
Income from investment operations
Net investment income ............... .08 .12 .16 .12\D .04 .12 .15 .11\D
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions ............. (.07) (.04) (.13) - (.03) (.04) (.13) -
-------- -------- -------- ------- ----- ------- -------- --------
Total from investment operations .... .01 .08 .03 .12 .01 .08 .02 .11
Less distributions
Dividends from net investment income. - (.04) (.14) (.12) - (.04) (.13) (.11)
Taxable return of capital
distributions ..................... (.09) (.05) - - (.05) (.05) - -
-------- -------- -------- ------- ----- ------- -------- --------
Total distributions ................. (.09) (.09) (.14) (.12) (.05) (.09) (.13) (.11)
-------- -------- -------- ------- ----- ------- -------- --------
Contingent deferred sales charges
collected ......................... - - - - .03 .02 - -
-------- -------- -------- ------- ----- ------- -------- --------
Net asset value, end of period ...... $ 1.80 $ 1.88 $ 1.89 $ 2.00 $1.89 $ 1.90 $ 1.89 $ 2.00
-------- -------- -------- ------- ----- ------- -------- --------
-------- -------- -------- ------- ----- ------- -------- --------
TOTAL RETURN# ....................... 0.47% 4.36% 1.46% 5.91% 2.33% 5.47% 0.94% 5.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ..... $ 50,537 $127,490 $113,412 $86,443 $ 0 $ 2,023 $199,890 $134,015
Average net assets (000) ............ $ 82,267 $153,339 $138,331 $23,224 $ 525 $52,653 $248,941 $ 42,449
Ratios to average net assets:@@
Expenses, including distribution fees 1.73% 1.48% 1.33% 1.25%\D** 1.21%** 1.61% 1.83% 1.75%\D**
Expenses, excluding distribution fees 1.23% .98% .83% .75%\D** 1.21%** .98% .83% .75%\D**
Net investment income ............... 4.09% 6.44% 8.16% 8.64%\D** 4.48%** 6.31% 7.66% 8.21%\D**
<FN>
- -------------------
* Commencement of investment operations.
** Annualized.
# Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes reinvestment of dividends. Total returns for periods
of less than a full year are not annualized.
\D Net of expense subsidy.
@ Last day of investment operations of Class B shares. On May 10, 1994, all existing Class B shares were converted to Class A
shares.
@@ Because of the events referred to in @ and the timing of such, the Class B shares ratios for the most recent period are not
necessarily comparable to that of Class A shares.
</TABLE>
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5
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HOW THE FUND INVESTS
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INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Portfolio is high current income with
minimum risk to principal. The Portfolio seeks to achieve its objective by
investing primarily in a portfolio of high-quality debt securities having
remaining maturities of not more than one year. The Portfolio will invest at
least 65% of its total assets in income-producing securities. There can be no
assurance that the Portfolio will achieve its investment objective.
The Portfolio's investment objective is a fundamental policy and cannot be
changed without the approval of the holders of a majority of the Portfolio's
outstanding voting securities as defined in the Investment Company Act of 1940
(the Investment Company Act). Fund policies that are not fundamental may be
modified by the Board of Directors.
The Portfolio seeks high current yields by investing in debt securities
denominated in U.S. dollars and a range of foreign currencies. While the
Portfolio normally will maintain a substantial portion of its assets in debt
securities denominated in foreign currencies, the Portfolio, under normal
circumstances, will maintain at least 35% of its net assets in U.S. dollar
denominated securities and will also invest in debt securities of issuers in at
least three different countries. The Portfolio, which is not a money market
fund, is designed for the investor who seeks a higher yield than a money market
fund and less fluctuation in net asset value than a longer-term bond fund.
Investors should understand that the Portfolio's net asset value will fluctuate
based on the value of its underlying securities.
In pursuing its investment objective, the Portfolio seeks to minimize credit
risk and fluctuations in net asset value by investing primarily in shorter-term
debt securities. Normally, a high proportion of the Portfolio's investments
consist of money market instruments. The Portfolio's investments are managed in
accordance with a multi-market strategy, allocating the Portfolio's investments
among securities denominated in the U.S. dollar and the currencies of a number
of foreign countries and, within each such country, among different types of
debt securities. The investment adviser adjusts the Portfolio's exposure to each
currency based on its perception of the most favorable markets and issuers. In
this regard, the percentage of assets invested in securities of a particular
country or denominated in a particular currency will vary in accordance with the
investment adviser's assessment of the relative yield of such securities and the
relationship of a country's currency to the U.S. dollar. The Portfolio may from
time to time invest 25% or more of its total assets in securities of issuers in
one or more countries depending upon the investment adviser's assessment. The
investment adviser considers fundamental economic strength, credit quality and
interest rate trends in determining whether to increase or decrease the emphasis
placed upon a particular type of security or industry sector within the
Portfolio's investment portfolio. The Portfolio may also purchase and sell
covered call and put options on certain of these securities, indices and
currencies, as well as on futures contracts relating to such securities, indices
and currencies.
Returns on short-term foreign currency denominated debt instruments can be
adversely affected by changes in exchange rates. The Portfolio's investment
adviser believes that the use of foreign currency hedging techniques, including
"cross-currency hedges," may assist, under certain conditions, in helping to
protect against declines in the U.S. dollar value of income available for
distribution to shareholders and declines in the net asset value of the
Portfolio's shares resulting from adverse changes in currency exchange rates.
For example, the return available from securities denominated in a particular
foreign currency would diminish in the event the value of the U.S. dollar
increased against such currency. Such a decline could be partially or completely
offset by an increase in value of a cross-currency hedge involving a forward
exchange contract to sell a different foreign currency, where such contract is
available on terms more advantageous to the Portfolio than a contract to sell
the currency in which the position being hedged is denominated. Cross-currency
hedges can, therefore, under certain conditions, provide protection of net asset
value in the event of a general rise in the U.S. dollar against foreign
currencies. However, there can be no assurance that the Fund will be able to
engage in cross-currency hedging or that foreign exchange rate relationships
will be sufficiently predictable to enable the investment adviser to
successfully employ cross-currency hedging techniques. A cross-currency hedge
cannot protect against exchange rates risks perfectly, and if the investment
adviser is incorrect in its
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judgment of future exchange rate relationships, the Portfolio could be in a less
advantageous position than if such a hedge had not been established.
The Portfolio invests in debt securities denominated in the currencies of
countries whose governments are considered stable by the Fund's investment
adviser. In addition to the U.S. dollar, such currencies include, among others,
the Australian Dollar, Austrian Schilling, British Pound Sterling, Canadian
Dollar, Dutch Guilder, European Currency Unit (ECU), French Franc, German Mark,
Italian Lira, Finnish Marka, Mexican Peso, Japanese Yen, New Zealand Dollar,
Spanish Peseta, Danish Kroner, Norwegian Kroner, Swedish Krona and Swiss Franc.
An issuer of debt securities purchased by the Portfolio may be domiciled in a
country other than the country in whose currency the instrument is denominated.
The Portfolio seeks to minimize investment risk by limiting its portfolio
investments to debt securities of high quality. Accordingly, the Portfolio's
investments consist of: (i) debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (U.S. Government securities); (ii)
obligations issued or guaranteed by a foreign government or any of its political
subdivisions, authorities, agencies, or instrumentalities, or by supranational
entities, all of which are rated AAA or AA by Standard & Poor's Ratings Group
(S&P) or Aaa or Aa by Moody's Investors Service (Moody's) (High Quality Rating)
or, if unrated, determined by the Portfolio's investment adviser to be of
equivalent quality utilizing similar rating standards; (iii) corporate debt
securities having at least one High Quality Rating or, if unrated, determined by
the Portfolio's investment adviser to be of equivalent quality utilizing similar
rating standards; (iv) certificates of deposit and bankers' acceptances issued
or guaranteed by, or time deposits maintained at, banks (including foreign
branches of U.S. banks or U.S. or foreign branches of foreign banks) having
total assets of more than $500 million and determined by the investment adviser
to be of high quality utilizing similar rating standards; (v) commercial paper
rated A-1 by S&P, Prime-1 by Moody's, or, if not rated, issued by U.S. or
foreign companies having outstanding long term debt securities rated AAA, AA or
A by S&P, or Aaa, Aa or A by Moody's and determined by the investment adviser to
be of high quality utilizing similar rating standards; and (vi) loan
participation interests having a remaining term not exceeding one year in loans
extended by banks to such companies. The value of longer-term fixed-income
securities will fluctuate inversely with interest rates. See the description of
securities ratings in the Appendix.
The Portfolio may invest without limitation in commercial paper and other
instruments which are indexed to certain specific foreign currency exchange
rates. The terms of such instruments provide that its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the exchange rate between two currencies while the obligation is
outstanding. The Portfolio will purchase such instruments with the currency in
which it is denominated and, at maturity, will receive interest and principal
payments thereon in that currency, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. The Portfolio will
establish a segregated account with respect to its investments in this type of
instrument and maintain in such account cash or liquid high-quality debt
securities having a value at least equal to the aggregate principal amount of
outstanding instruments of this type. While such instruments entail the risk of
loss of principal, the potential for realizing gains as a result of changes in
foreign currency exchange rates enables the Portfolio to hedge (or cross-hedge)
against a decline in the U.S. dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return.
The Portfolio may invest in debt securities issued by supranational
organizations such as the World Bank, which was chartered to finance development
projects in developing member countries; the European Community, which is a
twelve-nation organization engaged in cooperative economic activities; the
European Coal and Steel Community, which is an economic union of various
European nations' steel and coal industries; and the Asian Development Bank,
which is an international development bank established to lend funds, promote
investment and provide technical assistance to member nations in the Asian and
Pacific regions.
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The Portfolio may invest in debt securities denominated in the ECU, which is
a "basket" consisting of specified amounts of currencies of certain of the
twelve member states of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies. The Fund's investment adviser does not believe that such adjustments
will adversely affect holders of ECU-denominated obligations or the
marketability of such securities. European supranationals, in particular, issue
ECU-denominated obligations.
The Portfolio is "non-diversified" so that the Portfolio may invest more
than 5% of its total assets in the securities of one or more issuers. Investment
in a non-diversified portfolio involves greater risk than investment in a
diversified portfolio because a loss resulting from the default of a single
issuer may represent a greater portion of the total assets of a non-diversified
portfolio.
RISK FACTORS
Risk Factors on Foreign Investments
Investing in securities issued by foreign governments and corporations
involves considerations and possible risks not typically associated with
investing in obligations issued by the U.S. government and domestic
corporations. The values of foreign investments are affected by changes in
currency rates or exchange control regulations, application of foreign tax laws,
including withholding taxes, changes in governmental administration or economic
or monetary policy (in this country or abroad) or changed circumstances in
dealings between nations. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States. Investments in foreign countries could be affected by
other factors not present in the United States, including expropriation,
confiscatory taxation, lack of uniform accounting and auditing standards and
potential difficulties in enforcing contractual obligations and could be subject
to extended settlement periods.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES
In addition, the Portfolio is permitted to make the investments and engage
in the investment techniques described below. Under normal circumstances, these
investments will represent no more than 35% of the total assets of the
Portfolio.
Hedging and Income Enhancement Strategies
The Portfolio may engage in various portfolio strategies, including
investing in derivatives, to reduce certain risks of its investments and to
attempt to enhance income, but not for speculation. These strategies currently
include the use of options, forward currency exchange contracts and futures
contracts and options thereon. The Portfolio's ability to use these strategies
may be limited by market conditions, regulatory limits and tax considerations
and there can be no assurance that any of these strategies will succeed. See
"Additional Investment Information-Investment Policies" in the Statement of
Additional Information. New financial products and risk management techniques
continue to be developed and a portfolio may use these new investments and
techniques to the extent consistent with its investment objective and policies.
Options Transactions
The Portfolio may purchase and write (i.e., sell) put and call options on
securities and currencies that are traded on national securities exchanges or in
the over-the-counter market to enhance income or to hedge its portfolio
investments. These options will be on debt securities, financial indices (e.g.,
S&P 500), U.S. Government securities (listed on an exchange and
over-the-counter, i.e., purchased or sold through U.S. Government securities
dealers), foreign government securities and foreign currencies. The Portfolio
may write covered put and call options to generate additional income through the
receipt of premiums, purchase put options in an effort to protect the value of a
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security that it owns against a decline in market value and purchase call
options in an effort to protect against an increase in price of securities (or
currencies) it intends to purchase. The Portfolio may also purchase put and call
options to offset previously written put and call options of the same series.
See "Additional Investment Information-Additional Risks-Options on Securities"
in the Statement of Additional Information.
A call option gives the purchaser, in exchange for a premium paid, the right
for a specified period of time to purchase the securities or currency subject to
the option at a specified price (the exercise price or strike price). The writer
of a call option, in return for the premium, has the obligation, upon exercise
of the option, to deliver, depending upon the terms of the option contract, the
underlying securities or a specified amount of cash to the purchaser upon
receipt of the exercise price. When the Portfolio writes a call option, it gives
up the potential for gain on the underlying securities or currency in excess of
the exercise price of the option during the period that the option is open.
A put option gives the purchaser, in return for a premium, the right, for a
specified period of time, to sell the securities or currency subject to the
option to the writer of the put at the specified exercise price. The writer of
the put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities or currency underlying the option at the
exercise price. The Portfolio might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
The Portfolio will write only "covered" options. An option is covered if, so
long as the Portfolio is obligated under the option, it owns an offsetting
position in the underlying security or currency or maintains cash, U.S.
Government securities or other liquid high-grade debt obligations with a value
sufficient at all times to cover its obligations in a segregated account. See
"Additional Investment Information-Additional Risks" in the Statement of
Additional Information.
There is no limitation on the amount of call options the Portfolio may
write. The Portfolio may only write covered put options to the extent that cover
for such options does not exceed 25% of its net assets. The Portfolio will not
purchase an option if, as a result of such purchase, more than 20% of its total
assets would be invested in premiums for options and options on futures.
Forward Currency Exchange Contracts
The Portfolio may enter into forward foreign currency exchange contracts to
protect the value of its portfolio against future changes in the level of
currency exchange rates. The Portfolio may enter into such contracts on a spot,
i.e., cash, basis at the rate then prevailing in the currency exchange market or
on a forward basis, by entering into a forward contract to purchase or sell
currency. A forward contract on foreign currency is an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
agreed upon by the parties from the date of the contract at a price set on the
date of the contract.
The Portfolio'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 a forward contract with respect to specific
receivables or payables of the Portfolio generally arising in connection with
the purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Portfolio expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different currency (cross-hedge). Although there
are no limits on the number of forward contracts which the Portfolio may enter
into, the Portfolio may not position hedge with respect to a particular currency
for an amount greater than the aggregate market value (determined at the time of
making any sale of forward currency) of the securities held in its portfolio
denominated or quoted in, or currently convertible into or bearing substantial
correlation to, such currency. See "Additional Investment Information-Additional
Risks-Forward Currency Exchange Contracts" in the Statement of Additional
Information.
Futures Contracts and Options Thereon
The Portfolio may purchase and sell financial futures contracts and options
thereon which are traded on a commodities exchange or board of trade for certain
hedging, return enhancement and risk management purposes
9
<PAGE>
in accordance with regulations of the Commodity Futures Trading Commission.
These futures contracts and related options will be on debt securities,
financial indices, U.S. Government securities, foreign government securities and
foreign currencies. A financial futures contract is an agreement to purchase or
sell an agreed amount of securities or currencies at a set price for delivery in
the future.
The Portfolio may not purchase or sell futures contracts and related options
for return enhancement or risk management purposes, if immediately thereafter
the sum of the amount of initial margin deposits on the Fund's existing futures
and options on futures and premiums paid for such related options would exceed
5% of the liquidation value of the Portfolio's total assets. The Portfolio may
purchase and sell futures contracts and related options without limitation, for
bona fide hedging purposes. The value of all futures contracts sold will not
exceed the total market value of the portfolio.
The Portfolio's successful use of futures contracts and related options
depends upon the investment adviser's ability to predict the direction of the
market and is subject to various additional risks. The correlation between
movements in the price of a futures contract and the price of the securities or
currencies being hedged is imperfect and there is a risk that the value of the
securities or currencies being hedged may increase or decrease at a greater rate
than the related futures contracts resulting in losses to the Portfolio. Certain
futures exchanges or boards of trade have established daily limits on the amount
that the price of futures contracts or related options may vary, either up or
down, from the previous day's settlement price. These daily limits may restrict
the Portfolio's ability to purchase or sell certain futures contracts or related
options on any particular day.
The Portfolio's ability to enter into futures contracts and options thereon
is limited by the requirements of the Internal Revenue Code of 1986, as amended
(the Internal Revenue Code), for qualification as a regulated investment
company. See "Additional Investment Information-Futures Contracts and Options
Thereon" and "Taxation" in the Statement of Additional Information.
Risks of Hedging and Income Enhancement Strategies
Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transaction costs to which the
Portfolio would not be subject, absent the use of these strategies. If the
investment adviser's predictions of movements in the direction of the
securities, foreign currency and interest rate markets are inaccurate, the
adverse consequences to the Portfolio may leave the Portfolio in a worse
position than if such strategies were not used. Risks inherent in the use of
options, foreign currency and futures contracts and options on futures contracts
include (1) dependence on the investment adviser's ability to predict correctly
movements in the direction of interest rates, securities prices and currency
markets; (2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; and (6) the possible inability of the Portfolio to
purchase or sell a security at a time that otherwise would be favorable for it
to do so, or the possible need for the Portfolio to sell a security at a
disadvantageous time, due to the need for the Portfolio to maintain "cover" or
to segregate securities in connection with hedging transactions. See "Taxation"
in the Statement of Additional Information.
Short Sales Against-the-Box
The Portfolio may make short sales against-the-box for the purpose of
deferring realization of gain or loss for federal income tax purposes. A short
sale "against-the-box" is a short sale in which the Portfolio owns an equal
amount of the securities sold short or owns securities convertible into or
exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short.
10
<PAGE>
Repurchase Agreements
The Portfolio may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Portfolio 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 extend over a number of months. The
resale price is in excess of the purchase price, reflecting an agreed-upon rate
of return effective for the period of time the Portfolio's money is invested in
the security. The Portfolio's repurchase agreements will at all times be fully
collateralized in an amount at least equal to the purchase price including
accrued interest earned on the underlying securities. The instruments held as
collateral are valued daily, and as the value of instruments declines, the
Portfolio will require additional collateral. If the seller defaults and the
value of the collateral securing the repurchase agreement declines, the
Portfolio may incur a loss. The Portfolio 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 or Commission). See "Additional Investment Information-Repurchase
Agreements" in the Statement of Additional Information.
Securities Lending
The Portfolio may lend its portfolio securities to brokers or dealers, banks
or other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures an
irrevocable letter of credit in favor of the Portfolio in an amount equal to at
least 100% of the market value of the securities loaned. During the time
portfolio securities are on loan, the borrower will pay the Portfolio an amount
equivalent to any dividend or interest paid on such securities and the Portfolio
may invest the cash collateral and earn additional income, or it may receive an
agreed-upon amount of interest income from the borrower. As a matter of
fundamental policy, the Portfolio cannot lend more than 30% of the value of its
total assets.
When-Issued and Delayed Delivery Securities
The Portfolio 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 Portfolio with payment and delivery
taking place a month or more in the future in order to secure what is considered
to be an advantageous price and yield to the Portfolio 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 Portfolio's
purchase commitments; the Custodian will likewise segregate securities sold on a
delayed delivery basis.
Borrowing
The Portfolio may borrow an amount equal to no more than 20% of the value of
its total assets (computed at the time the loan is made) from banks for
temporary, extraordinary or emergency purposes or for the clearance of
transactions. During periods when the Portfolio has borrowed for temporary,
extraordinary or emergency purposes or for the clearance of transactions, the
Portfolio may pursue its investment objective by purchasing additional
securities which can result in increased volatility of the Portfolio's net asset
value. The Portfolio will not borrow to take advantage of investment
opportunities. See "Additional Investment Information-Borrowing" in the
Statement of Additional Information. The Portfolio may pledge up to 20% of its
total assets to secure these borrowings.
Illiquid Securities
The Fund may invest up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended (the Securities Act) and privately placed commercial paper that
have a readily available market are not considered illiquid for purposes of this
limitation. The investment adviser will monitor the liquidity of such restricted
securities under the supervision of the Board of Directors. Repurchase
agreements subject to demand are deemed to have a maturity equal to the
applicable notice period.
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<PAGE>
The staff of the Commission has taken the position that purchased OTC
options and the assets used as "cover" for written OTC options are illiquid
securities. However, the Portfolio may treat the securities it uses as cover for
written OTC options as liquid provided it follows a specified procedure. The
Portfolio may sell OTC options only to qualified dealers who agree that the
Portfolio may repurchase any OTC options it writes for a maximum price to be
calculated by a predetermined formula. In such cases, the OTC option would be
considered illiquid only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option.
Portfolio Turnover
Portfolio turnover rate is typically defined as the lesser of the amount of
the securities purchased or securities sold, excluding all securities whose
maturity or expiration date at the time of acquisition was one year or less,
divided by the average monthly value of such securities owned during the year.
Because the Portfolio will invest in securities having remaining maturities of
not more than one year, the Portfolio does not expect to have a turnover rate as
so defined. However, because of the short-term nature of the Portfolio's
investments, it expects to have substantial amounts of portfolio transactions.
High portfolio turnover may involve correspondingly greater brokerage
commissions and other transaction costs which will be borne directly by the
Portfolio. See "Portfolio Transactions and Brokerage" in the Statement of
Additional Information.
INVESTMENT RESTRICTIONS
The Portfolio is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Portfolio's outstanding voting securities, as defined in the Investment Company
Act. See "Investment Restrictions" in the Statement of Additional Information.
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HOW THE FUND IS MANAGED
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The Fund has a Board of Directors which, in addition to overseeing the
actions of the Portfolio's Manager, Subadviser and Distributor, as set forth
below, decides upon matters of general policy. The Portfolio's Manager conducts
and supervises the daily business operations of the Portfolio. The Fund's
Subadviser furnishes daily investment advisory services.
For the year ended October 31, 1994, total expenses for the Portfolio's
Class A shares as a percentage of average net assets were 1.73%. For the period
November 1, 1993 through May 9, 1994, total expenses of the Portfolio's Class B
shares as a percentage of average net assets were 1.21%. See "Financial
Highlights," and "Fee Waivers and Subsidy."
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 .55 of 1% of the Portfolio's average daily
net assets. It was incorporated in May 1987 under the laws of the State of
Delaware. For the fiscal year ended October 31, 1994, the Portfolio paid
management fees to PMF of .55% of the average net assets of the Portfolio.
As of November 30, 1994, PMF served as the manager to 38 open-end investment
companies, constituting substantially all of the Prudential Mutual Funds, and as
manager or administrator to 30 closed-end investment companies with aggregate
assets of approximately $47 billion.
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<PAGE>
Under the Management Agreement with the Fund, PMF manages the investment
operations of the Portfolio and also administers the Fund's corporate affairs.
See "Manager" in the Statement of Additional Information.
Under the Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), the Subadviser furnishes investment
advisory services in connection with the management of the Portfolio and is
reimbursed by PMF for its reasonable costs and expenses incurred in providing
such services. Under the Management Agreement, PMF continues to have
responsibility for all investment advisory services and supervises PIC's
performance of such services.
The Global Assets Portfolio is managed by Global Advisors, a unit of The
Prudential Investment Corporation (PIC). Jeffrey Brummette, a senior portfolio
manager has responsibility for the day-to-day management of the portfolio. Mr.
Brummette performs these duties with the assistance of the mutual fund
investment team. Mr. Brummette is a Managing Director of PIC. He has managed the
Portfolio since February 1991. Mr. Brummette has been employed by PIC since
1986. He also serves as the portfolio manager of the Short-Term Global Income
Portfolio of the Fund, of The Global Yield Fund, Inc. and for other
institutional client portfolios.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
FEE WAIVERS AND SUBSIDY
PMF may from time to time agree to waive its management fee and subsidize
certain operating expenses with respect to the Portfolio, although no such
waiver or subsidy is currently in effect. Fee waivers and expense subsidies will
lower the overall expenses of the Portfolio and increase its yield and total
return. See "How the Fund Calculates Performance." The fee waiver or expense
subsidies may be terminated at any time without notice after which the
Portfolio's expenses will increase and its yield and total return will be
reduced.
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 Portfolio.
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
shares of the Portfolio. It is an indirect, wholly-owned subsidiary of
Prudential.
Under separate Distribution and Service Plans (the Class A Plan and the
Class B Plan, collectively the Plans) adopted by the Portfolio 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 Class A and Class B shares
of the Portfolio, respectively. 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 paid to, or on account of, other
broker-dealers or financial institutions (other than national banks) which have
entered into agreements with the Distributor, interest and/or carrying charges
(Class B only), 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 Portfolio may be sold in that state only by
dealers or other financial institutions which are registered there as
broker-dealers.
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<PAGE>
Under the Class A Plan, the Portfolio 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, as is
the case under the Class B Plan. If the Distributor's expenses under the Class A
Plan exceed its distribution and service fees, the Portfolio will not be
obligated to pay any additional expenses under the Class A Plan. If the
Distributor's expenses under the Class A Plan are less than such distribution
and service fees, it will retain its full fees and realize a profit.
Under the Class A Plan, the Portfolio may pay PMFD for its
distribution-related activities with respect to Class A shares at an annual rate
of up to .50 of 1% of the average daily net assets of the Class A shares. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .50 of 1% of the
average daily net assets of the Class A shares.
For the fiscal year ended October 31, 1994, PMFD received payments under the
Class A Plan of $411,334. This amount was primarily expended for payment of
account servicing fees to financial advisers and other persons who sell Class A
shares. In addition, for the period, PMFD received approximately $24,100 in
initial sales charges.
Under the Class B Plan, the Portfolio reimburses Prudential Securities for
its distribution-related expenses with respect to Class B shares (asset-based
sales charges) at an annual rate of up to .75 of 1% of the average daily net
assets of the Class B shares. Prudential Securities recovers the distribution
expenses it incurs through the receipt of reimbursement payments from the
Portfolio under the Class B Plan and the receipt of contingent deferred sales
charges from certain redeeming shareholders. See "Shareholder Guide-How to Sell
Your Shares-Contingent Deferred Sales Charge-Class B Shares." For the fiscal
year ended October 31, 1994, Prudential Securities did not receive any
contingent deferred sales charges.
The Class B Plan also provides for the payment of a service fee to
Prudential Securities at a rate not to exceed .25 of 1% of the average daily net
asset value of the Class B shares. The service fee is used to pay for personal
service and/or the maintenance of shareholder accounts.
For the fiscal year ended October 31, 1994, the Distributor had no
distribution costs reimbursable to it under the Class B Plan and therefore, the
Fund discontinued assessing 12b-1 fees on the Class B shares and discontinued
the payment to the Distributor of any contingent deferred sales charges
collected on the redemption of Class B shares (any such contingent deferred
sales charges collected on the redemption of Class B shares was be paid to the
Fund). As a result and under current conditions, Total Fund Operating Expenses
will be lower for Class B shares than for the Class A shares.
Actual distribution expenses (asset-based sales charges) for Class B shares
for any given year may exceed the fees received pursuant to the Class B Plan and
will be carried forward and paid by the Portfolio in future years so long as the
Class B Plan is in effect. Interest is accrued monthly on such carry forward
amounts at a rate comparable to that paid by Prudential Securities for bank
borrowings. See "Distributor" in the Statement of Additional Information.
The aggregate distribution fee for Class B shares (asset-based sales charges
plus service fees) will not exceed the annual rate of 1% of the average daily
net asset value of the Class B shares under the Class B Plan.
For the fiscal year ended October 31, 1994, the Fund paid distribution
expenses of .50% of the average net assets of the Class A shares of the
Portfolio. The Portfolio records all payments made under the Plans as expenses
in the calculation of net investment income. Prior to August 1, 1994, the Class
A Plan operated as a "reimbursement type" plan. See "Distributor" in the
Statement of Additional Information.
Distribution expenses attributable to the sale of both Class A and Class B
shares will be allocated to each class based upon the ratio of sales of each
class to the sales of all shares of the Portfolio. The distribution fee and
initial sales charge in the case of Class A shares will not be used to subsidize
the sale of Class B shares. Similarly, the distribution fee and contingent
deferred sales charge in the case of Class B shares will not be used to
subsidize the sale of Class A shares.
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<PAGE>
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors
or of a majority of the outstanding shares of the applicable class of the
Portfolio. In the event of termination or noncontinuation of the Class B Plan,
the Board of Directors may consider the appropriateness of having the Portfolio
reimburse Prudential Securities for the outstanding carry forward amounts plus
interest thereon.
In addition to distribution and service fees paid by the Portfolio under the
Class A and Class B Plans, the Manager (or one of its affiliates) may make
payments out of its own resources to dealers and other persons which distribute
shares of the Portfolio. 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. (the 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 PSl'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.
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 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 caling 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 & Trust Company, an
independent custodian, are separate and distinct from PSI.
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<PAGE>
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant for
the Portfolio provided that the commissions, fees or other remuneration received
by Prudential Securities 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 Portfolio's investment
securities and cash and, in that capacity, maintains certain financial and
accounting books and records pursuant to an agreement with the Fund. Its mailing
address is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
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HOW THE FUND VALUES ITS SHARES
- -------------------------------------------------------------------------------
The Portfolio'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 of the Portfolio. NAV is
calculated separately for each class. For valuation purposes, quotations of
foreign securities in a foreign currency are converted to U.S. dollar
equivalents. The Board of Directors has fixed the specific time of day for the
computation of the Portfolio's net asset value to be as of 4:15 p.m., New York
time.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors.
The Portfolio 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 Portfolio's 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. See "Net Asset Value" in the Statement of
Additional Information.
Although the legal rights of Class A and Class B shares are substantially
identical, the different expenses borne by each class may result in different
NAV and dividends. It is expected, however, that the dividends will differ by
approximately the amount of the distribution expense differential between the
classes.
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HOW THE FUND CALCULATES PERFORMANCE
- -------------------------------------------------------------------------------
From time to time the Portfolio may advertise its total return (including
"average annual" total return and "aggregate" total return) in advertisements or
sales literature. Total return is calculated separately for Class A and Class B
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 Portfolio would have increased (decreased) over a specified period of time
(i.e., one, five or ten years or since inception of the Portfolio) assuming that
all distributions and dividends by the Portfolio 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
16
<PAGE>
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 Portfolio may also from time to time advertise its 30-day
yield. See "Performance Information" in the Statement of Additional Information.
The Portfolio also may include comparative performance information in
advertising or marketing the Portfolio'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 Portfolio will include performance data for both Class A and
Class B shares of the Portfolio in any advertisement or information including
performance data of the Fund. Further performance information is contained in
the Portfolio's annual and semi-annual reports to shareholders, which may be
obtained without charge. See "Shareholder Guide-Shareholder Services-Reports to
Shareholders."
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TAXES, DIVIDENDS AND DISTRIBUTIONS
- -------------------------------------------------------------------------------
Taxation of the Portfolio
The Portfolio has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code. Accordingly, the
Portfolio will not be subject to federal income taxes on its net investment
income and capital gains, if any, that it distributes to its shareholders.
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of 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 increase or decrease the
amount of the Portfolio's investment company taxable income available to be
distributed to you as ordinary income, rather than increasing or decreasing the
amount of the Portfolio's net capital gain. If currency fluctuation losses
exceed other investment company taxable income during a taxable year,
distributions made by a Portfolio during the year would be characterized as a
return of capital to you, reducing your basis in your Portfolio shares.
In addition, 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 Portfolio 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 may be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxation" in the Statement of Additional Information.
Taxation of Shareholders
Any dividends out of net taxable investment income, together with
distributions of 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 currently is the same
as the maximum tax rate for ordinary income.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any short-term capital loss,
however, will be treated as long-term capital loss to the extent of any capital
gain distributions received by the shareholder regardless of the length of time
such shares are held.
Withholding Taxes
Under U.S. Treasury Regulations, the Portfolio is required to withhold and
remit to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds payable on your account if you fail to furnish your tax
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<PAGE>
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding your status
under the federal income tax law.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxation" in the
Statement of Additional Information.
Dividends and Distributions
The Portfolio expects to declare daily and pay monthly dividends of all or
substantially all of its net investment income and make distributions at least
annually of any net capital gains. Dividends paid by the Portfolio with respect
to Class A and Class B 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.
Distribution of net capital gains, if any, will be paid in the same amount for
Class A and Class B shares. See "How The Fund Values Its Shares."
Dividends and distributions will be paid in additional shares of the
Portfolio at net asset value computed on the payment date and record date,
respectively, or such other date as the Board of Directors may determine, unless
you elects in writing not less than five business days prior to the record date
to receive such dividends and distributions in cash. Such election should be
submitted to Prudential Mutual Fund Services, Inc., Account Maintenance, P.O.
Box 15015, New Brunswick, New Jersey 08906-5015. If you hold shares through
Prudential Securities, you should contact your financial adviser to receive
dividends and distributions in cash. The Fund will notify each shareholder after
the close of the Fund's taxable year both the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis.
When the Portfolio goes "ex-dividend," its NAV is reduced by the amount of
the dividend or distribution. If you buy shares just prior to the ex-dividend
date, the price you pay will include the dividend or distribution and a portion
of your investment will be returned to you as a taxable distribution. You
should, therefore, consider the timing of dividends when making your purchases.
- -------------------------------------------------------------------------------
GENERAL INFORMATION
- -------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on February 21, 1990. The Fund is
authorized to issue 2 billion shares of common stock, $.001 par value per share,
divided with respect to the Portfolio into two classes designated Class A and
Class B common stock. Each of the Class A and Class B common stock of the Fund
consists of 250 million authorized shares. Both Class A and Class B common stock
represent an interest in the same assets of the Portfolio and are identical in
all respects except that each class bears certain distribution expenses and has
exclusive voting rights with respect to its distribution plan. See "How the Fund
is Managed-Distributor." Pursuant to an order from the SEC, the Portfolio is
permitted to issue multiple classes of common stock. Currently, the Portfolio
has issued only two classes of Common Stock, Class A and Class B. The Portfolio
no longer accepts purchase orders for Class B shares. In accordance with the
Fund's Articles of Incorporation, the Board of Directors may authorize the
creation of additional series of common stock and classes within such series,
with such preferences, privileges, limitations and voting and dividend rights as
the Board may determine.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Portfolio, 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 Portfolio
under certain circumstances as described under "Shareholder Guide-How to Sell
Your Shares." Each share of Class A and Class B 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. There are no
conversion, preemptive or other subscription rights except with respect to the
conversion of Class B shares into Class A shares described above. In the event
of liquidation, each share of common
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<PAGE>
stock of the Portfolio is entitled to its portion of all of the Portfolio's
assets after all debt and expenses of the Portfolio have been paid. The
Portfolio's shares do not have cumulative voting rights for the election of
Directors.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of Directors is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon a vote of 10% of the
Fund's outstanding shares for the purpose of voting on the removal of one or
more Directors or to transact any other business.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
- -------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- -------------------------------------------------------------------------------
HOW TO BUY SHARES OF THE FUND
You may purchase shares of the Portfolio through Prudential Securities,
Prusec or directly from the Fund through its Transfer Agent, Prudential Mutual
Fund Services, Inc. (PMFS). The minimum initial investment is $5,000. The
minimum subsequent investment is $1,000. 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."
The purchase price is the NAV per share next determined following receipt of
an order by the Transfer Agent or Prudential Securities plus a sales charge
which, at the option of the purchaser, may be imposed at the time of purchase or
on a deferred basis, 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. The Fund no longer accepts purchase orders for Class B shares. See "How
to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
Purchase by Wire. For an initial purchase of shares of the Portfolio by
wire, you must first telephone PMFS to receive an account number at (800)
225-1852 (toll-free). 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, Boston, Massachusetts, Custody and Shareholder Services Division,
Attention: Prudential Short-Term Global Income Fund, Inc.-Global Assets
Portfolio, specifying on the wire the account number assigned by PMFS and your
name and identifying the sales charge alternative (Class A or Class B shares).
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<PAGE>
If you arrange for receipt by State Street of Federal Funds prior to 4:15
p.m., New York time, on a business day, you may purchase shares of the Fund as
of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Short-Term Global
Income Fund, Inc. -Global Assets Portfolio, Class A or Class B 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 $5,000.
ALTERNATIVE PURCHASE PLAN
The Portfolio offers two classes of 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. You may purchase shares at the next determined NAV
plus a sales charge which, at your election, may be imposed either at the time
of purchase (the Class A shares or the initial sales charge alternative) or on a
deferred basis (the Class B shares or the deferred sales charge alternative)
(the Alternative Purchase Plan). The Fund no longer accepts purchase orders for
Class B shares.
Class A shares are subject to an initial sales charge of up to .99% of the
amount invested and an annual distribution fee which is currently being charged
at a rate of up to .50 of 1% of the average daily net assets of the Class A
shares. Certain purchases of Class A shares may qualify for reduction or waiver
of initial sales charges. See "Initial Sales Charge Alternative-Class A
Shares-Reduction or Waiver of Initial Sales Charges" below.
Class B shares do not incur a sales charge when they are purchased but are
subject to a contingent deferred sales charge for one-year from the date of
purchase of the lesser of the amount involved or the redemption proceeds and an
annual distribution fee of up to 1% of the average daily net asset value of the
Class B shares. Class B shares will automatically convert to Class A shares
after the one-year CDSC period has expired.
The two classes of shares represent an interest in the same portfolio of
investments of the Portfolio and have the same rights, except that each class
bears the separate expenses of its Rule 12b-1 distribution plan and has
exclusive voting rights with respect to such a plan. The net 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 shares
typically bear the expenses of a higher distribution fee which will typically
cause the Class B shares to have a higher expense ratio and to pay lower
dividends than the Class A shares. However, because the Distributor currently
has no distribution costs reimbursable to it under the Class B Plan and because
the Fund has discontinued assessing any 12b-1 fees on the Class B shares. Total
Fund Operating Expenses are currently lower for Class B shares than for the
Class A shares.
Financial advisers and other sales agents who sell shares of the Portfolio
will receive different compensation for selling Class A and Class B shares.
The following illustrations are provided to assist you in determining which
method of purchase best suits your individual circumstances:
If you qualify for a reduced sales charge, you might elect the initial sales
charge alternative because Class A shares are subject to a lower distribution
fee than are Class B shares. However, because the initial sales charge is
deducted at the time of purchase, you would not have all of your funds invested
initially.
If you do not qualify for a reduced initial sales charge and expect to
maintain your investment in the Portfolio for less than one year you might also
elect the initial sales charge alternative because Class A shares are not
subject to a deferred sales charge upon the redemption and because Class A
shares are subject to a lower distribution fee than are Class B shares. Again,
however, you must weigh this consideration against the fact that not all of your
funds will be invested initially.
On the other hand, you might determine that it is more advantageous to have
all of your funds invested initially, although you are subject, for a one year
period, to a distribution fee of 1% and a contingent deferred sales charge. If
you
20
<PAGE>
are not entitled to a reduced initial sales charge and you expect to maintain
your investment in the Portfolio for more than one year, you should consider
purchasing Class B shares since Class B shares will be automatically converted
into Class A shares after the one year contingent deferred sales charge period
has expired. You will thereafter become a Class A shareholder and, as such, will
be subject to the lower distribution fee applicable to Class A shareholders.
Initial Sales Charge Alternative-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 as
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
------------------ -------------- --------------- --------------
<S> <C> <C> <C>
Less than $1,000,000 .99% 1.0% .99%
$1,000,000 and above 0.0% 0.0% 0.0%
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is defined
under federal securities laws.
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 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
record keeping (Direct Account Benefit Plans) and Benefit Plans sponsored by PSI
or its subsidiaries (PSI or Subsidiary Prototype Benefit Plans), Class A shares
may be purchased at NAV by participants who are repaying loans made from such
plans to the participant.
Special Rules Applicable to Retirement Plans. 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) on which no deferred sales load, fee or other charge was
imposed on redemption and (iii) the financial adviser served as the client's
broker on the previous purchases.
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<PAGE>
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
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.
Deferred Sales Charge Alternative-Class B Shares
The offering price of Class B shares for investors choosing the deferred
sales charge alternative is the NAV per share 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, the Class B shares may be subject
to a contingent deferred sales charge. See "How to Sell Your Shares-Contingent
Deferred Sales Charge-Class B Shares." Currently, the Portfolio is not offering
Class B Shares.
HOW TO SELL YOUR SHARES
You can redeem shares of the Portfolio 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 from the Class B shares
will be reduced by the amount of any applicable contingent deferred sales
charge, as described below. See "Contingent Deferred Sales Charge-Class B
Shares."
If you hold shares through Prudential Securities, you must redeem your
shares by contacting your Prudential Securities Financial Adviser. If you hold
shares in non-certificate form, a written request for redemption signed by you
exactly as the account is registered is required. If you hold certificates, the
certificates signed in the name(s) shown on the face of the certificates, must
be received by the Transfer Agent in order for the redemption request to be
processed. If redemption is requested by a corporation, partnership, trust or
fiduciary, written evidence of authority acceptable to the Transfer Agent must
be submitted before such request will be accepted. All correspondence and
documents concerning redemptions should be sent to the Portfolio in care of the
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent of the certificate and/or written
request except as indicated below. If you hold shares through Prudential
Securities, payment for shares presented for redemption will be credited to your
Prudential Securities account, unless you indicate otherwise. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the SEC, by
order, so permits; provided that applicable rules and regulations of the SEC
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.
Payment for redemption of recently purchased shares will be delayed until
the Portfolio or the 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.
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<PAGE>
Redemption in Kind. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Portfolio
to make payment wholly or partly in cash, the Portfolio may pay the redemption
price in whole or in part by a distribution in kind of securities from the
investment portfolio of the Portfolio, in lieu of cash, in conformity with
applicable rules of the SEC. Securities will be readily marketable and will be
valued in the same manner as in a regular redemption. See "How the Fund Values
its Shares." If your shares are redeemed in kind, you would incur transaction
costs in converting the assets into cash. The Portfolio, however, has elected to
be governed by Rule 18f-1 under the Investment Company Act, pursuant to which
the Portfolio is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Portfolio during any 90-day period
for any one shareholder.
Involuntary Redemption. In order to reduce expenses of the Portfolio, 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 Portfolio will
give such shareholders 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption.
30-day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege you may reinvest any portion or
all of the proceeds of such redemption in shares of the Portfolio at the NAV
next determined after the order is received, which must be within 30 days after
the date of the redemption. No sales charge will apply to such repurchases. You
will receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption of Class B shares. You must notify the
Portfolio'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 resulted in a loss, some
or all of the loss, depending on the amount reinvested, will not be allowed for
federal income tax purposes.
Contingent Deferred Sales Charge-Class B Shares
If you have elected to purchase shares without an initial sales charge
(Class B), a contingent deferred sales charge or CDSC of 1% will be imposed on
all redemptions made within one year of purchase. The CDSC will be deducted from
the redemption proceeds and reduce the amount paid to you. 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 purchased through
reinvestment of dividends or distributions are not subject to a CDSC. The amount
of any contingent deferred sales charge will be paid to and retained by the
Distributor to the extent the Distributor has costs reimbursable to it under the
Class B Plan. See "How the Fund is Managed-Distributor."
In determining the contingent deferred sales charge applicable to a
redemption, it will be assumed that the redemption is made first of shares
acquired pursuant to reinvestment of dividends and distributions and then of
shares held for the longest period of time within the one-year period. For
purposes of calculating the one-year period, all payments for the purchase of
shares during a month will be aggregated and deemed to have been made on the
last day of the month. No contingent deferred sales charge will be applicable
after the one-year period.
For example, assume you purchased 1000 shares at $2 per share for a cost of
$2,000. Subsequently, you acquired 50 additional shares through dividend
reinvestment. Six months after the purchase, you decided to redeem 200 shares.
Assuming at the time of redemption, the net asset value had appreciated to $2.20
per share, the proceeds of the redemption would be $440. Fifty shares would not
be subject to charge because of dividend reinvestment. With respect to the
remaining 150 shares, the charge would be applied to the original cost of $2 per
share and not to the increase in net asset value per share of $.20. Therefore,
$300 of the $440 redemption proceeds would be charged at a rate of 1%.
For federal income tax purposes, the amount of the contingent deferred sales
charge will reduce the gain or increase the loss, as the case may be, on the
amount recognized on the redemption of shares.
HOW TO EXCHANGE YOUR SHARES
Class A and Class B shareholders of the Portfolio each have an exchange
privilege with the Class A and Class B shares, respectively, of Prudential
Adjustable Rate Securities Fund, Inc. subject to the minimum investment
23
<PAGE>
requirements of that Fund. In addition, Class B shares of the Portfolio may be
exchanged into shares of the Prudential Government Securities Trust,
Intermediate Term Series. Class A and Class B shareholders of the Portfolio may
exchange their shares for Class A and Class B shares, respectively, of
Prudential Adjustable Rate Securities Fund, Inc. (and, for Class B shares, into
shares of the Prudential Government Securities Trust, Intermediate Term Series)
on the basis of the relative net asset value per share. 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 of such shares, rather than the date of the
exchange. An exchange will be treated as a redemption and purchase for tax
purposes.
In order to exchange shares by telephone, you must authorize telephone
exchange on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange 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."
You may also exchange your shares by mail by writing to Prudential Mutual
Fund Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange of
shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services, Inc., at the address noted above.
The Exchange Privilege may be modified or terminated at any time on sixty
days' notice to shareholders.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Portfolio,
you can take advantage of the following additional services and privileges:
(bullet) Automatic Reinvestment of Dividends and/or Distributions Without a
Sales Charge. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than 5 full business days prior to the record date to have subsequent dividends
and/or distributions sent in cash rather than reinvested. If you hold shares
through Prudential Securities, you should contact your financial adviser.
(bullet) Automatic Savings Accumulation Plan (ASAP). Under ASAP you may make
regular purchases of the Portfolio's Class B shares (if and when the Fund
accepts purchase orders for Class B shares) in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including a
Command Account). ASAP is not available for purchases of Class A shares. For
additional information about this service, you may contact your Prudential
Securities financial adviser, PruSec representative or the Transfer Agent
directly.
(bullet) Tax-Deferred Retirement Plans. Various tax-deferred retirement
plans, including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from
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<PAGE>
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.
(bullet) Systematic Withdrawal Plan. A systematic withdrawal plan is
available for shareholders having Class A shares of the Portfolio which provides
for monthly or quarterly checks. See "How to Sell Your Shares-Contingent
Deferred Sales Charge-Class B Shares."
(bullet) Reports to Shareholders. The Portfolio 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 Portfolio 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
Portfolio at One Seaport Plaza, New York, New York 10292. In addition, monthly
unaudited financial data are available upon request from the Fund.
(bullet) Shareholder Inquiries. Inquiries should be addressed to the
Portfolio 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.
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<PAGE>
APPENDIX
DESCRIPTION OF SECURITY RATINGS
Moody's Investors Service
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements 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 sometime 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.
. 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.
Commercial Paper
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.
P-1: The designation "Prime-1" or "P-1" indicates the highest quality
repayment capacity of the rated issue. P-2: The designation "Prime-2" or
"P-2" indicates a strong capacity for repayment.
Standard & Poor's Ratings Group
AAA: Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. 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 although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
A-1
<PAGE>
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: Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC 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
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debt having an original maturity of no more than
270 days.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is very strong.
A-2: Capacity for timely payment on issues with the designation A-2 is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
A-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 registered representative or telephone
the Fund at 1 (800) 225-1852 for a free prospectus. Read the prospectus
carefully before you invest or send money.
- -------------------------------------------------------------------------------
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund
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 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
Prudential Equity Income Fund, Strategy Portfolio
Prudential Growth Opportunity Fund
Prudential IncomeVertible\'AE Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
* Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
* Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
* Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
* Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
- -------------------------------------------------------------------------------
<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 and offer by the Fund or
by the Distributor to sell or a solicitation of an offer to
buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
___________________________________________________________
TABLE OF CONTENTS
Page
----
FUND HIGHLIGHTS.............................. 2
Risk Factors and Special Characteristics... 2
FUND EXPENSES................................ 4
FINANCIAL HIGHLIGHTS......................... 5
HOW THE FUND INVESTS......................... 6
Investment Objective and Policies.......... 6
Risk Factors............................... 8
Other Investments and Investment Techniques 8
Investment Restrictions.................... 12
HOW THE FUND IS MANAGED...................... 12
Manager.................................... 12
Fee Waivers and Subsidy.................... 13
Distributor ............................... 13
Portfolio Transactions..................... 16
Custodian and Transfer and
Dividend Disbursing Agent................ 16
HOW THE FUND VALUES ITS SHARES............... 16
HOW THE FUND CALCULATES PERFORMANCE.......... 16
TAXES, DIVIDENDS AND DISTRIBUTIONS........... 17
GENERAL INFORMATION.......................... 18
Description of Common Stock................ 18
Additional Information..................... 19
SHAREHOLDER GUIDE............................ 19
How to Buy Shares of the Fund.............. 19
Alternative Purchase Plan.................. 20
How to Sell Your Shares.................... 22
How to Exchange Your Shares................ 23
Shareholder Services....................... 24
APPENDIX.....................................A-1
THE PRUDENTIAL MUTUAL FUND FAMILY............B-1
________________________________________________
MF149A 4443343
________________________________________________
Class A: 74436H 10 1
CUSIP Nos.:
Class B: 74436H 20 0
________________________________________________
Prudential
Short-Term
Global Income
Fund, Inc.
(Global Assets Portfolio)
Prudential Mutual Funds (LOGO)
Building Your Future
On Our StrengthSM
PROSPECTUS
January 3, 1995
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL INCOME FUND, INC.
Statement of Additional Information
dated January 3, 1995
Prudential Short-Term Global Income Fund, Inc. (the Fund) is an open-
end, non-diversified management investment company, or mutual fund
comprised of two Portfolios, the Global Assets Portfolio and the Short-
Term Global Income Portfolio. The investment objective of the Short-Term
Global Income Portfolio is to maximize total return, the components of
which are current income and capital appreciation. The investment objective
of the Global Assets Portfolio is high current income with minimum risk to
principal. There is no assurance that the Portfolios will achieve their
investment objectives.
The Short-Term Global Income Portfolio seeks to achieve its objective
by investing primarily in a portfolio of investment grade debt securities
having remaining maturities of not more than three years. The Portfolio,
which is not a money market fund, seeks to maximize current income by
investing in debt securities denominated in U.S. dollars and a range of
foreign currencies.
The Global Assets Portfolio seeks to achieve its objective by investing
primarily in a portfolio of high-quality debt securities having remaining
maturities of not more than one year. The Global Assets Portfolio seeks
high current yields by investing in debt securities denominated in U.S.
dollars and a range of foreign currencies. The Portfolio, which is not a
money market fund, is designed for the investor who seeks a higher yield
than a money market fund and less fluctuation in net asset value than a
longer-term bond fund.
Under normal circumstances, each Portfolio will invest its assets in
debt securities of issuers in at least three different countries including
the United States. There can be no assurance that a Portfolio's objective
will be achieved.
Each Portfolio operates as a separate fund. Information about each
Portfolio is set forth in separate prospectuses, copies of which may be
obtained from the Fund upon request. This Statement contains additional
information about each Portfolio. Each Portfolio is also subject to certain
investment restrictions. See "Investment Restrictions."
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 Prospectus of each Portfolio, dated
January 3, 1995, a copy of which may be obtained from the Fund at One
Seaport Plaza, New York, New York 10292.
-----------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Cross-reference
to page in
Prospectus
--------------------------------
Short-Term
Global Income Global Assets
Page Portfolio Portfolio
---- --------------- -------------
<S> <C> <C> <C>
Additional Investment Information ...................................................... B-2 7 6
Investment Restrictions ................................................................ B-9 14 12
Directors and Officers ................................................................. B-10 14 12
Manager ................................................................................ B-12 14 12
Distributor ............................................................................ B-14 15 13
Portfolio Transactions and Brokerage ................................................... B-16 17 16
Purchase and Redemption of Fund Shares ................................................. B-17 21 19
Shareholder Investment Account ......................................................... B-20 29 24
Net Asset Value ........................................................................ B-23 18 16
Taxation ............................................................................... B-24 19 17
Performance Information ................................................................ B-25 18 16
Custodian, Transfer and Dividend Disbursing Agent, and Independent Accountants ......... B-27 17 16
Financial Statements ................................................................... B-28 - -
Independent Auditors' Reports .......................................................... B-49 - -
- ------------------------------------------------------------------------------------------------------------------------------------
MF1498
</TABLE>
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
Investment Policies
U.S. Government Securities
"U.S. Government securities" shall include the following:
U.S. Treasury Securities. Each Portfolio may invest in U.S. Treasury
securities, including bills, notes and bonds 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.
Obligations Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities. Each Portfolio may invest in obligations issued by
agencies of the U.S. Government or instrumentalities established or
sponsored by the U.S. Government. These obligations, including those that
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 Export-Import Bank are backed by the full faith and
credit of the U.S. Government. Securities in which a Portfolio may invest
that are not backed by the full faith and credit of the U.S. Government
include obligations issued by the Tennessee Valley Authority, the Federal
National Mortgage Association (FNMA), the Federal Home Loan Mortgage
Corporation (FHLMC), the Resolution Funding Corporation and the United
States Postal Service, each of which has the right to borrow from the
United States Treasury to meet its obligations, and obligations of the
Federal Farm Credit Bank and the Federal Home Loan Bank, the obligations of
which may be satisfied only by the individual credit of the issuing agency.
In the case of securities not backed by the full faith and credit of the
United States, a Portfolio 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.
The Short-Term Global Income Portfolio may invest in U.S. Government
securities that are zero-coupon securities. Zero-coupon securities pay no
cash income but are purchased at a discount from their value at maturity.
When held to maturity, their entire return, which consists of the
amortization of the discount, equals the difference between their purchase
price and their maturity value. At no time will the aggregate market value
of the Portfolio's investments in zero-coupon securities exceed 5% of the
Portfolio's total assets.
Special Considerations. U.S. Government securities are considered among
the most creditworthy of fixed income investments. The yields available
from U.S. Government securities are generally lower than the yields
available from corporate debt securities. The values of U.S. Government
securities (like those of fixed-income securities generally) will change as
interest rates fluctuate. During periods of falling U.S. interest rates,
the values of outstanding long-term U.S. Government securities generally
rise. Conversely, during periods of rising interest rates, the values of
such securities generally decline. The magnitude of those fluctuations will
generally be greater for securities with longer maturities. Although
changes in the value of U.S. Government securities will not affect
investment income from those securities, they will affect the net asset
value of each Portfolio.
At a time when a Portfolio has written call options on a portion of its
U.S. Government securities, its ability to profit from declining interest
rates will be limited. Any appreciation in the value of the securities held
in the portfolio above the strike price would likely be partially or wholly
offset by unrealized losses on call options written by the Portfolio. The
termination of option positions under these conditions would generally
result in the realization of capital losses, which would reduce the
Portfolio's capital gains distributions. Accordingly, a Portfolio would
generally seek to realize capital gains to offset realized losses by
selling portfolio securities. In such circumstances, however, it is likely
that the proceeds of such sales would be reinvested in lower yielding
securities. See "Additional Risks--Options Transactions and Related Risks."
Loan Participations
Each Portfolio may invest up to 5% of its total assets in high quality
participation interests having remaining maturities not exceeding one year
in loans extended by banks to United States and foreign companies. In a
typical corporate loan syndication, a number of lenders, usually banks
(co-lenders), lend a corporate borrower a specified sum pursuant to the
terms and conditions of a loan agreement. One of the co-lenders usually
agrees to act as the agent bank with respect to the loan. The loan
agreement among the corporate borrower and the co-lenders identifies the
agent bank as well as sets forth the rights and duties of the parties. The
agreement often (but not always) provides for the collateralization of the
corporate borrower's obligations thereunder and includes various types of
restrictive covenants which must be met by the borrower.
The participation interests acquired by a Portfolio may, depending on
the transaction, take the form of a direct or co-lending relationship with
the corporate borrower, an assignment of an interest in the loan by a co-
lender or another participant, or a
B-2
<PAGE>
participation in the seller's share of the loan. Typically, the Portfolio
will look to the agent bank to collect principal of and interest on a
participation interest, to monitor compliance with loan covenants, to
enforce all credit remedies, such as foreclosures on collateral, and to
notify co-lenders of any adverse changes in the borrower's financial
condition or declarations of insolvency. The agent bank in such cases will
be qualified to serve as a custodian for a registered investment company
such as the Fund. The agent bank is compensated for these services by the
borrower pursuant to the terms of the loan agreement.
When a Portfolio acts as co-lender in connection with a participation
interest or when a Portfolio acquires a participation interest the terms
of which provide that the Portfolio will be in privity with the corporate
borrower, the Portfolio will have direct recourse against the borrower in
the event the borrower fails to pay scheduled principal and interest. In
cases where the Portfolio lacks such direct recourse, the Portfolio will
look to the agent bank to enforce appropriate credit remedies against the
borrower.
Each Portfolio believes that the principal credit risk associated with
acquiring participation interests from a co-lender or another participant
is the credit risk associated with the underlying corporate borrower. A
Portfolio may incur additional credit risk, however, when a Portfolio is in
the position of participant rather than a co-lender because the Portfolio
must assume the risk of insolvency of the co-lender from which the
participation interest was acquired and that of any person interpositioned
between the Portfolio and the co-lender. However, in acquiring
participation interests, the Portfolio will conduct analysis and evaluation
of the financial condition of each such co-lender and participant to ensure
that the participation interest meets the Portfolio's high quality standard
and will continue to do so as long as it holds a participation. For
purposes of a Portfolio's requirement to maintain diversification for tax
purposes, the issuer of a loan participation will be the underlying
borrower. In cases where a Portfolio does not have recourse directly
against the borrower, both the borrower and each agent bank and co-lender
interposed between the Portfolio and the borrower will be deemed issuers of
the loan participation for tax diversification purposes.
For purposes of each Portfolio's fundamental investment restriction
against investing 25% or more of its total assets in any one industry, a
Portfolio will consider all relevant factors in determining who is the
issuer of a loan participation including the credit quality of the
underlying borrower, the amount and quality of the collateral, the terms of
the loan participation agreement and other relevant agreements (including
any intercreditor agreements), the degree to which the credit of such
intermediary was deemed material to the decision to purchase the loan
participation, the interest environment, and general economic conditions
applicable to the borrower and such intermediary.
Certificates of Deposit and Bankers' Acceptances
Certificates of deposit are receipts issued by a depository institution
in exchange for the deposit of funds. The issuer agrees to pay the amount
deposited plus interest to the bearer of the receipt on the date specified
on the certificate. The certificate usually can be traded in the secondary
market prior to maturity. Bankers' acceptances typically arise from
short-term credit arrangements designed to enable businesses to obtain
funds to finance commercial transactions. Generally, an acceptance is a
time draft drawn on a bank by an exporter or an importer to obtain a stated
amount of funds to pay for specific merchandise. The draft is then
"accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then
be held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity.
Although maturities for acceptance can be as long as 270 days, most
acceptances have maturities of six months or less.
Commercial Paper
Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between
a commercial paper issuer and an institutional lender pursuant to which the
lender may determine to invest varying amounts.
Additional Risks
Options Transactions and Related Risks
Each Portfolio may purchase put and call options and sell covered put
and call options which are traded on United States or other foreign
exchanges and may also engage in over-the-counter options transactions with
United States securities dealers or foreign government securities dealers
(OTC options).
Options on Securities. The purchaser of a call option has the right,
for a specified period of time, to purchase the securities subject to the
option at a specified price (the exercise price or strike price). By
writing a call option, a Portfolio becomes obligated during the term of the
option, upon exercise of the option, to deliver the underlying securities
or a specified amount of cash to the purchaser against receipt of the
exercise price. When a Portfolio writes a call option, the Portfolio loses
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.
B-3
<PAGE>
The purchaser of a put option has the right, for a specified period of
time, to sell the securities subject to the option to the writer of the put
at the specified exercise price. By writing a put option, the Portfolio
becomes obligated during the term of the option, upon exercise of the
option, to purchase the securities underlying the option at the exercise
price. The Portfolio might, therefore, be obligated to purchase the
underlying securities for more than their current market price.
The writer of an option retains the amount of the premium, although
this amount may be offset or exceeded, in the case of a covered call
option, by a decline and, in the case of a covered put option, by an
increase in the market value of the underlying security during the option
period.
A Portfolio may wish to protect certain portfolio securities against a
decline in market value through purchase of put options on other carefully
selected securities which the Investment Advisers believe may move in the
same direction as those portfolio securities. If the investment adviser's
judgment is correct, changes in the value of the put options should
generally offset changes in the value of the portfolio securities being
hedged. If the investment adviser's judgment is not correct, the value of
the securities underlying the put option may decrease less than the value
of the Portfolio's investments and therefore the put option may not provide
complete protection against a decline in the value of the Portfolio's
investments below the level sought to be protected by the put option.
A Portfolio may similarly wish to hedge against appreciation in the
value of debt securities that it intends to acquire through purchase of
call options on other carefully selected debt securities which the
Investment Advisers believe may move in the same direction as those
portfolio securities. In such circumstances the Portfolio will be subject
to risks analogous to those summarized above in the event that the
correlation between the value of call options so purchased and the value of
the securities intended to be acquired by the Portfolio is not as close as
anticipated and the value of the securities underlying the call options
increases less than the value of the securities to be acquired by the
Portfolio.
Each Portfolio may write options on securities in connection with buy-
and-write transactions; that is, the Portfolio may purchase a security and
concurrently write a call option against that security. If the call option
is exercised, the Portfolio's maximum gain will be the premium it received
for writing the option, adjusted upwards or downwards by the difference
between the Portfolio's purchase price of the security and the exercise
price of the option. If the option is not exercised and the price of the
underlying security declines, the amount of the decline will be offset in
part, or entirely, by the premium received.
The exercise price of a call option may be below (in-the-money), equal
to (at-the-money) or above (out-of-the-money) the current value of the
underlying security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is
expected that the price of the underlying security will remain flat or
decline moderately during the option period. Buy-and-write transactions
using at-the-money call options may be used when it is expected that the
price of the underlying security will remain fixed or advance moderately
during the option period. A buy-and-write transaction using an out-of-the-
money call option may be used when it is expected that the premium received
from writing the call option plus the appreciation in the market price of
the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call
option is exercised in such a transaction, the Portfolio's maximum gain
will be the premium received by it for writing the option, adjusted upwards
or downwards by the difference between the Portfolio's purchase price of
the security and the exercise price of the option. If the option is not
exercised and the price of the underlying security declines, the amount of
the decline will be offset in part, or entirely, by the premium received.
Each Portfolio may write both American style options and European style
options. An American style option is an option which may be exercised by
the holder at any time prior to its expiration. A European style option,
however, may only be exercised as of the expiration of the option.
Prior to being notified of exercise of the option, the writer of an
exchange-traded option that wishes to terminate its obligation may effect a
"closing purchase transaction" by buying an option of the same series as
the option previously written. (Options of the same series are options with
respect to the same underlying security, having the same expiration date
and the same strike price.) The effect of the purchase is that the writer's
position will be cancelled by the exchange's affiliated clearing
organization. Likewise, an investor who is the holder of an option may
liquidate a position by effecting a "closing sale transaction" 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.
Exchange-traded options in the United States are issued by a clearing
organization 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 a Portfolio and
its contra-party with no clearing organization guarantee. Thus, when a
Portfolio 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 Portfolio as well as the loss of the
expected benefit of the transaction. The Board of Directors of the Fund
will approve a list of dealers with which the Portfolios may engage in OTC
options.
When a Portfolio writes an OTC option, it generally will be able to
close out the OTC options prior to its expiration only by entering into a
closing purchase transaction with the dealer to which the Portfolio
originally wrote the OTC option. While the
B-4
<PAGE>
Portfolio 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 Portfolio, there can be no assurance that the Portfolio will be
able to liquidate an OTC option at a favorable price at any time prior to
expiration. Until the Portfolio is able to effect a closing purchase
transaction in a covered OTC call option the Portfolio has written, it will
not be able to liquidate securities used as cover until the option expires
or is exercised or different cover is substituted. In the event of
insolvency of the contra-party, the Portfolio may be unable to liquidate an
OTC option.
OTC options purchased by a Portfolio will be treated as illiquid
securities subject to any applicable limitation on such securities.
Similarly, the assets used to "cover" OTC options written by a Portfolio
will be treated as illiquid unless the OTC options are sold to qualified
dealers who agree that the Portfolio may repurchase any OTC options it
writes for a maximum price to be calculated by a formula set forth in the
option agreement. The "cover" for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the
option.
Each Portfolio may write only "covered" options. This means that so
long as a Portfolio is obligated as the writer of a call option, it will
own the underlying securities subject to the option or an option to
purchase the same underlying securities, having an exercise price equal to
or less than the exercise price of the "covered" option, or will establish
and maintain with its Custodian for the term of the option a segregated
account consisting of cash, U.S. Government securities or other liquid
high-grade debt obligations having a value equal to the fluctuating market
value of the optioned securities. A put option written by a Portfolio will
be considered "covered" if, so long as the Portfolio is obligated as the
writer of the option, it owns an option to sell the underlying securities
subject to the option having an exercise price equal to or greater than the
exercise price of the "covered" option, or it deposits and maintains with
its Custodian in a segregated account cash, U.S. Government securities or
other liquid high-grade debt obligations having a value equal to or greater
than the exercise price of the option. The Fund may also write straddles
(i.e., a combination of a call and a put written on the same security at
the same strike price where the same segregated collateral is considered
"cover" for both the put and the call). In such cases, the Fund will also
segregate or deposit cash, U.S. Government securities or liquid high-grade
obligations equivalent to the amount, if any, by which the put is "in-the-
money."
Options on Currencies
Instead of purchasing or selling futures, options on futures or forward
currency exchange contracts, a Portfolio may attempt to accomplish similar
objectives by purchasing put or call options on currencies either on
exchanges or in over-the-counter markets or by writing put options or
covered call options on currencies. A put option gives the Portfolio the
right to sell a currency at the exercise price until the option expires. A
call option gives the Portfolio the right to purchase a currency at the
exercise price until the option expires. Both options serve to insure
against adverse currency price movements in the underlying portfolio assets
designated in a given currency.
Futures Contracts and Options Thereon
Each Portfolio will purchase or sell interest rate or currency futures
contracts to take advantage of or to protect a Portfolio against
fluctuations in interest rates affecting the value of debt securities which
the Portfolio holds or intends to acquire and may also purchase or sell
currency futures contracts and options thereon to manage currency risks.
Since the futures market may be more liquid than the cash market, the use
of futures contracts as a risk management technique permits the Fund to
maintain a defensive position without having to sell portfolio securities.
A "sale" of a futures contract (or a "short" futures position) means
the assumption of a contractual obligation to deliver the securities or
currency underlying the contract at a specified price at a specified future
time. A "purchase" of a futures contract (or a "long" futures position)
means the assumption of a contractual obligation to acquire the securities
or currency underlying the contract at a specified price at a specified
future time.
At the time a futures contract is purchased or sold, a Portfolio must
allocate cash or securities as a deposit payment (initial margin). It is
expected that the initial margin on United States exchanges will vary from
one-half of 1% to 4% of the value of the securities or commodities
underlying the contract. Under certain circumstances, however, such as
periods of high volatility, the Portfolio may be required by an exchange to
increase the level of its initial margin payment. Thereafter, the futures
contract is valued daily and the payment of "variation margin" may be
required, a process known as "mark to the market." Each day the Portfolio
is required to provide or is entitled to receive variation margin in an
amount equal to any decline (in the case of a long futures position) or
increase (in the case of a short futures position) in the contract's value
since the preceding day.
Certain futures contracts are settled on a net cash payment basis
rather than by the sale and delivery of the securities or currency
underlying the futures contracts. United States futures contracts are
traded on exchanges that have been designated as "contract markets" by the
Commodity Futures Trading Commission (the CFTC), an agency of the U.S.
Government, and must be executed through a futures commission merchant
(i.e., a brokerage firm) which is a member of the relevant contract market.
Futures contracts trade on these contract markets and the exchange's
affiliated clearing organization guarantees performance of the contracts as
between the clearing members of the exchange.
B-5
<PAGE>
Although futures contracts by their terms may require the actual
delivery or acquisition of underlying assets, in most cases the contractual
obligation is extinguished by offset before the expiration of the contract
without having to make or take delivery of the assets. The offsetting of a
contractual obligation is accomplished by buying (to offset an earlier
sale) or selling (to offset an earlier purchase) an identical futures
contract calling for delivery in the same month.
The ordinary spreads between values in the cash and futures markets,
due to differences in the character of those markets, are subject to
distortions. Due to the possibility of distortion, a correct forecast of
general interest rate or currency trends by the investment adviser may
still not result in a successful transaction.
Although the Fund believes that use of futures contracts will benefit
the Portfolios, if the investment adviser's judgment about the general
direction of interest rates or currency values is incorrect, the
Portfolio's overall performance would be poorer than if it had not entered
into any such contracts.
Options on Futures
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is
a put) at a specified exercise price at any time during the option exercise
period. The writer of the option is required upon exercise to assume a
short futures position (if the option is a call) or a long futures position
(if the option is a put). Upon exercise of the option, the assumption of an
offsetting futures position by the writer and holder of the option will be
accompanied by delivery of the accumulated cash balance in the writer's
futures margin account which represents the amount by which the market
price of the futures contract at exercise exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on
the futures contract.
Each Portfolio may only write "covered" put and call options on futures
contracts. A Portfolio will be considered "covered" with respect to a call
option it writes on a futures contract if the Portfolio owns the assets
which are deliverable under the futures contract or an option to purchase
that futures contract having a strike price equal to or less than the
strike price of the "covered" option and having an expiration date not
earlier than the expiration date of the "covered" option, or if it
segregates and maintains with its Custodian for the term of the option
cash, U.S. Government securities or other liquid high-grade debt
obligations equal to the fluctuating value of the optioned future. A
Portfolio will be considered "covered" with respect to a put option it
writes on a futures contract if it owns an option to sell that futures
contract having a strike price equal to or greater than the strike price of
the "covered" option, or if it segregates and maintains with its Custodian
for the term of the option cash, U.S. Government securities or liquid
high-grade debt obligations at all times equal in value to the exercise
price of the put (less any initial margin deposited by the Portfolio with
its Custodian with respect to such put option). There is no limitation on
the amount of the Fund's assets which can be placed in the segregated
account.
Forward Currency Exchange Contracts
A Portfolio's transactions in forward currency exchange contracts will
be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the forward purchase or sale of currency
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 receivable and Fund expenses. Position hedging is
the forward sale of currency with respect to portfolio security positions
denominated or quoted in that currency or in a currency bearing a high
degree of positive correlation to the value of that currency.
A Portfolio may not position hedge with respect to a particular
currency for an amount greater than the aggregate market value (determined
at the time of making any sale of forward currency) of the securities held
in its portfolio denominated or quoted in, or currently convertible into,
such currency. If a Portfolio enters into a position hedging transaction,
the Fund's Custodian or subcustodian will place cash or U.S. Government
securities or other high-grade debt obligations in a segregated account of
the Portfolio in an amount equal to the value of the Portfolio's total
assets committed to the consummation of the given forward contract. If the
value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the
value of the account will, at all times, equal the amount of the
Portfolio's commitment with respect to the forward contract.
At or before the maturity of a forward sale contract, the Portfolio may
either sell a portfolio security and make delivery of the currency, or
retain the security and offset its contractual obligations to deliver the
currency by purchasing a second contract pursuant to which the Portfolio
will obtain, on the same maturity date, the same amount of the currency
which it is obligated to deliver. If the Portfolio retains the portfolio
security and engages in an offsetting transaction, the Portfolio, at the
time of execution of the offsetting transaction, will incur a gain or a
loss to the extent that movement has occurred in forward contract prices.
Should forward prices decline during the period between the Portfolio
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the
Portfolio will realize a gain to the extent the price of the
B-6
<PAGE>
currency it has agreed to purchase is less than the price of the currency
it has agreed to sell. Should forward prices increase, the Portfolio will
suffer a loss to the extent the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell. Closing
out forward purchase contracts involves similar offsetting transactions.
The use of foreign currency contracts does not eliminate fluctuations
in the underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. In addition, although forward
currency contracts limit the risk of loss due to a decline in the value of
the hedged currency, they also limit any potential gain that might result
if the value of the currency increases.
Additional Risks of Options on Securities and Currencies, Futures
Contracts and Options Thereon and Forward Contracts
Options, futures contracts, options on futures contracts and forward
contracts on securities and currencies may be traded on foreign exchanges.
Such transactions may not be regulated as effectively as similar
transactions in the United States, may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental action
affecting trading in, or the prices of, foreign securities. The value of
such positions also could be adversely affected by (i) other complex
foreign political, legal and economic factors, (ii) lesser availability
than in the United States of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in the
foreign markets during non-business hours in the United States, (iv) the
imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States and (v) lesser trading
volume.
Exchanges on which options, futures and options on futures are traded
may impose limits on the positions that the Portfolio may take in certain
circumstances. If so, this would limit the ability of the Portfolio fully
to hedge against these risks.
Futures exchanges may establish daily limits in the amount that the
price of a futures contract or related options contract may vary either up
or down from the previous day's settlement price. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a
price beyond the limit. The daily limit governs only price movements during
a particular trading day and therefore does not limit potential losses
because the limit may prevent the liquidation of unfavorable positions.
Futures or options contract prices could move to the daily limit for
several consecutive trading days with little or no trading and thereby
prevent prompt liquidation of positions and subject some traders to
substantial losses. In such event, it may not be possible for a Portfolio
to close a position, and in the event of adverse price movements, the
Portfolio would have to make daily cash payments of variation margin
(except in the case of purchased options).
An exchange-traded option position may be closed out only where there
exists a secondary market for an option of the same series. If a secondary
market does not exist, it might not be possible to effect closing
transactions in particular options a Portfolio has purchased with the
result that the Portfolio would have to exercise the options in order to
realize any profit. If the Portfolio is unable to effect a closing purchase
transaction in a secondary market in an option the Portfolio has written,
it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise or it
otherwise covers its position. Reasons for the absence of a liquid
secondary market include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be imposed by a
securities exchange on operating transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or clearing
organization may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of
options (or a particular class or series of options), in which event the
secondary market on that exchange (or a particular class or series of
options) would cease to exist, although outstanding options would continue
to be exercisable in accordance with their terms.
A Portfolio's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the
maintenance of a liquid market. Although a Portfolio generally will
purchase or sell only those futures contracts and options thereon for which
there appears to be a liquid market, there is no assurance that a liquid
market on an exchange will exist for any particular futures contract or
option thereon at any particular time. In the event no liquid market exists
for a particular futures contract or option thereon in which the Portfolio
maintains a position, it will not be possible to effect a closing
transaction in that contract or to do so at a satisfactory price and the
Portfolio would have to either make or take delivery under the futures
contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised or, in the case of a
purchased option, exercise the option. In the case of a futures contract or
an option on a futures contract which the Portfolio has written and which
the Portfolio is unable to close, the Portfolio would be required to
maintain margin deposits on the futures contract or option and to make
variation margin payments until the contract is closed.
Limitations on the Purchase and Sale of Futures Contracts and Options on
Futures Contracts
Each Portfolio will engage in transactions in interest rate and foreign
currency futures contracts and options thereon only for bona fide hedging,
yield enhancement and risk management purposes, in each case in accordance
with the rules and regulations of the CFTC, and not for speculation.
B-7
<PAGE>
In accordance with CFTC regulations, a Portfolio may not purchase or
sell futures contracts or options thereof for yield enhancement or risk
management purposes if immediately thereafter the sum of the amounts of
initial margin deposits on the Portfolio's existing futures and premiums
paid for options on futures would exceed 5% of the liquidation value of the
Portfolio's total assets after taking into account unrealized profits and
unrealized losses on any such contracts; provided, however, that in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
above restriction does not apply to the purchase and sale of futures
contracts and options thereon for bona fide hedging purposes. In instances
involving the purchase of futures contracts or call options thereon or the
writing of put options thereon by a Portfolio, an amount of cash, U.S.
Government securities or other liquid, high-grade debt obligations, equal
to the market value of the futures contracts and options thereon (less any
related margin deposits), will be deposited in a segregated account with
its Custodian to cover the position, or alternative cover will be employed
thereby insuring that the use of such futures contracts and options is
unleveraged.
As an alternative to bona fide hedging, a Portfolio may comply with a
different standard established by CFTC rules as to each long position with
respect to a futures contract or an option thereon which will be used as a
part of a portfolio management strategy and which is incidental to the
Portfolio's activities on the securities markets, under which the underlying
commodity value of the contract at all times will not exceed the sum of (i)
cash set aside in an identifiable manner or short-term U.S. Government or
other United States dollar-denominated high grade short-term money market
instruments segregated for this purpose plus margin deposited in the
market, (ii) cash proceeds from existing investments due within thirty days
and (iii) accrued profits on the particular futures contract or option
thereon.
CFTC regulations may impose limitations on a Portfolio's ability to
engage in certain yield enhancement and risk management strategies. There
are no limitations on a Portfolio's use of futures contracts and options on
futures contracts beyond the restrictions set forth above.
When-Issued and Delayed Delivery Securities
Each Portfolio 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 Portfolio with payment and
delivery taking place in the future in order to secure what is considered
to be an advantageous price and yield to the Portfolio at the time of
entering into the transaction. The Fund's Custodian will maintain, in a
segregated account of each Portfolio, cash, U.S. Government securities or
other liquid high-grade debt obligations having a value equal (which is
marked to market daily) to or greater than the Portfolio's purchase
commitments; the Custodian will likewise segregate securities sold on a
delayed delivery basis.
Borrowing
When a Portfolio borrows money for temporary, extraordinary or
emergency purposes or for the clearance of transactions, it will borrow no
more than 20% of its net assets and, in any event, the value of its total
assets (i.e., including borrowings) less its liabilities (excluding
borrowings) must at all times be maintained at not less than 300% of all
outstanding borrowings. If, for any reason, including adverse market
conditions, a Portfolio should fail to meet this test, it will be required
to reduce its borrowings within three days (not including Sundays and
holidays) to the extent necessary to meet the test. This requirement may
make it necessary for a Portfolio to sell a portion of its portfolio
securities at a time when it is disadvantageous to do so.
Repurchase Agreements
A Portfolio 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 Portfolio 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 Portfolio 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 Securities and Exchange Commission. On a
daily basis, any uninvested cash balances of the Portfolio may be
aggregated with those of such other 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.
Illiquid Securities
Each Portfolio may not invest more than 10% of its net assets in
repurchase agreements which have a maturity 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
B-8
<PAGE>
referred to as private placements or restricted securities and are
purchased directly from the issuer or in the secondary market. Mutual funds
do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect
on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register
such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities,
municipal securities, convertible securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in
which the unregistered security can be readily resold or on an issuer's
ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale to the general public or to
certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to
the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. The investment adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper and foreign securities will expand further
as a result of this regulation and the development of automated systems for
the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act and commercial paper for which there is a readily
available market will not be deemed to be illiquid. The investment adviser
will monitor the liquidity of such restricted securities subject to the
supervision of the Board of Directors. In reaching liquidity decisions, the
investment adviser will consider, inter alia, the following factors: (1)
the frequency of trades and quotes for the security; (2) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the
security and (4) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer). In
addition, in order for commercial paper that is issued in reliance on
Section 4(2) of the Securities Act to be considered liquid, (i) it must be
rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only
one NRSRO rates the securities, by that NRSRO, or, if unrated, be of
comparable quality in the view of the investment adviser; and (ii) it must
not be "traded flat" (i.e., without accrued interest) or in default as to
principal or interest. Repurchase agreements subject to demand are deemed
to have a maturity equal to the notice period.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. The Fund's
fundamental policies as they affect a particular Portfolio cannot be
changed without the approval of a majority of such Portfolio's outstanding
voting securities. A "majority of a Portfolio's outstanding voting
securities" where used in this Statement of Additional Information means
the lesser of (i) 67% or more of the voting securities of such Portfolio
represented at a meeting at which more than 50% of the outstanding voting
securities of such Portfolio are present in person or represented by proxy
or (ii) more than 50% of the outstanding voting securities of such
Portfolio. With respect to the submission of a change in fundamental policy
or investment objective to a particular Portfolio, such matters shall be
deemed to have been effectively acted upon with respect to all Portfolios
of the Fund if a majority of the outstanding voting securities of the
particular Portfolio votes for the approval of such matters as provided
above, notwithstanding (1) that such matter has not been approved by a
majority of the outstanding voting securities of any other Portfolio
affected by such matter and (2) that such matter has not been approved by a
majority of the outstanding voting securities of the Fund.
Each Portfolio may not:
(1) Invest 25% or more of its total assets in any one industry. For
this purpose "industry" does not include the U.S. Government and agencies
and instrumentalities of the U.S. Government.
(2) Make short sales of securities or maintain a short position, except
short sales "against the box."
(3) Issue senior securities, borrow money or pledge its assets, except
that a Portfolio may borrow up to 20% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or
emergency purposes or for the clearance of transactions. Each Portfolio 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, the purchase of
securities subject to repurchase agreements, collateral arrangements with
respect to interest rate swap transactions, reverse repurchase agreements
or dollar roll transactions or the purchase or sale of options and futures
contracts or options thereon, are not deemed to be a pledge of assets or
the issuance of a senior security; and neither such arrangements, the
purchase or sale of options, futures contracts or related options nor
obligations of the Fund to the Directors pursuant to deferred compensation
arrangements, are deemed to be the issuance of a senior security.
B-9
<PAGE>
(4) Buy or sell commodities, commodity contracts, real estate or
interests in real estate (including mineral leases or rights), except that
a Portfolio may purchase and sell futures contracts, options on futures
contracts and securities secured by real estate or interests therein or
issued by companies that invest therein. Transactions in foreign currencies
and forward contracts and options on foreign currencies are not considered
by a Portfolio to be transactions in commodities or commodity contracts.
(5) Make loans, except (i) through repurchase agreements, (ii) through
loan participations, and (iii) loans of portfolio securities (limited to
30% of a Portfolio's total assets).
(6) Make investments for the purpose of exercising control or
management over the issuers of any security.
(7) Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, a Portfolio may be deemed to be an
underwriter under certain federal securities laws.
The foregoing restrictions are fundamental policies that may not be
changed without the approval of a majority of each Portfolio's outstanding
voting securities.
Whenever any fundamental investment policy or investment restriction
states a maximum percentage of a Portfolio'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 a Portfolio's asset coverage for borrowings falls below 300%,
the Portfolio will take prompt action to reduce its borrowings, as required
by applicable law.
In order to comply with certain state "blue sky" restrictions, each
Portfolio will not as a matter of operating policy:
1. Invest in oil, gas and mineral leases or programs.
2. Purchase any interests in real estate including real estate limited
partnerships which are not readily marketable.
3. 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.
4. Purchase warrants if as a result a Portfolio 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 Portfolio'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. Purchase more than 10% of the voting securities or more than 10% of
any class of securities of any issuer. For purposes of this restriction,
all outstanding debt securities of an issuer are considered as one class,
and all preferred stocks of an issuer are considered as one class.
6. Invest more than 5% of its total assets in securities of companies
having a record, together with predecessors, of less than three years of
continuous operation. This limitation shall not apply to direct obligations
of the U.S. Government and obligations issued by agencies of the U.S.
Government or instrumentalities established or sponsored by the U.S.
Government.
7. Purchase securities of other registered investment companies, except
in connection with a merger, consolidation, reorganization or acquisition
of assets.
8. Invest more than 50% of its total assets in the securities of any
one issuer. This limitation will not apply to securities which are direct
obligations of the U.S. Government, its agencies or instrumentalities or to
obligations of the government of Canada.
9. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of purchases and sales of portfolio
securities.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with Principal Occupations
Name and Address the Fund During Past 5 Years
- ---------------- -------- -------------------
<S> <C> <C>
Stephen C. Eyre Director Executive Director, The John A. Hartford Foundation (charitable
c/o Prudential Mutual Fund foundation) (since May 1985); Director of Faircom, Inc.
Management, Inc.
One Seaport Plaza
New York, New York
Delayne Dedrick Gold Director Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, New York
B-10
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name and Address the Fund During Past 5 Years
- ---------------- -------- -------------------
<S> <C> <C>
Don G. Hoff Director Chairman and Chief Executive Officer of Intertec, Inc. (investments) since
c/o Prudential Mutual Fund 1980; Director of Innovative Capital Management Inc., The Asia Pacific
Management, Inc. Fund and The Greater China Fund.
One Seaport Plaza
New York, New York
*Harry A. Jacobs, Jr. Director Senior Director (since January 1986) of Prudential Securities Incorporated
One Seaport Plaza (Prudential Securities); formerly Interim Chairman and Chief Executive
New York, New York Officer of Prudential Mutual Fund Management, Inc. (PMF);
(June-September 1993); formerly Chairman of the Board of Prudential
Securities (1982-1985); Chairman and Chief Executive Officer of Bache
Group Inc. (1977-1982); Trustee of The Trudeau Institute; Director of The
First Australia Fund, Inc., The First Australia Prime Income Fund, Inc., The
Global Government Plus Fund, Inc., The Global Total Return Fund, Inc. and
the Center for National Policy.
Sidney R. Knafel Director Managing Partner of SRK Management Company (investments) since 1981;
c/o Prudential Mutual Fund Chairman of Insight Communications Company, L.P. and Microbiological
Management, Inc. Associates, Inc.; Director of Cellular Communications, Inc., Cellular
One Seaport Plaza Communications of Puerto Rico Inc., General American Investors Company,
New York, New York Inc., IGENE Biotechnology, Inc., International CableTel Incorporated,
Medical Imaging Centers of America, Inc. and a number of private companies.
Robert E. LaBlanc Director President of Robert E. LaBlanc Associates, Inc. (telecommunications) since
c/o Prudential Mutual Fund 1981; Director of Contel Cellular, Inc., M/A-COM, Inc., Storage Technology
Management, Inc. Corporation, TIE/communications, Inc. and Tribune Company; Trustee of
One Seaport Plaza Manhattan College.
New York, New York
*Lawrence C. McQuade President and Vice Chairman of PMF (since 1988) and Managing Director, Investment
One Seaport Plaza Director Banking, of Prudential Securities (1988-1991); Director, of Czech & Slovak
New York, New York American Enterprise Fund (since October 1994); Director, BUNZL, P.L.C.(since
June 1991); Director, Quixote Corporation (since February 1992); formerly
Director of Crazy Eddie Inc. (1987-1990), Kaiser Tech., Ltd.,
Kaiser Aluminum and Chemical Corp. (March 1987-November 1988);
formerly Executive Vice President and Director of W. R. Grace & Co.
(1975-1987); President and Director of The High Yield Income Fund, Inc., The
Global Total Return Fund, Inc. and The Global Government Plus Fund, Inc.
Thomas A. Owens, Jr. Director Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, New York
*Richard A. Redeker Director President, Chief Executive Officer and Director (since October 1993), PMF;
One Seaport Plaza Executive Vice President, Director and Member of the Operating Committee
New York, New York (since October 1993); Prudential Securities; Director (since October 1993)
of Prudential Securities Group, Inc. (PSG); Vice President, The Prudential
Investment Corporation (since July, 1994). Formerly Senior Executive Vice
President and Director of Kemper Financial Services, Inc. (September 1978-
September 1993); Director of The Global Government Plus Fund, Inc., The
Global Total Return Fund and The High Yield Income Fund, Inc.
Clay T. Whitehead Director President of National Exchange Inc. (since May 1983).
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, New York
<FN>
- -----------------
* "Interested" director, as defined in the Investment Company Act, by reason of his affiliation with Prudential Securities or PMF.
</TABLE>
B-11
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name and Address the Fund During Past 5 Years
- ---------------- -------- -------------------
<S> <C> <C>
Robert F. Gunia Vice President Director (since January 1989), Chief Administrative Officer (since August
One Seaport Plaza 1990) and Executive Vice President, Treasurer and Chief Financial Officer
New York, New York (since June 1987) of PMF; Senior Vice President (since March 1987) of
Prudential Securities; Vice President and Director of The Asia Pacific
Fund, Inc. (since May 1989).
S. Jane Rose Secretary Senior Vice President (since January 1991), Senior Counsel (since June
One Seaport Plaza 1987) and First Vice President (June 1987-December 1990) of PMF;
New York, New York Senior Vice President and Senior Counsel of Prudential Securities (since
July 1992); formerly Vice President and Associate General Counsel of
Prudential Securities.
Susan C. Cote Treasurer and Senior Vice President (since January 1989) and First Vice President (June
One Seaport Plaza Principal 1987-December 1988) of PMF; Senior Vice President (since January
New York, New York Financial and 1992) and Vice President (January 1986-December 1991) of Prudential
Accounting Securities.
Officer
<FN>
- -----------------
* "Interested" director, as defined in the Investment Company Act, by reason of his affiliation with Prudential Securities or PMF.
</TABLE>
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities or Prudential Mutual Fund Distributors, Inc. (PMFD).
The officers conduct and supervise the daily business operations of the
Fund, while the directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general
policy.
The Fund pays each of its Directors who is not an affiliated person of
the Manager annual compensation of $10,000, in addition to certain
out-of-pocket expenses.
Directors may receive their Directors' fees 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 at the daily rate of return of
a Portfolio of the Fund (the Fund rate). Payment of the interest so accrued
is also deferred and accruals become payable at the option of the Director.
The Fund's obligation to make payments of deferred Directors' fees,
together with interest thereon, is a general obligation of the Fund.
As of December 2, 1994, the Directors and officers of the Fund, as a
group, owned beneficially less than 1% of the common stock of each
Portfolio.
As of December 2, 1994, the only beneficial owners, directly, or
indirectly, of more than 5% of the outstanding common stock of the
Prudential Short-Term Global Income Fund, Inc. were Champlain Enterprises
Inc., ATTN Antony Von Elbe, 518 Rugar St, Plattsburgh, NY 12901-1993, which
held 1,403,762 Class A shares of the Global Asset Portfolio (5.4%); Midland
National Life Ins Co, One Midland Plaza, Sioux Falls, SD 57193-0001, which
held 485,265 Class A shares of the Income Portfolio (15.6%); Investors Life
Insurance Co. of Nebraska, One Midland Plaza, Sioux Falls, SD 57193-0001,
which held 526,245 Class A shares of the Income Portfolio (17.0%); and
Prudential Mutual Fund Services, PMFS Audit Account, P.O. Box 15025, New
Brunswick, NJ 08906-5025, which held 23 Class C shares of the Income
Portfolio (98.1%).
As of December 2, 1994, Prudential Securities was the record holder for
other beneficial owners with respect to the Short-Term Global Income
Portfolio of 2,612,180 Class A shares (or 84% of the outstanding Class A
shares), 17,733,897 Class B shares (or 84% of the outstanding Class B
shares) and 0 Class C shares (or 0% of the outstanding Class C shares) and,
with respect to the Global Assets Portfolio, of 24,393,453 Class A shares
(94% of the outstanding Class A shares) and 0 Class B shares (or 0% of the
outstanding Class B shares. In the event of any meetings of shareholders,
Prudential Securities will forward, or cause the forwarding of, proxy
materials to the beneficial owners for which it is the record holder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF
or the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as
manager to substantially all of the other investment companies that,
together with the Fund, comprise the "Prudential Mutual Funds." See "How
the Fund is Managed" in the Prospectus. As of November 30, 1994, PMF managed
and/or administered open-end and closed-end management investment companies
with assets of approximately $47 billion. According to the Investment
Company Institute, as of April 30, 1994, the Prudential Mutual Funds
were the 12th largest family of mutual funds in the United States.
B-12
<PAGE>
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 each Portfolio, manages both the
investment operations of each Portfolio and the composition of each Portfolio's
investments, 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 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 .55 of 1% of the average daily net assets of each
Portfolio. The fee is computed daily and payable monthly. The Management
Agreement also provides that, in the event the expenses of a Portfolio
(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 applicable Portfolio. No such
reductions were required during the fiscal year ended October 31, 1993.
Currently, the Fund believes that the most restrictive expense limitation
of state securities commissions is 2 1/2% of the Fund's average daily net
assets up to $30 million, 2% of the next $70 million of such assets and
1 1/2% of such assets in excess of $100 million.
The Management Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the
Management Agreement, on June 6, 1994, and was approved by shareholders of
each Portfolio on October 21, 1991.
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 and Dividend Disbursing
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) certain organization expenses of the Fund and the fees and
expenses involved in registering and maintaining registration of the Fund
and of its shares with the Securities and Exchange Commission, 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.
For the fiscal years ended October 31, 1994, 1993 and 1992 PMF received
management fees of $1,755,285, $2,994,867 and $5,136,480 from the
Short-Term Global Income Portfolio, respectively. With respect to the Global
Assets Portfolio, for the fiscal
B-13
<PAGE>
years ended October 31, 1994, 1993 and 1992 PMF received management fees of
$453,970, $1,132,954 and $2,126,994, respectively.
PMF has entered into the Subadvisory Agreement with PIC, a wholly-
owned subsidiary of The Prudential Insurance Company of America (the
Prudential). The Subadvisory Agreement provides that PIC 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 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 June 6, 1994, and was approved by the shareholders of the
Fund on October 21, 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 (The Prudential Investment Corporation)
are subsidiaries of The Prudential which, as of December 31, 1993, was the
largest insurance company in North America. Prudential has been engaged in
the insurance business since 1875. In July 1994, Institutional Investor
ranked The Prudential the second largest institutional money manager of the
300 largest money management organizations in the United States as of
December 31, 1993.
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 each
Portfolio. Prudential Securities Incorporated (Prudential Securities), One
Seaport Plaza, New York, New York 10292, acts as the distributor of the Class B
shares of each Portfolio and of the Class C shares of the Short-Term Global
Income Portfolio.
Short-Term Global Income Portfolio. 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 Class A, Class B and
Class C shares of the Short-Term Global Income Portfolio. See "How the Fund
is Managed--Distributor" in the Prospectus.
On June 3, 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 operation of the Class A or Class B
Plan or in any agreement related to the Plan (the Rule 12b-1 Directors), at
a meeting called for the purpose of voting on each Plan, approved the
continuance of the Class A and Class B Plans and Distribution Agreements
and approved modifications of the Portfolio's Class A and Class B Plans and
Distribution Agreements to conform them to recent amendments to the
National Association of Securities Dealers, Inc. (NASD) maximum sales
charge rule described below. As modified, the Class A Plan for the
Portfolio provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and the
maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of .25 of 1%) may not exceed
.30 of 1%. As modified, the Class B Plan for the Portfolio 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).
Total distribution fees (including the service fee of .25 of 1%) under the
Class B Plan for the Portfolio may not exceed 1.00%. On March 14, 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 Portfolio and approved further
amendments to the plan of distribution for the Portfolio's Class B Plan
changing it from a reimbursement type plan to a compensation type plan. The
Plans were last approved by the Board of Directors, including a majority of
the Rule 12b-1 Directors, on June 6, 1994. 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 October 31, 1994 PMFD received
payments of $57,000 under the Class A Plan as reimbursement of expenses
related to the distribution of Class A shares. This amount was primarily
expended for payment of account servicing fees to financial advisers and
other persons who sell Class A shares. For the fiscal year ended October
31, 1994. PMFD also received approximately $15,000 in initial sales
charges.
Class B Plan. For the fiscal year ended October 31, 1994, Prudential
Securities received $2,679,726 from the Portfolio under the Class B Plan and
spent approximately $1,382,000 in distributing the Portfolio's Class B shares.
It is estimated that of the latter
B-14
<PAGE>
amount, approximately $17,200 (1.2%) was spent on printing and mailing of
prospectuses to other than current shareholders; $427,900 (31.0%) on interest
and/or carrying costs; $36,100 (2.6%) on compensation to Pruco Securities
Corporation, an affiliated broker-dealer, for commissions to its representatives
and other expenses, including an allocation on account of overhead and
other branch office distribution-related expenses, incurred by it for
distribution of shares of the Portfolio; and $900,800 (65.2%) on the aggregate
of (i) payments of commissions and account servicing fees to financial advisers
($593,100 or 42.9%) and (ii) an allocation on account of overhead and other
branch office distribution-related expenses ($307,700 or 22.3%). The term
"overhead and other branch office distribution-related expenses" represents (a)
the expenses of operating Prudential Securities branch offices in connection
with the sale of Fund Shares, including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) expenses of mutual fund sales coordinators to promote
the sale of Fund shares; and (d) other incidental expenses relating to branch
promotion of Fund shares.
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 October 31, 1994,
Prudential Securities received approximately $1,291,500 in contingent
deferred sales charges.
Class C Plan. Prudential Securities also receives the proceeds of
contingent deferred sales charges paid by investors upon certain
redemptions of Class C shares. For the fiscal year ended October 31, 1994,
Prudential Securities did not receive any remuneration under the Class C
Plan and nor did Prudential Securities incur any costs in distributing the
Portfolio's Class C shares. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
Global Assets Portfolio. Pursuant to separate Distribution and Service Plans
(the Class A Plan and the Class B Plan, collectively the Plans) adopted by the
Fund under Rule 12b-1 under the Investment Company Act and separate distribution
agreements (the Distribution Agreements), PMFD and Prudential Securities
(collectively the Distributor) incur the expenses of distributing the Class A
and Class B shares, respectively, of the Global Assets Portfolio. On June 3,
1993, the Board of Directors, including a majority of the Rule 12b-1 Directors,
at a meeting called for the purpose of voting on each Plan, approved the
continuance of the Plans and Distribution Agreements and approved modifications
of the Portfolio's Class A and Class B Plans and Distribution Agreements to
conform them with recent amendments to the NASD maximum sales charge rule
described below. As modified, the Class A Plan provides that (i) up to .25 of 1%
of the average daily net assets of the Class A shares may be used to pay for
personal service and the maintenance of shareholder accounts (service fee) and
(ii) total distribution fees (including the service fee of .25 of 1%) may not
exceed .50 of 1%. As modified, the Class B Plan provides that (i) up to .25 of
1% of the average daily net assets of the Class B shares may be paid as a
service fee and (ii) up to .75 of 1% (not including the service fee) may be used
as reimbursement for distribution-related expenses with respect to the Class B
shares (asset-based sales charge). Total distribution fees (including the
service fee of .25 of 1%) under the Class B Plan for the Portfolio may not
exceed 1.00%. On March 14, 1993, the Board of Directors, including a majority of
the Rule 12b-1 Directors, at a meeting called for the purpose of voting on the
Class A Plan, approved an amendment to the Class A Plan to change it from a
reimbursement type plan (such as the Class B Plan) to a compensation type plan.
The Plans were last approved by the Board of Directors, including a majority of
the Rule 12b-1 Directors, on June 6, 1994. The Class A Plan, as amended, was
approved by the Class A shareholders on July 19, 1994. See "How the Fund is
Managed--Distributor" in the Prospectus.
Class A Plan. For the fiscal year ended October 31, 1994 PMFD received
payments of $411,334 under the Class A Plan. For the same period, PMFD received
initial sales charges of approximately $24,100 for the Portfolio.
Class B Plan. There were no distribution costs incurred nor reimbursable
under the Class B Plan for the fiscal year ended October 31, 1994. All
contingent deferred sales charges collected on the redemption of Class B shares
were retained and credited to the Fund's Class B shares paid-in capital account.
See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charge--Class B Shares" in the Prospectus of the Global Assets Portfolio.
The Plans of each Portfolio continue in effect from year to year, provided
that each such continuance is approved at least annually by a vote of the Board
of Directors, including a majority vote of the Rule 12b-1 Directors, cast in
person at a meeting called for the purpose of voting on such continuance. The
Plans may each be terminated at any time, without penalty, by the vote of a
majority of the Rule 12b-1 Directors or by the vote of the holders of a majority
of the outstanding shares of the applicable class on not more than 30 days'
written notice to any other party to the Plans. The Plans may not be amended to
increase materially the amounts to be spent for the services described therein
without approval by the shareholders of the applicable class (by both Class A
and Class B shareholders of the Short-Term Global Income Portfolio, voting
separately, in the case of material amendments to the Class A Plan for the
Short-Term Global Income Portfolio), 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 share
of the Fund by the Distributor. The report will include an itemization of the
distribution expenses
B-15
<PAGE>
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 of 1933, as amended. Each
Distribution Agreement was approved by the Board of Directors, including a
majority of the Rule 12b-1 Directors, on June 6, 1994.
NASD Maximum Sales Charge Rule. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. Interest charges on unreimbursed distribution expenses equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not included in
the calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of the Fund may not exceed .75 of 1% per class. The 6.25% limitation
applies to the Fund rather than on a per shareholder basis. If aggregate sales
charges were to exceed 6.25% of total gross sales of any class, all sales
charges on shares of that class would be suspended.
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 8, 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. 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for each
Portfolio of 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.) Broker-dealers may receive brokerage
commissions on portfolio transactions of a Portfolio, including options,
futures, and options on futures transactions and the purchase and sale of
underlying securities upon the exercise of options. 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.
B-16
<PAGE>
Debt 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 and agency securities may be purchased directly from the
issuer, in which case no commissions or discounts are paid. A Portfolio
will not deal with Prudential Securities in any transaction in which
Prudential Securities acts as principal. Thus, it will not deal in
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 Portfolio's order.
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
Securities and Exchange Commission. This limitation, in the opinion of the
Fund, will not significantly affect a Portfolio's ability to pursue its
present investment objective. However, in the future in other
circumstances, a Portfolio may be at a disadvantage because of this
limitation in comparison to other funds with similar objectives but not
subject to such limitations.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable
price and efficient execution. Within the framework of this policy, the
Manager will consider the research and investment services provided by
brokers, dealers or futures commission merchants who effect or are parties
to portfolio transactions of the Fund, the Manager or the Manager's other
clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular companies
and industries. Such services are used by the Manager in connection with
all of its investment activities, and some of such services obtained in
connection with the 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 or futures commission merchant in the light of
generally prevailing rates. The Manager's policy is to pay higher
commissions to brokers, dealers and futures commission merchants, 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 and 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 and
futures commission merchants and the commission rates paid are reviewed
periodically by the Fund's Board of Directors.
Subject to the above considerations, Prudential Securities may act as a
broker or futures commission merchant for the Fund. In order for Prudential
Securities (or any affiliate) to effect any Portfolio transactions for a
Portfolio, 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 such brokers or futures
commission merchants in connection with comparable transactions involving
similar securities or futures contracts being purchased or sold on an exchange
or board of trade 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 arms-length transaction.
Furthermore, the Board of Directors of the Fund, including a majority of the
noninterested 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) under the Securities Exchange Act of 1934,
Prudential Securities may not retain compensation for effecting transactions on
a national securities exchange for the Fund unless the Fund has expressly
authorized the retention of such compensation. Prudential Securities must
furnish to the Fund at least annually a statement setting forth the total amount
of all compensation retained by Prudential Securities from transactions effected
for the Fund during the applicable period. Brokerage transactions with
Prudential Securities (or any affiliate) are also subject to such fiduciary
standards as may be imposed by applicable law.
During the fiscal periods ended October 31, 1994, 1993 and 1992, neither
Portfolio paid any brokerage commissions to Prudential Securities.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of each Portfolio 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
B-17
<PAGE>
basis (Class B or, in the case of the Short-Term Global Income Portfolio,
Class C shares). See "Shareholder Guide" in the Prospectus.
Each class of shares represents an interest in the same portfolio of
investments of the Portfolio 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 of the Short-Term
Global Income Portfolio to submit any amendment of the Class A distribution
and service plan for that Portfolio to both Class A and Class B
shareholders of that Portfolio) and (iii) only Class B shares have a
conversion feature. See "Distributor." Each class also has separate
exchange privileges. See "Shareholder Investment Account--Exchange
Privilege."
Specimen Price Make-Up
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 3% with
respect to the Short-Term Global Income Portfolio and 0.99% with repect to
the Global Assets Portfolio and Class B* and, in the case of
the Short-Term Global Income Portfolio, Class C* shares are sold at
net asset value. Using the Fund's net asset value at October 31, 1994, the
maximum offering price of the Portfolio's shares is as follows:
<TABLE>
Short-Term Global
Global Income Assets
Portfolio Portfolio
--------- ---------
<S> <C> <C>
Class A
Net asset value and redemption price per Class A share .................................. $8.56 $1.80
Maximum Sales Charge: (3% of offering price) ............................................ .26 -
(0.99% of offering price) ......................................... - .02
----- -----
Offering price to public ................................................................ $8.82 $1.82
===== =====
Class B
Net asset value, redemption price and offering price to public per Class B share* ....... $8.56 N.A.
===== =====
Class C
Net asset value, offering price and redemption price per Class C share* ................. $8.56 N.A.
===== =====
<FN>
- -------------
*Class B and, in the case of the Short-Term Global Income Portfolio, 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.
</TABLE>
Reduced Initial Sales Charges--Class A Shares
Combined Purchase and Cumulative Purchase Privilege. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases. See 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 company
will be deemed to control the company, 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 benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include
the following: 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).
B-18
<PAGE>
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 and 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 the 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 or 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 investor is entitled to a reduced sales charge. The reduced sales
charges 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.
Letters 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
which (excluding money market funds other than those acquired pursuant to the
exchange privilege) 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 plans.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter of Intent will be held by the Transfer Agent in the name of the
purchaser, 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 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 sales charges actually paid. Such payment may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. If the goal is exceeded in
an amount which qualifies for a lower sales charge, a price adjustment is made
by refunding to the purchaser the amount of excess sales charge, if any, paid
during the thirteen-month period. Investors electing to purchase Class A shares
of the Fund pursuant to a Letter of Intent should carefully read such Letter of
Intent.
Waiver of the Contingent Deferred Sales Charge--Class B Shares of the Short-Term
Global Income Portfolio
The contingent deferred sales charge is waived under circumstances described
in the Prospectus for the Short-Term Global Income Portfolio. See "Shareholder
Guide--How to Sell Your Shares--Waiver of Contingent Deferred Sales
Charges--Class B Shares" in the Prospectus. In connection with these waivers,
the Transfer Agent will require you to submit the supporting documentation set
forth below.
Category of Waiver
Death
Disability--An individual will be considered disabled if he or she is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration.
Required Documentation
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.
A copy of the Social Security Administration award letter or a letter from a
physician on the physician's letterhead stating that the shareholder (or, in the
case of a trust, the grantor) is permanently disabled. The letter must also
indicate the date of disability.
B-19
<PAGE>
Distribution from an IRA or 403(b) Custodial Account
Distribution from Retirement Plan
Excess Contributions
A copy of the distribution form from the custodial firm indicating (i) the
date of birth of the shareholder and (ii) that the shareholder is over age
59-1/2 and is taking a normal distribution--signed by the
shareholder.
A letter signed by the plan administrator/trustee indicating the reason for
the distribution.
A letter from the shareholder (for an IRA) or the plan administrator/trustee on
company letterhead indicating the amount of the excess and whether or not taxes
have been paid.
The Transfer Agent reserves the right to request such additional documents as
it may deem appropriate.
Quality Discount--Shares Purchased Prior to August 1, 1994
While a quantity discount is not available for Class B shares of the Fund, a
quantity discount may apply to Class B shares of another Prudential Mutual Fund
acquired pursuant to the exchange of Class B shares of the Fund. The applicable
quantity discount, if any, will be that applicable to the shares acquired as a
result of the exchange of Class B shares of the Fund.
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 its stockholders the following privileges and plans.
Equity Participation Program
Under the Equity Participation Program, an investor may arrange to have a
specified number of Class A or Class B shares of the Short-Term Global Income
Portfolio automatically exchanged into either one or two Prudential equity funds
on a monthly basis (subject to minimum initial and subsequent investment of
$1,000 and $100, respectively). Further details about this service and an
application form are available from the Transfer Agent, Prudential Securities or
Prusec.
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 a Portfolio of the Fund at net
asset value. An investor may direct the Transfer Agent in writing not less
than 5 full business days prior to the payment 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 payment 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.
Exchange Privilege
Global Assets Portfolio. Class A and Class B shareholders of the Global
Assets Portfolio each have an exchange privilege with the Class A and Class
B shares, respectively, of Prudential Adjustable Rate Securities Fund, Inc.
subject to the minimum investment requirements of that Fund. Class B shares
of the Global Assets Portfolio may also be exchanged into shares of the
Prudential Government Securities Trust, Intermediate Term Series. Class A
and Class B shareholders of the Global Assets Portfolio may exchange their
shares for Class A and Class B shares, respectively, of Prudential
Adjustable Rate Securities Fund, Inc., and Class B shares of the Global
Assets Portfolio may be exchanged into shares of the Prudential Government
Securities Trust, Intermediate Term Series, on the basis of the relative
net asset value per share. Any applicable contingent deferred sales charge
payable upon the redemption of shares exchanged will be calculated from the
date of the initial purchase of such shares, rather than the date of the
exchange. An exchange will be treated as a redemption and purchase for tax
purposes.
Short-Term Global Income Portfolio. The Fund makes available to its
shareholders the privilege of exchanging their shares of the Short-Term
Global Income Portfolio 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
Portfolio. All exchanges are made on the basis of relative net
B-20
<PAGE>
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 Short-Term Global Income Portfolio may
exchange their Class A shares for Class A shares of certain other
Prudential Mutual Funds, shares of Prudential Structured Maturity Fund,
Inc. and 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 Short-Term Global Income Portfolio
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 contingent deferred sales
charge will be payable upon such exchange, but a CDSC may be payable upon the
redemption of Class B and Class C shares acquired as a result of the exchange.
The applicable sales charge will be that imposed by the fund in which shares
were initially purchased and the purchase date will be deemed to be the date of
the initial purchase, rather than the date of the exchange.
Class B and Class C shares of the Short-Term Global Income Portfolio
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
Portfolio, 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 the month), the entire month will be included in the CDSC holding
period. Conversely, if shares are exchanged into a money market fund prior
to the last day of the month (and are held in the money market fund on the
last day of the month), the entire month will be excluded from the CDSC
holding period. For purposes of calculating the five 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 Portfolio, respectively, without subjecting such
shares to any CDSC. Shares of any fund participating in the Class B or
Class C Exchange Privilege that were acquired through reinvestment of
dividends or distributions may be exchanged for Class B or Class C shares,
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 sixty days' notice, and any fund,
including the Fund, or the Distributor, has the right to reject any
exchange application relating to such fund's shares.
B-21
<PAGE>
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 over $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
<TABLE>
<CAPTION>
Period of
Monthly investments: $100,000 $150,000 $200,000 $250,000
--------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
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
<FN>
- --------------
See "Automatic Savings Accumulation Plan".
1Source 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
Educational Statistics; and the U.S. Department of Education. Average
costs for private institutions include tuition, fees, room and board.
2The 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.
</TABLE>
Automatic Savings Accumulation Plan (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Short-Term Global Income Portfolio or Class B shares
of the Global Assets Portfolio monthly by authorizing his or her bank account or
Prudential Securities account (including a Command Account) to be debited to
invest specified dollar amounts in shares of the Fund. The investor's bank must
be a member of the Automatic Clearing House System. Stock certificates are not
issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
Systematic Withdrawal Plan
A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. The systematic withdrawal plan is not
available to Class B shares of the Global Assets Portfolio. 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 of the Short-Term Global Income Portfolio 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 be recognized for federal income tax
purposes. In addition, withdrawals made concurrently with purchases of
additional shares are inadvisable
B-22
<PAGE>
because of the sales charges 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 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-sheltered accounts"
under Section 403(b)(7) of the Internal Revenue Code are available through
the Distributor. These plans are for use by both self-employed individuals
and corporate employers. These plans permit either self-direction of
accounts by participants, or a pooled account arrangement. Information
regarding the establishment of these plans, the administration, custodial
fees and other details are 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 $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
[FN]
- --------------
1The chart is for illustrative purposes only and does not represent
the performance of the Portfolio or any specific investment. It shows
taxable versus tax-deferred compounding for the periods and on the terms
indicated. Earnings in the IRA account will be subject to tax when
withdrawn from the account.
NET ASSET VALUE
Under the Investment Company Act, the Board of Directors is responsible
for determining in good faith the fair market value of the securities of
each Portfolio. The net asset value per share is the net worth of the
Portfolio (assets, including securities at value, minus liabilities)
divided by the number of shares outstanding. Net asset value is calculated
separately for each class. In accordance with procedures adopted by the
Board of Directors, the value of each Portfolio will be determined as
follows:
Government securities for which quotations are available will be based on
prices provided by independent pricing services or principal market makers.
Other portfolio securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed to
be over-the-counter, will be valued at the average of the quoted bid and asked
prices provided by an independent pricing service or by principal market makers.
Any security for which the primary market is on an exchange is valued at the
last sale price on such exchange on the day of valuation or, if there was no
sale on such day, the last bid price quoted on such day. Quotations of foreign
securities in a foreign currency will be converted to U.S. dollar equivalents.
Forward currency exchange contracts will be valued at the current cost of
covering or offsetting the contract. Options will be valued at their last sale
price as of the close of options trading on the applicable exchanges. If there
is no sale on the applicable options exchange on a given day, options will be
valued at the average of the quoted bid and asked prices as of the close of the
applicable exchange. The Fund may engage pricing services to obtain such prices.
Over-the-counter options will be valued at the average between the bid and asked
prices provided by principal market makers. Options will be valued at market
value or fair value if no market exists. Futures contracts are marked to market
daily, and options thereon are valued at their last sale price, as of the close
of the applicable commodities exchanges. Short-term instruments which mature in
60 days or less are valued at amortized cost, if their original maturity was 60
days or less, or by amortizing their value on the 61st day prior to maturity,
unless the Fund's Manager determines that such valuation does not represent fair
value. The Manager has determined that amortized cost does not represent fair
value regarding certain short-term securities with remaining maturities of 60
days or less. Such securities are valued at market value. Repurchase agreements
will be valued at cost plus accrued interest. Securities or other assets for
which reliable market quotations are not readily available are valued by the
Manager in good faith at fair value in accordance with procedures adopted by the
Board of Directors on the basis of the following factors: cost of the security,
transactions in
B-23
<PAGE>
comparable securities, relationships among various securities and such other
factors as may be determined by the Manager to materially affect the value of
the security.
TAXATION
General. Each Portfolio has elected to qualify and intends to remain
qualified as a regulated investment company under Subchapter M of the
Internal Revenue Code for each taxable year. Accordingly, each Portfolio
must, among other things, (a) derive at least 90% of its gross income
(without offset for losses from the sale or other disposition of securities
or foreign currencies) from dividends, interest, proceeds from loans of
securities and gains from the sale or other disposition of securities or
foreign currencies or other income, including, but not limited to, gains
derived from options and futures on such securities or foreign currencies;
(b) derive less than 30% of its gross income from gains (without offset for
losses) from the sale or other disposition of securities or options thereon
held less than three months; and (c) diversify its holdings so that, at the
end of each fiscal quarter, (i) 50% of the market value of a Portfolio'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 Portfolio's assets and no more than 10% of the outstanding
voting securities of any 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). These requirements may limit the
Portfolio's ability to engage in transactions involving options on
securities, interest rate futures and options thereon.
As a regulated investment company, each Portfolio will not be subject
to federal income tax on its net investment income and capital gains, if
any, that it distributes to its stockholders, provided that it distributes
at least 90% of its net investment income and short-term capital gains
earned in each year. Distributions of net investment income and net short-
term capital gains will be taxable to the stockholder at ordinary income
rates regardless of whether the stockholder receives such distributions in
additional shares or in cash. Distributions of net long-term capital gains,
if any, are taxable as long-term capital gains regardless of how long the
investor has held his or her Fund shares. However, if a stockholder holds
shares in the Portfolio for not more than six months, then any loss
recognized on the sale of such shares will be treated as long-term capital
loss to the extent of any distribution on the shares which was treated as
long-term capital gain. Stockholders will be notified annually by the Fund
as to the federal tax status of distributions made by a Portfolio of the
Fund. A 4% nondeductible excise tax will be imposed on the Portfolio of the
Fund to the extent a Portfolio does not meet certain distribution
requirements by the end of each calendar year. Distributions may be subject
to additional state and local taxes. See "Taxes, Dividends and
Distributions" in the Prospectus.
The per share dividends on Class B and, with respect to the Short-Term
Global Income Portfolio, Class C shares will typically be lower than the
per share dividends and distributions 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 amounts for Class A, Class B and, with respect to the Short-Term
Global Income Portfolio, Class C shares. See "How the Fund Values its
Shares" in the Prospectus. Currently, total operating expenses of the
Global Assets Portfolio are lower for Class B shares than for Class A
shares. See "Fund Expenses" in the Prospectus of the Global Assets
Portfolio.
For federal income tax purposes, the Short-Term Global Income Portfolio had
a capital loss carryforward as of October 31, 1994, of approximately $38,708,000
of which $26,697,000 expires in 2001 and $12,011,000 expires in 2002. For
federal income tax purposes, the Global Assets Portfolio has a capital loss
carryforward as of October 31, 1994 of approximately $10,837,000 of which
$4,584,000 expires in 2000 and $6,253,000 expires in 2001. Accordingly, no
capital gains distributions are expected to be paid to shareholders until future
net gains have been realized in excess of such carryforwards.
Currency Fluctuations. Gains or losses attributable to fluctuations in
exchange rates which occur between the time the Portfolio accrues interest
or other receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time the Portfolio actually collects such
receivables or pays such liabilities are treated as ordinary income or
ordinary loss. Similarly, gains or losses on disposition of debt securities
denominated in a foreign currency attributable to fluctuations in the value
of 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 increase or decrease the amount of the Portfolio's investment
company taxable income available to be distributed to shareholders as
ordinary income, rather than increasing or decreasing the amount of the
Portfolio's net capital gain. If currency fluctuation losses exceed other
investment company taxable income during a taxable year, distributions made
by the Portfolio during the year would be characterized as a return of
capital to shareholders, reducing each shareholder's basis in their shares.
Backup Withholding. With limited exceptions, the Fund is required to
withhold federal income tax at the rate of 31% of all taxable distributions
payable to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certification or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Any amounts withheld may be credited against a shareholder's
federal income tax liability.
B-24
<PAGE>
Other Taxation. Distributions may also be subject to state, local and
foreign taxes depending on each shareholder's particular situation.
Shareholders are advised to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Yield. Each Portfolio may from time to time advertise its "yield" as
calculated over a 30-day period. Yield is determined separately for Class
A, Class B and Class C shares. The yield will be computed by dividing each
Portfolio's net investment income per share earned during this 30-day
period by the offering price on the last day of this period. The average
number of shares used in determining the net investment income per share
will be the average daily number of shares outstanding during the 30-day
period that were eligible to receive dividends. In accordance with SEC
regulations, income will be computed by totaling the interest earned on all
debt obligations during the 30-day period and subtracting from that amount
the total of all expenses incurred during the period, which include
management and distribution fees. The 30-day yield is then annualized on a
bond-equivalent basis assuming semi-annual reinvestment and compounding of
net investment income, as described in the Prospectus. Yields for the Fund
will vary based on a number of factors including changes in net asset
value, market conditions, the level of interest rates and the level of Fund
income and expenses.
With respect to the Short-Term Global Income Portfolio, the yield for the 30
days ended October 31, 1994 was 6.62%, 6.21% and 6.53% for Class A, Class B and
Class C shares, respectively. With respect to the Global Assets Portfolio, the
yield for the 30 days ended October 31, 1994 was 4.37% for Class A shares.
During this period, no Class B shares were outstanding for the Global Assets
Portfolio.
The Portfolio's yield is calculated according to the following formula:
a - b
YIELD = 2 [ (------ + 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.
Average Annual Total Return. Each Portfolio may from time
to time advertise its average annual total return. Average annual total
return is calculated separately for Class A, Class B and, for the Short-
Term Global Income Portfolio, Class C shares. See "How the Fund Calculates
Performance" in the Prospectus. The average annual total returns for the
one year period ended October 30, 1994 and for the period from inception
of the Portfolios were as follows:
Year Ended
October 31,
1994 From Inception
---- --------------
Short-Term Global Income Portfolio-Class A -4.83% 3.21%
Short-Term Global Income Portfolio-Class B -5.62% 2.90%
Short-Term Global Income Portfolio-Class C N.A. -0.25%
Global Assets Portfolio-Class A -0.52% 2.99%
The average annual total return is computed according to the following
formula:
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
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 hypothetical
$1,000 payment made at the beginning of the 1, 5 or 10 year
periods.
Average annual total return does not take into account any federal or
state income taxes that may be payable upon redemption. Average annual
total return takes into account any applicable initial or deferred sales
charges.
Aggregate Total Return. The Portfolio may also advertise
its aggregate total return. Aggregate total return is determined
separately for Class A, Class B and, for the Short-Term Global Income
Portfolio, Class C shares. See "How the Fund Calculates Performance" in
the Prospectus.
B-25
<PAGE>
Aggregate total return represents the cumulative change in the value
of an investment in the Fund and is computed according to the following
formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the 1, 5 or 10 year
periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial
or contingent deferred sales charges.
The aggregate total returns for the one year period ended October 31, 1994
and for the period from inception of the Portfolio were as follows:
Year Ended
October 31,
1994 From Inception
---- --------------
Short-Term Global Income Portfolio-Class A -1.89% 17.00%
Short-Term Global Income Portfolio-Class B -2.62% 13.13%
Short-Term Global Income Portfolio-Class C N.A. 0.75%
Global Assets Portfolio-Class A 0.47% 12.65%
Performance Chart
From time to time, the performance of the Fund may be
measured against various indices. Set forth below is a chart which
compares the performance of different types of investments over the long-
term and the rate of inflation.1
[CHART]
1Source: 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.
B-26
<PAGE>
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.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One,
Edison, New Jersey 08837, serves as the Transfer and Dividend Disbursing
Agent of the Fund. Its mailing address is P.O. Box 15005, New Brunswick,
New Jersey 08906-5005. PMFS 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, PMF
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. For the fiscal year ended October 31, 1994, the Fund incurred
fees of approximately $368,900 for the Short-Term Global Income Portfolio
and $88,200 for the Global Assets Portfolio, for the services of PMFS.
PMFS is also reimbursed for its out-of-pocket expenses, including but not
limited to postage, stationery, printing, allocable communications expenses
and other costs.
Deloitte & Touche LLP, Two World Financial Center, New York, N.Y. 10281,
serves as the Fund's independent accountants and in that capacity audits the
Fund's annual financial statements.
B-27
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL INCOME FUND, INC. Portfolio of Investments
SHORT-TERM GLOBAL INCOME PORTFOLIO October 31, 1994
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--61.7%
Australia--13.5%
Australian Gov't. Bonds,
A$ 10,500# 13.00%, 7/15/96......... $ 8,289,330
New South Wales Treasury
Corp.,
8,000# 8.50%, 3/1/96........... 5,921,098
Victorian Treasury
Corp.,
12,765# 12.50%, 7/15/96......... 9,987,162
Western Australia
Treasury
Corp.,
7,000# 10.00%, 1/15/97......... 5,259,261
------------
29,456,851
------------
Brazil--1.3%
Republic of Brazil,
BRL 3,528 6.06%, 1/1/01........... 2,888,550
------------
Canada--3.1%
Canadian Gov't. Bonds,
C$ 9,000 7.75%, 9/15/96.......... 6,664,904
------------
Denmark--4.2%
Danish Gov't. Bullet,
DKr 53,050 9.00%, 11/15/96......... 9,155,884
------------
France--3.0%
Gov't. of France,
FF 34,000 6.50%, 10/12/96......... 6,521,884
------------
Ireland--2.6%
Irish Gov't. Bonds,
IEP 3,500 9.00%, 7/30/96.......... 5,692,959
------------
Italy--3.0%
Export Finance of
Norway,
Lira 8,000,000 12.25%, 8/5/96.......... 5,291,360
Italian Gov't. BTP,
2,000,000 10.00%, 8/1/96.......... 1,281,500
------------
6,572,860
------------
Mexico--1.5%
Mexican Treasury
Bills,**
MP 13,947# 14.13%, 10/10/96........ $ 3,170,600
------------
Spain--4.3%
Kingdom of Spain,
Pts 1,000,000 11.90%, 7/15/96......... 8,177,941
Nordic Investment Bank,
150,000 13.80%, 11/30/95........ 1,247,907
------------
9,425,848
------------
Sweden--3.0%
Statens Bostad Housing
Fund,
SKr 45,000 12.50%, 1/23/97......... 6,463,944
------------
United Kingdom--16.2%
Bayerische Hypothelsen
Bank,
(BR PD)5,000 11.13%, 6/24/96......... 8,487,924
United Kingdom Treasury
Bonds,
10,350 13.25%, 1/22/97......... 18,569,794
5,000 8.75%, 9/1/97........... 8,223,550
------------
35,281,268
------------
United States--6.0%
Cedulas Hipotecarias
Rurales,
US$ 4,400 7.90%, 9/1/00........... 3,971,000
Republic of Argentina
Bote,
23,000 4.94%, 5/31/96.......... 9,108,000
------------
13,079,000
------------
Total long-term
investments
(cost
US$133,117,733)....... 134,374,552
------------
SHORT-TERM INVESTMENTS--38.6%
Canada--4.1%
Canadian Treasury
Bills,**
C$ 9,640 7.90%, 6/29/95.......... 6,841,845
</TABLE>
See Notes to Financial Statements.
B-28
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL INCOME FUND, INC.
SHORT-TERM GLOBAL INCOME PORTFOLIO
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Canada--cont'd.
Ontario Province
Canada,**
C$ 3,000 6.00%, 3/21/95.......... $ 2,166,712
------------
9,008,557
------------
Mexico--8.3%
Mexican Treasury
Bills,**
MP 6,900# 14.30%, 12/8/94......... 1,980,402
24,500# 14.50%, 12/8/94......... 7,031,863
19,490# 13.20%, 9/7/95.......... 5,062,817
15,288# 13.10%, 9/21/95......... 3,952,223
------------
18,027,305
------------
New Zealand--15.0%
New Zealand Gov't.
Bonds,
NZ$ 26,000 10.00%, 2/15/95......... 16,080,847
New Zealand Treasury
Bills,**
9,000 6.82%, 11/9/94.......... 5,491,066
1,400 7.02%, 11/9/94.......... 854,166
1,500 7.10%, 12/7/94.......... 916,586
15,489 7.56%, 1/11/95.......... 9,388,376
------------
32,731,041
------------
United States--11.2%
Joint Repurchase
Agreement Account,
US$ 8,847 4.77%, 11/1/94 (Note
5).................... 8,847,000
Mexican Tesobonos,**
5,695 8.69%, 7/27/95.......... 5,360,841
2,632 8.35%, 8/3/95........... 2,473,829
8,200 8.41%, 8/17/95.......... 7,681,119
------------
24,362,789
------------
Total short-term
investments
(cost
US$82,568,380)........ 84,129,692
------------
OUTSTANDING OPTIONS
PURCHASED*--0.2%
Currency Call Options
A$ 32,000 Australian Dollars,
expiring 11/23/94
@A$.7413.............. $ 156,768
(YEN) 15,000 Japanese Yen,
expiring 5/5/95
@(YEN)105.50.......... 40,500
------------
197,268
------------
Currency Put Options
(YEN) 12,300 Japanese Yen,
expiring 1/26/95
@(YEN)93.70........... 99,630
------------
Cross-Currency Put Options
5,820
Deutschemarks,
expiring 1/12/95
@DM972.30 per Italian
DM 9,700 Lira..................
15,000 @DM974.16 per Italian
Lira.................. 2,985
27,400 expiring 1/20/95
@DM4.6015 per Swedish
Krona................. 69,048
------------
77,853
------------
Total outstanding
options
purchased
(cost US$1,481,065)... 374,751
------------
Total Investments--100.5%
(cost $217,167,178; Note
4).................... 218,878,995
Liabilities in excess of
other
assets--(0.5)%........ (1,071,128)
------------
Net Assets--100%........ $217,807,867
------------
------------
</TABLE>
- ---------------
Portfolio securities are classified according to the security's
currency denomination.
# Principal amount segregated as collateral for
forward currency contracts. Aggregate value of
segregated securities--$50,654,756.
* Non-income producing security.
** Percentage quoted represents yield to maturity
as of purchase date.
See Notes to Financial Statements.
B-29
<PAGE>
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
(D) Expressed in thousands of local currency units.
See Notes to Financial Statements.
B-30
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL
INCOME FUND, INC.
SHORT-TERM GLOBAL INCOME PORTFOLIO
</TABLE>
<TABLE>
<CAPTION>
October 31, 1994
----------------
<S> <C>
Statement of Assets and Liabilities
Assets
Investments, at value (cost $217,167,178)............................................... $218,878,995
Foreign currency, at value (cost $47,559)............................................... 48,834
Interest receivable..................................................................... 4,029,767
Forward currency contracts--net amount receivable from counterparties................... 2,755,484
Receivable for Fund shares sold......................................................... 28,298
Deferred expenses and other assets...................................................... 49,197
----------------
Total assets........................................................................ 225,790,575
----------------
Liabilities
Forward currency contracts--net amount payable to counterparties........................ 3,754,380
Payable for Fund shares reacquired...................................................... 3,244,590
Dividends payable....................................................................... 385,050
Accrued expenses........................................................................ 271,445
Due to Distributors..................................................................... 128,803
Due to Manager.......................................................................... 105,402
Withholding taxes payable............................................................... 93,038
----------------
Total liabilities................................................................... 7,982,708
----------------
Net Assets.............................................................................. $217,807,867
----------------
----------------
Net assets were comprised of:
Common stock, at par.................................................................. $ 25,452
Paid-in capital in excess of par...................................................... 266,606,388
----------------
266,631,840
Accumulated distributions in excess of net investment income.......................... (10,975,642)
Accumulated net realized loss on investments.......................................... (38,707,984)
Net unrealized appreciation on investments and foreign currencies..................... 859,653
----------------
Net assets, October 31, 1994............................................................ $217,807,867
----------------
----------------
Class A:
Net asset value and redemption price per share
($28,841,436 / 3,369,859 shares of common stock issued and outstanding)............. $8.56
Maximum sales charge (3.00% of offering price)........................................ .26
----------------
Maximum offering price to public...................................................... $8.82
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($188,966,231 / 22,082,197 shares of common stock issued and outstanding)........... $8.56
----------------
----------------
Class C:
Net asset value, offering price and redemption price per share
($200.23 / 23.401 shares of common stock issued and outstanding).................... $8.56
----------------
----------------
</TABLE>
See Notes to Financial Statements.
B-31
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL
INCOME FUND, INC.
SHORT-TERM GLOBAL INCOME PORTFOLIO
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
October 31,
Net Investment Income 1994
------------
<S> <C>
Income
Interest (net of foreign
withholding
taxes of $106,062)............... $ 28,076,745
------------
Expenses
Distribution fee--Class A.......... 57,000
Distribution fee--Class B.......... 2,679,726
Management fee..................... 1,755,285
Custodian's fees and expenses...... 671,000
Transfer agent's fees and
expenses......................... 425,000
Reports to shareholders............ 180,000
Registration fees.................. 58,000
Amortization of organization
expenses......................... 40,000
Audit fee.......................... 35,000
Directors' fees.................... 35,000
Legal.............................. 26,000
Miscellaneous...................... 18,079
------------
Total expenses................... 5,980,090
------------
Net investment income................ 22,096,655
------------
Realized and Unrealized
Gain (Loss) on Investments and
Foreign Currency Transactions
Net realized gain (loss) on:
Investment transactions............ (23,776,265)
Foreign currency transactions...... (13,261,084)
Written option transactions........ 1,595,280
Future transactions................ (8,570)
------------
(35,450,639)
------------
Net change in unrealized
appreciation/
depreciation of:
Investments........................ 7,302,972
Foreign currencies................. (1,578,939)
Written options.................... 44,225
------------
5,768,258
------------
Net loss on investments, foreign
currencies and written options..... (29,682,381)
------------
Net Decrease in Net Assets
Resulting from Operations............ $ (7,585,726)
------------
------------
</TABLE>
PRUDENTIAL SHORT-TERM GLOBAL
INCOME FUND, INC.
SHORT-TERM GLOBAL INCOME PORTFOLIO
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31,
Increase (Decrease) ---------------------------
in Net Assets 1994 1993
------------ ------------
<S> <C> <C>
Operations
Net investment
income................. $ 22,096,655 $ 52,264,411
Net realized loss on
investments and
foreign currency
transactions......... (35,450,639) (52,043,418)
Net change in
unrealized
appreciation/depreciation
of investments and
foreign currencies... 5,768,258 37,156,133
------------ ------------
Net increase (decrease)
in net assets resulting
from operations........ (7,585,726) 37,377,126
------------ ------------
Net equalization
debits................. -- (7,869,071)
------------ ------------
Dividends and distributions (Note 1)
Dividends from net
investment income
Class A.............. -- (4,363,707)
Class B.............. -- (25,199,590)
------------ ------------
-- (29,563,297)
------------ ------------
Tax return of capital
distributions
Class A.............. (2,411,703) --
Class B.............. (15,406,444) --
------------ ------------
(17,818,147) --
------------ ------------
Fund share transactions
(Note 6)
Proceeds from shares
subscribed........... 11,205,281 39,187,479
Net asset value of
shares issued in
reinvestment of
dividends and
distributions........ 10,703,295 17,172,475
Cost of shares
reacquired........... (213,168,513) (330,090,306)
------------ ------------
Net decrease in net
assets from Fund share
transactions........... (191,259,937) (273,730,352)
------------ ------------
Total decrease........... (216,663,810) (273,785,594)
Net Assets
Beginning of year........ 434,471,677 708,257,271
------------ ------------
End of year.............. $217,807,867 $434,471,677
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
B-32
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL INCOME FUND, INC.
SHORT-TERM GLOBAL INCOME PORTFOLIO
Notes to Financial Statements
Prudential Short-Term Global Income Fund, Inc. (the ``Fund'') is registered
under the Investment Company Act of 1940 as a non-diversified, open-end
management investment company. The Fund consists of two series, namely:
Short-Term Global Income Portfolio and Global Assets Portfolio. The Fund was
incorporated in Maryland on February 21, 1990 and had no significant operations
other than the issuance of 5,000 shares each of Class A and Class B common stock
of the Short-Term Global Income Portfolio for $100,000 on September 21, 1990 to
Prudential Mutual Fund Management, Inc. (``PMF''). The Short-Term Global Income
Portfolio (the ``Portfolio'') commenced investment operations on November 1,
1990. The investment objective of the Portfolio is to maximum total return, the
components of which are current income and capital appreciation, by investing
primarily in a portfolio of investment grade debt securities denominated in U.S.
dollar and a range of foreign currencies having remaining maturities of not more
than three years. The ability of the issuers of the debt securities held by the
Fund to meet their obligations may be affected by economic developments in a
specific country or industry.
Note 1. Accounting The following is a summary of
Policies significant accounting policies
followed by the Fund, and the Portfolio in the
preparation of its financial statements.
Securities Valuation: In valuing the Fund's assets, quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
then current currency value. Government securities for which quotations are
available will be based on prices provided by an independent pricing service or
principal market makers. Other portfolio securities that are actively traded in
the over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, will be valued at the average of the
quoted bid and asked prices provided by an independent pricing service or by
principal market makers. Any security for which the primary market is on an
exchange is valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, the last bid price quoted on
such day. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Directors.
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 which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, takes
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing daily rate 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 debt
securities sold during the fiscal year.
Net realized loss on foreign currency transactions represents net foreign
exchange gains or losses from sales and maturities of short-term securities,
holding of foreign currencies, currency gains or losses realized between the
trade and settlement dates on security transactions, and the difference between
the amounts of interest and foreign taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid. Net unrealized
currency gains and losses from valuing foreign currency denominated assets and
liabilities at fiscal year end exchange rates are reflected as a component of
net unrealized appreciation/depreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with
B-33
<PAGE>
those of U.S. companies as a result of, among other factors, the possibility of
political and economic instability and the level of governmental supervision
and regulation of foreign securities markets.
Forward Currency Contracts: 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. A forward contract is a commitment to purchase
or sell a foreign currency at a future date at a negotiated forward rate. The
gain or loss arising from the difference between the settlement value of the
original and renegotiated forward contracts, if any, is isolated and is included
in net realized gain (loss) from foreign currency transactions. Risks may arise
upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
Option Writing: When the Fund writes an option, an amount equal to the
premium received by the Fund is recorded as a liability and is subsequently
adjusted to the current market value of the option written. Premiums received
from writing options which expire unexercised are treated by the Fund on the
expiration date as realized gains from securities or currencies based on the
type of option written. The difference between the premium and the amount paid
on effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security or currency in determining whether the Fund has realized a gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities or currencies purchased by the Fund. The Fund as writer of an option
may have no control over whether the underlying securities or currencies may be
sold (called) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security or currency underlying the
written option.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from security and currency
transactions are calculated on the identified cost basis. 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: The Fund declares daily and pays dividends from
book basis net investment income monthly and makes distributions at least
annually of any net capital gains. Dividends and distributions are recorded on
the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions.
Reclassification of Capital Accounts: The Portfolio accounts and reports
for distributions to shareholders in accordance with Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
effect of applying this statement was to increase accumulated distributions in
excess of net investment income by $27,093,822, decrease accumulated net
realized loss on investments by $23,439,669 and increase paid-in capital by
$3,654,153. This was primarily the result of net foreign currency losses
incurred for the fiscal year ended October 31, 1994. Net investment income, net
realized gains and net assets were not affected by this change. Included in
accumulated distributions in excess of net investment income as of October 31,
1994 is $11,125,103 of equalization debits.
Federal Income Taxes: For federal income tax purposes, each portfolio in
the Fund is treated as a separate taxpaying entity. It is the Portfolio's intent
to continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its taxable income to
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign interest have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules and rates.
Deferred Organization Expenses: Approximately $200,000 of organization and
initial registration costs were incurred. These costs have been deferred and are
being amortized over the period of benefit not to exceed 60 months from the date
the Portfolio commenced investment operations. PMF has agreed not to redeem the
10,000 shares purchased until all organization expenses have been amortized.
B-34
<PAGE>
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 managment of the Fund. PMF
pays for the cost of the subadviser's services, the compensation of officers of
the Fund, occupancy and certain clerical and bookkeeping costs of the Fund. The
Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an
annual rate of .55 of 1% of the average daily net assets of the Portfolio.
The Portfolio 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. The Portfolio
reimburses PMFD and compensates PSI 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''). The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A Plan, the Portfolio reimburses PMFD for its expenses
with respect to Class A shares at an annual rate of up to .30 of 1% of the
average daily net assets of the Class A shares. Such expenses under the Class A
Plan were .15 of 1% of the average daily net assets of the Class A shares for
the fiscal year ended October 31, 1994. PMFD pays various broker-dealers,
including PSI and Pruco Securities Corporation (``Prusec''), affiliated
broker-dealers, for account servicing fees and other expenses incurred by such
broker-dealers.
On July 19, 1994, shareholders of the Portfolio approved amendments to the
Class B distribution plan under which the Class B distribution plan became a
compensation plan, effective August 1, 1994. Prior thereto, the Class B
distribution plan was a reimbursement plan, under which PSI was reimbursed for
expenses actually incurred by it up to the amount permitted under the Class B
Plan. The Portfolio is not obligated to pay any prior or future excess
distribution costs (costs incurred by PSI in excess of distribution fees paid by
the Fund or contingent deferred sales charges received by PSI). The Portfolio
began offering Class C shares on August 1, 1994.
Pursuant to the Class B and C Plans, the Portfolio compensates PSI for
distribution-related activities at an annual rate of up to 1% of the average
daily net assets of both the Class B and C shares. Such expenses under the Class
B Plan were charged at an effective rate of .95 of 1% of the average daily net
assets of the Class B shares for the fiscal year ended October 31, 1994 and are
currently charged at a rate of .75 of 1% of the average daily net assets of the
Class B shares. Such expenses under the Class C Plan were charged at .75 of 1%
of the average daily net assets of the Class C shares for the fiscal year ended
October 31, 1994.
PMFD has advised the Portfolio that it has received approximately $15,000 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended October 31, 1994. From these fees, PMFD paid such sales charges to
dealers which in turn paid commissions to salespersons.
PSI has advised the Portfolio that for the fiscal year ended October 31,
1994, it received approximately $1,291,500 in contingent deferred sales charges
imposed upon certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS'') a
With Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the fiscal year ended October 31, 1994, the Portfolio incurred fees of
approximately $368,900 for the services of PMFS. As of October 31, 1994,
approximately $24,100 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.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments and options, for the fiscal
year ended October 31, 1994 aggregated $595,732,470 and $826,634,833,
respectively.
The United States federal income tax basis of the Fund's investments at
October 31, 1994 was substantially the same as for financial reporting purposes
and, accordingly, net unrealized appreciation of investments, for United States
federal income tax purposes was $1,711,817 (gross unrealized
appreciation--$3,837,980; gross unrealized depreciation--$2,126,163).
For federal income tax purposes, the Portfolio had a capital loss
carryforward as of October 31, 1994, of approximately $38,708,000 of which
$26,697,000 expires in 2001 and $12,011,000 expires in 2002. Accordingly, no
capital gains distributions are expected to be paid to shareholders until future
net gains have been realized in excess of such carryforward.
B-35
<PAGE>
Transactions in options written during the year ended October 31, 1994 were
as follows:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
(000) Received
--------- -----------
<S> <C> <C>
Options outstanding at
October 31, 1993................. 30,500 $ 230,275
Options written.................... 808,475 4,633,666
Options terminated in closing
purchase transactions............ (625,575) (3,723,804)
Options expired.................... (157,600) (593,882)
Options exercised.................. (55,800) (546,255)
--------- -----------
Options outstanding at
October 31, 1994................. -- --
--------- -----------
--------- -----------
</TABLE>
At October 31, 1994, the Portfolio had outstanding forward currency
contracts, both to purchase and sell foreign currencies, as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Purchase Contracts Payable Value (Depreciation)
- ------------------ --------------- ------------ -----------
<S> <C> <C> <C>
Australian
Dollars,
expiring
11/28/94........ $ 10,000,000 $ 10,014,548 $ 14,548
Canadian Dollars,
expiring
11/14/94........ 21,585,502 21,497,829 (87,673)
Deutschemarks,
expiring
11/7-11/30/94... 174,593,203 175,115,626 522,423
Italian Lira,
expiring
12/13/94........ 15,625,681 15,880,098 254,417
Japanese Yen,
expiring
11/7-11/18/94... 34,058,007 34,168,798 110,791
Spanish Pesetas,
expiring
12/22/94........ 13,495,279 13,617,258 121,979
Swedish Krona,
expiring
11/7/94......... 3,997,331 3,911,744 (85,587)
--------------- ------------ -----------
$ 273,355,003 $274,205,901 $ 850,898
--------------- ------------ -----------
--------------- ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciation)
- ------------------ --------------- ------------ -----------
<S> <C> <C> <C>
Australian
Dollars,
expiring
11/28/94-
1/6/95.......... $ 40,376,270 $ 40,538,994 $ (162,724)
Canadian Dollars,
expiring
11/14/94........ 26,000,000 25,941,819 58,181
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciation)
- ------------------ --------------- ------------ -----------
<S> <C> <C> <C>
Deutschemarks,
expiring
11/7-11/30/94... $ 176,275,718 $177,005,919 $ (730,201)
French Francs,
expiring
11/18/94........ 6,574,879 6,548,585 26,294
Italian Lira,
expiring
12/13/94........ 15,544,328 15,880,098 (335,770)
Japanese Yen,
expiring
11/7-11/14/94... 12,814,751 13,054,249 (239,498)
Spanish Pesetas,
expiring
12/22/94........ 17,889,590 18,160,408 (270,818)
Swedish Krona,
expiring
11/7/94......... 11,600,110 11,563,002 37,108
Swiss Francs,
expiring
11/14/94........ 15,173,823 15,406,189 (232,366)
--------------- ------------ -----------
$ 322,249,469 $324,099,263 $(1,849,794)
--------------- ------------ -----------
--------------- ------------ -----------
</TABLE>
Note 5. Joint The Portfolio, along with
Repurchase other affiliated registered
Agreement investment companies, trans-
Account fers 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 October 31, 1994, the
Portfolio has a 0.98% undivided interest in the repurchase agreements in the
joint account. The undivided interest for the Portfolio represents $8,847,000 in
principal amount. As of such date, each repurchase agreement in the joint
account and the value of the collateral therefor were as follows:
Smith Barney, Inc., 4.80%, in the principal amount of $260,000,000,
repurchase price $260,034,667, due 11/1/94. The value of the collateral
including accrued interest is $265,200,122.
Nomura Securities International, Inc., 4.77%, in the principal amount of
$100,000,000, repurchase price $100,013,250, due 11/1/94. The value of the
collateral including accrued interest is $102,000,391.
Goldman, Sachs & Co., 4.75%, in the principal amount of $275,000,000,
repurchase price $275,036,285, due 11/1/94. The value of the collateral
including accrued interest is $280,500,611.
B-36
<PAGE>
CS First Boston Corp., 4.75%, in the principal amount of $265,000,000,
repurchase price $265,034,965, due 11/1/94. The value of the collateral
including accrued interest is $271,053,272.
Note 6. Capital The Portfolio currently offers
Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 3.0%. Class B shares are
sold with a contingent deferred sales charge which declines from 3% 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 five years after purchase commencing in or about February 1995.
The Fund has authorized 1.5 billion shares of common stock at $.001 par value
per share equally divided into Class A, B and C shares. Of the 25,452,079 shares
of common stock issued and outstanding at October 31, 1994, PMF owned 10,000
shares.
Transactions in shares of common stock for the fiscal years ended October 31,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ----------- -------------
<S> <C> <C>
Year ended October 31, 1994:
Shares sold................... 551,897 $ 4,763,324
Shares issued in reinvestment
of
dividends and
distributions............... 194,713 1,743,925
Shares reacquired............. (3,776,033) (34,191,806)
----------- -------------
Net decrease in shares
outstanding................. (3,029,423 $ (27,684,557)
----------- -------------
----------- -------------
Year ended October 31, 1993:
Shares sold................... 2,800,748 $ 25,157,507
Shares issued in reinvestment
of
dividends................... 334,726 3,006,237
Shares reacquired............. (7,797,277) (69,726,785)
----------- -------------
Net decrease in shares
outstanding................. (4,661,803) $ (41,563,041)
----------- -------------
----------- -------------
<CAPTION>
Class B Shares Amount
- ------------------------------ ----------- -------------
<S> <C> <C>
Year ended October 31, 1994:
Shares sold................... 710,218 $ 6,441,757
Shares issued in reinvestment
of
dividends and
distributions............... 1,001,413 8,959,370
Shares reacquired............. (20,015,210) (178,976,707)
----------- -------------
Net decrease in shares
outstanding................. (18,303,579) $(163,575,580)
----------- -------------
----------- -------------
Year ended October 31, 1993:
Shares sold................... 1,558,807 $ 14,029,972
Shares issued in reinvestment
of
dividends................... 1,575,399 14,166,238
Shares reacquired............. (29,032,710) (260,363,521)
----------- -------------
Net decrease in shares
outstanding................. (25,898,504) $(232,167,311)
----------- -------------
----------- -------------
<CAPTION>
Class C
- ------------------------------
<S> <C> <C>
August 1, 1994* through
October 31, 1994:
Shares sold................... 23 $ 200
----------- -------------
Increase in shares
outstanding................. 23 $ 200
----------- -------------
----------- -------------
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
B-37
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL INCOME FUND, INC.
SHORT-TERM GLOBAL INCOME PORTFOLIO
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B Class C
---------------------------------------------- ---------------------------------------------- ----------
August 1,
1994(D)
through
Year Ended October 31, Year Ended October 31, October
---------------------------------------------- ---------------------------------------------- 31,
1994 1993 1992 1991 1994 1993 1992 1991 1994
---------- -------- -------- -------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period........ $ 9.29 $ 9.16 $ 9.97 $ 10.00 $ 9.29 $ 9.16 $ 9.97 $ 10.00 $ 8.61
---------- -------- -------- -------- ---------- -------- -------- -------- ------
Income from
investment
operations
Net investment
income........ .70 .97 .96 1.03 .62 .88 .88 .95 .14
Net realized and
unrealized
gain (loss) on
investment and
foreign
currency
transactions... (.86) (.26) (.95) (.02) (.86) (.26) (.95) (.02) (.06)
---------- -------- -------- -------- ---------- -------- -------- -------- -----
Total from
investment
operations... (.16) .71 .01 1.01 (.24) .62 (.07) .93 .08
---------- -------- -------- -------- ---------- -------- -------- -------- -----
Less
distributions
Dividends from
net investment
income........ -- (.58) (.82) (1.03) -- (.49) (.74) (.95) --
Tax return of
capital
distributions... (.57) -- -- -- (.49) -- -- -- (.13)
Distributions
from net
capital
gains......... -- -- -- (.01) -- -- -- (.01) --
---------- -------- -------- -------- ---------- -------- -------- -------- -----
Total
distributions... (.57) (.58) (.82) (1.04) (.49) (.49) (.74) (.96) (.13)
---------- -------- -------- -------- ---------- -------- -------- -------- -----
Net asset value,
end of
period........ $ 8.56 $ 9.29 $ 9.16 $ 9.97 $ 8.56 $ 9.29 $ 9.16 $ 9.97 $ 8.56
---------- -------- -------- -------- ---------- -------- -------- -------- -----
---------- -------- -------- -------- ---------- -------- -------- -------- -----
TOTAL
RETURN#:...... (1.89)% 7.96% (0.07)% 10.41% (2.62)% 7.00% (0.86)% 9.51% 0.75%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period
(000)......... $28,841 $59,458 $101,358 $105,148 $188,966 $375,013 $606,899 $669,086 $200@
Average net
assets
(000)......... $38,000 $70,347 $119,171 $51,830 $281,143 $474,175 $814,734 $349,607 $199@
Ratios to average net
assets:(D)(D)
Expenses,
including
distribution
fees........ 1.17% 1.02% 1.08% 1.01% 1.97% 1.87% 1.93% 1.87% .93%*
Expenses,
excluding
distribution
fees........ 1.02% .87% .93% .86% 1.02% .87% .93% .87% .18%*
Net investment
income...... 7.67% 10.81% 9.93% 10.23% 6.82% 9.42% 9.05% 9.46% 7.02%*
Portfolio
turnover
rate.......... 232% 307% 180% 66% 232% 307% 180% 66% 232%
</TABLE>
- ---------------
* Annualized.
(D) Commencement of offering of Class C shares.
(D)(D) Because of the event referred to in (D) and the timing of such, the
ratios for the Class C shares are not necessarily comparable to that of
Class A or B shares and are not necessarily indicative of future ratios.
@ Figures are actual and not rounded to the nearest thousand.
# 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.
See Notes to Financial Statements.
B-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Prudential Short-Term Global Income Fund, Inc.
Short-Term Global Income Portfolio
We have audited the accompanying statement of assets and liabilities of
Prudential Short-Term Global Income Fund, Inc., Short-Term Global Income
Portfolio, including the portfolio of investments, as of October 31, 1994, the
related statements of operations for the year then ended and of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the four years in the period then ended. 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 as of
October 31, 1994 by correspondence with the custodian. 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
Short-Term Global Income Fund, Inc., Short-Term Global Income Portfolio, as of
October 31, 1994, the results of its operations, the changes in its net assets
and its financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
December 16, 1994
B-39
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL INCOME FUND, INC. Portfolio of Investments
GLOBAL ASSETS PORTFOLIO October 31, 1994
<TABLE>
<CAPTION>
Principal US$ Principal US$
Amount Value Amount Value
(000) Description (Note 1) (000) Description (Note 1)
<C> <S> <C>
SHORT-TERM INVESTMENTS--101.6%
Australia--5.3%
South Australia Finance
Auth.,
A$ 3,500 13.00%, 7/15/95.......... $ 2,691,902
-----------
Canada--4.2%
Canadian Treasury
Bills,**
C$ 1,000 7.83%, 6/29/95........... 709,735
2,000 6.90%, 8/10/95........... 1,407,119
-----------
2,116,854
-----------
Italy--3.9%
General Electric Capital
Corp.,
Lira 3,000,000 11.50%, 2/7/95........... 1,956,318
-----------
Mexico--9.8%
Mexican Cetes,**
MP 3,500 14.50%, 12/8/94.......... 1,003,983
10,773 13.20%, 8/17/95.......... 2,818,954
510 13.20%, 9/7/95........... 132,480
3,822 13.10%, 9/21/95.......... 988,057
-----------
4,943,474
-----------
New Zealand--17.1%
New Zealand Treasury
Bills,**
NZ$ 10,500 7.45%, 12/19/94.......... 6,399,163
3,668 7.56%, 1/11/95........... 2,223,291
-----------
8,622,454
-----------
Spain--4.2%
Kingdom of Spain,**
Pts 265,000 11.40%, 7/15/95.......... 2,144,717
-----------
United States--57.1%
Fuji Bank, Ltd., C.P.,
US$ 4,000 4.84%, 11/1/94........... 4,000,000
Joint Repurchase
Agreement Account,
4.77%, 11/1/94 (Note
US$ 9,966 5)..................... $ 9,966,000
Mexican Tesobonos,**
2,078 7.10%, 11/10/94.......... 2,075,507
3,156 8.45%, 7/27/95........... 2,970,819
2,000 8.41%, 8/17/95........... 1,873,443
Mitsubishi Bank, Ltd.,
C.P.,
4,000 4.88%, 11/1/94........... 4,000,000
Wal-Mart Stores Inc.,
C.P.,
4,000 4.75%, 11/2/94........... 3,999,472
-----------
28,885,241
-----------
Total short-term
investments
(cost US$51,095,673)... 51,360,960
-----------
<CAPTION>
OUTSTANDING OPTIONS
Contracts(D) PURCHASED*--0.2%
- ------------
<C> <S> <C>
Currency Call Options
Australian Dollars,
A$ 7,700 expiring 11/23/94
@ A$0.7413............. 37,722
Japanese Yen,
(YEN) 3,600 expiring 5/5/95
@ (YEN)105.50.......... 9,720
Currency Put Options
Japanese Yen,
(YEN) 2,900 expiring 1/26/95
@ (YEN)93.70........... 23,490
Cross-Currency Put
Options
Deutschemarks,
expiring 1/12/95
@ DM 972.30 per Italian
DM 2,700 Lira................... 1,620
@ DM 974.16 per Italian
3,700 Lira................... 737
</TABLE>
See Notes to Financial Statements.
B-40
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL INCOME FUND, INC.
GLOBAL ASSETS PORTFOLIO
<TABLE>
<CAPTION>
US$
Value
Contracts(D) Description (Note 1)
<C> <S> <C>
Cross-Currency Put
Options--cont'd.
Deutschemarks,
expiring 1/20/95
DM 7,600 @ DM 4.6015
per Swedish Krona...... $ 19,152
-----------
Total outstanding options
purchased (cost
US$377,947)............ 92,441
-----------
Total Investments--101.8%
(cost $51,473,620; Note
4)..................... 51,453,401
Liabilities in excess of
other assets--(1.8%)... (916,021)
-----------
Net Assets--100%......... $50,537,380
-----------
-----------
</TABLE>
- ------------------
Portfolio securities are classified by country according to the
security's currency denomination.
C.P.--Commercial Paper
* Non-income producing security.
** Percentage quoted represents yield to maturity as of purchase date.
(D) Expressed in thousands of local currency units.
See Notes to Financial Statements.
B-41
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL
INCOME FUND, INC.
GLOBAL ASSETS PORTFOLIO
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets October 31, 1994
----------------
<S> <C>
Investments, at value (cost $51,473,620)................................................ $ 51,453,401
Cash.................................................................................... 29,306
Foreign currency, at value (cost $3,769)................................................ 3,790
Forward currency contracts--net amount receivable from counterparties................... 647,171
Interest receivable..................................................................... 338,383
Deferred expenses and other assets...................................................... 13,341
----------------
Total assets.......................................................................... 52,485,392
----------------
Liabilities
Payable for Fund shares reacquired...................................................... 964,012
Forward currency contracts--net amount payable to counterparties........................ 710,661
Accrued expenses........................................................................ 147,027
Dividends payable....................................................................... 69,065
Due to Manager.......................................................................... 24,747
Due to Distributor...................................................................... 22,497
Withholding taxes payable............................................................... 10,003
----------------
Total liabilities..................................................................... 1,948,012
----------------
Net Assets.............................................................................. $ 50,537,380
----------------
----------------
Net assets were comprised of:
Common stock, at par.................................................................. $ 28,039
Paid-in capital in excess of par...................................................... 66,031,930
----------------
66,059,969
Accumulated distributions in excess of net investment income.......................... (4,612,582)
Accumulated net realized loss on investments.......................................... (10,836,547)
Net unrealized depreciation on investments and foreign currencies..................... (73,460)
----------------
Net assets, October 31, 1994............................................................ $ 50,537,380
----------------
----------------
Class A:
Net asset value and redemption price per share ($50,537,380 / 28,039,288 shares of
common stock
issued and outstanding)............................................................. $1.80
Maximum sales charge (.99% of offering price)......................................... .02
----------------
Maximum offering price to public...................................................... $1.82
----------------
----------------
</TABLE>
See Notes to Financial Statements.
B-42
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL
INCOME FUND, INC.
GLOBAL ASSETS PORTFOLIO
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
October 31,
Net Investment Income 1994
--------------
<S> <C>
Income
Interest........................... $ 4,813,682
--------------
Expenses
Management fee..................... 453,970
Distribution fee--Class A.......... 411,334
Custodian's fees and expenses...... 303,000
Transfer agent's fees and
expenses........................... 97,000
Reports to shareholders............ 36,000
Directors' fees.................... 35,000
Legal fees......................... 27,000
Audit fee.......................... 25,000
Registration fees.................. 22,000
Amortization of organization
expenses........................... 12,000
Miscellaneous...................... 13,517
--------------
Total expenses................... 1,435,821
--------------
Net investment income................ 3,377,861
--------------
Realized and Unrealized
Gain (Loss) on Investments and
Foreign Currency Transactions
Net realized gain (loss) on:
Investment transactions............ (1,211,080)
Foreign currency transactions...... (2,748,152)
Written option transactions........ 420,651
--------------
(3,538,581)
--------------
Net change in unrealized
appreciation/ depreciation of:
Investments........................ (132,005)
Foreign currencies................. 658,538
Written options.................... 13,775
--------------
540,308
--------------
Net loss on investments, foreign
currencies and written options..... (2,998,273)
--------------
Net Increase in Net Assets
Resulting from Operations............ $ 379,588
--------------
--------------
</TABLE>
PRUDENTIAL SHORT-TERM GLOBAL
INCOME FUND, INC.
GLOBAL ASSETS PORTFOLIO
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31,
Net Increase (Decrease) -------------------------------
in Net Assets 1994 1993
-------------- -------------
<S> <C> <C>
Operations
Net investment
income................. $ 3,377,861 $ 14,327,588
Net realized loss on
investments and
foreign currency
transactions......... (3,538,581) (21,161,713)
Net change in
unrealized
appreciation/depreciation
of investments and
foreign currencies... 540,308 17,158,011
-------------- -------------
Net increase in net
assets resulting from
operations........... 379,588 10,323,886
-------------- -------------
Contingent deferred sales
charges collected (Note
2)..................... 8,161 25,932
-------------- -------------
Net equalization
debits................. -- (3,675,103)
-------------- -------------
Dividends and
distributions (Note 1)
Dividends from net
investment income
Class A.............. -- (3,217,487)
Class B.............. -- (1,053,946)
-------------- -------------
-- (4,271,433)
-------------- -------------
Dividends in excess of
net investment income
Class A.............. (117,091) --
Class B.............. (411) --
-------------- -------------
(117,502) --
-------------- -------------
Tax return of capital
distributions
Class A.............. (3,826,815) (4,026,397)
Class B.............. (13,439) (1,318,920)
-------------- -------------
(3,840,254) (5,345,317)
-------------- -------------
Fund share transactions
(Note 6)
Net proceeds from
shares subscribed.... 4,822,020 169,695,598
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 2,685,643 5,821,978
Cost of shares
reacquired............. (82,912,800) (356,365,191)
-------------- -------------
Net decrease in net
assets from Fund
share transactions... (75,405,137) (180,847,615)
-------------- -------------
Total decrease........... (78,975,144) (183,789,650)
Net Assets
Beginning of year........ 129,512,524 313,302,174
-------------- -------------
End of year.............. $ 50,537,380 $ 129,512,524
-------------- -------------
-------------- -------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
B-43
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL INCOME FUND, INC.
GLOBAL ASSETS PORTFOLIO
Notes to Financial Statements
Prudential Short-Term Global Income Fund, Inc. (the ``Fund''), registered
under the Investment Company Act of 1940 as a non-diversified, open-end
management investment company, was incorporated in Maryland on February 21,
1990. The Fund consists of two series, namely: Short-Term Global Income
Portfolio and Global Assets Portfolio. The Global Assets Portfolio (the
``Portfolio'') commenced investment operations on February 15, 1991. The
investment objective of the Portfolio is to seek high current income with
minimum risk to principal, by investing primarily in high-quality debt
securities in the U.S. and abroad having remaining maturities of not more than
one year. The ability of the issuers of the debt securities held by the Fund to
meet their obligations may be affected by economic developments in a specific
country or industry.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Portfolio in
the preparation of its financial statements.
Securities Valuation: In valuing the Fund's assets, quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
then current exchange rate. Government securities for which quotations are
available will be based on prices provided by an independent pricing service or
principal market makers. Other portfolio securities that are actively traded in
the over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, will be valued at the average of the
quoted bid and asked prices provided by an independent pricing service or by
principal market makers. Any security for which the primary market is on an
exchange is valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, the last bid price quoted on
such day. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Directors.
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 which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, takes
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing daily rate 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 debt securities sold
during the fiscal year.
Net realized loss on foreign currency transactions represents net foreign
exchange gains or losses from sales and maturities of short-term securities,
holding of foreign currencies, currency gains or losses realized between the
trade and settlement dates on security transactions, and the difference between
the amounts of interest and foreign taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid. Net unrealized
currency gains and losses from valuing foreign currency denominated assets and
liabilities at fiscal year end exchange rates are reflected as a component of
net unrealized appreciation/depreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. companies as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
B-44
<PAGE>
Forward Currency Contracts: 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. A forward contract is a commitment to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the settlement value of the original
and renegotiated forward contracts, if any, is isolated and is included in net
realized gain (loss) from foreign currency transactions. Risks may arise upon
entering into these contracts from the potential inability of the counterparties
to meet the terms of their contracts.
Option Writing: When the Fund writes an option, an amount equal to the
premium received by the Fund is recorded as a liability and is subsequently
adjusted to the current market value of the option written. Premiums received
from writing options which expire unexercised are treated by the Fund on the
expiration date as realized gains from securities or currencies based on the
type of option written. The difference between the premium and the amount paid
on effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security or currency in determining whether the Fund has realized a gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities or currencies purchased by the Fund. The Fund as writer of an option
may have no control over whether the underlying securities or currencies may be
sold (called) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security or currency underlying the
written option.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from security and currency
transactions are calculated on the identified cost basis. Interest income is
recorded on the accrual basis.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses were allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
As of October 31, 1994, there are no Class B shares outstanding (see Note 6).
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: The Fund declares daily and pays dividends from
book basis net investment income monthly and makes distributions at least
annually of any net capital gains. Dividends and distributions are recorded on
the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions.
Reclassification of Capital Accounts: The Portfolio accounts and reports
for distributions to shareholders in accordance with Statement of Position 93-2;
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
effect of applying this statement was to increase accumulated distributions in
excess of net investment income by $3,316,665, decrease accumulated net realized
loss on investments by $3,656,083 and decrease paid-in capital by $339,418. This
was primarily the result of net foreign currency losses incurred for the fiscal
year ended October 31, 1994. Net investment income, net realized gains and net
assets were not affected by this change. Included in accumulated distributions
in excess of net investment income as of October 31, 1994 is $4,505,980 of
equalization debits.
Federal Income Taxes: For federal income tax purposes, each portfolio in
the Fund is treated as a separate taxpaying entity. It is the Portfolio's intent
to continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its taxable income to
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign interest have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules and rates.
Deferred Organization Expenses: Approximately $60,000 of organization and
initial registration costs were incurred. These costs have been deferred and are
being amortized over the period of benefit not to exceed 60 months from the date
the Portfolio commenced investment operations.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this
B-45
<PAGE>
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 managment of the
Fund. PMF pays for the cost of the subadviser's services, the compensation of
officers of the Fund, occupancy and certain clerical and bookkeeping costs of
the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an
annual rate of .55 of 1% of the average daily net assets of the Portfolio.
The Portfolio has a distribution agreement with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Portfolio. The Portfolio compensates PMFD for distributing and
servicing the Portfolio's Class A shares, pursuant to a plan of distribution,
regardless of expenses actually incurred by PMFD. The distribution fees are
accrued daily and payable monthly.
On July 19, 1994, shareholders of the Portfolio approved amendments to the
Class A distribution plan under which the Class A distribution plan became a
compensation plan, effective August 1, 1994. Prior thereto, the Class A
distribution plan was a reimbursement plan, under which PMFD was reimbursed for
expenses actually incurred by it up to the amount permitted under the Class A
Plan. The Portfolio is not obligated to pay any prior or future excess
distribution costs (costs incurred by PMFD in excess of distribution fees paid
by the Portfolio or contingent deferred sales charges received by PMFD). The
rate of the distribution fees charged to Class A shares of the Portfolio did not
change under the amended plan of distribution.
Pursuant to the Class A Plan, the Portfolio compensates PMFD for
distribution-related activities at an annual rate of up to .50 of 1% of the
average daily net assets of the Class A shares.
PMFD has advised the Portfolio that it has received approximately $24,100 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended October 31, 1994. From these fees, PMFD paid such sales charges to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
As of May 10, 1994, there are no Class B shares outstanding. Prior thereto,
the Portfolio reimbursed Prudential Securities Incoporated (``PSI'') for its
distribution-related expenses with respect to Class B shares, at an annual rate
of up to 1% of the average daily net assets of the Class B shares.
There were no distribution costs incurred nor reimbursable under the Class B
Plan for the fiscal year ended October 31, 1994. All contingent deferred sales
charges collected on the redemption of Class B shares were retained and credited
to the Fund's Class B shares paid-in capital account.
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 and
during the fiscal year ended October 31, 1994, the Portfolio incurred fees of
approximately $88,200 for the services of PMFS. As of October 31, 1994,
approximately $4,200 of such fees were due to PMFS for its services. Transfer
sgent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to non-affiliates.
Note 4. Portfolio The federal income tax basis
Securities of the Portfolio's investments
at October 31, 1994 was substantially the same as
the basis for financial reporting purposes and, accordingly, net unrealized
depreciation for federal income tax purposes was $20,219 (gross unrealized
appreciation--$390,534; gross unrealized depreciation--$410,753).
For federal income tax purposes, the Portfolio has a capital loss
carryforward as of October 31, 1994 of approximately $10,837,000 of which
$4,584,000 expires in 2000 and $6,253,000 expires in 2001. Such carryforward is
after utilization of approximately $118,000 to offset net taxable gains realized
during the fiscal year ended October 31, 1994. Accordingly, no capital gains
distributions are expected to be paid to shareholders until future net gains
have been realized in excess of such carryforward.
Transactions in options written during the fiscal year ended October 31, 1994
were as follows:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
(000) Received
--------- ----------
<S> <C> <C>
Options outstanding at
October 31, 1993................ 9,500 $ 71,725
Options written................... 194,486 1,232,665
Options terminated in closing
purchase transactions........... (147,586) (989,488)
Options expired................... (39,000) (146,797)
Options exercised................. (17,400) (168,105)
--------- ----------
Options outstanding at
October 31, 1994................ -- $ --
--------- ----------
--------- ----------
</TABLE>
B-46
<PAGE>
At October 31, 1994, the Portfolio had outstanding forward currency
contracts, both to purchase and sell foreign currencies, as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Purchase Contracts Payable Value (Depreciation)
- ----------------------- --------------- ----------- --------------
<S> <C> <C> <C>
Australian Dollars,
expiring 11/28/94.... $ 1,500,000 $ 1,502,182 $ 2,182
British Pounds,
expiring 11/8/94..... 3,787,934 3,803,715 15,781
Canadian Dollars,
expiring 11/14/94.... 3,839,874 3,824,278 (15,596)
Deutschemarks,
expiring
11/7-11/30/94........ 43,549,474 43,744,309 194,835
Italian Lira,
expiring 12/13/94.... 5,582,088 5,604,324 22,236
Japanese Yen, expiring
11/7-11/18/94........ 8,071,856 8,098,057 26,201
--------------- ----------- --------------
$ 66,331,226 $66,576,865 $ 245,639
--------------- ----------- --------------
--------------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciation)
- --------------------- --------------- ----------- --------------
<S> <C> <C> <C>
Australian Dollars,
expiring
11/28/94-1/6/95.... $ 4,292,121 $ 4,305,984 $ (13,863)
Canadian Dollars,
expiring 11/14/94.. 3,340,000 3,333,068 6,932
Deutschemarks,
expiring
11/7-11/30/94...... 36,905,323 36,987,699 (82,376)
Italian Lira,
expiring 12/13/94.. 4,893,603 5,004,106 (110,503)
Japanese Yen,
expiring
11/7/94-11/14/94... 3,027,086 3,083,844 (56,758)
Spanish Pesetas
expiring 12/22/94.. 1,795,479 1,790,831 4,648
Swedish Krona,
expiring 11/7/94... 267,059 266,205 854
Swiss Francs,
expiring 11/14/94.. 3,000,000 3,058,063 (58,063)
--------------- ----------- --------------
$ 57,520,671 $57,829,800 $ (309,129)
--------------- ----------- --------------
--------------- ----------- --------------
</TABLE>
Note 5. Joint The Portfolio, along with
Repurchase other affiliated registered
Agreement investment companies, trans-
Account fers uninvested cash balances
into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or Federal agency obligations. At October 31, 1994, the Fund
had a 1.11% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represented $9,966,000 in principal
amount. As of such date, each repurchase agreement in the joint account and the
value of the collateral therefor were as follows:
Smith Barney, Inc., 4.80%, in the principal amount of $260,000,000,
repurchase price $260,034,667, due 11/1/94. The value of the collateral
including accrued interest is $265,200,122.
Nomura Securities International, Inc., 4.77%, in the principal amount of
$100,000,000, repurchase price $100,013,250, due 11/1/94. The value of the
collateral including accrued interest is $102,000,391.
Goldman, Sachs & Co., 4.75%, in the principal amount of $275,000,000,
repurchase price $275,036,285, due 11/1/94. The value of the collateral
including accrued interest is $280,500,611.
CS First Boston Corp., 4.75%, in the principal amount of $265,000,000,
repurchase price $265,034,965, due 11/1/94. The value of the collateral
including accrued interest is $271,053,272.
Note 6. Capital The Portfolio currently offers
only Class A shares which are sold with a
front-end sales charge of up to .99%. The Portfolio discontinued offering Class
B shares on April 14, 1993. Class B shares automatically converted to Class A
shares upon being held longer than one year from the date of purchase. Effective
May 10, 1994, the remaining Class B shares converted to Class A shares. There
are 500 million authorized shares of $.001 par value common stock divided into
two classes, designated Class A and Class B common stock, each of which consists
of 250 million authorized shares.
B-47
<PAGE>
Transactions in shares of common stock for the fiscal years ended October 31,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------- ------------ -------------
<S> <C> <C>
Year ended October 31, 1994:
Shares sold................. 1,787,071 $ 3,241,520
Shares sold--conversion from
Class B................... 844,439 1,580,500
Shares issued in
reinvestment of
dividends................. 1,447,695 2,676,200
Shares reacquired........... (43,793,517) (80,885,842)
------------ -------------
Net decrease in shares
outstanding............... (39,714,312) $ (73,387,622)
------------ -------------
------------ -------------
Year ended October 31, 1993:
Shares sold................. 6,064,340 $ 11,274,743
Shares sold--conversion from
Class B................... 83,379,084 154,875,114
Shares issued in
reinvestment of dividends
and distributions......... 2,229,981 4,138,266
Shares reacquired........... (83,960,705) (155,987,024)
------------ -------------
Net increase in shares
outstanding............... 7,712,700 $ 14,301,099
------------ -------------
------------ -------------
<CAPTION>
Class B Shares Amount
- ---------------------------- ------------ -------------
<S> <C> <C>
Year ended October 31, 1994:
Shares issued in
reinvestment of
dividends................. 4,960 $ 9,443
Shares reacquired........... (236,484) (446,458)
Shares
reacquired--conversion
into Class A.............. (831,163) (1,580,500)
------------ -------------
Net decrease in shares
outstanding............... (1,062,687) $ (2,017,515)
------------ -------------
------------ -------------
Year ended October 31, 1993:
Shares sold................. 1,902,610 $ 3,545,741
Shares issued in
reinvestment of dividends
and distributions......... 903,347 1,683,712
Shares reacquired........... (24,366,585) (45,503,053)
Shares
reacquired--conversion
into Class A.............. (83,275,750) (154,875,114)
------------ -------------
Net decrease in shares
outstanding............... (104,836,378) $(195,148,714)
------------ -------------
------------ -------------
</TABLE>
B-48
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL INCOME FUND, INC.
GLOBAL ASSETS PORTFOLIO
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------------- ---------------------------------------------------
February 15, November 1, February 15,
Year Ended 1991* 1993 Year Ended 1991*
October 31, through through October 31, through
------------------------------- October 31, May 9, ------------------- October 31,
1994 1993 1992 1991 1994@ 1993 1992 1991
------- -------- -------- ------------ ----------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period... $ 1.88 $ 1.89 $ 2.00 $ 2.00 $1.90 $ 1.89 $ 2.00 $ 2.00
------- -------- -------- ------------ ----------- ------- -------- ------------
Income from investment operations
Net investment income... .08 .12 .16 .12(D) .04 .12 .15 .11(D)
Net realized and
unrealized gain (loss)
on investment and
foreign currency
transactions.......... (.07) (.04) (.13) -- (.03) (.04) (.13) --
------- -------- -------- ------------ ----------- ------- -------- ------------
Total from investment
operations.......... .01 .08 .03 .12 .01 .08 .02 .11
------- -------- -------- ------------ ----------- ------- -------- ------------
Less distributions
Dividends from net
investment
income................ -- (.04) (.14) (.12) -- (.04) (.13) (.11)
Tax return of capital
distributions......... (.09) (.05) -- -- (.05) (.05) -- --
------- -------- -------- ------------ ----------- ------- -------- ------------
Total distributions... (.09) (.09) (.14) (.12) (.05) (.09) (.13) (.11)
------- -------- -------- ------------ ----------- ------- -------- ------------
Contingent deferred
sales charges
collected............. -- -- -- -- .03 .02 -- --
------- -------- -------- ------------ ----------- ------- -------- ------------
Net asset value, end of
period................ $ 1.80 $ 1.88 $ 1.89 $ 2.00 $1.89 $ 1.90 $ 1.89 $ 2.00
------- -------- -------- ------------ ----------- ------- -------- ------------
------- -------- -------- ------------ ----------- ------- -------- ------------
TOTAL RETURN#:.......... 0.47% 4.36% 1.46% 5.91% 2.33% 5.47% 0.94% 5.53%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000).......... $50,537 $127,490 $113,412 $ 86,443 $0 $ 2,023 $199,890 $ 134,015
Average net assets
(000)................. $82,267 $153,339 $138,331 $ 23,224 $ 525 $52,653 $248,941 $ 42,449
Ratios to average net
assets:@@
Expenses, including
distribution fees... 1.73% 1.48% 1.33% 1.25%(D)** 1.21%** 1.61% 1.83% 1.75%(D)**
Expenses, excluding
distribution fees... 1.23% .98% .83% .75%(D)** 1.21%** .98% .83% .75%(D)**
Net investment
income.............. 4.09% 6.44% 8.16% 8.64%(D)** 4.48%** 6.31% 7.66% 8.21%(D)**
<FN>
- ---------------
* Commencement of investment operations.
** Annualized.
# Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase
of shares on the first day and a sale on the last day of each period reported and includes reinvestment
of dividends. Total returns for periods of less than a full year are not annualized.
(D) Net of expense subsidy.
@ Last day of investment operations of Class B shares. On May 10, 1994, all existing Class B shares were
converted to Class A shares.
@@ Because of the events referred to in @ and the timing of such, the Class B shares ratios for the most
recent period are not necessarily comparable to that of Class A shares.
</TABLE>
See Notes to Financial Statements.
B-49
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
We have audited the accompanying statement of assets and liabilities of
Prudential Short-Term Global Income Fund, Inc., Global Assets Portfolio,
including the portfolio of investments, as of October 31, 1994, the related
statements of operations for the year then ended and of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the three years in the period then ended and for the period February
15, 1991 (commencement of investment operations) to October 31, 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 as of
October 31, 1994 by correspondence with the custodian. 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
Short-Term Global Income Fund, Inc., Global Assets Portfolio, as of October 31,
1994, the results of its operations, the changes in its net assets and its
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
December 16, 1994
B-50
