As filed with the Securities and Exchange Commission on December 29, 1997
Registration Nos. 33-33479
811-6048
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 12 /X/
-and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 14 /X/
(Check appropriate box or boxes)
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PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 Mulberry Street, 9th Floor
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (973) 367-7530
S. Jane Rose, Esq.
Gateway Center Three (GC3)
100 Mulberry Street, 9th Floor
Newark, New Jersey 07102-4077
(Name and Address of Agent for Service)
Approximate date of proposed public offering:
As soon as practicable after the effective date of the Registration Statement.
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It is proposed that this filing will become effective (check appropriate box):
/ /immediately upon filing pursuant to paragraph (b)
/X/on December 30, 1997 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a) (i)
/ /75 days after filing pursuant to paragraph (b)
/ /on (date) pursuant to paragraph (a)(ii) of Rule 485 If appropriate, check the
following box:
/ /this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered ..Shares of Common Stock, Par Value $.001
per share.
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<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
Location
N-1A Item No. --------
<S> <C> <C>
Part A
Item 1. Cover Page ......................................................... Cover Page
Item 2. Synopsis ......................................................... Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information .................................... Fund Expenses; Financial Highlights;
How the Fund Calculates Performance
Item 4. General Description of Registrant ................................. Cover Page; Fund Highlights; How the
Fund Invests; General Information
Item 5. Management of the Fund ............................................. Financial Highlights; How the Fund is
Managed; General Information;
Shareholder Guide
Item 5A. Management's Discussion of Fund Performance ........................ Financial Highlights
Item 6. Capital Stock and Other Securities ................................. Taxes, Dividends and Distributions
General Information; Shareholder Guide
Item 7. Purchase of Securities Being Offered .............................. Sharholder Guide; How the Fund
Values its Shares; How the Fund is
Managed
Item 8. Redemption or Repurchase .......................................... Shareholder Guide; How the Fund
Values its Shares
Item 9. Pending Legal Proceedings .......................................... Not Applicable
Part B
Item 10. Cover Page ......................................................... Cover Page
Item 11. Table of Contents ................................................ Table of Contents
Item 12. General Information and History .................................... General Information
Item 13. Investment Objectives and Policies ................................. Additional Investment Information;
Investment Restrictions
Item 14. Management of the Fund ............................................. Directors and Officers; Manager;
Distributor
Item 15. Control Persons and Principal Holders of Securities ............... Directors and Officers
Item 16. Investment Advisory and Other Services ........................... Manager; Distributor; Custodian;
Transfer and Dividend Disbursing
Agent and Independent Accountants
Item 17. Brokerage Allocation and Other Practices ........................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities ................................. Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Offered ...... Purchase and Redemption of Fund
Shares; Shareholder Investment
Account; Net Asset Value
Item 20. Tax Status ......................................................... Taxes, Dividends and Distributions
Item 21. Underwriters ...................................................... Distributor
Item 22. Calculation of Performance Data .................................... Performance Information
Item 23. Financial Statements ............................................. Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
(LIMITED MATURITY PORTFOLIO)
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PROSPECTUS DATED DECEMBER 30, 1997
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Prudential Global Limited Maturity Fund, Inc. is an open-end, management
investment company, or mutual fund, which is currently comprised of one
portfolio, the Limited Maturity Portfolio (the Fund). The Fund's investment
objective is to maximize total return, the components of which are current
income and capital appreciation. The Fund seeks to achieve its objective by
investing primarily in a portfolio of investment grade debt securities,
maintaining a weighted average maturity of more than 2, but less than 5, years,
with the maturity for any individual security generally not exceeding 10 years.
The Fund seeks to maximize total return by investing in debt securities
denominated in the U.S. dollar and a range of foreign currencies. THE FUND 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 FUND MAY INVEST UP TO 20% OF ITS TOTAL ASSETS IN NON-INVESTMENT GRADE
SECURITIES, WHICH MAY ENTAIL ADDITIONAL RISKS. The Fund may also engage in
various hedging and return enhancement strategies, including derivative
transactions, such as those involving the purchase and sale of put and call
options on foreign currencies and futures contracts on foreign currencies.
There can be no assurance that the Fund's investment objective will be
achieved. See "How the Fund Invests-Investment Objective and Policies." The
Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077, and its telephone number is (800) 225-1852.
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This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission (SEC) in a
Statement of Additional Information, dated December 30, 1997, 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. The SEC maintains a Website
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.
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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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.?
Prudential Global Limited Maturity Fund, Inc. (the Company) 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. The Company currently consists of
one portfolio, the Limited Maturity Portfolio (the Fund). Technically, the Fund
is an open-end, non-diversified, management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund'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 Fund's objective will be achieved. Under normal
circumstances, the Fund will invest at least 65% of its assets in
income-producing securities of issuers in at least five different countries,
including the United States. See "How the Fund Invests-Investment Objective and
Policies" at page 10.
WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?
In seeking to achieve its investment objective, the Fund invests primarily
in a portfolio of investment grade debt securities, maintaining a weighted
average maturity of more than 2, but less than 5, years, with the maturity for
any individual security generally not exceeding 10 years. The Fund seeks to
maximize total return by investing in debt securities denominated in the U.S.
dollar and a range of foreign currencies. See "How the Fund Invests -
Investment Objective and Policies" at page 10. The Fund may invest in
developing countries, and in countries with new or developing capital markets.
Companies in developing countries 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. 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-Risks of Foreign Investments" at page 12. In addition, the Fund may
invest up to 20% 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 Services (S&P) or by
another nationally recognized statistical rating organization (NRSRO), or if
unrated, are deemed to be of equivalent quality by the Subadviser (defined
below). Investment in non-investment grade securities may entail additional
risks to the Fund. See "How the Fund Invests-Risk Factors-Medium and
Lower-Rated Securities" at page 12. The Fund is non-diversified and thus may
invest more than 5% of its total assets in the securities of any one issuer.
The Fund may also engage in various hedging and return enhancement strategies,
including derivative transactions, such as those involving the purchase and
sale of put and call options on foreign currencies and futures contracts on
foreign currencies. See "How the Fund Invests-Hedging and Return Enhancement
Strategies-Risks of Hedging and Return Enhancement Strategies" at page 16. The
amount of income available for distribution to shareholders will be affected by
any foreign currency gains or losses generated by the Fund upon the disposition
of debt securities denominated in a foreign currency and by certain hedging
activities of the Fund. See "Taxes, Dividends and Distributions" at page 22.
WHO MANAGES THE FUND?
Prudential Investments Fund Management LLC (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, 1997, the Manager
served as manager or administrator to 64 investment companies, including 42
mutual funds, with aggregate assets of
2
<PAGE>
approximately $ 60.1 billion. The Prudential Investment Corporation, which does
business under the name of Prudential Investments (Prudential Investments),
furnishes investment advisory services under a Subadvisory Agreement with the
Manager. Under an agreement between Prudential Investments and PRICOA Asset
Management Ltd. (PRICOA and collectively with Prudential Investments, the
Subadviser), PRICOA furnishes investment advisory services in connection with
the management of the Fund. See "How the Fund is Managed-Manager" at page 19.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities), a major
securities underwriter and securities and commodities broker, acts as the
distributor of the Fund's Class A, Class B, Class C and Class Z shares and is
paid an annual distribution and service fee which is currently being charged at
an annual rate of up to .15 of 1% of the average daily net assets of the Class
A shares, and at the annual rate of .75 of 1% of the average daily net assets
of each of the Class B and Class C shares. Prudential Securities incurs the
expenses of distributing the Class Z shares under a Distribution Agreement with
the Fund, none of which is reimbursed or paid for by the Fund. See "How the
Fund is Managed-Distributor" at page 19.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for Class A and Class B shares is $1,000
and $5,000 for Class C shares. There is no minimum initial investment
requirement for investors who qualify to purchase Class Z shares. The minimum
subsequent investment is $100 for all classes, except for Class Z shares for
which there is no such minimum. 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 25 and "Shareholder
Guide-Shareholder Services" at page 36.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services LLC (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). Class Z shares are offered to a
limited group of investors at NAV without any sales charge. See "How the Fund
Values its Shares" at page 21 and "Shareholder Guide-How to Buy Shares of the
Fund" at page 25.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers four classes of shares:
<TABLE>
<S> <C>
o Class A Shares: Sold with an initial sales charge of up to 3% of the offering price.
o Class B Shares: Sold without an initial sales charge but are subject to a contingent deferred sales charge
or CDSC (declining from 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.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
o Class C Shares: Sold without an initial sales charge and, for one year after purchase, are subject to a 1%
CDSC on redemptions. Like Class B shares, Class C shares are subject to higher ongoing
distribution-related expenses than Class A shares but do not convert to another class.
o Class Z Shares: Sold without either an initial sales charge or CDSC to a limited group of investors. Class
Z shares are not subject to any ongoing service or distribution expenses.
</TABLE>
See "Shareholder Guide-Alternative Purchase Plan" at page 26.
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 30.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to declare daily and pay monthly dividends of net
investment income and make distributions of any net capital gains at least
annually. Dividends and distributions will be automatically reinvested in
additional shares of the Fund at NAV without a sales charge unless you request
that they be paid to you in cash. The amount of income available for
distribution to shareholders will be affected by any foreign currency gains or
losses generated by the Fund upon the disposition of debt securities
denominated in a foreign currency and by certain hedging activities of the
Fund. See "Taxes, Dividends and Distributions" at page 22.
4
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES
----------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES\^
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ......... 3%
Maximum Sales Load Imposed on
Reinvested Dividends ........................ None
Maximum Deferred Sales Load (as a
percentage of original purchase price or
redemption proceeds, whichever is lower) .... None
Redemption Fees ............................. None
Exchange Fees ............................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
CLASS A SHARES
---------------
Management Fees ............................. .55%
12b-1 Fees (After Reduction)\^\^ ............ .15%
Other Expenses .............................. .65%
----
Total Fund Operating Expenses
(After Reduction) .......................... 1.35%
====
<CAPTION>
CLASS B SHARES CLASS C SHARES CLASS Z SHARES
--------------------------------------- ------------------- ----------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES\^
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) .......... None None None
Maximum Sales Load Imposed on
Reinvested Dividends .. ...................... None None None
Maximum Deferred Sales Load (as a
percentage of original purchase price or
redemption proceeds, whichever is lower) ..... 3% during the first year, 1% on redemptions None
decreasing by 1% made within one
annually to 1% in the third and year of purchase
fourth years and 0% in the fifth year*
Redemption Fees .............................. None None None
Exchange Fees ................................ None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------------------------------- ------------------ ---------------
Management Fees .............................. .55% .55% .55%
12b-1 Fees (After Reduction)\^\^ ............. .75% .75% None
Other Expenses ............................... .65% .65% .65%
---- ---- ----
Total Fund Operating Expenses
(After Reduction) ........................... 1.95% 1.95% 1.20%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Example -------- --------- --------- ---------
<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 .................................................................. $43 $71 $102 $188
Class B .................................................................. $50 $71 $105 $190
Class C .................................................................. $30 $61 $105 $227
Class Z .................................................................. $12 $38 $66 $145
You would pay the following expenses on the same investment, assuming
no redemption:
Class A .................................................................. $43 $71 $102 $188
Class B .................................................................. $20 $61 $105 $190
Class C .................................................................. $20 $61 $105 $227
Class Z .................................................................. $12 $38 $66 $145
</TABLE>
The above example is based on data for the Fund's fiscal year ended October 31,
1997. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Fund is Managed." "Other Expenses" includes an estimate of
operating expenses of the Fund, such as Directors' and professional fees,
registration fees, reports to shareholders, transfer agency and custodian fees
and franchise taxes, but excludes foreign withholding taxes.
- ------------
* Class B shares will automatically convert to Class A shares approximately
five years after purchase. See "Shareholder Guide-Conversion Feature -
Class B Shares."
\^ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
each class of the Fund rather than on a per shareholder basis. Therefore,
long-term shareholders of the Fund may pay more in total sales charges than
the economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed-Distributor."
\^\^ Although the Class A, Class B and Class C Distribution and Service Plans
provide that the Fund 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 B and Class C shares, Prudential
Securities has agreed to limit its distribution expenses with respect to
the Class A shares of the Fund to no more than .15 of 1% of the average
daily net assets of the Class A shares, and to limit its distribution fees
to no more than .75 of 1% of the average daily net assets of each of the
Class B and Class C shares, for the fiscal year ending October 31, 1998.
See "How the Fund is Managed-Distributor." Total Fund operating expenses
without such limitation would be 1.50% for the Class A shares and 2.20%
for the Class B and Class C shares.
5
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share of common stock outstanding throughout each of the periods
indicated)
(Class A Shares)
The following financial highlights for the year ended October 31, 1997
have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. In addition, the financial highlights for the
six years ended October 31, 1996, have been audited by Deloitte & Touche LLP,
independent auditors, whose reports thereon were 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. Further performance information is contained in
the annual report, which may be obtained without charge. See "Shareholder
Guide-Shareholder Services-Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS A
-----------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------
1997(b) 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ............. $ 8.82 $ 8.39 $ 8.56
------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .......................... .60 .60 .61
Net realized and unrealized gain (loss) on
investment and foreign currency transactions .. ( .16) .40 ( .21)
------- ------- --------
Total from investment operations ............. .44 1.00 .40
------- ------- --------
LESS DISTRIBUTIONS
Dividends from net investment income ........... ( .60) ( .57) ( .48)
Distributions in excess of net investment
income ........................................ ( .25) - -
Tax return of capital distributions ............ - - ( .09)
------- ------- --------
Total distributions .......................... ( .85) ( .57) ( .57)
------- ------- --------
Net asset value, end of year ................... $ 8.41 $ 8.82 $ 8.39
======= ======= ========
TOTAL RETURN(a): ............................... 5.14% 12.35% 4.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) .................. $85,109 $69,051 $ 18,216
Average net assets (000) ....................... $83,590 $53,284 $ 20,153
Ratios to average net assets:
Expenses, including distribution fees ......... 1.35% 1.32% 1.21%
Expenses, excluding distribution fees ......... 1.20% 1.17% 1.06%
Net investment income ......................... 6.94% 7.12% 7.25%
Portfolio turnover rate ........................ 53% 101% 199%
<CAPTION>
1994 1993 1992 1991
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ............. $ 9.29 $ 9.16 $ 9.97 $ 10.00
--------- -------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .......................... .70 .97 .96 1.03
Net realized and unrealized gain (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)
Distributions in excess of net investment
income .. ..................................... - - - -
Tax return of capital distributions ............ ( .57) - - ( .01)
--------- -------- --------- ---------
Total distributions .......................... ( .57) ( .58) ( .82) ( 1.04)
--------- -------- --------- ---------
Net asset value, end of year ................... $ 8.56 $ 9.29 $ 9.16 $ 9.97
========= ======== ========= =========
TOTAL RETURN(a): ............................... ( 1.89)% 7.96% ( 0.07)% 10.41%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (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 ........................ 232% 307% 180% 66%
</TABLE>
- ------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each year reported and includes reinvestment of dividends
and distributions.
(b) Calculated based upon average shares outstanding during the year.
6
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share of common stock outstanding throughout each of the periods
indicated)
(Class B Shares)
The following financial highlights for the year ended October 31, 1997
have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. In addition, the financial highlights for the
six years ended October 31, 1996, have been audited by Deloitte & Touche LLP,
independent auditors, whose reports thereon were unqualified. This information
should be read in conjunction with the financial statements and notes thereto,
which appear in the Statement of Additional Information. The following
financial highlights contain selected data for a Class B share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. Further performance information is contained in
the annual report, which may be obtained without charge. See "Shareholder
Guide-Shareholder Services-Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS B
------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------
1997(b) 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ........ $ 8.85 $ 8.42 $ 8.56
------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ..................... .55 .55 .56
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions ............................. ( .16) .40 ( .19)
------- ------- --------
Total from investment operations ........ .39 .95 .37
------- ------- --------
LESS DISTRIBUTIONS
Dividends from net investment income ...... ( .55) ( .52) ( .43)
Distributions in excess of net investment
income ................................... ( .24) - -
Tax return of capital distributions ....... - - ( .08)
------- ------- --------
Total distributions ..................... ( .79) ( .52) ( .51)
------- ------- --------
Net asset value, end of year .............. $ 8.45 $ 8.85 $ 8.42
======= ======= ========
TOTAL RETURN(a): .......................... 4.59% 11.61% 4.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ............. $ 3,938 $44,804 $108,454
Average net assets (000) .................. $17,941 $70,794 $139,248
Ratios to average net assets:
Expenses, including distribution fees .... 1.95% 1.92% 1.83%
Expenses, excluding distribution fees .... 1.20% 1.17% 1.08%
Net investment income .................... 6.34% 6.51% 6.61%
Portfolio turnover rate ................... 53% 101% 199%
<CAPTION>
1994 1993 1992 1991
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ........ $ 9.29 $ 9.16 $ 9.97 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ..................... .62 .88 .88 .95
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions ............................. ( .86) ( .26) ( .95) ( .02)
-------- -------- -------- --------
Total from investment operations ........ ( .24) .62 ( .07) .93
-------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income ...... - ( .49) ( .74) ( .95)
Distributions in excess of net investment
income .. ................................ - - - -
Tax return of capital distributions ....... ( .49) - - ( .01)
-------- -------- -------- --------
Total distributions ..................... ( .49) ( .49) ( .74) ( .96)
-------- -------- -------- --------
Net asset value, end of year .............. $ 8.56 $ 9.29 $ 9.16 $ 9.97
======== ======== ======== ========
TOTAL RETURN(a): .......................... (2.62)% 7.00% (0.86)% 9.51%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ............. $188,966 $375,013 $606,899 $669,086
Average net assets (000) .................. $281,143 $474,175 $814,734 $349,607
Ratios to average net assets:
Expenses, including distribution fees .... 1.97% 1.87% 1.93% 1.87%
Expenses, excluding distribution fees .... 1.02% .87% .93% .87%
Net investment income .................... 6.82% 9.42% 9.05% 9.46%
Portfolio turnover rate ................... 232% 307% 180% 66%
</TABLE>
- ------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each year reported and includes reinvestment of dividends
and distributions.
(b) Calculated based upon average shares outstanding during the year.
7
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share of common stock outstanding throughout each of the periods
indicated)
(Class C Shares)
The following financial highlights for the year ended October 31, 1997
have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. In addition, the financial highlights for each
of the periods prior to and including the year ended October 31, 1996, have
been audited by Deloitte & Touche LLP, independent auditors, whose reports
thereon were 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 C share of common stock outstanding, total return, ratios to
average net assets and other supplemental data for the periods indicated.
Further performance information is contained in the annual report, which may be
obtained without charge. See "Shareholder Guide-Shareholder Services-Reports to
Shareholders."
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------
AUGUST 1,
1994(D)
YEAR ENDED OCTOBER 31, THROUGH
---------------------------------------- October 31,
1997(b) 1996 1995 1994
--------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .................. $ 8.85 $ 8.42 $ 8.56 $ 8.61
------ ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................................. .55 .55 .54 .14
Net realized and unrealized gain (loss) on investment
and foreign currency transactions .................... ( .16) .40 (.17 ) (.06 )
------ ------- ----------- -----------
Total from investment operations .................... .39 .95 .37 .08
------ ------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from net investment income .................. ( .55) ( .52) (.43 ) -
Distributions in excess of net investment income ...... ( .24) - - -
Tax return of capital distributions ................... - - ( .08) ( .13)
------ ------- ---------- ----------
Total distributions ................................. ( .79) ( .52) ( .51) ( .13)
------ ------- ---------- ----------
Net asset value, end of period ........................ $ 8.45 $ 8.85 $ 8.42 $ 8.56
====== ======= ========== ==========
TOTAL RETURN(a): ...................................... 4.59% 11.61% 4.60% 0.75%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ....................... $ 107 $ 54 $ 755(e) $ 200(e)
Average net assets (000) .............................. $ 116 $ 4 $1,461(e) $ 199(e)
Ratios to average net assets:
Expenses, including distribution fees ................ 1.95% 1.92% 1.70% .93%(c)
Expenses, excluding distribution fees ................ 1.20% 1.17% .95% .18%(c)
Net investment income ................................ 6.36% 6.35% 6.43% 7.02%(c)
Portfolio turnover rate ............................... 53% 101% 199% 232%
</TABLE>
- ------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a full
year are not annualized.
(b) Calculated based upon average shares outstanding during the period.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Amounts are actual and not rounded to the nearest thousand.
8
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share of common stock outstanding throughout the period indicated)
(Class Z Shares)
The following financial highlights have been audited by Price Waterhouse
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 Z share of
common stock outstanding, total return, ratios to average net assets and other
supplemental data for the period indicated. The information is based on data
contained in the financial statements. Further performance information is
contained in the Fund's annual report, which may be obtained without charge.
See "Shareholder Guide-Shareholder Services-Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS Z
----------------
JANUARY 27,
1997(D)
THROUGH
OCTOBER 31,
1997
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:(b)
Net asset value, beginning of period .............................................. $ 8.57
--------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ............................................................. .43
Net realized and unrealized loss on investment and foreign currency transactions .. ( .11)
--------
Total from investment operations ................................................ .32
--------
LESS DISTRIBUTIONS
Dividends from net investment income .............................................. ( .43)
Distributions in excess of net investment income .................................. ( .02)
--------
Total distributions .............................................................. ( .45)
--------
Net asset value, end of period .................................................... $ 8.44
========
TOTAL RETURN(a): .................................................................. 3.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ................................................... $ 4
Average net assets (000) .......................................................... $ 308(e)
Ratios to average net assets:
Expenses, including distribution fees ............................................ 1.20%(c)
Expenses, excluding distribution fees ............................................ 1.20%(c)
Net investment income ............................................................ 14.07%(c)
Portfolio turnover rate ........................................................... 53%
</TABLE>
- ------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a full
year are not annualized.
(b) Calculated based upon average shares outstanding during the period.
(c) Annualized.
(d) Commencement of offering of Class Z shares.
(e) Amounts are actual and not rounded to the nearest thousand.
9
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS TO MAXIMIZE TOTAL RETURN, THE
COMPONENTS OF WHICH ARE CURRENT INCOME AND CAPITAL APPRECIATION. THE FUND SEEKS
TO ACHIEVE ITS OBJECTIVE BY INVESTING PRIMARILY IN A PORTFOLIO OF INVESTMENT
GRADE DEBT SECURITIES DENOMINATED IN THE U.S. DOLLAR AND A RANGE OF FOREIGN
CURRENCIES. THE FUND WILL MAINTAIN A WEIGHTED AVERAGE MATURITY OF MORE THAN 2,
BUT LESS THAN 5, YEARS, WITH THE MATURITY FOR ANY INDIVIDUAL SECURITY GENERALLY
NOT EXCEEDING 10 YEARS. THE FUND MAY ALSO INVEST UP TO 20% 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 SUBADVISER. SEE "RISK FACTORS-MEDIUM AND LOWER-RATED
SECURITIES" BELOW. THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS
INVESTMENT OBJECTIVE. SEE "INVESTMENT OBJECTIVE AND POLICIES" IN THE STATEMENT
OF ADDITIONAL INFORMATION. AS WITH AN INVESTMENT IN ANY MUTUAL FUND, AN
INVESTMENT IN THIS FUND CAN DECREASE IN VALUE AND SHAREHOLDERS CAN LOSE MONEY.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND CANNOT BE
CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED (THE INVESTMENT COMPANY ACT). FUND POLICIES THAT ARE NOT
FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF DIRECTORS.
THE FUND, UNDER NORMAL CIRCUMSTANCES, WILL INVEST AT LEAST 65% OF ITS
TOTAL ASSETS IN INCOME-PRODUCING SECURITIES. Under normal circumstances, the
Fund invests its assets in debt securities of issuers in at least five
different countries including the United States. The Fund may also engage in
various hedging and return enhancement strategies, including derivative
transactions such as the purchase and sale of put and call options, forward
foreign currency exchange contracts and futures contracts and related options.
The Fund is managed in accordance with a multi-market investment strategy,
allocating the Fund'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 Subadviser adjusts
the Fund'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 Subadviser's assessment of the
relative yield of such securities and the relationship of a country's currency
to the U.S. dollar. The Fund, however, normally will invest at least 30% of its
total assets in securities denominated in U.S. Dollars (or in lieu thereof hold
cash), and at least 50% of its total assets in Dollar Bloc currencies (U.S.,
Canada, Australia or New Zealand). The Fund 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 Subadviser's assessment. The Subadviser 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 Fund's investment
portfolio. The Fund may invest up to 100% of its assets in securities
denominated in U.S. dollars or U.S. Treasury securities or hold cash for
temporary defensive purposes.
RETURNS ON SHORT-TERM FOREIGN CURRENCY DENOMINATED DEBT INSTRUMENTS CAN BE
ADVERSELY AFFECTED BY CHANGES IN EXCHANGE RATES. The Fund's Subadviser 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 NAV of the Fund's shares resulting from
adverse changes in currency exchange rates. For example, the return available
from securities denominated in a particular foreign currency would diminish in
the event the value of the U.S. dollar increased against such currency. Such a
decline could be partially or completely offset by an increase in value of 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 Fund than a contract to sell the currency in which the position being
hedged is denominated. Cross-currency hedges can, therefore, under certain
conditions, provide protection of NAV in the event of a general rise in the
U.S. dollar against
10
<PAGE>
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 Subadviser to
successfully employ cross-currency hedging techniques. A cross-currency hedge
cannot protect against exchange rate risks perfectly, and if the Subadviser is
incorrect in its judgment of future exchange rate relationships, the Fund could
be in a less advantageous position than if such a hedge had not been
established.
The Fund invests in debt securities denominated in the currencies of
countries whose governments are considered stable by the Fund's Subadviser. 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 Fund may be domiciled in a country other
than the country in whose currency the instrument is denominated. THE FUND MAY
ALSO INVEST IN DEBT SECURITIES DENOMINATED IN THE CURRENCIES OF CERTAIN
"EMERGING MARKET" NATIONS, SUCH AS, BUT NOT LIMITED TO, THE CZECH REPUBLIC,
HUNGARY, GREECE, SOUTH KOREA, HONG KONG, MALAYSIA, INDONESIA, THAILAND, CHINA,
ISRAEL, CHILE, COLOMBIA, VENEZUELA, ESTONIA, 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 Fund'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, (iii) corporate debt
securities, (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), (v) commercial paper, (vi) loan
participations, (viii) equity-related securities, including common stock,
preferred stock and convertible securities, and (ix) zero coupon securities.
The Fund will invest primarily in "investment grade" debt obligations.
Investment grade debt obligations are bonds and other obligations rated within
the four highest quality grades as determined by Moody's (currently Aaa, Aa, A
and Baa for bonds and Prime-1 for commercial paper), or S&P (currently AAA, AA,
A and BBB for bonds and A-1 for commercial paper), or by another NRSRO or,
unrated securities of equivalent quality. Securities rated Baa by Moody's or
BBB by S&P, although considered to be investment grade, lack outstanding
investment characteristics and, in fact, have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make interest and principal payments than is the case
with higher grade bonds. See the "Description of Security Ratings" in the
Appendix to the Prospectus. The Fund is permitted to invest up to 20% of its
total assets in lower quality debt securities rated B or BB by S&P or B or Ba
by Moody's or comparably rated by any other NRSRO, or in unrated securities of
equivalent quality. Lower rated securities are subject to a greater risk of
loss of principal and interest. See "Risk Factors-Medium and Lower-Rated
Securities" below.
THE FUND 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 their 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 Fund 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. 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
Fund 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.
11
<PAGE>
THE FUND 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.
THE FUND 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 Subadviser 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 FUND IS "NON-DIVERSIFIED" SO THAT IT 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
RISKS OF 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.
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. Fixed-income securities are subject to
the risk of an issuer's inability to meet principal and interest payments on
the obligations (credit risk) and may also be subject to price volatility due
to such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk). The
markets in which medium and lower-rated securities (or unrated securities that
are equivalent to medium and lower-rated securities) are traded are generally
more limited than those in which higher-rated securities are traded. The
existence of limited markets may make it more difficult for the Fund 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 debt securities for the Fund to purchase and
may also have the effect of limiting the ability of the Fund to sell debt
securities at their fair value either to meet redemption requests or to respond
to changes in the economy or the financial markets. Lower rated or unrated
(i.e., high yield or high risk) securities (commonly referred to as junk bonds)
are more likely to react to developments affecting market and credit risk than
are more highly rated
12
<PAGE>
securities, which react primarily to movements in the general level of interest
rates. The Subadviser considers both credit risk and market risk in making
investment decisions for the Fund.
Under adverse economic conditions, there is a risk that highly leveraged
issuers may be unable to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be
as liquid as the secondary market for more highly rated securities. Under
adverse market or economic conditions, the secondary market for high yield
securities could contract further, independent of any specific adverse changes
in the condition of a particular issuer. As a result, the Subadviser could find
it more difficult to sell these securities or may be able to sell the
securities only at prices lower than if such securities were widely traded.
Prices realized upon the sale of such lower rated or unrated securities, under
these circumstances, may be less than the prices in calculating the Fund's NAV.
Lower rated or unrated debt obligations also present risks based on
payment expectations. If an issuer calls the obligation for redemption, the
Fund may have to replace the security with a lower yielding security, resulting
in a decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the debt portion of the Fund's
portfolio and increasing the exposure of the Fund to the risks of high yield
securities.
Ratings of fixed-income securities represent the rating agency's opinion
regarding their credit quality and are not a guarantee of quality. Rating
agencies attempt to evaluate the safety of principal and interest payments and
do not evaluate the risks of fluctuations in market value. Also, rating
agencies may fail to make timely changes in credit ratings in response to
subsequent events, so that an issuer's current financial condition may be
better or worse than a rating indicates.
Subsequent to its purchase by the Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event will require sale of these securities by
the Fund, but the Subadviser will consider this event in its determination of
whether the Fund should continue to hold the securities.
During the year ended October 31, 1997, the monthly 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:
<TABLE>
<CAPTION>
Percentage of Total
Ratings Investments
- ------------ --------------------
<S> <C>
AAA/Aaa .......... 46.88%
AA/Aa ............ 13.10%
A/A .............. 9.96%
BBB/Baa .......... 10.23%
BB/Ba ............ 14.66%
B/B .............. 0%
Unrated .......... 5.17%
</TABLE>
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES
In addition, the Fund 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 Fund.
EQUITY-RELATED SECURITIES
The Fund may invest up to 10% of its total assets in equity-related
securities (including up to 5% of its total assets in convertible securities).
Equity-related securities include common stocks, preferred stocks, securities
which are convertible or exchangeable for common stocks or preferred stocks,
equity investments in partnerships, joint ventures and other forms of
non-corporate investments, American Depository Receipts (ADRs) and warrants and
rights exercisable for equity securities. ADRs are U.S. dollar-denominated
certificates issued by a U.S. bank or trust company
13
<PAGE>
and represent the right to receive securities of a foreign issuer deposited in
a domestic bank or foreign branch of a U.S. bank and are traded on a United
States exchange or over-the-counter market. See "Convertible Securities" below.
CONVERTIBLE SECURITIES
A convertible security is a bond, debenture, corporate note, preferred
stock or other similar security which may be converted at a stated price within
a specified period of time into a certain quantity of the common stock or other
equity security of the same or a different issuer. Convertible securities are
senior to common stocks in a corporation's capital structure, but are usually
subordinated to similar nonconvertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a similar nonconvertible
security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation
dependent upon a market price advance in the convertible security's underlying
common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security is
also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines.
ZERO COUPON SECURITIES
The Fund may invest up to 10% of its total assets in zero coupon
securities. Zero coupon securities are securities that are sold at a discount
to par value and on which interest payments are not made during the life of the
security. Upon maturity, the holder is entitled to receive the par value of the
security. While interest payments are not made on such securities, holders of
such securities are deemed to have received annually "phantom income." The Fund
accrues income with respect to these securities prior to the receipt of cash
payments. Zero coupon securities may be subject to greater fluctuation in value
and lesser liquidity in the event of adverse market conditions than comparably
rated securities paying cash interests at regular intervals.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING INVESTING
IN DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO
ENHANCE RETURN, BUT NOT FOR SPECULATION. THE FUND, AND THUS ITS INVESTORS, MAY
LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE STRATEGIES. These strategies
currently include the use of options, forward foreign currency exchange
contracts and futures contracts and options thereon. The Fund's ability to use
these strategies may be limited by market conditions, regulatory limits and tax
considerations and there can be no assurance that any of these strategies will
succeed. See "Additional Investment Information" in the Statement of Additional
Information. New financial products and risk management techniques continue to
be developed and the Fund may use these new investments and techniques to the
extent consistent with its investment objective and policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES AND CURRENCIES THAT ARE TRADED ON NATIONAL SECURITIES EXCHANGES OR
IN THE OVER-THE-COUNTER MARKET TO ATTEMPT TO ENHANCE RETURN OR TO HEDGE THE
FUND'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 Fund may write put and call options to attempt
14
<PAGE>
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 Fund 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 Fund 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 Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, as
long as the Fund is obligated under the option, it (i) owns an offsetting
position in the underlying security or currency or, (ii) maintains in a
segregated account cash or other liquid assets in an amount equal to or greater
than its obligations under the option. Under the first circumstance, the Fund's
losses are limited because it owns the underlying security or currency; under
the second circumstance, in the case of a written call option, the Fund's
losses are potentially unlimited. See "Additional Investment
Information-Additional Risks" in the Statement of Additional Information.
THERE IS NO LIMITATION ON THE AMOUNT OF CALL OPTIONS THE FUND MAY WRITE.
THE FUND MAY ONLY WRITE COVERED PUT OPTIONS TO THE EXTENT THAT COVER FOR SUCH
OPTIONS DOES NOT EXCEED 25% OF THE FUND'S NET ASSETS. THE FUND WILL NOT
PURCHASE AN OPTION IF, AS A RESULT OF SUCH PURCHASE, MORE THAN 20% OF ITS TOTAL
ASSETS WOULD BE INVESTED IN PREMIUMS FOR OPTIONS AND OPTIONS ON FUTURES.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
THE FUND 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 Fund 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 FUND'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different foreign currency (cross hedge).
Although there are no limits on the number of forward contracts which the Fund
may enter into, the Fund may not position hedge (including cross hedges) with
respect to a particular currency for an amount greater than the aggregate
market
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value (determined at the time of making any sale of foreign currency) of the
securities being hedged. See "Additional Investment Information-Forward Foreign
Currency Exchange Contracts" in the Statement of Additional Information.
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE TO REDUCE
CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN IN ACCORDANCE
WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION (CFTC). THE FUND,
AND THUS ITS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE
STRATEGIES. 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 Fund may not purchase or sell futures contracts and related options to
attempt to enhance return, 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 Fund's total assets. The Fund may purchase and sell futures
contracts and related options, without limitation, for bona fide hedging
purposes in accordance with regulations of the CFTC (i.e., to reduce certain
risks of its investments). 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 Fund's portfolio.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS DEPENDS
UPON THE SUBADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND IS
SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the price of the securities 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 Fund. 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
Fund's ability to purchase or sell certain futures contracts or related options
on any particular day.
THE FUND'S ABILITY TO ENTER INTO OR CLOSE OUT 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 "TAXES, DIVIDENDS AND DISTRIBUTIONS" IN THE STATEMENT
OF ADDITIONAL INFORMATION.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. THE FUND, AND THUS ITS
INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE STRATEGIES. If
the Subadviser's predictions of movements in the direction of the securities,
foreign currency and interest rate markets are inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of options, foreign
currency and futures contracts and options on futures contracts include (1)
dependence on the Subadviser's ability to predict correctly movements in the
direction of interest rates, securities prices and currency markets; (2)
imperfect correlation between the price of options and futures contracts and
options thereon and movements in the prices of the securities or currencies
being hedged; (3) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; and (6) the possible inability of the Fund 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 Fund to sell a security at a
disadvantageous
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time, due to the need for the Fund to maintain "cover" or to segregate
securities in connection with hedging transactions. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales against-the-box which is a short sale in
which the Fund 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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
resale price is in excess of the purchase price, reflecting an agreed-upon rate
of return effective for the period of time the Fund's money is invested in the
repurchase agreement. The Fund's repurchase agreements will at all times be
fully collateralized in an amount at least equal to the resale price. The
instruments held as collateral are valued daily, and if the value of
instruments declines, the Fund will require additional collateral. If the
seller defaults and the value of the collateral securing the repurchase
agreement declines, the Fund may incur a loss. The Fund participates in a joint
repurchase account with other investment companies managed by the Manager
pursuant to an order of the Securities and Exchange Commission (SEC). See
"Additional Investment Information-Repurchase Agreements" in the Statement of
Additional Information.
SECURITIES LENDING
The Fund 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 Fund in an amount equal to at
least 100%, determined daily, of the market value of the securities loaned
which are maintained in a segregated account pursuant to applicable
regulations. During the time portfolio securities are on loan, the borrower
will pay the Fund an amount equivalent to any dividend or interest paid on such
securities and the Fund may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower. As a matter of fundamental policy, the Fund cannot lend more than 30%
of the value of its total assets. The Fund may pay reasonable administration
and custodial fees in connection with a loan.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Fund's custodian (the Custodian) will maintain, in a segregated account of the
Fund, cash or other liquid assets having a value equal to or greater than the
Fund's purchase commitments. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during the period between
purchase and settlement. At the time of delivery of the securities the value
may be more or less than the purchase price and an increase in the percentage
of the Fund's assets committed to the purchase of securities on a when-issued
or delayed delivery basis may increase the volatility of the Fund's NAV.
SEGREGATED ACCOUNT
The Fund will establish a segregated account with its Custodian in which
it will maintain cash, U.S. Government securities, equity securities or other
liquid, unencumbered assets equal in value to its obligations in respect of
potentially
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leveraged transactions, including forward contracts (except foreign currency
exchange contracts, if otherwise covered), when-issued and delayed delivery
securities, repurchase agreements, futures contracts, written options and
options on futures contracts (unless otherwise covered). The assets deposited in
the segregated account will be marked-to-market daily.
BORROWING
The Fund may borrow an amount equal to no more than 20% of the value of
its total assets (computed at the time the loan is made) from banks for
temporary, extraordinary or emergency purposes or for the clearance of
transactions. During periods when the Fund has borrowed for temporary,
extraordinary or emergency purposes or for the clearance of transactions, the
Fund may pursue its investment objective by purchasing additional securities
which can result in increased volatility of the Fund's NAV. The Fund will not
borrow to take advantage of investment opportunities. See "Additional
Investment Information-Borrowing" in the Statement of Additional Information.
The Fund may pledge up to 20% of its total assets to secure these borrowings.
ILLIQUID SECURITIES
The Fund may hold up to 15% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven
days, securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities
markets either within or outside of the United States. Restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended (the Securities Act), and privately placed commercial paper that have a
readily available market are not considered illiquid for purposes of this
limitation. The Fund's investment in Rule 144A securities could have the effect
of increasing the level of illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing Rule 144A
securities. The Subadviser 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.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
sales or purchases of portfolio securities by the average monthly value of the
Fund's portfolio securities, excluding securities having a maturity at the date
of purchase of one year or less. High portfolio turnover (over 100%) may
involve correspondingly greater brokerage commissions and other transaction
costs which will be borne directly by the Fund. See "Portfolio Transactions and
Brokerage" in the Statement of Additional Information. In addition, high
portfolio turnover may result in increased short-term capital gains which, when
distributed to shareholders, are treated as ordinary income. See "Taxes,
Dividends and Distributions."
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest up to 5% of its total assets in shares of closed-end
investment companies or investment trusts. To the extent the Fund invests in
securities of other investment companies, shareholders of the Fund may be
subject to duplicate management and advisory fees.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objectives, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
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<PAGE>
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HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
For the fiscal year ended October 31, 1997, the Fund's total expenses as a
percentage of average net assets for the Fund's Class A, Class B, Class C and
Class Z shares were 1.35%, 1.95%, 1.95% and 1.20%, respectively. See "Financial
Highlights."
MANAGER
THE FUND'S MANAGER, PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC, GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS
COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .55 OF 1% OF THE FUND'S
AVERAGE DAILY NET ASSETS. The Manager is organized in New York as a limited
liability company. For the fiscal year ended October 31, 1997, the Fund paid
management fees to the Manager of .55 of 1% of the Fund's average net assets.
As of November 30, 1997, the Manager served as the manager to 41 open-end
investment companies, constituting substantially all of the Prudential Mutual
Funds, and as manager or administrator to 22 closed-end investment companies,
with aggregate assets of approximately $ 60.1 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, THE MANAGER MANAGES THE
INVESTMENT OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE
AFFAIRS. See "Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT, PRUDENTIAL INVESTMENTS FURNISHES INVESTMENT
ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS
REIMBURSED BY THE MANAGER FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN
PROVIDING SUCH SERVICES. Under an agreement between Prudential Investments and
PRICOA, PRICOA furnishes investment advisory services to the Fund for which it
is paid at the annual rate of 0.30 of 1% of the Fund's average net assets.
Under the Management Agreement, the Manager continues to have responsibility
for all investment advisory services and supervises the Subadviser's
performance of such services.
The Fund is managed by J. Gabriel Irwin and Simon Wells, who head a Global
Fixed Income Group of Prudential Investments. As a team, they have
responsibility for the day-to-day management of the Fund. Messrs. Irwin and
Wells have been officers of PRICOA since August 1997 and have been employed by
the Prudential Investments and Prudential-Bache Securities (U.K.) Inc. since
April 1995. Messrs. Irwin and Wells were previously employed by Smith Barney
Global Capital Management Inc., where they worked together as Directors and
senior members of the Investment Policy Committee and managed approximately
$1.5 billion in institutional and mutual fund assets. Messrs. Irwin and Wells
also serve as the portfolio managers of Prudential International Bond Fund,
Inc., The Global Total Return Fund, Inc. and Prudential Intermediate Global
Income Fund, Inc.
The Manager and Prudential Investments are wholly-owned subsidiaries of The
Prudential Insurance Company of America (Prudential), a major diversified
insurance and financial services company. PRICOA, a subsidiary of Prudential, is
a private limited company organized and existing under the laws of England and
regulated by IMRO in the conduct of its investment business. Its address is 115
Houndsditch, London EC3A 7BU.
DISTRIBUTOR
PRUDENTIAL SECURITIES, 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, CLASS B, CLASS C AND CLASS Z SHARES OF THE FUND. IT
IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
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<PAGE>
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS
B PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), PRUDENTIAL SECURITIES INCURS THE EXPENSES OF
DISTRIBUTING THE FUND'S CLASS A, CLASS B AND CLASS C SHARES. Prudential
Securities also incurs the expenses of distributing the Fund's Class Z shares
under the Distribution Agreement, none of which is reimbursed by or paid for by
the Fund. These expenses include commissions and account servicing fees paid
to, or on account of, financial advisers of Prudential Securities and
representatives of 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 Prudential Securities,
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.
Under the Class A Plan, the Fund pays Prudential Securities a distribution
and service fee as reimbursement for expenses incurred in distributing the
Fund's Class A shares. Under the Class B and Class C Plans, the Fund pays
distribution and/or service fees to Prudential Securities 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
Prudential Securities' expenses under the Class B and Class C Plans exceed its
distribution and service fees, the Fund will not be obligated to pay any
additional expenses. If Prudential Securities' expenses are less than such
distribution and service fees, it will retain its full fees and realize a
profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY PRUDENTIAL SECURITIES 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 OF THE
FUND. 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. Prudential
Securities has advised the Fund 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, 1998.
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, 1998.
Prudential Securities also receives CDSCs from certain redeeming shareholders.
See "Shareholder Guide-How to Sell Your Shares-Contingent Deferred Sales
Charges."
For the fiscal year ended October 31, 1997, the Fund paid distribution
expenses of .15%, .75% and .75% of the average net assets of the Class A, Class
B and Class C shares of the Fund, respectively. The Fund records all payments
made under the Plans as expenses in the calculation of net investment income.
Distribution expenses attributable to the sale of Class A, Class B and
Class C shares of the Fund will be allocated to each such class based upon the
ratio of sales of each such class to the sales of Class A, Class B or Class C
shares
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<PAGE>
of the Fund other than expenses allocable to a particular class. The
distribution fee and sales charge of one class will not be used to subsidize
the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors
or of a majority of the outstanding shares of the applicable class of the Fund.
The Fund will not be obligated to pay expenses incurred under any Plan if it is
terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to dealers (including Prudential
Securities) and other persons which distribute shares of the Fund (including
Class Z shares). Such payments may be calculated by reference to the NAV of
shares sold by such persons or otherwise.
Prudential Securities 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.
FEE WAIVERS
Prudential Securities has agreed to limit its distribution fee for the
Class A, Class B and Class C shares as described above under "Distributer." Fee
waivers will increase the Fund's yield and total return. See "How the Fund
Calculates Performance."
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant
for the Fund provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage" in
the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
The Custodian, State Street Bank and Trust Company, One Heritage Drive,
North Quincy, Massachusetts 02171, serves as custodian for the Fund'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.
The Fund's Transfer Agent, Prudential Mutual Fund Services LLC, 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. The Transfer Agent is a wholly-owned subsidiary of the Manager.
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 FUND'S NAV IS DETERMINED BY SUBTRACTING ITS LIABILITIES FROM THE VALUE
OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE NUMBER OF OUTSTANDING SHARES.
NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE BOARD OF DIRECTORS HAS FIXED
THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NAV TO BE AS OF 4:15
P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. For valuation purposes,
quotations of foreign securities in a foreign currency are converted to U.S.
dollar equivalents. See "Net Asset Value" in the Statement of Additional
Information.
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The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of the Fund's securities do not materially affect the NAV.
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 Fund declares dividends daily, the NAV of
Class A, Class B, Class C and Class Z shares will generally be the same. It is
expected, however, that the dividends will differ by approximately the amount
of the distribution and/or service fee expense accrual differential among the
classes.
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HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS AVERAGE ANNUAL TOTAL RETURN,
AGGREGATE TOTAL RETURN AND YIELD IN ADVERTISEMENTS OR SALES LITERATURE. TOTAL
RETURN AND YIELD ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES. These figures are based on historical earnings and are not
intended to indicate future performance. The total return shows how much an
investment in the Fund would have increased (decreased) over a specified period
of time (i.e., one, five or ten years or since inception of the Fund) assuming
that all distributions and dividends by the Fund were reinvested on the
reinvestment dates during the period and less all recurring fees. The aggregate
total return reflects actual performance over a stated period of time. Average
annual total return is a hypothetical rate of return that, if achieved
annually, would have produced the same aggregate total return if performance
had been constant over the entire period. Average annual total return smooths
out variations in performance and takes into account any applicable initial
sales charges or CDSCs. Neither average annual total return nor aggregate total
return takes into account any federal or state income taxes which may be
payable upon redemption. The yield refers to the income generated by an
investment in the Fund over a one-month or 30-day period. This income is then
"annualized;" that is, the amount of income generated by the investment during
that 30-day period is assumed to be generated each 30-day period for twelve
periods and is shown as a percentage of the investment. The income earned on
the investment is also assumed to be reinvested at the end of the sixth 30-day
period. The Fund also may include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc., Morningstar Publications,
Inc., other industry publications, business periodicals and market indices. See
"Performance Information" in the Statement of Additional Information. Further
performance information is contained in the Fund's annual and semi-annual
reports to shareholders, which may be obtained without charge. See "Shareholder
Guide-Shareholder Services-Reports to Shareholders."
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TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE
FUND WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME
AND NET CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See
"Taxes, Dividends and Distributions" in the Statement of Additional
Information.
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 Fund's investment company
22
<PAGE>
taxable income available to be distributed to you as ordinary income, rather
than increasing or decreasing the amount of the Fund's net capital gain. If
currency fluctuation losses exceed other investment company taxable income
during a taxable year, distributions made by the Fund during the year would be
characterized as a return of capital to the shareholder, reducing his/her basis
in their Fund 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 Fund will be required to be
"marked to market" for federal income tax purposes; that is, treated as having
been sold at market value. Sixty percent of any gain or loss recognized on
these "deemed sales" and on actual dispositions may be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxes, Dividends and Distributions" 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 for securities held
between 12 and 18 months currently is 28% and for securities held more than 18
months is 20%. The maximum long-term capital gains rate for corporate
shareholders is currently the same as the maximum tax rate for ordinary income.
Both regular and capital gains dividends are taxable to shareholders in
the year in which received, whether they are received in cash or in additional
shares. In addition, certain dividends declared by the Fund will be treated as
received by shareholders on December 31 of the year the dividends are declared.
This rule applies to dividends declared by the Fund in October, November or
December of a calendar year, payable to shareholders of record on a date in any
such month, if such dividends are paid during January of the following calendar
year.
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
realized upon a sale or redemption of shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any capital
gain distributions received by the shareholder with respect to those shares.
Gain or loss on shares held more than 18 months will be considered in
determining a holder's adjusted net capital gain subject to a maximum tax rate
of 20%.
Any loss realized on a sale, redemption or exchange of shares of the Fund
by a shareholder will be disallowed to the extent the shares are replaced
within a 61-day period (beginning 30 days before the disposition of shares).
Shares purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the
Fund.
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 or Class Z shares or the exchange of
Class A shares for Class Z shares constitutes a taxable event for federal
income tax purposes. However, such opinions are not binding on the Internal
Revenue Service.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund is required to withhold and
remit to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of certain shareholders who fail to furnish their tax
23
<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 the
shareholder's 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 "Taxes, Dividends
and Distributions" in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
THE FUND 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 Fund with
respect to each class of shares, to the extent any dividends are paid, will be
calculated in the same manner, at the same time, on the same day and will be in
the same amount except that each class (other than Class Z) will bear its own
distribution charges, generally resulting in lower dividends for Class B and
Class C shares in relation to Class A and Class Z shares and lower dividends
for Class A shares in relation to Class Z shares. Distribution of net capital
gains, if any, will be paid in the same amount per share 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 THE RECORD DATE, OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to the Fund's Transfer
Agent, Prudential Mutual Fund Services LLC, Account Maintenance, P.O. Box
15015, New Brunswick, New Jersey 08906-5015. If shares are held through
Prudential Securities, shareholders should contact their 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.
IF AN INVESTOR BUYS SHARES ON OR IMMEDIATELY BEFORE THE RECORD DATE (THE
DATE ON WHICH IT IS DETERMINED WHO WILL RECEIVE THE DIVIDEND), THE INVESTOR
WILL RECEIVE A PORTION OF THE MONEY HE OR SHE INVESTED AS A TAXABLE DIVIDEND.
THEREFORE, INVESTORS SHOULD CONSIDER THE TIMING OF DIVIDENDS WHEN BUYING SHARES
OF THE FUND.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE COMPANY WAS INCORPORATED IN MARYLAND ON FEBRUARY 21, 1990. THE COMPANY
IS AUTHORIZED TO ISSUE 2 BILLION SHARES OF COMMON STOCK, $.001 PAR VALUE PER
SHARE, OF ONE SERIES (THE FUND) DIVIDED INTO FOUR CLASSES DESIGNATED CLASS A,
CLASS B, CLASS C AND CLASS Z COMMON STOCK. EACH OF THE CLASS A, CLASS B, CLASS
C AND CLASS Z COMMON STOCK OF THE FUND CONSISTS OF 500 MILLION AUTHORIZED
SHARES. Each class of common stock represents an interest in the same assets of
the Fund and is identical in all respects to other shares of the Fund except
that (i) each class (except Class Z shares, which are not subject to any sales
charges and distribution and/or service fees) is subject to different sales
charges and distribution and/or service fees, which may affect performance,
(ii) each class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its arrangements and has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class, (iii) each class has a
different exchange privilege, (iv) only Class B shares have a conversion
feature and (v) Class Z shares are offered exclusively for sale to a limited
group of investors. In accordance with the Fund's Articles of Incorporation,
the Board of Directors may authorize the creation of additional series of
common stock and classes within such series, with such preferences, privileges,
limitations and voting and dividend rights as the Board may determine.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described
24
<PAGE>
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 (with the exception of Class Z shares which are not
subject to any distribution and/or service fees) bears the expenses related to
the distribution of its shares. Except for the conversion feature applicable to
the Class B shares of the Fund, there are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of common stock of
the Fund is entitled to its portion of all of the Fund's assets after all debt
and expenses of the Fund have been paid. Since Class B and Class C shares
generally bear higher distribution expenses than Class A shares, the
liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders and to Class Z shareholders whose shares are not
subject to any distribution and/or service fees. The Fund's shares do not have
cumulative voting rights for the election of Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under
the Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC
OR DIRECTLY FROM THE FUND THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC, ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020, NEW BRUNSWICK,
NEW JERSEY 08906-5020. Participants in programs sponsored by Prudential
Retirement Services should contact their client representative for more
information about Class Z shares. 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). Class Z shares are offered to a limited group of investors
at NAV without any sales charge. Payment may be made by cash, wire, check or
through your brokerage account. See "Alternative Purchase Plan" and "How the
Fund Values its Shares."
The minimum initial investment is $1,000 for Class A and Class B shares
and $5,000 for Class C shares, except that the minimum initial investment for
Class C shares may be waived from time to time. There is no minimum initial
investment requirement for Class Z shares. The minimum subsequent investment is
$100 for all classes, except for Class Z shares for which there is no such
minimum. All minimum investment requirements are waived for certain retirement
and employee savings plans or custodial accounts for the benefit of minors. For
purchases made through the Automatic Savings Accumulation Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services" below.
Application forms can be obtained from the Transfer Agent, 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.
25
<PAGE>
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.
Prudential Securities reserves the right to cancel any purchase order for which
payment has not been received by the third business day following the
investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire,
you must first telephone the Transfer Agent at (800) 225-1852 (toll-free) to
receive an account number. The following information will be requested: your
name, address, tax identification number, class election, dividend distribution
election, amount being wired and wiring bank. Instructions should then be given
by you to your bank to transfer funds by wire to the Fund's Custodian, State
Street Bank and Trust Company, Boston, Massachusetts, Custody and Shareholder
Services Division, Attention: Prudential Global Limited Maturity Fund,
Inc.-Limited Maturity Portfolio, specifying on the wire the account number
assigned by the Transfer Agent and your name and identifying the class in which
you are eligible to invest (Class A, Class B, Class C or Class Z shares).
If you arrange for receipt by the Custodian of federal funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire the
Custodian directly and should be sure that the wire specifies Prudential Global
Limited Maturity Fund, Inc.-Limited Maturity Portfolio, Class A, Class B, Class
C or Class Z shares and your name and individual account number. It is not
necessary to call the Transfer Agent to make subsequent purchase orders
utilizing federal funds. The minimum amount which may be invested by wire is
$1,000.
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS FOUR CLASSES OF SHARES (CLASS A, CLASS B, CLASS C AND
CLASS Z 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% .30 of 1% (currently Initial sales charge waived or reduced
of the public offering price being charged at a rate of for certain purchases
.15 of 1%)
CLASS B Maximum CDSC of 3% of the lesser 1% (currently being Shares convert to Class A shares
of the amount invested or the charged at a rate of .75 approximately five years after
redemption proceeds; declines to of 1%) purchase
zero after four years
CLASS C Maximum CDSC of 1% of the lesser 1% (currently being Shares do not convert to another
of the amount invested or the charged at a rate of .75 class
redemption proceeds on of 1%)
redemptions made within one year
of purchase
CLASS Z None None Sold to a limited group of investors
</TABLE>
26
<PAGE>
Each class represents an interest in the same assets of the Fund and is
identical in all respects except that (i) each class (with the exception of
Class Z shares, which are not subject to any distribution and/or service fees)
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its arrangement and has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class, (iii) each class has a
different exchange privilege, (iv) only Class B shares have a conversion
feature and (v) Class Z shares are offered exclusively for sale to a limited
group of investors. See "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 (if any) 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 and Class Z shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class
Z shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C or Class Z 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).
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 NAV, the effect of the return on the investment
over this period of time or redemptions when the CDSC is applicable.
27
<PAGE>
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, UNLESS YOU ARE ELIGIBLE TO PURCHASE CLASS Z SHARES. See "Reduction and
Waiver of Initial Sales Charges" and "Class Z Shares" below.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested) as
shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- -------------------------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
Less than $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 $5,000,000 0.0 0.00 0.70
$5,000,000 but less than $10,000,000 0.0 0.00 0.50
$10,000,000 and above 0.0 0.00 0.25
</TABLE>
Prudential Securities may reallow the entire initial sales charge to
dealers. Selling dealers may be deemed to be underwriters, as that term is
defined in the Securities Act.
In connection with the sale of Class A shares at NAV (without payment of
an initial sales charge), the Manager, Prudential Securities or one of their
affiliates will pay dealers, financial advisers and other persons which
distribute shares a finders' fee, from its own resources, based on a percentage
of the NAV of shares sold by such persons.
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 (collectively, 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 250 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 recordkeeping (Direct Account Benefit Plans) and
Benefit Plans sponsored by Prudential Securities or its subsidiaries
(Subsidiary Prototype Benefit Plans), Class A shares may be purchased at NAV by
participants who are repaying loans made from such plans to the participant.
PRUDENTIAL RETIREMENT PROGRAMS. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or
non-qualified under the Internal Revenue Code, for which Prudential serves as
the plan administrator or recordkeeper, provided that (i) the plan has at least
$1 million in existing assets or 250 eligible employees and (ii) the Fund is an
available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code, deferred compensation and annuity plans under Sections 457 or
403(b)(7) of the Internal Revenue Code and plans that participate in the
Transfer Agent's PruArray and SmartPath Programs (benefit plan recordkeeping
services) (hereafter referred to as a PruArray or SmartPath Plan). All plans of
a company for which Prudential serves as plan administrator or recordkeeper are
28
<PAGE>
aggregated in meeting the $1 million threshold. The term "existing assets" as
used herein includes stock issued by a plan sponsor, shares of Prudential
Mutual Funds and shares of certain unaffiliated mutual funds that participate
in the PruArray or SmartPath Program (Participating Funds). "Existing assets"
also include monies invested in The Guaranteed Interest Account (GIA), a group
annuity insurance product issued by Prudential, and units of The Stable Value
Fund (SVF), an unaffiliated bank collective fund. Class A shares may also be
purchased at NAV by plans that have monies invested in GIA and SVF, provided
(i) the purchase is made with the proceeds of a redemption from either GIA or
SVF and (ii) Class A shares are an investment option of the plan.
PRUARRAY ASSOCIATION BENEFIT PLANS. Class A shares are also offered at NAV
to Benefit Plans or non-qualified plans sponsored by employers which are
members of a common trade, professional or membership association (Association)
that participate in the PruArray Program provided that the Association enters
into a written agreement with Prudential. Such Benefit Plans or non-qualified
plans may purchase Class A shares at NAV without regard to the assets or number
of participants in the individual employer's qualified plan(s) or non-qualified
plans so long as the employers in the Association (i) have retirement plan
assets in the aggregate of at least $1 million or 250 participants in the
aggregate and (ii) maintain their accounts with the Transfer Agent.
PRUARRAY SAVINGS PROGRAM. Class A shares are also offered at NAV to
employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for purchase
at NAV by Individual Retirement Accounts and Savings Accumulation Plans of the
company's employees. The Program is available only to (i) employees who open an
IRA or Savings Accumulation Plan account with the Transfer Agent and (ii)
spouses of employees who open an IRA account with the Transfer Agent. The
program is offered to companies that have at least 250 employees.
SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan or
PruArray or SmartPath 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) officers of the Prudential Mutual Funds (including the Fund), (b) employees
of Prudential Securities and the Manager and their subsidiaries and members of
the families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees of subadvisers of
the Prudential Mutual Funds provided that purchases at NAV are permitted by
such person's employer, (d) Prudential, employees and special agents of
Prudential and its subsidiaries and all persons who have retired directly from
active service with Prudential or one of its subsidiaries, (e) 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, (f) 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 180 days
of the commencement of the financial adviser's employment at Prudential
Securities, or within one year in the case of Benefit Plans, (ii) the purchase
is made with proceeds of a redemption of shares of any open-end non-money
market fund sponsored by the financial adviser's previous employer (other than
a fund which imposes a distribution or service fee of .25 of 1% or less) and
(iii) the financial adviser served as the client's broker on the previous
purchases and (g) investors in Individual Retirement Accounts, provided the
purchase is made with the proceeds of a tax-free rollover of assets from a
Benefit Plan for which the Subadviser serves as the recordkeeper or
administrator.
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
29
<PAGE>
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." Prudential Securities will
pay, from its own resources, sales commissions of up to 3% of the purchase
price of Class B shares to dealers, financial advisers and other persons who
sell Class B shares at the time of sale. This facilitates the ability of the
Fund to sell the Class B shares without an initial sales charge being deducted
at the time of purchase. Prudential Securities anticipates that it will recoup
its advancement of sales commissions from the combination of the CDSC and the
distribution fee. See "How the Fund is Managed-Distributor." In connection with
the sale of Class C shares, Prudential Securities will pay, from its own
resources, dealers, financial advisers and other persons which distribute Class
C shares a sales commission of up to 1% of the purchase price at the time of
the sale.
CLASS Z SHARES
Class Z shares of the Fund are currently available for purchase by the
following categories of investors: (i) pension, profit-sharing or other
employee benefit plans qualified under Section 401 of the Internal Revenue
Code, deferred compensation plans and annuity plans under Sections 457 and
403(b)(7) of the Internal Revenue Code, and non-qualified plans for which the
Fund is an available option (collectively, Benefit Plans), provided that such
Benefit Plans (in combination with other plans sponsored by the same employer
or group of related employers) have at least $50 million in defined
contribution assets; (ii) participants in any fee-based program or trust
program sponsored by Prudential Securities or the Prudential Savings Bank,
F.S.B. or any affiliate which includes mutual funds as investment options and
for which the Fund is an available option; (iii) certain participants in the
MEDLEY Program (group variable annuity contracts) sponsored by Prudential for
whom Class Z shares of the Prudential Mutual Funds are an available investment
option; (iv) Benefit Plans for which Prudential Retirement Services serves as
recordkeeper and as of September 20, 1997 (a) were Class Z shareholders of
Prudential Mutual Funds or (b) executed a letter of intent to purchase Class Z
shares of the Prudential Mutual Funds; (v) current and former
Directors/Trustees of the Prudential Mutual Funds (including the Fund); and
(vi) employees of Prudential or Prudential Securities who participate in a
Prudential-sponsored employee savings plan.
In connection with the sale of Class Z shares, the Manager, Prudential
Securities or one of their affiliates may pay dealers, financial advisers and
other persons which distribute shares a finders' fee from its own resources
based on a percentage of the NAV of shares sold by such persons.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV PER
SHARE NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM
BY THE TRANSFER AGENT OR PRUDENTIAL SECURITIES. See "How the Fund Values its
Shares." In certain cases, however, redemption proceeds will be reduced by the
amount of any applicable CDSC, as described below. See "Contingent Deferred
Sales Charges" below.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM YOUR
SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT 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
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<PAGE>
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE
REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A
CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY
ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE
ACCEPTED. All correspondence and documents concerning redemptions should be
sent to the Fund in care of the Transfer Agent, Prudential Mutual Fund Services
LLC, 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. In the case of redemptions from a PruArray or SmartPath Plan, if the
proceeds of the redemption are invested in another investment option of the
plan, in the name of the record holder and at the same address as reflected in
the Transfer Agent's records, a signature guarantee is not required.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR
WRITTEN REQUEST EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH
PRUDENTIAL SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE
CREDITED TO YOUR PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE.
Such payment may be postponed or the right of redemption suspended at times (a)
when the New York Stock Exchange is closed for other than customary weekends
and holidays, (b) when trading on such Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (d) during any other
period when the SEC, by order, so permits; provided that applicable rules and
regulations of the SEC shall govern as to whether the conditions prescribed in
(b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR 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 CASHIER'S CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. See "How the Fund Values its Shares." If
your shares are redeemed in kind, you would incur transaction costs in
converting the assets into cash. The Fund, however, has elected to be governed
by Rule 18f-1 under the Investment Company Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the NAV of the Fund during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the 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 NAV of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No CDSC will be imposed on any such
involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
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<PAGE>
determined after the order is received, which must be within 90 days after the
date of the redemption. Any CDSC paid in connection with such redemption will
be credited (in shares) to your account. If less than a full repurchase is
made, the credit will be on a pro rata basis. You must notify the Fund's
Transfer Agent, either directly or through Prudential Securities, at the time
the repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales
Charges" below. Exercise of the repurchase privilege will generally not affect
federal tax treatment of any gain realized upon redemption. However, if the
redemption was made within a 30-day period of the repurchase and if the
redemption resulted in a loss, some or all of the loss, depending on the amount
reinvested, may not be allowed for federal income tax purposes. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a 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 CDSC will be paid to and retained by Prudential Securities. 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" below.
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
CDSC
YEAR SINCE PURCHASE AS A PERCENTAGE OF DOLLARS INVESTED
PAYMENT MADE OR REDEMPTION PROCEEDS
- ---------------------------------- ------------------------------------
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth 1.0%
Fifth and thereafter None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made: first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in NAV above the total amount of
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 NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be
32
<PAGE>
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 CDSC of $4.80.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES-CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability of
a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), or a trust, at the time of death or
initial determination of disability, provided that the shares were purchased
prior to death or disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the
Internal Revenue Code from a tax-deferred retirement plan, an IRA or 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 591|M/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 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.
SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on
certain redemptions from a Systematic Withdrawal Plan. On an annual basis, up
to 12% of the total dollar amount subject to the CDSC may be redeemed without
charge. The Transfer Agent will calculate the total amount available for this
waiver annually on the anniversary date of your purchase or, for shares
purchased prior to March 1, 1997, on March 1 of the current year. The CDSC will
be waived (or reduced) on redemptions until this threshold 12% amount is
reached.
In addition, the CDSC will be waived on redemptions of shares held by a
Director of the Company.
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.
33
<PAGE>
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE-CLASS C SHARES
PRUARRAY OR SMARTPATH PLANS. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in the Transfer Agent's PruArray and SmartPath Programs.
CONVERSION FEATURE-CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately five years after purchase. Conversions will be effected at
relative NAV 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 NAVs, the number of Eligible Shares calculated 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 NAV of the Class A shares may be higher than that of the
Class B shares at the time of conversion. Thus, although the aggregate dollar
value will be the same, you may receive fewer Class A shares than Class B
shares converted. 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 may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service that: (i) the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Code and (ii) the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended,
Class B shares of the Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.
34
<PAGE>
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET
FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES OF THE FUND MAY BE EXCHANGED FOR CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS
OF THE RELATIVE NAV. No sales charge will be imposed at the time of the
exchange. Any applicable CDSC payable upon the redemption of shares exchanged
will be 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, Inc. 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 may
call the Fund at (800) 225-1852 to execute a telephone exchange of shares,
weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS,
LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after
the request is received in good order. The exchange privilege is available only
in states where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES."
You may also exchange shares by mail by writing to the Transfer Agent,
Prudential Mutual Fund Services LLC, 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 THE TRANSFER AGENT AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGES. 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), and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan-Class Z Shares" 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 for shareholders who qualify to purchase Class A
shares at NAV, on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares 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 NAV
35
<PAGE>
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.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares
when they elect to have those assets become a part of the fee-based program.
Upon leaving the program (whether voluntarily or not), such Class Z shares
(and, to the extent provided for in the program, Class Z shares acquired
through participation in the program) will be exchanged for Class A shares at
NAV. Similarly, participants in Prudential Securities' 401(k) Plan for which
the Fund's Class Z shares are an available option and who wish to transfer
their Class Z shares out of the Prudential Securities 401(k) Plan following
separation from service (i.e., voluntary or involuntary termination of
employment or retirement) will have their Class Z shares exchanged for Class A
shares at net asset value.
The exchange privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.
FREQUENT TRADING. The Fund and the other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, the Fund reserves the right to refuse purchase orders and exchanges
by any person, group or commonly controlled accounts, if, in the Manager's sole
judgment, such person, group or accounts were following a market timing
strategy or were otherwise engaging in excessive trading (Market Timers).
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading. The
Fund may notify the Market Timer of rejection of an exchange or purchase order
subsequent to the day on which the order was placed.
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:
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 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.
o AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including a
Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec representative or
the Transfer Agent directly.
o TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through Prudential Securities. These plans are for use by both
self-employed individuals and corporate
36
<PAGE>
employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, the administration, custodial fees and other
details is available from Prudential Securities or the Transfer Agent. If you
are considering adopting such a plan, you should consult with your own legal or
tax adviser with respect to the establishment and maintenance of such a plan.
o SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available
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."
o REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In addition, monthly
unaudited financial data is available from the Fund upon request.
o SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, 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.
37
<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 the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
which make the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment 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.
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.
Prime-1: The designation "Prime-1" indicates the highest quality repayment
capacity of the rated issue.
Prime-2: The designation "Prime-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: Debt rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
A-1
<PAGE>
BB, B: Debt rated BB and B is regarded as having predominantly speculative
characteristics 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. 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
S&P 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: This highest category indicates that the degree of safety regarding
timely payment is very strong.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-2
<PAGE>
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THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential offers a broad range of mutual funds designed to meet your
individual needs. We welcome you to review the investment options available
through our family of funds. For more information on the Prudential Mutual
Funds, including charges and expenses, contact your Prudential Securities
financial adviser or Prusec representative or telephone the Fund at (800)
225-1852 for a free prospectus. Read the prospectus carefully before you invest
or send money.
-------------------------------------------------------
Taxable Bond Funds
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
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
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
-------------------------------------------------------
Global Funds
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
-------------------------------------------------------
Equity Funds
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Active Balanced Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
-------------------------------------------------------
Money Market Funds
o Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
B-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of 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
What are the Fund's Risk Factors and
Special Characteristics? .................. 2
FUND EXPENSES .............................. 5
FINANCIAL HIGHLIGHTS ........................... 6
HOW THE FUND INVESTS ........................... 10
Investment Objective and Policies ......... 10
Risk Factors .............................. 12
Other Investments and Investment Techniques.. 13
Hedging and Return Enhancement Strategies ... 14
Other Investments and Policies ............ 17
Investment Restrictions ..................... 18
HOW THE FUND IS MANAGED ........................ 19
Manager .................................... 19
Distributor ................................. 19
Fee Waivers .............................. 21
Portfolio Transactions ..................... 21
Custodian and Transfer and
Dividend Disbursing Agent .................. 21
HOW THE FUND VALUES ITS SHARES ............... 21
HOW THE FUND CALCULATES PERFORMANCE ............ 22
TAXES, DIVIDENDS AND DISTRIBUTIONS ............ 22
GENERAL INFORMATION ........................... 24
Description of Common Stock ............... 24
Additional Information ..................... 25
SHAREHOLDER GUIDE .............................. 25
How to Buy Shares of the Fund ............ 25
Alternative Purchase Plan .................. 26
How to Sell Your Shares .................. 30
Conversion Feature - Class B Shares ......... 34
How to Exchange Your Shares ............... 35
Shareholder Services ........................ 36
APPENDIX A .................................... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY ............ B-1
- --------------------------------------------------------------------------------
MF144A
<TABLE>
<S> <C>
Class A: 74433F 10-8
CUSIP Nos.: Class B: 74433F-20-7
Class C: 74433F-50-4
Class Z: 74433F-60-3
</TABLE>
Prudential Global Limited Maturity Fund, Inc.
- --------------------------------------------------------------------------------
Limited Maturity Portfolio
[LOGO]
PROSPECTUS
December 30, 1997
www.prudential.com
<PAGE>
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
Statement of Additional Information
dated December 30, 1997
Prudential Global Limited Maturity Fund, Inc. is an open-end,
non-diversified, management investment company, or mutual fund, comprised of
one portfolio-the Limited Maturity Portfolio (the Fund). The investment
objective of the Fund is to maximize total return, the components of which are
current income and capital appreciation. The Fund seeks to achieve its
objective by investing primarily in a portfolio of debt securities denominated
in the U.S. dollar and a range of foreign currencies. The Fund will maintain a
weighted average maturity of more than 2, but less than 5, years, with the
maturity for any individual security generally not exceeding 10 years. Under
normal circumstances, the Fund will invest its assets in debt securities of
issuers in at least five different countries including the United States. There
can be no assurance that the Fund's objective will be achieved.
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077, and its telephone number is (800) 225-1852.
The Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated December 30, 1997, a copy
of which may be obtained from the Fund at Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference
to page in
Page Prospectus
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<S> <C> <C>
General Information ......................................................... B-2 -
Additional Investment Information .......................................... B-2 10
Investment Restrictions ...................................................... B-9 18
Directors and Officers ...................................................... B-10 19
Manager ..................................................................... B-13 19
Distributor .................................................................. B-15 19
Portfolio Transactions and Brokerage ....................................... B-16 21
Purchase and Redemption of Fund Shares ....................................... B-17 25
Shareholder Investment Account ............................................. B-20 36
Net Asset Value ............................................................ B-23 21
Taxes, Dividends and Distributions .......................................... B-24 22
Performance Information ...................................................... B-26 22
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants B-28 21
Financial Statements ......................................................... B-29 6
Report of Independent Accountants .......................................... B-42 -
Independent Auditors' Report ................................................ B-43 -
Appendix I-General Investment Information .................................... I-1 -
Appendix II-Historical Performance Data .................................... II-1 -
Appendix III-Information Relating to Prudential .............................. III-1 -
Appendix IV-Five Percent Shareholder Report ................................. IV-1 -
</TABLE>
- --------------------------------------------------------------------------------
MF149B
<PAGE>
GENERAL INFORMATION
In October 1995, Prudential Global Limited Maturity Fund, Inc. (the
Company) and the Limited Maturity Portfolio each changed its name from
Prudential Short-Term Global Income Fund, Inc. and Short-Term Global Income
Portfolio, respectively.
ADDITIONAL INVESTMENT INFORMATION
U.S. GOVERNMENT SECURITIES
U.S. TREASURY SECURITIES. The Fund 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. The Fund 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 Fund 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, the
Fund must look principally to the agency issuing or guaranteeing the obligation
for ultimate repayment and may not be able to assert a claim against the United
States if the agency or instrumentality does not meet its commitments.
The Fund 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. The Fund may
invest up to 10% of its total assets in zero coupon securities.
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 (NAV) of the Fund.
At a time when the Fund 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 Fund. The termination of
option positions under these conditions would generally result in the
realization of capital losses, which would reduce the Fund's capital gains
distributions. Accordingly, the Fund 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
The Fund may invest up to 5% of its total assets in high quality
participation interests in loans extended by banks to U.S. 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 the Fund 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 participation in the seller's share of the loan.
Typically, the Fund 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
B-2
<PAGE>
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 the Fund acts as co-lender in connection with a participation
interest or when it acquires a participation interest the terms of which
provide that the Fund will be in privity with the corporate borrower, the Fund
will have direct recourse against the borrower in the event the borrower fails
to pay scheduled principal and interest. In cases where the Fund lacks such
direct recourse, it will look to the agent bank to enforce appropriate credit
remedies against the borrower.
The Fund 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. The Fund may incur
additional credit risk, however, when it is in the position of participant
rather than a co-lender because the Fund 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 Fund and the co-lender. However, in
acquiring participation interests, the Fund will conduct analysis and
evaluation of the financial condition of each such co-lender and participant to
ensure that the participation interest meets the Fund's high quality standard
and will continue to do so as long as it holds a participation. For purposes of
the Fund's requirement to maintain diversification for tax purposes, the issuer
of a loan participation will be the underlying borrower. In cases where the
Fund does not have recourse directly against the borrower, both the borrower
and each agent bank and co-lender interposed between the Fund and the borrower
will be deemed issuers of the loan participation for tax diversification
purposes.
For purposes of the Fund's fundamental investment restriction against
investing 25% or more of its total assets in any one industry, the Fund 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
The Fund may purchase put and call options and sell covered put and call
options which are traded on U.S. or foreign exchanges and may also engage in
over-the-counter options transactions with U.S. 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,
the Fund 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 the Fund writes a
call option, it 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.
The purchaser of a put option has the right, for a specified period of
time, to sell the securities subject to the option to the writer of the put at
the specified exercise price. By writing a put option, the Fund becomes
obligated during the term of the option, upon
B-3
<PAGE>
exercise of the option, to purchase the securities underlying the option at the
exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities for more than their current market price.
The 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.
The Fund 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 Prudential Investment Corporation, doing business as
Prudential Investments (Prudential Investments), and PRICOA Asset Management Ltd
(PRICOA, and collectively with Prudential Investments, the Subadviser) believes
may move in the same direction as those portfolio securities. If the
Subadviser'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 Subadviser's judgment is not correct, the value of the securities
underlying the put option may decrease less than the value of the Fund's
investments and therefore the put option may not provide complete protection
against a decline in the value of the Fund's investments below the level sought
to be protected by the put option.
The Fund 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 Subadviser believes may move
in the same direction as those portfolio securities. In such circumstances the
Fund 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 Fund is not as close as
anticipated and the value of the securities underlying the call options
increases less than the value of the securities to be acquired by the Fund.
The Fund may write options on securities in connection with buy-and-write
transactions; that is, it may purchase a security and concurrently write a call
option against that security. If the call option is exercised, the Fund's
maximum gain will be the premium it received for writing the option, adjusted
upwards or downwards by the difference between the Fund's purchase price of the
security and the exercise price of the option. If the option is not exercised
and the price of the underlying security declines, the amount of 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 Fund's maximum gain
will be the premium received by it for writing the option, adjusted upwards or
downwards by the difference between the Fund's purchase price of the security
and the exercise price of the option. If the option is not exercised and the
price of the underlying security declines, the amount of the decline will be
offset in part, or entirely, by the premium received.
The Fund 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 the Fund and its contra-party with
no clearing organization guarantee. Thus, when the Fund purchases an OTC
option, it relies on the dealer from which it has purchased the OTC option to
make or take delivery of the securities underlying the option. Failure by the
dealer to do so would result in the loss of the premium paid by the Fund as
well as the loss of the expected benefit of the transaction. The Board of
Directors of the Company has approved a list of dealers with which the Fund may
engage in OTC options.
When the Fund writes an OTC option, it generally will be able to close out
the OTC option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote the OTC option.
While the Fund will enter into
B-4
<PAGE>
OTC options only with dealers which agree to, and which are expected to be
capable of, entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate an OTC option at a favorable
price at any time prior to expiration. Until the Fund is able to effect a
closing purchase transaction in a covered OTC call option the Fund has written,
it will not be able to liquidate securities used as cover until the option
expires or is exercised or different cover is substituted. In the event of
insolvency of the contra-party, the Fund may be unable to liquidate an OTC
option.
OTC options purchased by the Fund will be treated as illiquid securities
subject to any applicable limitation on such securities. Similarly, the assets
used to "cover" OTC options written by the Fund will be treated as illiquid
unless the OTC options are sold to qualified dealers who agree that the Fund
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.
The Fund may write only "covered" options. This means that so long as the
Fund 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 or other liquid
assets having a value equal to or greater than the fluctuating market value of
the optioned securities (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). In such cases the same segregated
collateral is considered "cover" for both the put and the call and the Fund
will also segregate or deposit cash or other liquid assets equivalent to the
amount, if any, by which the put is "in-the-money." "Liquid assets" as used in
this Statement of Additional Information include U.S. Government securities,
equity securities, debt obligations or other liquid, unencumbered assets.
OPTIONS ON CURRENCIES
Instead of purchasing or selling futures, options on futures or forward
currency exchange contracts, the Fund may attempt to accomplish similar
objectives by purchasing put or call options on currencies either on exchanges
or in over-the-counter markets or by writing put options or covered call
options on currencies. A put option gives the Fund the right to sell a currency
at the exercise price until the option expires. A call option gives the Fund
the right to purchase a currency at the exercise price until the option
expires. Both options serve to insure against adverse currency price movements
in the underlying portfolio assets designated in a given currency.
FUTURES CONTRACTS AND OPTIONS THEREON
The Fund will purchase or sell interest rate or currency futures contracts
to take advantage of or to protect the Fund against fluctuations in interest
rates affecting the value of debt securities which the Fund holds or intends to
acquire 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, the Fund must
allocate cash or securities as a deposit payment (initial margin). It is
expected that the initial margin on U.S. exchanges will vary from 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
Fund may be required by an exchange to increase the level of its initial margin
payment. Thereafter, the futures contract is valued daily and the payment of
"variation margin" may be required, a process known as "mark to the market."
Each day the Fund is required to provide or is entitled to receive variation
margin in an amount equal to any decline (in the case of a long futures
position) or increase (in the case of 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. U.S. 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.
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
B-5
<PAGE>
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 Subadviser may still not result in a successful
transaction.
Although the Fund believes that use of futures contracts will benefit the
Fund, if the Subadviser's judgment about the general direction of interest
rates or currency values is incorrect, the Fund'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.
The Fund may only write "covered" put and call options on futures
contracts. The Fund will be considered "covered" with respect to a call option
it writes on a futures contract if the Fund 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 the Fund's
custodian (the Custodian) for the term of the option cash or other liquid
assets equal to the fluctuating value of the optioned future. The Fund will be
considered "covered" with respect to a put option it writes on a futures
contract if it owns an option to sell that futures contract having a strike
price equal to or greater than the strike price of the "covered" option, or if
it segregates and maintains with the Custodian for the term of the option cash
or other liquid assets at all times equal in value to the exercise price of the
put (less any initial margin deposited by the Fund with the 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 FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund'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.
The Fund may not position hedge (including cross hedges) 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 being hedged. If the Fund enters into a position hedging transaction,
the transaction will be "covered" by the position being hedged or the Fund's
Custodian will place cash or other liquid assets in a segregated account of the
Fund (less the value of the "covering" positions, if any) in an amount equal to
the value of the Fund'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 Fund's
net commitment with respect to the forward contract.
At or before the maturity of a forward sale contract, the Fund 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 Fund will obtain, on the
same maturity date, the same amount of the currency which it is obligated to
deliver. If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, 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 Fund 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 Fund will realize a gain to the extent the price of the
currency it has agreed to purchase is less than the price of the currency it
has agreed to sell. Should forward prices increase, the Fund 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.
B-6
<PAGE>
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 Fund may take in certain circumstances.
If so, this would limit the ability of the Fund 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
the Fund to close out a position, and in the event of adverse price movements,
the Fund 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 the Fund has purchased with the result that the Fund
would have to exercise the options in order to realize any profit. If the Fund
is unable to effect a closing purchase transaction in a secondary market in an
option the Fund has written, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position. Reasons for the absence of a
liquid secondary market include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be imposed by a
securities exchange 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.
The Fund'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 the Fund generally will purchase or sell only
those futures contracts and options thereon for which there appears to be a
liquid market, there is no assurance that a liquid market on an exchange will
exist for any particular futures contract or option thereon at any particular
time. In the event no liquid market exists for a particular futures contract or
option thereon in which the Fund maintains a position, it will not be possible
to effect a closing transaction in that contract or to do so at a satisfactory
price and the Fund would have to either make or take delivery under the futures
contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised 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 Fund has written and which the Fund is
unable to close, the Fund would be required to maintain margin deposits on the
futures contract or option and to make variation margin payments until the
contract is closed.
LIMITATIONS ON THE PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON
FUTURES CONTRACTS
The Fund will engage in transactions in interest rate and foreign currency
futures contracts and options thereon only to reduce certain risks of its
investments and to attempt to enhance return in each case in accordance with
the rules and regulations of the CFTC, and not for speculation.
In accordance with CFTC regulations, the Fund may not purchase or sell
futures contracts or options thereon if the initial margin and premiums
therefor exceed 5% of the liquidation value of the Fund's total assets after
taking into account unrealized profits and unrealized losses on 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
within the meaning of the CFTC regulations. In instances involving the purchase
of futures contracts or call options thereon or the writing of put options
thereon
B-7
<PAGE>
by the Fund, an amount of cash or other liquid assets equal to the market value
of the futures contracts and options thereon (less any related margin
deposits), will be deposited in a segregated account with the 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, the Fund 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 Fund'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 the Fund's ability to engage in
certain yield enhancement and risk management strategies. There are no
limitations on the Fund's use of futures contracts and options on futures
contracts beyond the restrictions set forth above.
BORROWING
When the Fund 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, the Fund 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 the Fund to sell a portion of its
portfolio securities at a time when it is disadvantageous to do so.
REPURCHASE AGREEMENTS
The Fund will enter into repurchase transactions only with parties meeting
creditworthiness standards approved by the Company's Board of Directors. The
Subadviser will monitor the creditworthiness of such parties, under the general
supervision of the Board of Directors. In the event of a default or bankruptcy
by a seller, the Fund will promptly seek to liquidate the collateral. To the
extent that the proceeds from any sale of such collateral upon a default in the
obligation to repurchase are less than the repurchase price, the Fund will
suffer a loss.
The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Investments Fund Management LLC (the Manager)
pursuant to an order of the Securities and Exchange Commission (SEC). On a
daily basis, any uninvested cash balances of the Fund 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
The Fund may not hold more than 15% 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 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
B-8
<PAGE>
Act for resales of certain securities to qualified institutional buyers. The
Subadviser 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 Subadviser will monitor the
liquidity of such restricted securities subject to the supervision of the Board
of Directors. In reaching liquidity decisions, the Subadviser will consider,
inter alia, the following factors: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (3) dealer undertakings
to make a market in the security; and (4) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the transfer).
In addition, in order for commercial paper that is issued in reliance on
Section 4(2) of the Securities Act to be considered liquid: (i) it must be
rated in one of the two highest rating categories by at least two nationally
recognized statistical rating organizations (NRSRO), or if only one NRSRO rates
the securities, by that NRSRO, or, if unrated, be of comparable quality in the
view of the Subadviser; 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.
The staff of the SEC has also taken the position, which the Fund will
follow, that purchased over-the-counter options and the assets used as "cover"
for written over-the-counter options are illiquid securities unless the Fund
and the counterparty have provided for the Fund, at the Fund's election, to
unwind the over-the-counter option. The exercise of such an option ordinarily
would involve the payment by the Fund of an amount designed to reflect the
counterparty's economic loss from an early termination, but does allow the Fund
to treat the assets used as "cover" as "liquid." See "How the Fund Invests
- -Other Investments and Policies-Illiquid Securities" in the Prospectus.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. The Fund's
fundamental policies cannot be changed without the approval of a majority of
the Fund's outstanding voting securities. A "majority of the Fund's outstanding
voting securities" when used in this Statement of Additional Information means
the lesser of (i) 67% or more of the voting securities of the Fund represented
at a meeting at which more than 50% of the outstanding voting securities of the
Fund are present in person or represented by proxy or (ii) more than 50% of the
outstanding voting securities of the Fund.
The Fund 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 the Fund 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. The Fund may pledge up to 20% of the value
of its total assets to secure such borrowings. For purposes of this
restriction, the purchase or sale of securities on a when-issued or delayed
delivery basis, 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.
(4) Buy or sell commodities, commodity contracts, real estate or interests
in real estate (including mineral leases or rights), except that the Fund 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 the Fund 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
the Fund'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, the Fund may be deemed to be an
underwriter under certain federal securities laws.
B-9
<PAGE>
Whenever any fundamental investment policy or investment restriction
states a maximum percentage of the Fund's assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later change
in percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt
action to reduce its borrowings, as required by applicable law.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS* AND (AGE) WITH FUND DURING PAST FIVE YEARS
- ------------------------------ ----------- ------------------------------------------------------------
<S> <C> <C>
Edward D. Beach (73) Director President and Director of BMC Fund, Inc., a closed-end
investment company; formerly, Vice Chairman of
Broyhill Furniture Industries, Inc.; Certified Public
Accountant; Secretary and Treasurer of Broyhill Family
Foundation, Inc.; Member of the Board of Trustees of
Mars Hill College; Director of The High Yield Income
Fund, Inc.
Delayne Dedrick Gold (59) Director Marketing and Management Consultant; Director of The
High Yield Income Fund, Inc.
**Robert F. Gunia (51) Director Vice President (since September 1997) of Prudential
Investments; Executive Vice President and Treasurer
(since December 1996), of the Manager; Senior Vice
President (since March 1987) of Prudential Securities
Incorporated (Prudential Securities); formerly Chief
Administrative Officer (July 1990-September 1996),
Director (January 1989-September 1996) and Executive
Vice President, Treasurer and Chief Financial Officer
(June 1987-September 1996) of Prudential Mutual Fund
Management, Inc.; Vice President and Director of The
Asia Pacific Fund, Inc. (since May 1989); Director of The
High Yield Income Fund, Inc.
Douglas H. McCorkindale (58) Director President (since September 1997) and Vice Chairman
(since March 1984), Gannett Co. Inc. (publishing and
media); Director of Gannett Co. Inc., Frontier
Corporation and Continental Airlines, Inc.
**Mendel A. Melzer, CFA (37) Director Chief Investment Officer (since October 1996) of Prudential
751 Broad St. Mutual Funds; formerly Chief Financial Officer
Newark, NJ 07102 (November 1995-September 1996) of Prudential
Investments, Senior Vice President and Chief Financial
Officer (April 1993-November 1995) of Prudential
Preferred Financial Services, Managing Director (April
1991-April 1993) of Prudential Investment Advisors and
Senior Vice President (July 1989-April 1991) of
Prudential Capital Corporation; Chairman and Director of
Prudential Series Fund, Inc.; Director of The High Yield
Income Fund, Inc.
</TABLE>
B-10
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS* AND (AGE) WITH FUND DURING PAST FIVE YEARS
- --------------------------- --------------- -----------------------------------------------------------
<S> <C> <C>
Thomas T. Mooney (56) Director President of the Greater Rochester Metro Chamber of
Commerce; formerly Rochester City Manager; Trustee of
Center for Governmental Research, Inc.; Director of Blue
Cross of Rochester, Monroe County Water Authority,
Rochester Jobs, Inc., Executive Service Corps of
Rochester, Monroe County Industrial Development
Corporation, Northeast-Midwest Institute, The Business
Council of New York State, First Financial Fund, Inc., The
High Yield Income Fund, Inc. and The High Yield Plus
Fund, Inc.
Stephen P. Munn (55) Director Chairman (since January 1994), Director and President
(since 1988) and Chief Executive Officer
(1988-December 1993) of Carlisle Companies
Incorporated (manufacturer of industrial products).
**Richard A. Redeker (54) President and Employee of Prudential Investments; formerly President,
751 Broad St. Director Chief Executive Officer and Director (October 1993-
Newark, NJ 07102 September 1996), Prudential Mutual Fund Management,
Inc., Executive Vice President, Director and Member of
Operating Committee (October 1993-September 1996),
Prudential Securities, Director (October 1993-September
1996) of Prudential Securities Group, Inc., Executive
Vice President, The Prudential Investment Corporation
(January 1994-September 1996), Director (January
1994-September 1996) of Prudential Mutual Fund
Distributors, Inc. and Prudential Mutual Fund Services,
Inc. and Senior Executive Vice President and Director of
Kemper Financial Services, Inc. (September
1978-September 1993); President and Director of The
High Yield Income Fund, Inc.
Robin B. Smith (58) Director Chairman and Chief Executive Officer (since August 1996)
of Publishers Clearing House; formerly President and
Chief Executive Officer (January 1989-August 1996) and
President and Chief Operating Officer (September
1981-December 1988) of Publishers Clearing House;
Director of BellSouth Corporation, Texaco Inc., Springs
Industries Inc. and Kmart Corporation.
Louis A. Weil, Ill (56) Director Publisher and Chief Executive Officer (since January 1996)
and Director (since September 1991) of Central
Newspapers, Inc.; Chairman of the Board (since January
1996), Publisher and Chief Executive Officer (August
1991-December 1995) of Phoenix Newspapers, Inc.;
formerly Publisher of Time Magazine (May 1989-March
1991), President, Publisher and Chief Executive Officer
of The Detroit News (February 1986-August 1989), and
Member of the Advisory Board, Chase Manhattan
Bank-Westchester; Director of The High Yield Income
Fund, Inc.
Clay T. Whitehead (59) Director President of National Exchange Inc. (new business
development firm) (since May 1983).
</TABLE>
B-11
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS* AND (AGE) WITH FUND DURING PAST FIVE YEARS
- -------------------------- --------------------- ------------------------------------------------------------
<S> <C> <C>
Thomas A. Early (42) Vice President Vice President and General Counsel (since March 1997),
Prudential Mutual Funds & Annuities; Executive Vice
President, Secretary and General Counsel (since
December 1996) of the Manager; formerly Vice
President and General Counsel (March 1994-March
1997) of Prudential Retirement Services and Associate
General Counsel and Chief Financial Services Officer
(1989-1994), Frank Russell Company.
S. Jane Rose (51) Secretary Senior Vice President (since December 1996) of the Manager;
Senior Vice President and Senior Counsel of Prudential
Securities (since July 1992); formerly Senior Vice
President (January 1991-September 1996) and Senior
Counsel (June 1987-September 1996) of Prudential Mutual
Fund Management, Inc.
Grace C. Torres (38) Treasurer and First Vice President (since December 1996) of the Manager;
Principal Financial First Vice President (since March 1994) of Prudential
and Accounting Securities; formerly First Vice President (March
Officer 1994-September 1996) of Prudential Mutual Fund
Management, Inc. and Vice President (July 1989-March
1994) of Bankers Trust Corporation.
Stephen M. Ungerman (44) Assistant Treasurer Tax Director (since March 1996) of Prudential Investments
and the Private Asset Group of The Prudential Insurance
Company of America (Prudential); formerly First Vice
President of Prudential Mutual Fund Management, Inc.
(February 1993-September 1996), and Senior Tax Manager
of Price Waterhouse LLP (1981-January 1993).
</TABLE>
- -----------
* Unless otherwise noted, the address for each of the above persons is: c/o
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.
** "Interested" Director, as defined in the Investment Company Act, by reason
of his affiliation with Prudential, Prudential Securities or the Manager.
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.
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 $2,500, 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 the Fund
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.
The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under this phase-in provision, Mr. Beach is
scheduled to retire on December 31, 1999.
Pursuant to the terms of the Management Agreement with the Fund, the
Manager pays all compensation of officers and employees of the Fund as well as
the fees and expenses of all Directors of the Fund who are affiliated persons
of the Manager.
B-12
<PAGE>
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended October 31, 1997 to current Directors of the Fund, as
well as to Directors of the Fund who served during the Fund's 1997 fiscal year.
The table also shows aggregate compensation paid to those Directors for service
on Boards of all funds managed by the Manager, including the Fund (the Fund
Complex), for the calendar year ended December 31, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL 1996
COMPENSATION
PENSION OR PAID TO BOARD
RETIREMENT MEMBERS
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM FUND
COMPENSATION AS PART OF FUND BENEFITS UPON AND FUND
NAME AND POSITION FROM FUND EXPENSES RETIREMENT COMPLEX(2)
- ----------------------------------------------- -------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Beach, Edward D.-Director $2,458 None N/A $166,000 (21/39)*
Eyre, Stephen C.-Former Director $1,667 None N/A $34,250 (4/5)*
Gold, Delayne D.-Director $4,125 None N/A $175,308 (21/42)*
Gunia, Robert F.(1)-Director - None N/A -
Hoff, Don G.-Former Director $1,667 None N/A $50,042 (5/7)*
Jacobs, Jr., Harry A.(1)-Former Director - None N/A -
Knafel, Sidney R-Former Director $1,667 None N/A $29,875 (4/5)*
LaBlanc, Robert E.-Former Director $1,667 None N/A $34,542 (4/6)*
Lennox, Donald D.-Former Director $2,458 None N/A $90,000 (10/22)*
McCorkindale, Douglas H.-Director** $2,458 None N/A $71,208 (10/13)*
Melzer, Mendel A.(1)-Director - None N/A -
Mooney, Thomas T.-Director** $2,458 None N/A $135,375 (18/36)*
Munn, Stephen P.-Director $2,458 None N/A $49,125 (6/8)*
Owens, Jr., Thomas A.-Former Director $1,667 None N/A $86,333 (9/11)*
Redeker, Richard A.(1)-Director and President - None N/A -
Smith, Robin B.-Director** $2,458 None N/A $89,957 (11/20)*
Weil, III, Louis A.-Director $2,458 None N/A $91,250 (13/18)*
Whitehead, Clay T. -Director $4,125 None N/A $38,292 (5/7)*
</TABLE>
- -----------
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
** Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1996, includes amounts deferred at the
election of Directors under the funds' deferred compensation plans.
Including accrued interest, total compensation amounted to $71,034,
$139,869 and $109,294 for Douglas H. McCorkindale, Thomas T. Mooney and
Robin B. Smith, respectively.
(1) Directors who are "interested" do not receive compensation from the Fund
Complex (including the Fund).
As of December 12, 1997, the Directors and officers of the Fund, as a
group, owned beneficially less than 1% of the common stock of the Portfolio.
As of December 12, 1997, the beneficial owners, directly or indirectly, of
more than 5% of any class of shares of the outstanding common stock of the Fund
were those listed in Appendix IV.
As of December 12, 1997, Prudential Securities was the record holder for
other beneficial owners with respect to the Fund of 8,030,018 Class A shares
(or approximately 81% of the outstanding Class A shares), 216,904 Class B
shares (or approximately 59% of the outstanding Class B shares), 10,651 Class C
shares (or approximately 84% of the outstanding Class C shares) and 4,888 Class
Z shares (or approximately 99% of the outstanding Class Z 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, Prudential Investments Fund Management LLC,
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077,
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, 1997, the Manager
managed and/or administered open-end and closed-end management investment
companies with assets of approximately $60.1 billion. According to the
Investment Company Institute, as of October 31, 1997, the Prudential Mutual
Funds were the 17th largest family of mutual funds in the United States.
B-13
<PAGE>
The Manager is a subsidiary of Prudential Securities and Prudential.
Prudential Mutual Fund Services LLC (the Transfer Agent), a wholly owned
subsidiary of the Manager, serves as the transfer agent for the Prudential
Mutual Funds and, in addition, provides customer service, recordkeeping and
management and administration services to qualified plans.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), the Manager, subject to the supervision of the Company's Board of
Directors and in conformity with the stated policies of the Fund, manages both
the investment operations of the Fund and the composition of the Fund's
investments, including the purchase, retention, disposition and loan of
securities. In connection therewith, the Manager is obligated to keep certain
books and records of the Fund. The Manager also administers the Company'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 and the
Transfer Agent. The management services of the Manager for the Fund are not
exclusive under the terms of the Management Agreement and the Manager is free
to, and does, render management services to others.
For its services, the Manager receives, pursuant to the Management
Agreement, a fee at an annual rate of .55 of 1% of the average daily net assets
of the Fund. The fee is computed daily and payable monthly. The Management
Agreement also provides that, in the event the expenses of the Fund (including
the fees of the Manager, 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 the Manager will be reduced by the amount of such
excess. No jurisdiction currently limits the Fund's expenses.
In connection with its management of the corporate affairs of the Fund,
the Manager bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel
except the fees and expenses of Directors who are not affiliated persons of the
Manager or Subadviser;
(b) all expenses incurred by the Manager or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those assumed
by the Fund as described below; and
(c) the costs and expenses payable to Prudential Investments pursuant to
the subadvisory agreement between the Manager and Prudential Investments (the
Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated persons of the
Manager or the Subadviser, (c) the fees and certain expenses of the Custodian
and Transfer Agent, including the cost of providing records to the Manager in
connection with its obligation of maintaining required records of the Fund and
of pricing the Fund's shares, (d) the charges and expenses of legal counsel and
independent accountants for the Fund, (e) brokerage commissions and any issue
or transfer taxes chargeable to the Fund in connection with its securities
transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade associations of which the Fund
may be a member, (h) the cost of stock certificates representing shares of the
Fund, (i) the cost of fidelity and liability insurance, (j) the fees and
expenses involved in registering and maintaining registration of the Fund and
of its shares with the SEC, including the preparation and printing of the
Fund's registration statements and prospectuses for such purposes, and paying
the fees and expenses of notice filings made in accordance with state
securities laws, (k) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing reports, proxy statements and prospectuses to
shareholders in the amount necessary for distribution to the shareholders, (l)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business and (m) distribution
fees.
The Management Agreement provides that the Manager will not be liable for
any error of judgment or for any loss suffered by the Fund in connection with
the matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically if
assigned, and that it may be terminated without penalty by either party upon
not more than 60 days' nor less than 30 days' written notice. The Management
Agreement will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the Investment Company Act. The Management
Agreement was last approved by the Board of Directors, including a majority of
the Directors who are not parties to the contract or interested persons of any
such party as defined in the Investment Company Act, on May 21, 1997.
For the fiscal years ended October 31, 1997, 1996 and 1995, the Manager
received management fees of $559,063, $682,450 and $876,711, respectively, from
the Fund.
The Manager has entered into the Subadvisory Agreement with Prudential
Investments. The Subadvisory Agreement provides that Prudential Investments
will furnish investment advisory services in connection with the management of
the Fund. In
B-14
<PAGE>
connection therewith, Prudential Investments is obligated to keep certain books
and records of the Fund. Prudential Investments has entered into an agreement
with PRICOA under which PRICOA provides investment advisory services to the
Fund. The Manager continues to have responsibility for all investment advisory
services pursuant to the Management Agreement and supervises the Subadviser's
performance of such services. Prudential Investments is reimbursed by the
Manager for its reasonable costs and expenses incurred in furnishing those
services and PRICOA is paid by Prudential Investments a fee at the annual rate
of 0.30 of 1% of the Fund's average net assets for furnishing these services.
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, the Manager or Prudential Investments 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 Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such parties as defined in the Investment Company
Act, on May 21, 1997.
DISTRIBUTOR
Prudential Securities, One Seaport Plaza, New York, New York 10292, acts
as the distributor of the Class A, Class B, Class C and Class Z shares of the
Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and a distribution agreement
(the Distribution Agreement), Prudential Securities incurs the expenses of
distributing the Class A, Class B and Class C shares of the Fund. Prudential
Securities also incurs the expenses of distributing the Fund's Class Z shares
under a Distribution Agreement, none of which are reimbursed by or paid for by
the Fund. See "How the Fund is Managed-Distributor" in the Prospectus.
The Class A Plan for the Fund 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%. Each of the Class B and Class C Plans for the Fund provides that (i)
up to .25 of 1% of the average daily net assets of the Class B or Class C
shares, as the case may be 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 or Class C shares, as
the case may be (asset-based sales charge). Total distribution fees (including
the service fee of .25 of 1%) under each of the Class B and Class C Plans for
the Fund may not exceed 1.00%.
CLASS A PLAN. For the fiscal year ended October 31, 1997, Prudential
Securities received payments of $125,386 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,
1997, Prudential Securities also received approximately $2,000 in initial sales
charges.
CLASS B PLAN. For the fiscal year ended October 31, 1997, Prudential
Securities received $134,558 from the Fund under the Class B Plan and spent
approximately $24,800 in distributing the Fund's Class B shares. It is
estimated that of the latter amount, approximately $100 (.40%) was spent on
printing and mailing of prospectuses to other than current shareholders; $2,600
(10.49%) on compensation to Pruco Securities Corporation (Prusec) 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 Fund; and $22,100 (89.11%) on
the aggregate of (i) payments of commissions and account servicing fees to
financial advisers ($20,800 or 83.87%) and (ii) an allocation on account of
overhead and other branch office distribution-related expenses ($1,300 or
5.24%). 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, 1997, Prudential
Securities received approximately $17,700 in contingent deferred sales charges
attributable to Class B shares.
CLASS C PLAN. For the fiscal year ended October 31, 1997, Prudential
Securities received $870 from the Fund under the Class C Plan and spent
approximately $420 in distributing the Fund's Class C shares. It is estimated
that of the latter amount approximately 2.38% ($10) was spent on printing and
mailing of prospectuses to other than current shareholders; 97.62% ($410) on
the aggregate of (i) payments of commission and account servicing fees to
financial advisors (71.43% or $300) and (ii) an allocation
B-15
<PAGE>
of overhead and other branch office distribution-related expenses (26.19% or
$110). 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 sales.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by holders of Class C shares upon certain redemptions of
Class C shares. See "Shareholder Guide-How to Sell Your Shares-Contingent
Deferred Sales Charges" in the Prospectus. For the fiscal year ended October
31, 1997, Prudential Securities received approximately $300 in contingent
deferred sales charges attributable to Class C shares.
The Plans continue in effect from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority vote of those Directors who are not interested persons of
the Company and who have no direct or indirect financial interest in the
operation of the Plans or any agreement related thereto (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 Fund, voting
separately, in the case of material amendments to the Class A Plan for the
Fund), 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 Director will review at least
quarterly a written report of the distribution expenses incurred on behalf of
each class of shares of the Fund by Prudential Securities. The report will
include an itemization of the distribution expenses and the purposes of such
expenditures. In addition, as long as the Plans remain in effect, the selection
and nomination of Rule 12b-1 Directors shall be committed to the Rule 12b-1
Directors.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
Prudential Securities to the extent permitted by applicable law against certain
liabilities under the federal securities laws.
NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, Prudential
Securities 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.
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 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
the Fund, 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.
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. The Fund 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 Fund'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
B-16
<PAGE>
accordance with rules of the SEC. This limitation, in the opinion of the Fund,
will not significantly affect the Fund's ability to pursue its present
investment objective. However, in the future in other circumstances, the Fund
may be at a disadvantage because of this limitation in comparison to other
funds with similar objectives but not subject to such limitations.
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 Company'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 Company's Board of Directors.
Subject to the above considerations, Prudential Securities may act as a
securities broker or futures commission merchant for the Fund. In order for
Prudential Securities (or any affiliate) to effect any portfolio transactions
for the Fund, the commissions, fees or other remuneration received by
Prudential Securities (or any affiliate) must be reasonable and fair compared
to the commissions, fees or other remuneration paid to other 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 Company, 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 years ended October 31, 1997, 1996 and 1995, the Fund
did not pay any brokerage commissions to Prudential Securities.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next
determined NAV per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares),
or (ii) on a deferred basis (Class B or Class C shares). Class Z shares of the
Fund are offered to a limited group of investors at NAV without any sales
charges. See "Shareholder Guide-How to Buy Shares of the Fund" in the
Prospectus.
Each class of shares represents an interest in the same assets of the Fund
and is identical in all respects except that (i) each class is subject to
different sale charges and distribution and/or service fees (except for Class Z
shares, which are not subject to any sales charge or distribution and/or
service fee), which may affect performance, (ii) each class has exclusive
voting rights on any matter submitted to shareholders that relates solely to
its arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange
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<PAGE>
privilege, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to a limited group of investors. See
"Distributor" and "Shareholder Investment Account-Exchange Privilege."
ISSUANCE OF FUND SHARES FOR SECURITIES
Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (i) reorganizations, (ii) statutory mergers, or
(iii) other acquisitions of portfolio securities that: (a) meet the investment
objective and policies of the Fund, (b) are liquid and not subject to
restrictions on resale, and (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange
or market.
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and
Prudential Securities, Class A shares are sold at a maximum sales charge of 3%
and Class B*, Class C* and Class Z shares are sold at NAV. Using the NAV at
October 31, 1997, the maximum offering price of the Fund's shares is as
follows:
<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share ........................... $8.41
Maximum sales charge (3% of offering price) .................................... .26
-----
Maximum offering price to public ................................................ $8.67
=====
CLASS B
Net asset value, redemption price and offering price to public per Class B share* $8.45
=====
CLASS C
Net asset value, offering price and redemption price to public per Class C share* $8.45
=====
CLASS Z
Net asset value, offering price and redemption price to public per Class Z share $8.44
=====
</TABLE>
-----------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide-How to Sell Your
Shares-Contingent Deferred Sales Charges" in the Prospectus.
REDUCTION AND WAIVER OF 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.
B-18
<PAGE>
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).
Prudential Securities must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charge will
be granted subject to confirmation of the investor's holdings. The Combined
Purchase and Cumulative Purchase Privilege does not apply to individual
participants in any retirement or group plans.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of 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 price (NAV plus maximum sales charge)
as of the previous business day. See "How the Fund Values its Shares" in the
Prospectus. Prudential Securities 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 also 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 (Investment Letter of Intent). Retirement and group
plans may also qualify to purchase Class A shares at NAV by entering into a
Letter of Intent whereby they agree to enroll, within a thirteen-month period,
a specified number of eligible employees or participants (Participant Letter of
Intent).
For purposes of the Investment Letter of Intent, all shares of the Fund
and shares of other Prudential Mutual Funds (excluding money market funds other
than those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
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.
A Letter of Intent permits a purchaser, in the case of an Investment
Letter of Intent, to establish a total investment goal to be achieved by any
number of investments over a thirteen-month period and, in the case of a
Participant Letter of Intent, to establish a minimum eligible employee or
participant enrollment goal over a thirteen-month period. Each investment made
during the period, in the case of an Investment Letter of Intent, will receive
the reduced sales charge applicable to the amount represented by the goal, as
if it were a single investment. In the case of a Participant Letter of Intent,
each investment made during the period will be made at NAV. 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 an
Investment Letter of Intent (except in the case of retirement and group plans)
may be back-dated up to 90 days, in order that any investments made during this
90-day period, valued at the purchaser's cost, can be applied to the
fulfillment of the Letter of Intent goal.
The Investment Letter of Intent does not obligate the investor to
purchase, nor the Fund to sell, the indicated amount. Similarly, the
Participant Letter of Intent does not obligate the retirement or group plan to
enroll the indicated number of eligible employees or participants. 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 charge
actually paid. Such payment may be made directly to Prudential Securities or,
if not paid, Prudential Securities will liquidate sufficient escrowed shares to
obtain such difference. Investors electing to purchase Class A shares of the
Fund pursuant to a Letter of Intent should carefully read such Letter of
Intent.
Prudential Securities must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charge will,
in the case of an Investment Letter of Intent, be granted subject to
confirmation of the investor's holdings or in the case of a Participant Letter
of Intent, subject to confirmation of the number of eligible employees or
participants in the retirement or group plan. Letters of Intent are not
available to individual participants in any retirement or group plans.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE-CLASS B SHARES
The contingent deferred sales charge (CDSC) is waived under circumstances
described in the Prospectus for the Fund. 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.
B-19
<PAGE>
<TABLE>
<S> <C>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
Death A copy of the shareholder's death certificate or, in the
case of a trust, a copy of the grantor's death certificate,
plus a copy of the trust agreement identifying the grantor.
Disability-An individual will be considered disabled if he or A copy of the Social Security Administration award letter
she is unable to engage in any substantial gainful activity by or a letter from a physician on the physician's letterhead
reason of any medically determinable physical or mental stating that the shareholder (or, in the case of a trust, the
impairment which can be expected to result in death or to be grantor) is permanently disabled. The letter must also
of long-continued and indefinite duration. indicate the date of disability.
Distribution from an IRA or 403(b) Custodial Account A copy of the distribution form from the custodial firm
indicating (i) the date of birth of the shareholder and (ii)
that the shareholder is over age 59-1/2 and is taking a
normal distribution-signed by the shareholder.
Distribution from Retirement Plan A letter signed by the plan administrator/trustee
indicating the reason for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or the plan
administrator/trustee on company letterhead indicating
the amount of the excess and whether or not taxes have
been paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
QUANTITY DISCOUNT-SHARES PURCHASED PRIOR TO AUGUST 1, 1994
While a quantity discount is not available for Class B shares of the Fund,
a quantity discount may apply to Class B shares of another Prudential Mutual
Fund acquired pursuant to the exchange of Class B shares of the Fund. The
applicable quantity discount, if any, will be that applicable to the shares
acquired as a result of the exchange of Class B shares of the Fund.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for issuance of a certificate. The Fund makes available
to the shareholders the following privileges and plans.
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 Fund 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 the Fund at NAV. 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 NAV 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 NAV per share next determined after receipt of the check or proceeds by the
Transfer Agent. Such shareholder will receive credit for any CDSC paid in
connection with the amount of proceeds being reinvested.
EXCHANGE PRIVILEGE. The Fund makes available to its shareholders the
privilege of exchanging their shares of the Fund for shares of certain other
Prudential Mutual Funds, including one or more specified money market funds,
subject in each case to the minimum investment requirements of such funds.
Shares of such other Prudential Mutual Funds may also be exchanged for shares
of the Fund. All exchanges are made on the basis of the relative NAV next
determined after receipt of an order in proper form. An exchange will be
treated as a redemption and purchase for tax purposes. Shares may be exchanged
for shares of another fund only if shares of such fund may legally be sold
under applicable state laws. For retirement and group plans having a limited
menu of Prudential Mutual Funds, the exchange privilege is available for those
funds eligible for investment in the particular program.
B-20
<PAGE>
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by Prudential Securities.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Short-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, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B
and Class C shares of the Fund for Class B and Class C shares of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund,
Inc. No CDSC 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 Fund may also be exchanged for shares of
an eligible money market fund without imposition of any CDSC at the time of
exchange. Upon subsequent redemption from such money market fund or after
re-exchange into the Fund, such shares will be subject to the CDSC calculated
without regard to the time such shares were held in the money market fund. In
order to minimize the period of time in which shares are subject to a CDSC,
shares exchanged out of the money market fund will be exchanged on the basis of
their remaining holding periods, with the longest remaining holding periods
being 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 Fund, 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.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
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 Prudential Securities, has the right to reject any exchange
application relating to such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more
shares when the price is low and fewer shares when the price is high. The
average cost per share is lower than it would be if a constant number of shares
were bought at set intervals.
B-21
<PAGE>
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 $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 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
</TABLE>
See "Automatic Savings Accumulation Plan."
- -----------
1 Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Average costs for private institutions include tuition, fees, room and
board for the 1993-1994 academic year.
2 The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that
an investor's shares when redeemed may be worth more or less than their
original cost.
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account
or Prudential Securities account (including a Command Account) to be debited to
invest specified dollar amounts in shares of the Fund. The investor's bank must
be a member of the Automatic Clearing House System. Stock certificates are not
issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through
Prudential Securities or the Transfer Agent. Such withdrawal plan provides for
monthly or quarterly checks in any amount, except as provided below, up to the
value of the shares in the shareholder's account. Withdrawals of Class B or
Class C shares of the Fund 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 Prudential Securities 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 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.
B-22
<PAGE>
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 Prudential
Securities. Thee 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.
<TABLE>
<CAPTION>
Tax-Deferred Compounding1
Contributions Personal
Made Over: Savings IRA
- --------------------- ---------- ---------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
- -----------
1 The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings
in the IRA account will be subject to tax when withdrawn from the account.
MUTUAL FUND PROGRAMS
From time to time, the Fund may be included in a mutual fund program with
other Prudential Mutual Funds. Under such a program, a group of portfolios will
be selected and thereafter marketed collectively. Typically, these programs are
created with an investment theme, e.g., to seek greater diversification,
protection from interest rate movements or access to different management
styles. In the event such a program is instituted, there may be a minimum
investment requirement for the program as a whole. The Fund may waive or reduce
the minimum initial investment requirements in connection with such a program.
The mutual funds in the program may be purchased individually or as part
of a program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, investors should consult their Prudential
Securities financial advisor or Prudential/Pruco Securities Representative
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
NET ASSET VALUE
Under the Investment Company Act, the Board of Directors is responsible
for determining in good faith the fair market value of the securities of the
Fund. The NAV per share is the net worth of the Fund (assets, including
securities at value, minus liabilities) divided by the number of shares
outstanding. NAV is calculated separately for each class. In accordance with
procedures adopted by the Board of Directors, the value of the Fund will be
determined as follows:
Government securities for which quotations are available will be based on
prices provided by independent pricing services or broker-dealers. 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 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 and asked price
quoted on such day or at the bid price on such day in the absence of an asked
price. Quotations of foreign securities in a foreign currency will be converted
to U.S. dollar equivalents at the current rate obtained from a recognized bank
or dealer. Forward currency exchange contracts will be valued at the current
cost of covering or offsetting the contract. Options will be valued at the mean
between the most recently quoted bid and asked prices on the applicable
exchanges. The Fund may engage pricing services to obtain such prices.
Over-the-counter options will be valued
B-23
<PAGE>
at the average between the bid and asked prices provided by a dealer. 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 or Subadviser
(or Valuation Committee or Board of Directors) 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 comparable
securities, relationships among various securities and such other factors as
may be determined by the Manager, the Subadviser or the Board of Directors to
materially affect the value of the security.
TAXES, DIVIDENDS AND DISTRIBUTIONS
GENERAL. The Fund has elected to qualify and intends to remain qualified
as a regulated investment company under Subchapter M of the Internal Revenue
Code for the taxable year. Accordingly, the Fund 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, payments with respect to securities loans and gains from the sale or
other disposition of securities or foreign currencies or other income related
to the Fund's business of investing in securities or commodities, including,
but not limited to, gains derived from options and futures on such securities
or foreign currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) 50% of the value of the Fund's assets is represented
by cash, U.S. Government securities and other securities limited, in respect of
any one issuer, to an amount not greater than 5% of the Fund'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); and (c) distribute to
its shareholders at least 90% of its net investment income and net short-term
gains (i.e., the excess of net short-term capital gains over net long-term
capital losses) in each year. These requirements may limit the Fund's ability
to engage in or close out transactions involving options on securities,
interest rate futures and options thereon.
Gains or losses on sales of securities by the Fund will generally be
treated as long-term capital gains or losses if the securities have been held
by it for more than one year, except in certain cases where the Fund acquires a
put or writes a call thereon or otherwise holds an offsetting position with
respect to the securities. Other gains or losses on the sale of securities will
be short-term capital gains or losses. Gains and losses on the sale, lapse or
other termination of options on securities will generally be treated as gains
and losses from the sale of securities. If an option written by the Fund on
securities lapses or is terminated through a closing transaction, such as a
repurchase by the Fund of the option from its holder, the Fund will generally
realize short-term capital gain or loss. If securities are sold by the Fund
pursuant to the exercise of a call option written by it, the Fund will include
the premium received in the sale proceeds of the securities delivered in
determining the amount of gain or loss on the sale. If securities are purchased
by the Fund pursuant to the exercise of a put option written by it, the Fund
will subtract the premium received from its cost basis in the securities
purchased. Certain transactions of the Fund may be subject to wash sale, short
sale, constructive sale, straddle and anti-conversion provisions of the
Internal Revenue Code which may, among other things, require the Fund to defer
recognition of losses.
Distributions of net investment income and net short-term capital gains
will be taxable to the shareholder at ordinary income rates regardless of
whether the shareholder 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 shareholder holds shares in the Fund 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. Shareholders will be
notified annually by the Fund as to the federal tax status of distributions
made by the Fund.
Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a
nominee or fiduciary) who is a nonresident alien individual, a foreign
corporation or a foreign partnership (foreign shareholder) are subject to a 30%
(or lower treaty rate) withholding tax upon the gross amount of the dividends
unless the dividends are effectively connected with a U.S. trade or business
conducted by the foreign shareholder. Capital gain dividends paid to a foreign
shareholder are generally not subject to withholding tax. A foreign shareholder
will, however, be required to pay U.S. income tax on any dividends and capital
gain distributions which are effectively connected with a U.S. trade or
business of the foreign shareholder.
Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Interest income, capital gain net income, gain or loss from Section 1256
contracts (described above), dividend income from foreign corporations and
income from
B-24
<PAGE>
other sources will not constitute qualified dividends. Since the Fund is likely
to have a substantial portion of its assets invested in non-equity securities,
the amount of the Fund's dividends eligible for the corporate
dividends-received deduction will be minimal. Individual shareholders are not
eligible for the dividends-received deduction.
A 4% nondeductible excise tax will be imposed on the Fund to the extent it
does not meet certain distribution requirements by the end of each calendar
year.
If the Fund is liable for foreign taxes, the Fund expects to meet the
requirements of the Internal Revenue Code for "passing-through" to its
shareholders foreign taxes paid, but there can be no assurance that the Fund
will be able to do so. Under the Internal Revenue Code, if more than 50% of the
value of the Fund's total assets at the close of its taxable year consists of
stock or securities of foreign corporations, the Fund will be eligible and may
file an election with the Internal Revenue Service to "pass-through" to the
Fund's shareholders the amount of foreign taxes paid by the Fund. Pursuant to
this election shareholders will be required to: (i) include in gross income (in
addition to taxable dividends actually received) their pro rata share of the
foreign taxes paid by the Fund; (ii) treat their pro rata share of foreign
taxes as paid by them; and (iii) either deduct their pro rata share of foreign
taxes in computing their taxable income or, subject to certain limitations, use
it as a foreign tax credit against U.S. income taxes. No deduction for foreign
taxes may be claimed by a non-corporate shareholder who does not itemize
deductions. A shareholder that is a nonresident alien individual or foreign
corporation may be subject to U.S. withholding tax on the income resulting from
the election described in this paragraph, but may not be able to claim a credit
or deduction against such tax for the foreign taxes treated as having been paid
by such shareholder. A tax-exempt shareholder will not ordinarily benefit from
this election. The amount of foreign taxes for which a shareholder may claim a
credit in any year will generally be subject to various limitations including a
separate limitation for "passive income," which includes, among other things,
dividends, certain interest and certain foreign currency gains.
Each shareholder will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund will
"pass-through" for that year and, if so, such notification will designate (a)
the shareholder's portion of the foreign taxes paid to each such country and
(b) the portion of the dividend which represents income derived from sources
within each such country.
A "passive foreign investment company" (PFIC) is a foreign corporation
that, in general, meets either of the following tests: (a) at least 75% of its
gross income is passive or (b) an average of at least 50% of its assets
produce, or are held for the production of, passive income. If the Fund
acquires and holds stock in a PFIC beyond the end of the year of its
acquisition, the Fund will be subject to federal income tax on a portion of any
"excess distribution" received on the stock or of any gain from disposition of
the stock (collectively, PFIC income), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders. Proposed Treasury regulations
provide that the Fund may make a "mark-to-market" election with respect to any
stock it holds of a PFIC. If the election is in effect, at the end of the
Fund's taxable year, the Fund will recognize the amount of gains, if any, with
respect to PFIC stock. No loss will be recognized on PFIC stock. Alternatively,
the Fund may elect to treat any PFIC in which it invests as a "qualified
electing fund," in which case, in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain even if they are not distributed to the Fund; those amounts would
be subject to the distribution requirements applicable to the Fund described
above. It may be very difficult, if not impossible, to make this election
because of certain requirements thereof.
The Fund may purchase debt securities (such as zero coupon bonds) that
contain original issue discount. Original issue discount that accrues in a
taxable year is treated as income earned by the Fund and therefore is subject
to the distribution requirements of the Internal Revenue Code. Because the
original issue discount income earned by the Fund in a taxable year may not be
represented by cash income, the Fund may have to dispose of other securities
and use the proceeds to make distributions to satisfy the Internal Revenue
Code's distribution requirements.
The per share dividends on Class B and Class C shares will typically be
lower than the per share dividends and distributions on Class A and Class Z
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 per share for Class A, Class B, Class C and
Class Z shares. See "How the Fund Values its Shares" in the Prospectus.
For federal income tax purposes, the Fund had a capital loss carryforward
as of October 31, 1997, of approximately $51,059,600 of which $4,207,200
expires in 2000, $32,949,600 expires in 2001, $12,011,000 expires in 2002,
$1,565,600 expires in 2003 and $326,200 expires in 2004. 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 Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the
B-25
<PAGE>
Fund 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 Fund's investment
company taxable income available to be distributed to shareholders as ordinary
income, rather than increasing or decreasing the amount of the Fund's net
capital gain. If currency fluctuation losses exceed other investment company
taxable income during a taxable year, distributions made by the Fund 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.
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
AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is calculated
separately for Class A, Class B, Class C and Class Z shares. See "How the Fund
Calculates Performance" in the Prospectus.
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 takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal or
state income taxes that may be payable upon redemption.
The average annual total returns for Class A shares for the one year, five
year and since inception (November 1, 1990) periods ended October 31, 1997 were
1.99%, 4.95% and 5.00%, respectively. The average annual total returns for
Class B shares for the one, five year and since inception (November 1, 1990)
periods ended October 31, 1997 were 1.59%, 4.94% and 4.73%, respectively. The
average annual total returns for Class C shares for the one year and since
inception (August 1, 1994) periods ended October 31, 1997 were 3.59% and 6.58%,
respectively.
AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares. See "How the Fund Calculates Performance" in the
Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value at the end of the 1, 5 or 10 year periods
(or fractional portion thereof) of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The aggregate total returns for Class A shares for the one year, five year
and since inception periods ended October 31, 1997 were 5.14%, 31.28% and
45.01%, respectively. The aggregate total returns for Class B shares for the
one year, five year and since inception periods ended October 31, 1997 were
4.59%, 27.23% and 38.14%, respectively. The aggregate total returns for Class C
shares for the one year and since inception (August 1, 1994) periods ended
October 31, 1997 were 4.59% and 23.02%, respectively. The aggregate total
return for Class Z shares since inception (January 27, 1997) for the period
ended October 31, 1997 was 3.53%.
B-26
<PAGE>
YIELD. The Fund may from time to time advertise its "yield" as calculated
over a 30-day period. Yield is determined separately for Class A, Class B,
Class C and Class Z shares. The yield will be computed by dividing the Fund's
net investment income per share earned during this 30-day period by the
offering price on the last day of this period.
The Fund'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.
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period. 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.
The yields for the 30 days ended October 31, 1997 were 5.47%, 4.98%, 5.02%
and 5.79% for Class A, Class B, Class C and Class Z shares, respectively.
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)
[GRAPH]
PERFORMANCE COMPARISON OF DIFFERENT TYPES OF INVESTMENTS
OVER THE LONG TERM (1/1926-9/1997)
Common Stocks-11.0%
Long-Term Gov't Bonds-5.1%
Inflation-3.1%
- -----------
(1)Source: Ibbotson Associates, Stocks, Bonds, Bills and Inflation--1997
Yearbook (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). All rights reserved. Common stock returns are based on the
Standard & Poor's 500 Stock Index, a market-weighted, unmanaged index of 500
common stocks in a variety of industry sectors. It is a commonly used indicator
of broad stock price movements. This chart is for illustrative purposes only and
is not intended to represent the performance of any particular investment or
fund. Investors cannot invest directly in an index. Past performance is not a
guarantee of future results.
B-27
<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 LLC, 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. The
Transfer Agent is a wholly-owned subsidiary of the Manager. The Transfer Agent
provides customary transfer agency services to the Fund, including the handling
of shareholder communications, the processing of shareholder transactions, the
maintenance of shareholder account records, payment of dividends and
distributions, and related functions. For these services, the Transfer Agent
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, 1997, the Fund incurred fees of
approximately $153,000 for the services of the Transfer Agent. The Transfer
Agent is also reimbursed for its out-of-pocket expenses, including but not
limited to postage, stationery, printing, allocable communications expenses and
other costs.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants and in that capacity audits
the Fund's annual financial statements.
B-28
<PAGE>
Portfolio of Investments as of October 31, 1997
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Principal US$
Amount Value
(000) Description (Note 1)
- ---------------------------------------------------------------
LONG-TERM INVESTMENTS--81.2%
- ---------------------------------------------------------------
Australia--10.0%
A$ 1,250 Federal National Mortgage
Association,
6.375%, 8/15/07 $ 892,032
Queensland Treasury Corporation,
4,500 8.00%, 8/14/01 3,424,364
6,000 8.00%, 5/14/03 4,639,597
-----------
8,955,993
- ---------------------------------------------------------------
Canada--9.3%
C$ 4,000 British Columbia Provincial
Bonds,
7.75%, 6/16/03 3,179,928
4,000 Canadian Government Bonds,
9.00%, 12/1/04 3,455,702
2,000 Province of Quebec,
9.25%, 4/1/02 1,643,271
-----------
8,278,901
- ---------------------------------------------------------------
Denmark--4.9%
DKr 27,000 Danish Government Bonds,
7.00%, 12/15/04 4,376,624
- ---------------------------------------------------------------
Germany--6.0%
DM 3,000 Ministry Of Finance, (Russia),
9.00%, 3/25/04 1,641,432
3,000 Republic of Columbia,
7.25%, 12/21/00 1,809,050
3,000 Tokyo Gas Co. Ltd.,
7.00%, 7/27/05 1,869,844
-----------
5,320,326
- ---------------------------------------------------------------
Greece--2.3%
Hellenic Republic,
GRD 243,500 10.70%, 12/31/99 840,673
325,000 12.60%, 12/31/03, FRN 1,163,826
-----------
2,004,499
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Principal US$
Amount Value
(000) Description (Note 1)
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Hungary--0.4%
HUF 65,000 Hungarian Government Bonds,
16.50%, 4/12/99 324,784
- ---------------------------------------------------------------
Netherlands--2.7%
NLG 2,500 Dutch Government Bonds,
6.50%, 4/15/03 1,364,395
2,000 Republic of Argentina,
7.625%, 7/5/99 1,053,780
-----------
2,418,175
- ---------------------------------------------------------------
New Zealand--3.9%
NZ$ 750 Canadian Government Bonds,
6.625%, 10/3/07 461,594
1,750 Federal National Mortgage
Association,
7.25%, 6/20/02 1,097,777
3,000 New Zealand Government Bonds,
8.00%, 2/15/01 1,933,321
-----------
3,492,692
- ---------------------------------------------------------------
Spain--4.7%
Spanish Government Bonds,
Pts 300,000 10.30%, 6/15/02 2,453,433
225,000 8.00%, 5/30/04 1,735,492
-----------
4,188,925
- ---------------------------------------------------------------
Sweden--5.5%
SEK 37,000 Swedish Government Bonds,
6.00%, 2/9/05 4,872,578
- ---------------------------------------------------------------
United Kingdom--7.9%
BP 500 Banco Nacional de Comercio
Exterior SNC,
8.75%, 9/28/00 801,642
- ---------------------------------------------------------------
See Notes to Financial Statements.
B-29
<PAGE>
Portfolio of Investments as of October 31, 1997
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Principal US$
Amount Value
(000) Description (Note 1)
- ----------------------------------------------------------------
United Kingdom (cont'd.)
BP 1,300 Powergen PLC,
8.875%, 3/26/03 $ 2,326,124
2,200 United Kingdom Treasury Bonds,
7.75%, 9/8/06 3,955,611
-----------
7,083,377
- ---------------------------------------------------------------
United States--23.6%
Central Banks--2.8%
US$ 750 Banco del Estado Chile,
8.39%, 8/1/01 795,000
1,750 National Bank of Romania,
9.75%, 6/25/99 1,732,500
-----------
2,527,500
- ---------------------------------------------------------------
Corporate Bonds--4.5%
1,000 Cadbury Schweppes, PLC,
6.25%, 10/4/99 1,004,000
2,000 Ford Motor Credit Co.,
6.25%, 11/8/00 2,011,000
1,000 Petroleas Mexicano, FRN,
6.7188%, 3/8/99 995,000
-----------
4,010,000
- ---------------------------------------------------------------
Sovereign Bonds--7.9%
500 Jamaican Government Bonds,
9.625%, 7/2/02 477,500
1,000 Ministry Of Finance, (Russia),
10.00%, 6/26/07 900,000
1,750 Municpality of Rio De Janeiro,
10.375%, 7/12/99 1,776,250
480 Republic of Argentina, FRB,
6.6875%, 3/31/05 409,200
1,200 Republic of Brazil, IDU,
6.8125%, 1/1/01 713,369
944 Republic of Croatia, FRN,
6.625%, 7/31/06 830,822
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Principal US$
Amount Value
(000) Description (Note 1)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
US$ 400 Republic of Lithuania,
7.125%, 7/22/02 388,000
500 Sultan of Oman,
7.125%, 3/20/02 501,250
1,015 Trinidad & Tobago Republic,
9.75%, 11/3/00 1,040,375
-----------
7,036,766
- ---------------------------------------------------------------
U.S. Government Obligations--8.4%
United States Treasury Notes,
4,500 6.125%, 9/30/00 4,547,790
1,000 7.875%, 11/15/04 1,114,840
1,750 6.25%, 2/15/07 1,793,208
-----------
7,455,838
-----------
21,030,104
-----------
Total long-term investments
(cost US$73,933,445) 72,346,978
-----------
SHORT-TERM INVESTMENTS--16.3%
- ---------------------------------------------------------------
Hungary--0.7%
HUF 120,000 Hungarian Government Bonds,
23.50%, 5/17/98 626,919
- ---------------------------------------------------------------
Indonesia--0.9%
IDR 1,000,000 Bank Negara Indonesia, NCD,
25.00%(a), 12/7/97 270,910
2,000,000 Bank Tabungan Negara, NCD,
25.00%(a), 2/18/98 519,570
-----------
790,480
- ---------------------------------------------------------------
Poland--0.2%
PLN 750 Polish Government Bonds,
16.00%, 10/12/98 201,211
- ---------------------------------------------------------------
Spain--1.4%
Pts 180,000 Republic of Argentina,
12.80%, 12/9/97 1,240,188
- ---------------------------------------------------------------
See Notes to Financial Statements.
B-30
<PAGE>
Portfolio of Investments as of October 31, 1997
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Principal US$
Amount Value
(000) Description (Note 1)
- ---------------------------------------------------------------
United States--13.1%
Corporate Bonds--7.4%
US$ 3,080 Empresa de Petroleos,
7.25%, 7/8/98 $ 3,061,520
2,500 Empresas La Moderna S.A. de C.V.,
10.25%, 11/12/97 2,501,563
1,000 Nacional Financiera SNC,
5.875%, 2/17/98 995,500
-----------
6,558,583
- ---------------------------------------------------------------
Repurchase Agreement--2.0%
1,821 Joint Repurchase Agreement
Account,
5.70%, 11/3/97, (Note 5) 1,821,000
- ---------------------------------------------------------------
Sovereign Bonds--2.2%
2,000 Communidad de Madrid,
5.75%, 7/8/98 1,996,000
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Principal US$
Amount Value
(000) Description (Note 1)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Supranational Bonds--1.5%
US$ 1,300 Corporacion Andina de Formento,
7.25%, 4/30/98 1,308,450
-----------
11,684,033
-----------
Total short-term investments
(cost US$15,432,441) 14,542,831
-----------
- ---------------------------------------------------------------
Total Investments--97.5%
(cost US$89,365,886; Note 4) 86,889,809
Other assets in excess of
liabilities--2.5% 2,268,519
-----------
Net Assets--100% $89,158,328
===========
- ---------------
Portfolio securities are classified by country according to the security's
currency denomination.
(a) Percentages quoted represent yield-to-maturity as of purchase date.
FRB--Floating Rate Bond.
FRN--Floating Rate Note.
IDU--Interest Due and Unpaid Bonds.
NCD--Negotiable Certificates of Deposit.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-31
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Statement of Assets and Liabilities LIMITED MATURITY PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
Assets October 31, 1997
<S> <C>
Investments, at value (cost $89,365,886).................................................................. $ 86,889,809
Foreign currency, at value (cost $381,190)................................................................ 382,422
Cash...................................................................................................... 796
Interest receivable....................................................................................... 2,653,754
Receivable for investments sold........................................................................... 539,471
Forward currency contracts - net amount receivable from counterparties.................................... 496,987
Receivable for Fund shares sold........................................................................... 870
Other assets.............................................................................................. 2,629
----------------
Total assets........................................................................................... 90,966,738
----------------
Liabilities
Forward currency contracts - net amount payable to counterparties......................................... 1,083,966
Payable for Fund shares reacquired........................................................................ 256,228
Accrued expenses.......................................................................................... 209,304
Dividends payable......................................................................................... 202,250
Management fee payable.................................................................................... 42,845
Distribution fee payable.................................................................................. 13,817
---------------
Total liabilities...................................................................................... 1,808,410
----------------
Net Assets................................................................................................ $ 89,158,328
===============
Net assets were comprised of:
Common stock, at par................................................................................... $ 10,602
Paid-in capital in excess of par....................................................................... 139,070,079
---------------
139,080,681
Undistributed net investment income.................................................................... 4,198,301
Accumulated net realized loss on investments........................................................... (51,059,616)
Net unrealized depreciation on investments and foreign currencies...................................... (3,061,038)
---------------
Net assets, October 31, 1997.............................................................................. $ 89,158,328
===============
Class A:
Net asset value and redemption price per share
($85,109,511 / 10,123,058 shares of common stock issued and outstanding)............................ $8.41
Maximum sales charge (3.00% of offering price)......................................................... .26
-----
Maximum offering price to public....................................................................... $8.67
=====
Class B:
Net asset value, offering price and redemption price per share
($3,937,855 / 466,008 shares of common stock issued and outstanding)................................ $8.45
=====
Class C:
Net asset value, offering price and redemption price per share
($106,702 / 12,627 shares of common stock issued and outstanding)................................... $8.45
=====
Class Z:
Net asset value, offering price and redemption price per share
($4,260 / 505 shares of common stock issued and outstanding)........................................ $8.44
=====
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-32
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
Statement of Operations
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Year Ended
Net Investment Income October 31, 1997
Income
Interest................................... $ 8,427,387
------------
Expenses
Management fee............................. 559,063
Distribution fee--Class A.................. 125,386
Distribution fee--Class B.................. 134,558
Distribution fee--Class C.................. 870
Transfer agent's fees and expenses......... 179,000
Custodian's fees and expenses.............. 163,000
Reports to shareholders.................... 159,000
Registration fees.......................... 63,000
Directors' fees and expenses............... 34,000
Audit fee.................................. 30,000
Legal fees and expenses.................... 20,000
Insurance.................................. 2,000
Miscellaneous.............................. 9,391
------------
Total expenses.......................... 1,479,268
------------
Net investment income......................... 6,948,119
------------
Realized and Unrealized
Gain (Loss) on Investments and
Foreign Currency Transactions
Net realized gain (loss) on:
Investment transactions.................... (647,881)
Foreign currency transactions.............. 4,587,258
------------
3,939,377
------------
Net change in unrealized depreciation of:
Investments................................ (5,168,458)
Foreign currencies......................... (495,920)
------------
(5,664,378)
------------
Net loss on investments and foreign
currencies................................. (1,725,001)
------------
Net Increase in Net Assets
Resulting from Operations..................... $ 5,223,118
============
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Increase (Decrease) Year Ended October 31,
------------------------------
in Net Assets 1997 1996
---------- ------------
Operations
Net investment income......... $ 6,948,119 $ 8,406,425
Net realized gain on
investment and foreign
currency transactions...... 3,939,377 3,647,613
Net change in unrealized
appreciation/depreciation
of investments and foreign
currencies................. (5,664,378) 1,604,117
------------ ------------
Net increase in net assets
resulting from operations..... 5,223,118 13,658,155
------------ ------------
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A.................... (5,803,256) (3,551,164)
Class B.................... (1,137,460) (4,273,201)
Class C.................... (7,370) (258)
Class Z.................... (33) --
------------ ------------
(6,948,119) (7,824,623)
------------ ------------
Distributions in excess of net
investment income
Class A.................... (2,383,691) --
Class B.................... (802,612) --
Class C.................... (1,338) --
Class Z.................... (4) --
---------------- ------------
(3,187,645) --
---------------- ------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
sold....................... 15,362,799 43,445,909
Net asset value of shares
issued in reinvestment of
dividends and
distributions.............. 5,830,223 4,419,538
Cost of shares reacquired..... (41,030,001) (66,462,304)
------------ ------------
Net decrease in net assets from
Fund share transactions....... (19,836,979) (18,596,857)
------------ ------------
Total decrease................... (24,749,625) (12,763,325)
Net Assets
Beginning of year................ 113,907,953 126,671,278
------------ ------------
End of year...................... $ 89,158,328 $113,907,953
============ ============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-33
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prudential Global Limited Maturity Fund, Inc. (the 'Fund') is registered under
the Investment Company Act of 1940 as a non-diversified, open-end, management
investment company. The Fund was incorporated in Maryland on February 21, 1990.
Prior to January 19, 1996 the Fund consisted of two series, namely: Limited
Maturity Portfolio and Global Assets Portfolio. On January 19, 1996, the Limited
Maturity Portfolio acquired the assets of the Global Assets Portfolio. The
Limited Maturity Portfolio (the 'Portfolio') commenced investment operations on
November 1, 1990. The investment objective of the Portfolio is to maximize total
return, the components of which are current income and capital appreciation, by
investing primarily in a portfolio of investment grade debt securities. The
ability of the issuers of the debt securities held by the Fund to meet their
obligations may be affected by economic developments in a specific country or
industry.
- -------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITIES VALUATION: In valuing the Fund's assets, quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
then current currency value. Government securities for which quotations are
available will be based on prices provided by an independent pricing service or
broker-dealer. 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, at the mean between the last bid
and asked prices on such day or at the bid price on such day in the absence of
an asked price. 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, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at the
closing 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 period, the Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities held at the end of the fiscal period. Similarly, the Fund
does not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term debt
securities sold during the fiscal period. Accordingly, such realized foreign
currency gains and losses are included in the reported net realized gains
(losses) on investment transactions.
Net realized gain 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 period 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.
FORWARD CURRENCY CONTRACTS: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated
- --------------------------------------------------------------------------------
B-34
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
forward rate. The Fund enters into forward currency contracts in order to hedge
its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings or on specific receivables and payables denominated in a
foreign currency. The contracts are valued daily at current exchange rates and
any unrealized gain or loss is included in net unrealized appreciation or
depreciation on investments and foreign currencies. Gain or loss is realized on
the settlement date of the contract equal to the difference between the
settlement value of the original and renegotiated forward contracts. This gain
or loss, if any, is included in net realized gain (loss) on foreign currency
transactions. Risks may arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
SECURITIES TRANSACTIONS AND NET 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. The Fund amortizes discounts on purchases of debt
securities as adjustments to income. Expenses are recorded on the accrual basis
which may require the use of certain estimates by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
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 American Institute of Certified
Public Accountants (AICPA) Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to increase undistributed net investment income by
$3,566,228, increase accumulated net realized loss on investments by $14,498,557
and increase paid in capital by $10,932,329. This was primarily the result of
net foreign currency gains incurred for the year ended October 31, 1997 and the
capital loss carryforward of $10,932,329 assumed upon the merger of Global
Assets Portfolio on January 19, 1996. Net investment income, net realized gains
and net assets were not affected by this change.
FEDERAL INCOME TAXES: It is the intent of the Fund 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.
- --------------------------------------------------------------------------------
NOTE 2. AGREEMENTS
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'); PIC, through an agreement with PRICOA Asset
Management Ltd. ('PRICOA'), furnishes investment advisory services in connection
with the management of the Fund. PIFM pays for the services of PIC, the cost of
compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly at an annual
rate of .55 of 1% of the average daily net assets of the Portfolio.
The Fund has a distribution agreement with Prudential Securities Incorporated
('PSI'), which acts as the distributor of the Class A, B, C and Z shares of the
Fund. The Fund 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'), regardless of expenses actually incurred by PSI. The
distribution fees are accrued daily and payable monthly. No distribution or
service fees are paid to PSI as distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%,
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .15 of 1%, .75 of 1% and .75 of 1% of the
average daily net assets of the Class A, B and C shares, respectively, for the
year ended October 31, 1997.
PSI has advised the Fund that it has received approximately $2,000 in front-end
sales charges resulting from sales of Class A shares during the year ended
October 31, 1997. From these fees, PSI paid such sales charges
- --------------------------------------------------------------------------------
B-35
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
to affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.
PSI has advised the Fund that for the year ended October 31, 1997, it received
approximately $17,700 and $300 in contingent deferred sales charges imposed upon
certain redemptions by Class B and C shareholders, respectively.
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement') on December 31, 1996
with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of October 31,
1997. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds.
PSI, PIFM, PIC and PRICOA are indirect, wholly-owned subsidiaries of The
Prudential Insurance Company of America.
- -------------------------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the year ended October 31, 1997,
the Portfolio incurred fees of approximately $153,000 for the services of PMFS.
As of October 31, 1997, approximately $11,000 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to non-affiliates.
- -------------------------------------------------------------------------------
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments
and options, for the year ended October 31, 1997 aggregated $47,422,134 and
$56,954,513, respectively.
The United States federal income tax basis of the Portfolio's investments at
October 31, 1997 was substantially the same as for financial reporting purposes
and, accordingly, net unrealized depreciation of investments was $2,476,077
(gross unrealized appreciation--$995,229; gross unrealized depreciation--
$3,471,306).
For federal income tax purposes, the Portfolio had a capital loss carryforward
as of October 31, 1997, of approximately $51,059,600 of which $4,207,200 expires
in 2000, $32,949,600 expires in 2001, $12,011,000 expires in 2002, $1,565,600
expires in 2003 and $326,200 expires in 2004. Such carryforward is after
utilization of approximately $373,100 of net taxable gains realized and
recognized during the year ended October 31, 1997. Accordingly, no capital gains
distributions are expected to be paid to shareholders until future net gains
have been realized in excess of such carryforward.
At October 31, 1997, the Portfolio had outstanding forward currency contracts
both to purchase and sell foreign currencies as follows:
VALUE AT
FORWARD CURRENCY SETTLEMENT DATE CURRENT
PURCHASE CONTRACTS PAYABLE VALUE APPRECIATION
- --------------------------- --------------- ---------- --------------
Deutschemarks,
expiring 11/4/97......... $ 309,119 $ 307,598 $ (1,521)
Deutschemarks,
expiring 4/30/98......... 1,950,258 1,959,037 8,779
Norwegian Krone,
expiring 11/25/97........ 2,738,351 2,804,370 66,019
------------ ---------- --------
$ 4,997,728 $5,071,005 $ 73,277
=========== ========== ========
VALUE AT
FORWARD CURRENCY SETTLEMENT DATE CURRENT APPRECIATION/
SALE CONTRACTS RECEIVABLE VALUE DEPRECIATION
- ------------------------- --------------- ----------- ------------
Australian Dollars,
expiring 11/25/97...... $ 9,073,347 $ 8,991,073 $ 82,274
French Francs,
expiring 11/25/97...... 4,280,708 4,423,136 (142,428)
Greek Drachma,
expiring 11/4/97....... 309,120 308,198 922
Greek Drachma,
expiring 4/30/98....... 1,950,258 2,135,589 (185,331)
Indonesian Rupiah,
expiring 12/8/97 -
2/18/98................ 1,147,807 808,814 338,993
Netherland Guilders,
expiring 11/25/97...... 11,347,297 11,680,819 (333,522)
Netherland Guilders,
expiring 11/25/97...... 3,638,352 3,753,158 (114,806)
New Zealand Dollars,
expiring 11/25/97...... 3,445,112 3,457,983 (12,871)
Swiss Francs,
expiring 11/25/97...... 5,211,527 5,505,014 (293,487)
----------- ----------- ----------
$40,403,528 $41,063,784 $ (660,256)
=========== =========== ==========
- --------------------------------------------------------------------------------
B-36
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 5. JOINT REPURCHASE AGREEMENT ACCOUNT
The Portfolio, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or Federal agency obligations. As of October 31,
1997, the Portfolio has a 0.2% undivided interest in the repurchase agreements
in the joint account. The undivided interest for the Portfolio represents
$1,821,000 in principal amount. As of such date, each repurchase agreement in
the joint account and the value of the collateral therefor were as follows:
Bear Stearns, 5.70%, in the principal amount of $236,000,000, repurchase price
$236,112,100, due 11/3/97. The value of the collateral including accrued
interest was $241,912,917.
Credit Suisse First Boston, 5.72%, in the principal amount of $237,440,000,
repurchase price $237,553,180, due 11/3/97. The value of the collateral
including accrued interest was $246,134,363.
Deutsche Morgan Grenfell, 5.70%, in the principal amount of $236,000,000,
repurchase price $236,112,100, due 11/3/97. The value of the collateral
including accrued interest was $240,720,618.
SBC Warburg, 5.66%, in the principal amount of $92,714,000, repurchase price
$92,757,730, due 11/3/97. The value of the collateral including accrued interest
was $94,588,984.
- --------------------------------------------------------------------------------
NOTE 6. CAPITAL
The Portfolio offers Class A, Class B, Class C and Class Z 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. A special exchange privilege is also
available for shareholders who qualified to purchase Class A shares at net asset
value. Effective January 27, 1997, the Portfolio commenced offering Class Z
shares. Class Z shares are not subject to any sales or redemption charge and are
offered exclusively for sale to a limited group of investors. The Portfolio has
authorized 2 billion shares of common stock at $.001 par value per share equally
divided into Class A, B, C and Z shares. Transactions in shares of common stock
for the fiscal years ended October 31, 1997 and 1996 were as follows.
Class A SHARES AMOUNT
- ------- ---------- ------------
Year ended October 31, 1997:
Shares sold......................... 1,677,463 $ 14,801,446
Shares issued in reinvestment of
dividends and distributions....... 550,154 4,710,600
Shares reacquired................... (2,618,160) (22,399,789)
---------- ------------
Net decrease in shares outstanding
before conversion................. (390,543) (2,887,743)
Shares issued upon conversion from
Class B........................... 2,682,675 22,909,615
---------- ------------
Net increase in shares
outstanding....................... 2,292,132 $ 20,021,872
========== ============
Year ended October 31, 1996:
Shares sold......................... 2,325,511 $ 19,588,772
Shares acquired in connection with
acquisition of Global Assets
Portfolio......................... 2,681,423 22,872,535
Shares issued in reinvestment of
dividends......................... 229,876 1,972,625
Shares reacquired................... (2,553,129) (21,903,466)
---------- ------------
Net increase in shares outstanding
before conversion................. 2,683,681 22,530,466
Shares issued upon conversion from
Class B........................... 2,976,230 25,476,313
---------- ------------
Net increase in shares
outstanding....................... 5,659,911 $ 48,006,779
========== ============
Class B
- -------
Year ended October 31, 1997:
Shares sold......................... 53,550 $ 462,980
Shares issued in reinvestment of
dividends and distributions....... 128,673 1,112,119
Shares reacquired................... (2,106,270) (18,586,016)
---------- ------------
Net decrease in shares outstanding
before conversion................. (1,924,047) (17,010,917)
Shares reacquired upon conversion
into Class A...................... (2,672,625) (22,909,615)
---------- ------------
Net decrease in shares
outstanding....................... (4,596,672) $(39,920,532)
========== ============
- --------------------------------------------------------------------------------
B-37
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B SHARES AMOUNT
- ------- --------- ------------
Year ended October 31, 1996:
Shares sold......................... 109,083 $ 932,602
Shares issued in reinvestment of
dividends......................... 286,095 2,446,729
Shares reacquired................... (5,250,123) (44,558,838)
---------- ------------
Net decrease in shares outstanding
before conversion................. (4,854,945) (41,179,507)
Shares reacquired upon conversion
into Class A...................... (2,966,156) (25,476,313)
---------- ------------
Net decrease in shares
outstanding....................... (7,821,101) $(66,655,820)
========== ============
Class C
- -------
Year ended October 31, 1997:
Shares sold......................... 10,910 $ 94,072
Shares issued in reinvestment of
dividends and distributions....... 872 7,480
Shares reacquired................... (5,205) (44,196)
---------- ------------
Net increase in shares
outstanding....................... 6,577 $ 57,356
========== ============
Year ended October 31, 1996:
Shares sold......................... 5,939 $ 52,000
Shares issued in reinvestment of
dividends......................... 21 184
---------- ------------
Increase in shares outstanding...... 5,960 $ 52,184
========== ============
Class Z
- -------
January 27, 1997(a) through
October 31, 1997:
Shares sold......................... 502 $ 4,301
Shares issued in reinvestment of
dividends and distributions....... 3 24
---------- ------------
Increase in shares outstanding...... 505 $ 4,325
========== ============
- ---------------
(a) Commencement of offering of Class Z shares.
- ------------------------------------------------------------
NOTE 7. DIVIDENDS
On December 11, 1997, the Board of Directors of the Fund declared a Special
Ordinary Income Dividend of $.30 per Class A, B, C, and Z Shares, payable on
December 19, 1997 to shareholders of record on December 16, 1997.
- --------------------------------------------------------------------------------
B-38
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
FINANCIAL HIGHLIGHTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
1997(b) 1996 1995 1994 1993
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 8.82 $ 8.39 $ 8.56 $ 9.29 $ 9.16
------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................... .60 .60 .61 .70 .97
Net realized and unrealized gain (loss) on
investment and foreign currency transactions..... (.16) .40 (.21) (.86) (.26)
------- ------- ------- ------- --------
Total from investment operations................. .44 1.00 .40 (.16) .71
------- ------- ------- ------- --------
LESS DISTRIBUTIONS
Dividends from net investment income................ (.60) (.57) (.48) -- (.58)
Distributions in excess of net investment income.... (.25) -- -- -- --
Tax return of capital distributions................. -- -- (.09) (.57) --
------- ------- ------- ------- --------
Total distributions.............................. (.85) (.57) (.57) (.57) (.58)
------- ------- ------- ------- --------
Net asset value, end of year........................ $ 8.41 $ 8.82 $ 8.39 $ 8.56 $ 9.29
======= ======= ======= ======= ========
TOTAL RETURN(a):.................................... 5.14% 12.35% 4.92% (1.89)% 7.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $85,109 $69,051 $18,216 $28,841 $ 59,458
Average net assets (000)............................ $83,590 $53,284 $20,153 $38,000 $ 70,347
Ratios to average net assets:
Expenses, including distribution fees............ 1.35% 1.32% 1.21% 1.17% 1.02%
Expenses, excluding distribution fees............ 1.20% 1.17% 1.06% 1.02% .87%
Net investment income............................ 6.94% 7.12% 7.25% 7.67% 10.81%
For Class A, B, C and Z shares:
Portfolio turnover rate.......................... 53% 101% 199% 232% 307%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(b) Calculated based upon average shares outstanding during the year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-39
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
FINANCIAL HIGHLIGHTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
1997(b) 1996 1995 1994 1993
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............... $ 8.85 $ 8.42 $ 8.56 $ 9.29 $ 9.16
------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................ .55 .55 .56 .62 .88
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions.................................. (.16) .40 (.19) (.86) (.26)
------- -------- -------- -------- --------
Total from investment operations.............. .39 .95 .37 (.24) .62
------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income............. (.55) (.52) (.43) -- (.49)
Distributions in excess of net investment
income........................................ (.24) -- -- -- --
Tax return of capital distributions.............. -- -- (.08) (.49) --
------- -------- -------- -------- --------
Total distributions........................... (.79) (.52) (.51) (.49) (.49)
------- -------- -------- -------- --------
Net asset value, end of year..................... $ 8.45 $ 8.85 $ 8.42 $ 8.56 $ 9.29
======= ======== ======== ======== ========
TOTAL RETURN(a):................................. 4.59% 11.61% 4.60% (2.62)% 7.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).................... $ 3,938 $ 44,804 $108,454 $188,966 $375,013
Average net assets (000)......................... $17,941 $ 70,794 $139,248 $281,143 $474,175
Ratios to average net assets:
Expenses, including distribution fees......... 1.95% 1.92% 1.83% 1.97% 1.87%
Expenses, excluding distribution fees......... 1.20% 1.17% 1.08% 1.02% .87%
Net investment income......................... 6.34% 6.51% 6.61% 6.82% 9.42%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(b) Calculated based upon average shares outstanding during the year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-40
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
FINANCIAL HIGHLIGHTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C CLASS Z
------------------------------------------------------- -----------
AUGUST 1, JANUARY 27,
1994(C) 1997(D)
YEAR ENDED OCTOBER 31, THROUGH THROUGH
--------------------------------------- OCTOBER 31, OCTOBER 31,
1997(f) 1996 1995 1994 1997(f)
------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 8.85 $ 8.42 $ 8.56 $ 8.61 $ 8.57
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................ .55 .55 .54 .14 .43
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions.................................. (.16) .40 (.17) (.06) (.11)
------- ------- ------- ------- -------
Total from investment operations.............. .39 .95 .37 .08 .32
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income............. (.55) (.52) (.43) -- (.43)
Distributions in excess of net investment
income........................................ (.24) -- -- -- (.02)
Tax return of capital distributions.............. -- -- (.08) (.13) --
------- ------- ------- ------- -------
Total distributions........................... (.79) (.52) (.51) (.13) (.45)
------- ------- ------- ------- -------
Net asset value, end of period................... $ 8.45 $ 8.85 $ 8.42 $ 8.56 $ 8.44
======= ======= ======= ======= =======
TOTAL RETURN(a):................................. 4.59% 11.61% 4.60% 0.75% 3.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................. $ 107 $ 54 $ 755(e) $ 200(e) $ 4
Average net assets (000)......................... $ 116 $ 4 $ 1,461(e) $ 199(e) $ 308(e)
Ratios to average net assets:
Expenses, including distribution fees......... 1.95% 1.92% 1.70% .93%(b) 1.20%(b)
Expenses, excluding distribution fees......... 1.20% 1.17% .95% .18%(b) 1.20%(b)
Net investment income......................... 6.36% 6.35% 6.43% 7.02%(b) 14.07%(b)
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(b) Annualized.
(c) Commencement of offering of Class C shares.
(d) Commencement of offering of Class Z shares.
(e) Figures are actual and not rounded to the nearest thousand.
(f) Calculated based upon average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-41
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Report of Independent Accountants LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Global Limited Maturity
Fund, Inc., Limited Maturity Portfolio (the 'Fund') at October 31, 1997, and the
results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as 'financial statements') are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at October 31, 1997 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above. The accompanying statement of changes in net assets for the year ended
October 31, 1996 and the financial highlights for the periods other than the
year ended October 31, 1997 were audited by other independent accountants, whose
opinion dated December 12, 1996 was unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
December 23, 1997
- --------------------------------------------------------------------------------
B-42
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF DIRECTORS OF PRUDENTIAL GLOBAL LIMITED MATURITY
FUND, INC., LIMITED MATURITY PORTFOLIO.
We have audited the accompanying statements of changes in net assets of
Prudential Global Limited Maturity Fund, Inc., Limited Maturity Portfolio, for
the year ended October 31, 1996, and the financial highlights contained in the
prospectus for each of the periods prior to and including the year ended
October 31, 1996 presented. 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. 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 m
aterial respects, the changes in net assets and the financial
highlights of Prudential Global Limited Maturity Fund, Inc., Limited Maturity
Portfolio, for the respective stated periods in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
New York, New York
December 12, 1996
B-43
<PAGE>
APPENDIX I
GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk and providing balance.
Asset allocation among different types of securities within an overall
investment portfolio helps to reduce risk and to potentially provide stable
returns, while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable
returns. Owning a portfolio of securities mitigates the individual risks (and
returns) of any one security. Additionally, diversification among types of
securities reduces the risks (and general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years-the longer
the duration of a bond (or a bond portfolio), the greater the impact of
interest rate changes on the bond's (or the bond portfolio's) price. Duration
differs from effective maturity in that duration takes into account call
provisions, coupon rates and other factors. Duration measures interest rate
risk only and not other risks, such as credit risk and, in the case of non-U.S.
dollar denominated securities, currency risk. Effective maturity measures the
final maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing-buying securities when prices are low and selling them when
prices are relatively higher-may not work for many investors because it is
impossible to predict with certainty how the price of a security will
fluctuate. However, owning a security for a long period of time may help
investors off-set short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth
of assets. The long-term investment results of compounding may be greater than
that of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
I-1
<PAGE>
APPENDIX II
HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This chart shows the long-term performance of various asset classes and
the rate of inflation.
[GRAPH]
HISTORICAL PERFORMANCE DATA
Value of $1.00 invested on 1/1/26 through 12/31/96.
Small Stocks $4,495.99
Common Stocks $1,370.95
Long-Term Bonds $33.73
Treasury Bills $13.54
Inflation $8.87
- -------
Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is for illustrative
purposes only and is not indicative of the past, present, or future performance
of any asset class or any Prudential Mutual Fund.
Generally, stock returns are due to capital appreciation and reinvesting
any gains. Bond returns are due to reinvesting interest. Also stock prices are
usually more volatile than bond prices over the long-term.
Small stock returns for 1926-1980 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P 500 Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.
Long-term government bond returns are represented by a portfolio that
contains only one bond with a maturity of roughly 20 years. At the beginning of
each year a new bond with a then-current coupon replaces the old bond. Treasury
bill returns are for a one-month bill. Treasuries are guaranteed by the
government as to the timely payment of principal and interest; equities are
not. Inflation is measured by the consumer price index (CPI).
II-1
<PAGE>
Set forth below is historical performance data relating to various sectors of
the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1987
through 1996. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees
of a mutual fund. See "Fund Expenses" in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on the historical total
returns, including the compounded effect over time, could be substantial.
[GRAPH]
HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
YEAR 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% -3.4% 18.4% 2.7%
- ----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
MORTGAGE
SECURITIES(2) 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% -1.6% 16.8% 5.4%
- ----------------------------------------------------------------------------------------------------------
U.S. INVESTMENT GRADE
CORPORATE BONDS(3) 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% -3.9% 22.3% 3.3%
- ----------------------------------------------------------------------------------------------------------
U.S. HIGH YIELD
CORPORATE BONDS(4) 5.0% 12.5% 0.8% -9.6% 46.2% 15.8% 17.1% -1.0% 19.2% 11.4%
- ----------------------------------------------------------------------------------------------------------
WORLD GOVERNMENT
BONDS(5) 35.2% 2.3% -3.4% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1%
- ----------------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN
HIGHEST AND LOWEST 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7
RETURNS PERCENT
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- -------
(1) Lehman Brothers Treasury Bond Index is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one
year.
(2) Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that
includes over 600 15 and 30-year fixed-rate mortgaged-backed securities of
the Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC).
(3) Lehman Brothers Corporate Bond Index includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S.
dollar-denominated issues and include debt issued or guaranteed by foreign
sovereign governments, municipalities, governmental agencies or
international agencies. All bonds in the index have maturities of at least
one year.
(4) Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower
by Moody's Investors Service (or rated BB+ or lower by Standard & Poor's
or Fitch Investors Service). All bonds in the index have maturities of at
least one year.
(5) Salomon Brothers World Government Index (Non U.S.) includes 800 bonds
issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada,
Italy, Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and
Austria. All bonds in the index have maturities of at least one year.
II-2
<PAGE>
The chart below shows the historical volatility of general
interest rates as measured by the long U.S. Treasury Bond.
[GRAPH]
LONG TERM U.S. TREASURY BOND 1926-1996
20%
15%
10%
5%
0%
1925 1935 1945 1955 1965 1975 1985 1995 1996
- -------
Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. This chart illustrates
the historical yield of the long-term U.S. Treasury Bond from 1926-1996. Yields
represent that of an annually renewed one-bond portfolio with a remaining
maturity of approximately 20 years. This chart is for illustrative purposes
only and should not be construed to represent the yields of any Prudential
Mutual Fund.
II-3
<PAGE>
APPENDIX III-INFORMATION RELATING TO PRUDENTIAL
Set forth below is information relating to The Prudential Insurance
Company of America (Prudential) and its subsidiaries as well as information
relating to the Prudential Mutual Funds. See "How the Fund is Managed-Manager"
in the Prospectus. The data will be used in sales materials relating to the
Prudential Mutual Funds. Unless otherwise indicated, the information is as of
December 31, 1996 and is subject to change thereafter. All information relies
on data provided by The Prudential Investment Corporation (PIC) or from other
sources believed by the Manager to be reliable. Such information has not been
verified by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1996. Principal products and services include life and health insurance, other
healthcare products, property and casualty insurance, securities brokerage,
asset management, investment advisory services and real estate brokerage.
Prudential (together with its subsidiaries) employs almost 81,000 persons
worldwide, and maintains a sales force of approximately 11,500 agents and
nearly 6,400 financial advisors. Prudential is a major issuer of annuities,
including variable annuities. Prudential seeks to develop innovative products
and services to meet consumer needs in each of its business areas. Prudential
uses the rock of Gibraltar as its symbol. The Prudential rock is a recognized
brand name throughout the world.
INSURANCE. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to nearly 50 million people
worldwide. Long one of the largest issuers of individual life insurance, the
Prudential has 22 million life insurance policies in force today with a face
value of $1 trillion. Prudential has the largest capital base ($12.1 billion)
of any life insurance company in the United States. The Prudential provides
auto insurance for more than 1.6 million cars and insures more than 1.2 million
homes.
MONEY MANAGEMENT. The Prudential is one of the largest pension fund
managers in the country, providing pension services to 1 in 3 Fortune 500
firms. It manages $36 billion of individual retirement plan assets, such as
401(k) plans. As of December 31, 1996, Prudential had more than $322 billion in
assets under management. Prudential Investments, a business group of Prudential
(of which Prudential Mutual Funds is a key part) manages over $190 billion in
assets of institutions and individuals. In Pensions & Investments, May 12,
1997, Prudential was ranked third in terms of total assets under management.
REAL ESTATE. Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers and
agents across the United States.(2)
FINANCIAL SERVICES. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has over $1 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of June 30, 1997, Prudential Investments Fund Management is the
fifteenth largest mutual fund company in the country, with over 2.5 million
shareholders invested in more than 50 mutual fund portfolios and variable
annuities with more than 3.7 million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage
over $55 billion in mutual fund and variable annuity assets. Some of
Prudential's portfolio managers have over 20 years of experience managing
investment portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser
in national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York Times, Barron's and USA Today.
EQUITY FUNDS. Forbes magazines listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a
- -----------
(1) Prudential Investments, a business group of PIC, serves as the Subadviser
to substantially all of the Prudential Mutual Funds. Wellington Management
Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as the subadviser to
Nicholas-Applegate Fund, Inc., Jennison Associates Capital Corp. as the
subadviser to Prudential Jennison Series Fund, Inc. and Prudential Active
Balanced Fund, a portfolio of Prudential Dryden Fund, Mercator Asset
Management, L.P. as the subadviser to International Stock Series, a
portfolio of Prudential World Fund, Inc. and BlackRock Financial
Management, Inc. as the subadviser to The BlackRock Government Income
Trust. There are multiple subadvisers for The Target Portfolio Trust.
(2) As of December 31, 1994.
III-1
<PAGE>
mutual fund in both bull and bear markets as well as a fund's risk profile.
Prudential Equity Fund is managed with a "value" investment style by PIC. In
1995, Prudential Securities introduced Prudential Jennison Growth Fund, a
growth-style equity fund managed by Jennison Associates Capital Corp., a
premier institutional equity manager and a subsidiary of Prudential.
HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of
its kind in the country) along with 100 or so other high yield bonds, which may
be considered for purchase.(3) Non-investment grade bonds, also known as junk
bonds or high yield bonds, are subject to a greater risk of loss of principal
and interest including default risk than higher-rated bonds. Prudential high
yield portfolio managers and analysts meet face-to-face with almost every bond
issuer in the High Yield Fund's portfolio annually, and have additional
telephone contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets-from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers-from Pulp and Paper Forecaster to Women's
Wear Daily-to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential
mutual fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995. Prudential's portfolio managers met with several senior U.S
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viablity of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).
Trading Data.(4) On an average day, Prudential Mutual Funds' U.S. and foreign
equity trading desks traded $77 million in securities representing over 3.8
million shares with nearly 200 different firms. Prudential Mutual Funds' bond
trading desks traded $157 million in goverment and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets(5). Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In
1994, the Prudential Mutual Funds effected more than 40,000 trades in money
market securities and held on average $20 billion of money market
securities.(6)
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On
an annual basis, that represents approximately 1.8 million telephone calls
answered.
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for
its clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at Prudential Securities.(7)
- -----------
(3) As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
(4) Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-U.S. accounts
managed by Prudential Mutual Fund Investment Management, a division of
PIC, for the year ended December 31, 1995.
(5) Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Grade Debt,
General U.S. Treasury, General U.S. Government and Mortgage funds.
(6) As of December 31, 1994.
(7) As of December 31, 1994.
III-2
<PAGE>
Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities' Financial
Advisor training programs received a grade of A- (compared to an industry
average of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey. Five
Prudential Securities' analysts were ranked as first-team finishers.(8)
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial ArchitectSM, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities advisor or
Pruco/Prudential representative for a free prospectus. Read it carefully before
you invest or send money.
- -----------
(8) On an annual basis Institutional Investor magazine surveyed more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
were produced by taking the number of votes awarded to an individual
analyst and weighting them based on the size of the voting institution. In
total, the magazine sent its survey to more than 2,000 institutions,
including a group of European and Asian institutions.
III-3
<PAGE>
APPENDIX IV
FIVE PERCENT SHAREHOLDER REPORT
As of December 12, 1997, the beneficial owners, directly or indirectly, of
more than 5% of the outstanding shares of any class of common stock of the Fund
were:
<TABLE>
<CAPTION>
Registration Shares/Class % ownership
<S> <C> <C>
Donald J Freer 19,483/B 5.32
Sharon L Freer JTWROS
PO Box 33
Coleman TX 76834-0033
Dino Battistini 1,357/C 10.64
Eleanor Battistini TEN ENT
4803 SE Sunset CT
APT 608
Cape Coral, FL 33904-9473
Susan Hodges 1,820/C 14.27
4738 Sharon Rd
APT 36
Charlotte, NC 28210-3374
Prudential Securities C/F 1,252/C 9.82
Ms Ethel Eiseman
IRA DTD 11/20/95
4739 Willis Ave
APT 101
Sherman Oaks, Ca 91403-2670
Frank Huan-Ming Tseng 7,579/C 59.42
Emily Shu-Min Tseng JT TEN
1702 E Utah Ave
Fresno, Ca 93720-1967
Prudential Securities C/F 4,406/Z 89.66
Audrey H MaClean
IRA Rollover DTD 06/05/95
77 Spruce Ridge Dr
Fishkill, NY 12524-1544
First Church Of Christ 473/Z 9.63
Scientist
ATTN: Delsie Carden
1800 N Roxboro Rd
Durham, NC 27701-1351
</TABLE>
IV-1
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) The following financial statements are included in the Prospectus
constituting Part A of this Registration Statement: Financial
Highlights.
(2) The following financial statements are included in the Statement of
Additional Information, constituting Part B of this Registration
Statement on behalf of the Prudential Global Limited Maturity Fund,
Inc. - Limited Maturity Portfolio.
Portfolio of Investments at October 31, 1997
Statement of Assets and Liabilities at October 31, 1997
Statement of Operations for the fiscal year ended October 31, 1997
Statement of Changes in Net Assets for the fiscal years ended October
31, 1997 and October 31, 1996
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Independent Auditors' Report
(b) Exhibits:
1. (a) Amended and Restated Articles of Incorporation incorporated by
reference to Exhibit 1 to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-33479) filed via EDGAR
on January 3, 1995.
(b) Articles of Amendment to the Articles of Incorporation effective
October 3, 1995, incorporated by reference to Exhibit 1(b) to the
Registration Statement on Form N-14 (File No. 33-63625) filed via
EDGAR on October 24, 1995.
(c) Articles of Amendment to the Articles of Incorporation effective
October 17, 1995, incorporated by reference to Exhibit 1(c) to the
Registration Statement on Form N-14 (File No. 33-63625) filed via
EDGAR on October 24, 1995.
(d) Articles Supplementary incorporated by reference to Exhibit 1(d) to
Post-Effective Amendment No. 11 to the Registration Statement on Form
N-1A (File No. 33-33479) filed via EDGAR on December 27, 1996.
2. By-Laws of the Registrant incorporated by reference to Exhibit 2 to
Pre-Effective Amendment No. 3 to the Registration Statement on Form
N-1A (File No. 33-33479) filed by Registrant on October 22, 1990.
4. Instruments defining rights of shareholders incorporated by reference
to Exhibit 4 to Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A (File No. 33-33470) filed via EDGAR by
Registrant on December 30, 1993.
5. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., incorporated by reference to Exhibit 5(a) to
Pre-Effective Amendment No. 3 to the Registration Statement on Form
N-1A (File No. 33-33479) filed by Registrant on October 22, 1990.
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation, incorporated by
reference to Exhibit No. 5(b) to Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-1A (File No. 33-33479) filed by
Registrant on October 22, 1990.
6. Restated Distribution Agreement between the Fund and Prudential
Securities Incorporated, incorporated by reference to Exhibit 6(d) to
Post-Effective Amendment No. 11 to the Registration Statement on Form
N-1A (File No. 33-33479) filed via EDGAR on December 27, 1996.
8. (a) Custodian Contract between the Registrant and State Street Bank
and Trust Company incorporated by reference to Exhibit No. 8 to
Pre-Effective Amendment No. 3 to the Registration Statement on Form
N-1A (File No. 33-33479) filed by Registrant on October 22, 1990.
(b) Form of Amendment to Custodian Contract between the Registrant and
State Street Bank and Trust Company incorporated by reference to
Exhibit 9(b) to the Registration Statement on Form N-14 (File No
33-63625) filed via EDGAR on October 24, 1995.
9. Transfer Agency and Dividend Disbursing Agreement between the
Registrant and Prudential Mutual Fund Services, Inc. Incorporated by
reference to Exhibit No. 9 to Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-1A (File No. 33-33479) filed by
Registrant on October 22, 1990.
C-1
<PAGE>
10. Not Applicable
11. (a) Consent of Independent Accountants.*
(b) Consent of Independent Auditors.*
13. Not Applicable.
14. Not Applicable.
15. (a)(i) Distribution and Service Plan for Class A shares of Short-Term
Global Income Portfolio dated July 1, 1993, incorporated by reference
to Exhibit 15(a)(i) to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A (File No. 33-33479) filed via
EDGAR on December 30, 1993.
(b)(i) Distribution and Service Plan for Class B shares of the Fund
dated July 1, 1993, incorporated by reference to Exhibit 15(b)(ii) to
Post-Effective Amendment No. 6 to the Registration Statement on Form
N-1A (File No. 33-33479) filed via EDGAR on December 30, 1993.
(b)(ii) Distribution and Service Plan for Class A shares of Global
Assets Portfolio dated July 1, 1993, incorporated by reference to
Exhibit 15(b)(ii) to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A (File No. 33-33479) filed via
EDGAR on December 30, 1993.
(c) Distribution and Service Plan for Class A shares of the
Short-Term Global Income Portfolio and Global Assets Portfolio
incorporated by reference to Exhibit No. 15(c) to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A (File No
33-33479) filed via EDGAR on January 3, 1995.
(d) Distribution and Service Plan for Class B shares of the
Short-Term Global Income Portfolio incorporated by reference to
Exhibit No. 15(d) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-33479) filed via
EDGAR on January 3, 1995.
(e) Distribution and Service Plan for Class C shares of the
Short-Term Global Income Portfolio incorporated by reference to
Exhibit No. 15(e) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-33479) filed via
EDGAR on January 3, 1995.
16. Schedule of Computation of Performance Quotations incorporated by
reference to Exhibit No. 16 to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-34793) filed via
EDGAR on February 9, 1996.
17. Financial Data Schedules, filed as Exhibit 27 for electronic
purposes.*
18. Rule 18f-3 Plan incorporated by reference to Exhibit 18 to
Post-Effective Amendment No. 11 to the Registration Statement on Form
N-1A (File No. 33-33479) filed via EDGAR on December 27, 1996.
- ---------
* Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by or under common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of December 12, 1997 there were 8,202 Class A shareholders, 553 Class B
shareholders, 8 Class C and 5 Class Z shareholders of the Fund.
ITEM 27. INDEMNIFICATION.
As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940 (the "1940 Act") and pursuant to Article VI of the Fund's Articles of
Incorporation (Exhibit 1 to the Registration Statement) and Section 2-418 of
the Maryland General Law, officers and directors of the Registrant may be
indemnified against liabilities in connection with the Registrant unless it is
proved that (i) the act or omission of the director or officer was material to
the cause of action adjudicated in the proceeding and was committed in bad
faith or with active and deliberate dishonesty, (ii) the director actually
received an improper personal benefit in money, property or services, or (iii)
in the case of a criminal proceeding, the director had reasonable cause to
believe that the act or omission was unlawful. As permitted by Section 17(i) of
the 1940 Act, pursuant to Section 10 of the Distribution Agreement (Exhibit 6
to the Registration Statement), the Distributor of the Registrant may be
indemnified against liabilities which it may incur except liabilities arising
from bad faith, gross negligence, willful misfeasance or reckless disregard of
duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended ("Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
C-2
<PAGE>
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The Registrant intends to purchase an insurance policy insuring its
officers and directors against certain liabilities, and certain costs of
defending claims against such officers and directors, to the extent such
officers and directors are not found to have committed conduct constituting
willful misfeasance, bad faith, gross negligence or reckless disregard of their
duties. The insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws, the Management Agreement and the Distribution
Agreement in a manner consistent with Release No. 11330 of the Securities and
Exchange Commission under the 1940 Act so long as the interpretation of
Sections 17(h) and 17(i) of such Act remain, in effect.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Prudential Investments Fund Management LLC (PIFM).
See "How the Fund is Managed" in the Prospectus constituting Part A of
this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104). The business and other connections of PIFM's
directors and principal executive officers are set forth below. Except as
otherwise indicated, the address of each person is Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- -------------------- ----------------------- ------------------------------------------------------------------
<S> <C> <C>
Brian Storms Officer-in-Charge, President, Prudential Mutual Funds & Annuities (PMF&A); Officer-
President, Chief in-Charge, President, Chief Executive Officer and Chief Operating
Executive Officer and Officer, PIFM
Chief Operating
Officer
Thomas A. Early Executive Vice Vice President and General Counsel, PMF&A; Executive Vice
President, Secretary President, Secretary and General Counsel, PIFM
and General Counsel
Robert F. Gunia Executive Vice Comptroller, Prudential Investments; Executive Vice President and
President and Treasurer, PIFM; Senior Vice President, Prudential Securities
Treasurer
Neil A. McGuinness Executive Vice Executive Vice President and Director of Marketing, PMF&A;
President Executive Vice President, PIFM
Robert J. Sullivan Executive Vice Executive Vice President, PMF&A; Executive Vice President, PIFM
President
</TABLE>
(b) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed-Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
C-3
<PAGE>
The business and other connections of PIC's directors and executive
officers are set forth below. Except as otherwise indicated, the address of
each person is Prudential Plaza, Newark, NJ 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------------- ----------------------- ------------------------------------------------------------------
<S> <C> <C>
E. Michael Caulfield Chairman of the Chief Executive Officer of Prudential Investments (PIC) of The
Board, President and Prudential Insurance Company of America (Prudential)
Chief Executive
Officer and Director
Jonathan M. Greene Senior Vice President President-Investment Management of Prudential Investments of
and Director Prudential; Senior Vice President and Director, PIC
John R. Strangfeld Vice President President of Private Asset Management Group of Prudential; Senior
and Director Vice President, Prudential; Vice President and Director, PIC
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Prudential Securities Incorporated
Prudential Securities is distributor for The BlackRock Government Income
Trust, Command Government Fund, Command Money Fund, Command Tax-Free Fund, The
Global Total Return Fund, Inc., Global Utility Fund, Inc., Nicholas-Applegate
Fund, Inc., (Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund,
Prudential California Municipal Fund, Prudential Distressed Securities Fund,
Inc., Prudential Diversified Bond Fund, Inc., Prudential Dryden Fund,
Prudential Emerging Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential
Equity Income Fund, Prudential Europe Growth Fund Inc., Prudential Global
Genesis Fund, Inc., Prudential Global Limited Maturity Fund, Inc., Prudential
Government Income Fund, Inc., Prudential Government Securities Trust,
Prudential High Yield Fund, Inc., Prudential Institutional Liquidity Portfolio,
Inc., Prudential Intermediate Global Income Fund, Inc., Prudential
International Bond Fund, Inc., Prudential Jennison Series Fund, Inc.,
Prudential MoneyMart Assets, Inc., Prudential Mortgage Income Fund, Inc.,
Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund, Prudential National Municipals Fund, Inc., Prudential
Natural Resources Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential
Small-Cap Quantum Fund, Inc., Prudential Small Company Value Fund, Inc.,
Prudential Special Money Market Fund, Inc., Prudential Structured Maturity
Fund, Inc., Prudential Tax-Free Money Fund, Inc., Prudential Utility Fund,
Inc., Prudential World Fund, Inc. and The Target Portfolio Trust. Prudential
Securities is also a depositor for the following unit investment trusts:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(b) Information concerning the officers and directors of Prudential
Securities Incorporated is set forth below.
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------------------------ ---------------------------------------------------------------- --------------
<S> <C> <C>
Alan D. Hogan .. Executive Vice President and Director None
George A. Murray .. Executive Vice President and Director None
Leland B. Paton .. Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Martin Pfinsgraff .. Executive Vice President, Chief Financial Officer and Director None
Vincent T. Pica II .. Executive Vice President and Director None
One New York Plaza ..
New York, NY 10292 ..
Hardwick Simmons .. Chief Executive Officer, President and Director None
Lee B. Spencer, Jr. .. Executive Vice President and General Counsel, Secretary None
and Director
Brian Storms .. Director None
Gateway Center Three
Newark, NJ 07102
</TABLE>
- -----------
(1) The address of each person named is One Seaport Plaza, New York, New York
10292 unless otherwise indicated.
C-4
<PAGE>
(c) Registrant has no principal underwriter who is not an affiliated
person of the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential Plaza,
745 Broad Street, Newark, New Jersey 07102, the Registrant, Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, Prudential Mutual
Fund Services LLC, Raritan Plaza One, Edison, New Jersey 08837 and PRICOA Asset
Management Ltd, 115 Houndsditch, London EC3A 7BU. Documents required by Rules
31a-1 (b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Two
Gateway Center, documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d)
at One Seaport Plaza and the remaining accounts, books and other documents
required by such other pertinent provisions of Section 31(a) and the Rules
promulgated thereunder will be kept by State Street Bank and Trust Company and
Prudential Mutual Fund Services LLC.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Fund is
Managed-Manager" and "How the Fund is Managed-Distributor" in the Prospectus
and the captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service
contract.
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized in the City of New York, and State of New
York, on the 29th day of December, 1997.
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
By /s/ Richard A. Redeker
-------------------
Richard A. Redeker, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------- ------------------------ ------------------
<S> <C> <C>
/s/ Grace C. Torres Treasurer and December 29, 1997
- ------------------------------
Principal Financial and
Grace C. Torres
Accounting Officer
/s/ Edward D. Beach Director December 29, 1997
- ------------------------------
Edward D. Beach
/s/ Delayne Dedrick Gold Director December 29, 1997
- ------------------------------
Delayne Dedrick Gold
/s/ Robert F. Gunia Director December 29, 1997
- ------------------------------
Robert F. Gunia
/s/ Donald D. Lennox Director December 29, 1997
- ------------------------------
Donald D. Lennox
/s/ Douglas McCorkindale Director December 29, 1997
- ------------------------------
Douglas McCorkindale
/s/ Mendel A. Melzer Director December 29, 1997
- ------------------------------
Mendel A. Melzer
/s/ Thomas T. Mooney Director December 29, 1997
- ------------------------------
Thomas T. Mooney
/s/ Stephen P. Munn Director December 29, 1997
- ------------------------------
Stephen P. Munn
/s/ Richard A. Redeker President and Director December 29, 1997
- ------------------------------
Richard A. Redeker
/s/ Robin B. Smith Director December 29, 1997
- ------------------------------
Robin B. Smith
/s/ Louis A. Weil, III Director December 29, 1997
- ------------------------------
Louis A. Weil, III
Director
- ------------------------------
Clay T. Whitehead
</TABLE>
<PAGE>
EXHIBIT INDEX
1. (a) Amended and Restated Articles of Incorporation incorporated by
reference to Exhibit 1 to Post-Effective Amendment No.9 to the
Registration Statement on Form N-1A (File No. 33-33479) filed via EDGAR
on January 3, 1995.
(b) Articles of Amendment to the Articles of Incorporation effective October
3, 1995, incorporated by reference to Exhibit 1(b) to the Registration
Statement on Form N-14 (File No. 33-63625) filed via EDGAR on October 24,
1995.
(c) Articles of Amendment to the Articles of Incorporation effective October
17, 1995, incorporated by reference to Exhibit 1(c) to the Registration
Statement on Form N-14 (File No. 33-63625) filed via EDGAR on October 24,
1995.
(d) Articles Supplementary incorporated by reference to Exhibit 1(d) to
Post-Effective Amendment No. 11 to the Registration Statement on Form
N-1A (File No. 33-33479) filed via EDGAR on December 27, 1996.
2. By-Laws of the Registrant incorporated by reference to Exhibit 2 to
Pre-Effective Amendment No. 3 to the Registration Statement on Form N-1A
(File No. 33-33479) filed by Registrant on October 22, 1990.
4. Instruments defining rights of shareholders incorporated by reference to
Exhibit 4 to Post-Effective Amendment No. 6 to the Registration Statement
on Form N-1A (File No. 33-33470) filed on Edgar by Registrant on December
30, 1993.
5. (a) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc. incorporated by reference to Exhibit 5(a) to
Pre-Effective Amendment No. 3 to the Registration Statement on Form
N-1A (File No. 33-33479) filed by Registrant on October 22, 1990.
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc. and
The Prudential Investment Corporation incorporated by reference to
Exhibit No. 5(b) to Pre-Effective Amendment No. 3 to the Registration
Statement on Form N-1A (File No. 33-33479) filed by Registrant on October
22, 1990.
6 Restated Distribution Agreement between the Fund and Prudential Securities
Incorporated, incorporated by reference to Exhibit 6(d) to Post-Effective
Amendment No. 11 to the Registration Statement on Form N-1A (File No.
33-33479) filed via EDGAR on December 27, 1996.
8. (a) Custodian Contract between the Registrant and State Street Bank and
Trust Company incorporated by reference to Exhibit No. 8 to
Pre-Effective Amendment No. 3 to the Registration Statement on Form
N-1A (File No. 33-33479) filed by Registrant on October 22, 1990.
(b) Form of Amendment to Custodian Contract between the Registrant and State
Street Bank and Trust Company incorporated by reference to Exhibit 9(b)
to the Registration Statement on Form N-14 (File No. 33-63625) filed via
EDGAR on October 24, 1995.
9. Transfer Agency and Dividend Disbursing Agreement between the Registrant
and Prudential Mutual Fund Services, Inc. incorporated by reference to
Exhibit No. 9 to Pre-Effective Amendment No. 3 to the Registration
Statement on Form N-1A (File No. 33-33479) filed by Registrant on October
22, 1990.
10. Not Applicable
11. (a) Consent of Independent Accountants.*
(b) Consent of Independent Auditors.*
13. Not Applicable.
14. Not Applicable.
<PAGE>
15. (a)(i) Distribution and Service Plan for Class A shares of Short-Term
Global Income Portfolio dated July 1, 1993, incorporated by
reference to Exhibit 15(a)(i) to Post-Effective Amendment No. 6 to
the Registration Statement on Form N-1A (File No. 33-33479) filed
via EDGAR on December 30, 1993.
(b)(i) Distribution and Service Plan for Class B shares of the Fund dated
July 1, 1993, incorporated by reference to Exhibit 15(b)(ii) to
Post-Effective Amendment No. 6 to the Registration Statement on Form
N-1A (File No. 33-33479) filed via EDGAR on December 30, 1993.
(b)(ii) Distribution and Service Plan for Class A shares of Global Assets
Portfolio dated July 1, 1993, incorporated by reference to Exhibit
15(b)(ii) to Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A (File No. 33-33479) filed via EDGAR on December
30, 1993.
(c) Distribution and Service Plan for Class A shares of the Short-Term Global
Income Portfolio and Global Assets Portfolio incorporated by reference to
Exhibit No. 15(c) to Post-Effective Amendment No. 9 to the Registration
Statement on Form N-1A (File No. 33-33479) filed via EDGAR on January 3,
1995.
(d) Distribution and Service Plan for Class B shares of the Short-Term Global
Income Portfolio incorporated by reference to Exhibit No. 15(d) to
Post-Effective Amendment No. 9 to the Registration Statement on Form N-1A
(File No. 33-33479) filed via EDGAR on January 3, 1995.
(e) Distribution and Service Plan for Class C shares of the Short-Term Global
Income Portfolio incorporated by reference to Exhibit No. 15(e) to
Post-Effective Amendment No. 9 to the Registration Statement on Form N-1A
(File No. 33-33479) filed via EDGAR on January 3, 1995.
16. Schedule of Computation of Performance Quotations incorporated by reference
to Exhibit No. 16 to Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A (File No. 33-33479) filed via EDGAR on February 9,
1996.
17. Financial Data Schedules, filed as Exhibit 27 for electronic purposes.*
18. Rule 18f-3 Plan incorporated by reference to Exhibit No. 18 to
Post-Effective Amendment No. 11 to the Registration Statement on Form N-1A
(File No. 33-33479) filed via EDGAR on December 27, 1996.
- -----------
* Filed herewith.
Exhibit 99.B 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 12 to registration
statement on Form N-1A (the "Registration Statement") of our report dated
December 23, 1997, relating to the financial statements and financial highlights
of Prudential Global Limited Maturity Fund, Inc. which appear in such Statement
of Additional Information, and to the incorporation by reference of our report
into the Prospectus which constitutes part of this Registration Statement. We
also consent to the reference to us under the heading "Custodian, Transfer and
Dividend Disbursing Agent and Independent Accountants" in such Statement of
Additional Information and to the reference to us under the heading "Financial
Highlights" in such Prospectus.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
December 23, 1997
Exhibit 99.B 11(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 12 to Registration
Statement No. 33-33479 of Prudential Global Limited Maturity Fund, Inc.,
Limited Maturity Portfolio of our report dated December 12, 1996, appearing in
the Statement of Additional Information, which is included in such Registration
Statement, and to the references to us under the heading "Financial Highlights"
in the Prospectus which is also included in such Registration Statement.
Deloitte & Touche LLP
New York, New York
December 18, 1997
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<AVERAGE-NET-ASSETS> 17,941,000
<PER-SHARE-NAV-BEGIN> 8.85
<PER-SHARE-NII> 0.39
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<OVERDISTRIBUTION-GAINS> 0
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</TABLE>
